Next 24 hours: Are rate cut odds about to jump back up?
Today’s report: March Fed rate cut odds settle around 25%
We’ve been in a period of consolidation over the past 24 hours. Financial markets are taking a breather after making adjustments in the aftermath of last week’s less dovish Fed communication and strong jobs report.
Wake-up call
- factory orders
- BRC sales
- Dealers report
- hawkish communication
- building permits
- jobs data
- less dovish
- Macro themes
Peformance chart: 30-Day Performance vs. US dollar (%)
Suggested reading
- Is 25 BP Enough to Really Change the Economy?, J. Calhoun, Alhambra (February 5, 2024)
- Britain’s Bad Path to Net Zero Is a Warning to the U.S., A. Puzder, National Review (February 5, 2024)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The Euro has been in a multi-month consolidation since bottoming out in 2022. Setbacks have since been exceptionally well supported on dips below 1.0500, with a higher platform sought out ahead of the next major upside extension. Look for a push through the 2023 high at 1.1276 to strengthen the constructive outlook and extend the recovery run towards 1.2000. Only back below 1.0400 negates.EURUSD – fundamental overview
The Euro has managed to put in a recovery, getting help from a spike in German industrial orders. Factory orders rocketed way above forecast, though the data was somewhat skewed by large orders. At the same time, softer German construction PMIs and weaker Eurozone retail sales offset some of the positive flow. Key standouts on Wednesday’s calendar come from German industrial production, Canada trade, US trade, the Bank of Canada Minutes, and Fed speak.EURUSD - Technical charts in detail
GBPUSD – technical overview
Signs have emerged of the market wanting to put in a longer-term base after collapsing to a record low in September 2022. The November 2022 monthly close back above 1.2000 strengthens this prospect. Any setbacks should now be well supported ahead of 1.2000. Next key resistance comes in at 1.2849.GBPUSD – fundamental overview
The Pound was able to outperform on Tuesday, getting a boost from BRC sales, and construction PMIs. Key standouts on Wednesday’s calendar come from German industrial production, Canada trade, US trade, the Bank of Canada Minutes, and Fed speak.USDJPY – technical overview
The market remains confined to a strong uptrend, with sights set on a retest and break of the multi-year high from 2022 at 151.95. A push through this level will open the next major upside extension towards 155.00. Key support comes in at 140.00, with only a weekly close below to delay the constructive outlook.USDJPY – fundamental overview
Price action in the Yen has been rather uneventful over the past 24 hours. Most of what we've been seeing is some consolidation following a nice Dollar run to the topside after last week's Fed decision and US jobs report. There has been plenty of chatter on the desks of sizable demand into dips. Key standouts on Wednesday’s calendar come from German industrial production, Canada trade, US trade, the Bank of Canada Minutes, and Fed speak.AUDUSD – technical overview
There are signs of the potential formation of a longer-term base with the market trading down into a meaningful longer-term support zone. Only a monthly close below 0.6200 would give reason for rethink. Back above 0.6900 will take the big picture pressure off the downside and strengthen case for a bottom.AUDUSD – fundamental overview
The Australian Dollar has managed to recover out from the yearly low in the aftermath of a Tuesday RBA decision which produced an as expected hold on rates but a more hawkish leaning communication. The central bank left the door open for the possibility of more rate hikes ahead. Aussie retail sales also came in better than expected on Tuesday, which has also helped to support the currency. Key standouts on Wednesday’s calendar come from German industrial production, Canada trade, US trade, the Bank of Canada Minutes, and Fed speak.USDCAD – technical overview
Above 1.3000 signals an end to a period of longer-term bearish consolidation and suggests the market is in the process of carving out a more significant longer-term base. Next key resistance now comes in up into the 1.4000 area. Setbacks should be very well supported down into the 1.3000 area.USDCAD – fundamental overview
The Canadian Dollar was a standout underperformer on Tuesday on the back of discouraging Canada housing data. Canada building permits plummeted by much more than expected. Canada Ivey PMIs were up, but not enough to turn heads. Key standouts on Wednesday’s calendar come from German industrial production, Canada trade, US trade, the Bank of Canada Minutes, and Fed speak.NZDUSD – technical overview
Overall pressure remains on the downside with the market continuing to stall out on runs up into the 0.6500 area. At the same time, there are some signs of the market wanting to put in a longer-term base. Ultimately, a break back above 0.6500 would be required to take the medium-term pressure off the downside and encourage this prospect. A monthly close below 0.5800 will intensify bearish price action.NZDUSD – fundamental overview
The New Zealand Dollar seems to be getting some boost from positive headline prints in today's New Zealand employment data. But at closer glance, the softer hourly earnings and comments from the Treasury department that recent data confirms economic activity is slowing, should invite decent selling interest into additional rallies. Key standouts on Wednesday’s calendar come from German industrial production, Canada trade, US trade, the Bank of Canada Minutes, and Fed speak.US SPX 500 – technical overview
Longer-term technical studies continue to look quite extended after pushing to fresh record highs, begging for a deeper correction ahead. Look for rallies to be well capped in favor of lower tops and lower lows. A monthly close above 5000 will be required to delay the outlook. Next key support comes in at 4714.US SPX 500 – fundamental overview
The Fed has finally bent to the will of the market, with the December 2023 policy decision revealing rate projections coming down from previous and more in line with what the market has been looking for. This has translated to more investor friendly policy going forward, opening the door for a run to fresh record highs in early 2024. At the same time, the central bank is still not willing to fully play into market expectations for aggressive rate cuts to the tune of 6 in 2024, which could prove to be a disappointment for investors and start to weigh on stocks.GOLD (SPOT) – technical overview
The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs. Setbacks should now be well supported above 1900 on a monthly close basis ahead of the next major upside extension towards 2500.GOLD (SPOT) – fundamental overview
The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about inflation risk and a less stable and upbeat global growth outlook. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.