We saw another day of record highs for the FTSE 100 yesterday, as European markets once again outperformed markets in the US, which slid back, reversing their gains from the previous day.
While US stocks once again shrugged off Federal Reserve chair Powell’s comments on Tuesday, a succession of Fed speakers on Wednesday doubled down on the hawkish chatter, with Fed vice-chair John Williams echoing Powell’s comments, but going a bit further by saying that rates might need to remain restrictive for a few years, which was a significant departure from recent comments from other Fed policymakers. He was followed by Minneapolis Fed president Neel Kashkari, who reiterated his comments from earlier this year that the Fed needed to see a terminal rate of 5.4% before a pause, while both governor Christopher Waller and Lisa Cook followed up with hawkish comments of their own.
While the impact on yields was fairly negligible, US markets slipped back from their recent peaks to finish the day lower, with the Nasdaq once again acting as the main drag. This ongoing uncertainty about how much further central banks must go when it comes to raising rates is helping to drive volatility between the bullish narrative of an imminent peak in rates and then cuts later this year, and the bearish narrative of a higher terminal rate, and then a hold for a long period of time.
Today, attention will shift back towards the European Central Bank and their intention to raise rates by 50bps next month, followed by another 50bps in May. The delayed release of German CPI for January due to some technical calculation issues could see a swift reassessment of risks when it comes to whether EU CPI fell as much as last week’s flash numbers suggested they might have. Unlike the EU CPI numbers, German CPI for January is expected to rise from 9.6% to 10% year-on-year, and rise 1.3% month-on-month. A miss either way could see a significant move in the EUR/USD pair, with a soft reading prompting some euro weakness.
The pound will also be in focus as Bank of England governor Andrew Bailey testifies to the Treasury Select Committee, along with chief economist Huw Pill, as well as Jonathan Haskel and Silvana Tenreyro, discussing the latest interest-rate decision, with Tenreyro’s testimony likely to be the most instructive given she voted to keep rates unchanged.
The US labour market also comes back into focus today, with the latest weekly jobless claim’s numbers, which fell to 183k last week and its lowest level since April last year. This week’s numbers are expected to see a modest rise to 190k, with continuing claims expected to come in at 1.66m.
EUR/USD – while above the 50-day SMA at 1.0690 we could see a rebound to the 1.0780 area. Above the 1.0780 targets 1.0820. Below the 1.0670 area retargets 1.0580.
GBP/USD – currently has support at the 200-day SMA at 1.1970 which has so far prompted a modest rebound. Below 1.1960 retargets the 1.1835 area. The pound needs to get back above the 50-day SMA at 1.2190 to stabilise.
EUR/GBP – currently has support at the 0.8870 area, which could prompt a return to the 0.8980 level. A fall below 0.8860 could see a move towards 0.8820.
USD/JPY – the 50-day SMA at 132.60 is so far capping the US dollars advance. While below the bias is for a move back to the recent lows near 128.00, on a break below support at 130.40.