GBP/USD Movement: The British Pound has slightly risen above 1.26 against the US Dollar, fueled by anticipation of interest rate reductions by the Federal Reserve in June.
Market Sentiments: Confidence is high among investors that the US will commence lowering borrowing costs in June, with over a 70% probability indicated by the Chicago Mercantile Exchange’s Fedwatch tool.
Federal Reserve Signals: Statements from the Federal Reserve have led markets to expect a drop in borrowing costs this year, contingent on sustained inflation decreases.
Bank of England Stance: While hinting at reaching the peak of interest rates, the Bank of England suggests it might not cut rates before the US, considering persistent inflation issues.
UK’s Economic Indicators:
Fitch upgraded the UK’s credit rating from ‘negative’ to ‘stable.’
Retail sales in January remained steady despite adverse weather conditions, contradicting economists’ expectations of a decline.
The UK is seen as gradually recovering from a mild recession, presenting a slightly more positive outlook than initially predicted.
Upcoming Economic Data:
US Durable Goods orders, set to be released on Tuesday, will be a key focus for GBP/USD traders.
The UK’s final GDP figures for the fourth quarter will be announced on Thursday, adding to this week’s significant economic updates.
Top of Form
STOCK MARKET:
Key Highlights:
Tesla’s New Promotion: Tesla introduces a one-month free trial of its Full Self-Driving (FSD) technology to U.S. customers.
CEO Announcement: Elon Musk, Tesla’s CEO, announced the trial offer on the social media platform X, aiming to boost sales and margins amid decreasing demand and competitive pricing pressures.
Product Details and Challenges: Despite being marketed at $12,000, FSD has yet to achieve full autonomy as promised by Musk, facing regulatory and safety scrutiny.
Implementation Strategy: Musk instructed Tesla employees to demonstrate FSD features to new buyers and serviced vehicle owners, emphasizing its capabilities in internal communications.
Consumer Response: The uptake of FSD among Tesla customers has decreased, dropping from 53% in Q3 2019 to 14% in Q3 2022 according to researcher Troy Teslike.
Financial Impact: Aggressive price cuts and declining FSD sales have significantly affected Tesla’s profit margins, with the company also anticipating lower delivery growth for the year due to a focus on new electric vehicle (EV) production.
Analyst Perspective: Industry analysts view the FSD demonstration mandate as one of Musk’s tactics to improve quarterly sales figures and revenues, amidst challenges.
Subscription Option: Tesla also offers FSD as a subscription service for $199 a month, highlighting that the technology requires driver supervision and does not fully automate the vehicle.
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This week witnessed a modest retreat in stock markets, with key indices like the Dow Jones, S&P 500, and Nasdaq Composite pulling back from recent record highs, while the currency market saw nuanced movements amid varying global fiscal policies and geopolitical tensions. Intel and United Airlines faced declines due to regulatory and operational headwinds, respectively, slightly dampening the otherwise strong momentum driven by tech enthusiasm and Federal Reserve policies. Meanwhile, the dollar index experienced a slight dip, influenced by a mix of foreign exchange interventions, regulatory actions in China, and shifts in bond yields that affected major currency pairs such as EUR/USD and USD/JPY. As investors gear up for the release of the U.S. core PCE data, the market remains attuned to potential signals on inflation and monetary policy directions, balancing optimism with caution amid ongoing economic developments.
Stock market updates
Stocks experienced a slight downturn on Monday, initiating a subdued start to the trading week and momentarily pausing the upward trajectory that had propelled Wall Street to unprecedented highs. The Dow Jones Industrial Average retreated by 162.26 points, or 0.41%, to close at 39,313.64. The S&P 500 also witnessed a minor pullback, dropping 0.31% to end the day at 5,218.19. Similarly, the Nasdaq Composite edged lower by 0.27%, finishing at 16,384.47. Contributing to the market’s tepid performance, Intel’s shares fell by 1.7% following reports from the Financial Times about China’s new guidelines that could potentially restrict the use of the company’s chips in government servers. United Airlines saw a more significant decline, dropping 3.4% after announcements of increased scrutiny from the Federal Aviation Administration due to recent safety concerns.
Despite the day’s losses, the broader market remains on a robust growth path, marking its fifth consecutive month of gains and reaching new all-time highs last week. Last week’s rally was particularly strong, with the S&P 500, Dow, and Nasdaq Composite rising by approximately 2.3%, 2%, and 2.9%, respectively. This surge was buoyed by the Federal Reserve’s reaffirmation of its rate-cutting timeline and a sustained interest in tech stocks, driven partly by the enthusiasm for AI technologies. Market sentiment has remained resiliently optimistic, as evidenced by the American Association of Individual Investors sentiment survey, which continues to reflect a positive outlook above historical averages.
However, some market participants expressed concerns over the sustainability of the rally and the prospect of enduring high-interest rates. With the S&P 500 trading at a 33% premium over its 20-year average price-to-earnings ratio, the stage is set for cautious observation. Investors are keenly awaiting the release of the February personal consumption expenditures price index, the Fed’s preferred inflation gauge, for further clues about inflation’s trajectory. Despite expectations of a muted response to the PCE data, the market’s anticipation underscores the ongoing scrutiny of inflationary pressures and their implications for future monetary policy.
Currency market updates
In the currency markets, the dollar index saw a modest decline of 0.19%, as the EUR/USD pair experienced a rebound of 0.27%. This movement came after the pair managed to recoup some of its previous losses, tracing back to a significant Fibonacci retracement level. Contributing factors to the dollar’s pullback included a temporary dip in USD/JPY after Japan’s Ministry of Finance intensified its rhetoric on foreign exchange intervention and measures by Chinese authorities to stabilize the yuan following a sharp drop. Additionally, reports indicated that Chinese regulators are urging banks to expedite loan approvals for private property developers, adding a layer of complexity to the currency dynamics.
The British pound found its footing and began the week on a stronger note after bouncing off a key Fibonacci support level. Meanwhile, currency markets were also influenced by movements in bond yields, particularly as energy prices continued to climb amid geopolitical tensions and Russia’s compliance with OPEC+ production cuts. The interplay between Treasury and JGB yields, alongside speculation about Japan’s monetary policy, offered a nuanced backdrop for the USD/JPY pair, which remained a focal point of investor attention due to potential interventions and the broader implications for yen valuations.
As the week progresses, market participants are bracing for the release of the U.S. core personal consumption expenditures (PCE) data, with anticipations of how it might influence the Federal Reserve’s policy stance. The timing of the data release, coupled with month-end and fiscal year-end flows, especially for the yen, suggests the potential for heightened volatility in currency markets. The prospect of hawkish signals from the PCE data could embolden USD/JPY bulls, despite looming intervention threats. This week also features several Federal Reserve speakers, whose remarks will be closely monitored for any shifts in the central bank’s outlook, particularly in light of recent economic indicators.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD rebounds amid mixed sentiments and central bank speculations
As the week commenced, the US Dollar’s (DXY) bullish trajectory moderated, leading to a slight retreat to the low 104.00s, despite rising US yields. This adjustment in momentum coincided with a renewed interest in riskier assets, providing the Euro with an opportunity to recover from its approach to 1.0800. Despite the Federal Reserve’s stance on maintaining interest rates to combat inflation, with an eventual rate cut forecasted for 2025, market sentiment, as indicated by the FedWatch Tool, leans towards expecting three rate cuts within the year, potentially starting in June. This outlook is somewhat countered by Federal Reserve officials’ cautious views on rate adjustments, highlighting a complex landscape of inflation control and economic stimulation. With both the Fed and the European Central Bank (ECB) on the brink of initiating easing cycles, possibly in parallel, the medium-term forecasts suggest a stronger Dollar. Yet, the EUR/USD pairing shows resilience, hinting at a complex interplay of economic fundamentals, central bank policies, and investor sentiment, possibly leading to significant currency fluctuations soon.
On Monday, the EUR/USD moved higher, able to reach near the middle band of the Bollinger Bands. Currently, the price is moving slightly below the middle band, suggesting a potential slight upward movement to reach the lower band. Notably, the Relative Strength Index (RSI) maintains its position at 47, signaling a neutral outlook for this currency pair.
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As we approach the end of March 2024, the world’s economic eyes are set on key indicators that are poised to shed light on the health and direction of major economies, including Australia, Canada, and the United States. These indicators, ranging from consumer prices and GDP growth to housing market dynamics and core inflation rates, are critical barometers for financial markets and policy decision-making. Here’s a brief overview of what’s expected in the coming days.
Australia’s Consumer Price Index Holds Steady
On the Australian front, the Consumer Price Index (CPI), a measure of inflation reflecting the annual price change of goods and services, remained stable at 3.4% in the year to January 2024, mirroring the figure from the previous month. This steadiness suggests a consistent economic environment down under. However, eyes are now on the upcoming CPI release for February 2024, anticipated on 27 March, with analysts forecasting a slight uptick to 3.6%. Such an increase, if realized, could signal mounting inflationary pressures within the Australian economy.
Canada’s Economic Growth: A Subtle Uptick Expected
Moving to Canada, the Gross Domestic Product (GDP), the broadest measure of economic activity, showed no growth in December, falling short of the preliminary estimates that had predicted a 0.3% advance. This stagnation has placed increased importance on the upcoming January 2024 GDP figures, expected to be disclosed on 28 March 2024. Analysts remain optimistic, projecting a modest growth of 0.2%, which could mark a turnaround for the Canadian economy if achieved.
U.S. Economic Performance and Housing Market Dynamics
In the United States, the final GDP numbers for Q4 2023 revealed a 3.2% annualized growth rate, slightly below the advance estimate of 3.3% but following a robust 4.9% growth rate in Q3. The focus now shifts to the first quarter of 2024, with the GDP figures due on 28 March 2024. Analysts are aligning their forecasts with the previous quarter’s performance, expecting a 3.2% growth rate.
Simultaneously, the U.S. housing market seems to be experiencing turbulence. January 2024 saw a significant 4.9% drop in pending home sales, marking the largest decline since August 2023. The forecast for February, however, suggests a potential rebound, with a 1.5% increase in pending home sales anticipated when the data is released on 28 March 2024.
Core Inflation in the U.S.: A Close Watch
Lastly, the U.S. core Personal Consumption Expenditures (PCE) price index, which excludes volatile food and energy prices and is closely watched by the Federal Reserve, increased by 0.4% from the previous month in January 2024. This uptick was the most significant since February 2023. The upcoming release on 29 March 2024, for February’s figures, is predicted to show a slightly lower growth rate of 0.3%. This slight deceleration could signal easing inflationary pressures, a development likely to be closely scrutinized by policymakers and investors alike.
As we await these economic indicators, their collective outcomes will not only reflect the current state of affairs but also hint at the global economic trajectory for the months ahead.
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On Thursday, financial markets witnessed significant gains, with major stock indices reaching new record highs, fueled by optimism over anticipated Federal Reserve interest rate cuts. The Dow Jones, S&P 500, and Nasdaq all advanced, driven by strong performances in the technology sector, notably from Micron Technology and Nvidia, and industrial stocks like Stanley Black & Decker. Despite some caution from analysts about overenthusiasm for multiple rate cuts, investor sentiment remained buoyed by the Fed’s recent indications of a dovish turn in monetary policy. Concurrently, currency markets reacted to central bank movements, with the dollar strengthening against major counterparts as traders adjusted their expectations for rate cuts across the Fed, ECB, and BoE, following dovish signals and economic data releases.
Stock Market Updates
Stocks experienced a notable uptick on Thursday, extending gains from the previous session and propelling major indices to record-breaking closing highs. The Dow Jones Industrial Average saw a significant rise, jumping 269.24 points or 0.68%, to close at 39,781.37. Similarly, the S&P 500 and the Nasdaq Composite advanced, with the S&P increasing by 0.32% to settle at 5,241.53, and the Nasdaq inching up by 0.20% to finish the day at 16,401.84. This bullish sentiment was largely fueled by optimism surrounding the Federal Reserve’s monetary policy, with investors anticipating upcoming interest rate cuts, according to Jay Woods, chief global strategist at Freedom Capital Markets.
The technology sector, particularly semiconductors, showcased remarkable strength, buoyed by Micron Technology’s impressive 14% surge following robust earnings, marking its best performance since December 2011. This positive momentum spread across the sector, lifting peers like Nvidia, Marvell Technology, Taiwan Semiconductor, the VanEck Semiconductor ETF, and Broadcom, with gains exceeding 1% for most and reaching up to 5.6% for Broadcom. Meanwhile, megacap tech stocks such as Microsoft and the newly public Reddit also contributed to the market’s upward trajectory, although Apple faced a setback, dropping 4% amid antitrust lawsuit concerns by the Justice Department.
Industrial stocks weren’t left behind, playing a significant role in the day’s gains and underlining the breadth of the rally across sectors. Companies like Stanley Black & Decker, Pentair, and Rockwell Automation stood out with approximately 3% jumps each, reflecting overall optimism in the market. This optimism was echoed by the Federal Reserve’s recent communication, hinting at potential interest rate cuts, which has kept investor sentiment buoyant. Despite the excitement, experts like Julie Biel from Kayne Anderson Rudnick urge caution, noting that the expectation for multiple rate cuts isn’t guaranteed. Looking forward, Wall Street’s focus will shift to upcoming earnings reports from major companies like FedEx and Nike, potentially influencing market directions.
Currency Market Updates
The currency market witnessed significant movements as the dollar index climbed by 0.77%, propelled by a 1% decline in sterling and a 0.59% retreat in EUR/USD. These shifts came in the wake of dovish signals from central bank meetings, including the Fed, ECB, and BoE, aligning market expectations for rate cuts across these major economies in June. The Swiss National Bank’s unexpected rate cut further fueled speculation about a broader shift towards easing monetary policy, impacting currency pairs like USD/CHF and EUR/CHF, which saw increases of 1.27% and 0.7%, respectively.
The anticipation of rate cuts has recalibrated market probabilities, with about a 70% chance of June cuts from the Fed, ECB, and BoE now priced in. However, the U.S. economy’s relative resilience compared to its European counterparts could influence these dynamics. Key upcoming U.S. data, including the core PCE report, early April’s ISMs, and employment reports, will be crucial in shaping Fed expectations and dollar demand. The currency market’s response to initial jobless claims and mixed flash PMIs in the U.S. contrasts with the euro zone’s near-stagnant growth, highlighting the nuanced interplay between economic indicators and currency valuations.
In particular, sterling’s performance was noteworthy, breaking a recent uptrend and hitting a low not seen since early March, influenced by yield spreads and the market’s reaction to central bank policies. The USD/JPY pair also drew attention, potentially setting the stage for further yen intervention by Japan’s Ministry of Finance, especially in light of upcoming inflation data. As central banks navigate through these uncertain times, the interplay between policy shifts, economic data, and market sentiment will continue to drive currency market dynamics, underscoring the global interconnectedness of monetary policy and financial markets.
Picks of the Day Analysis
EUR/USD (4 Hours)
Greenback Gains Momentum as EUR/USD Faces Downward Pressure Amid Divergent Central Bank Paths
The US Dollar Index (DXY) surged past the 104.00 mark, recovering from its previous dip following Federal Reserve Chair Powell’s dovish remarks, which temporarily halted the dollar’s ascent. This reversal in the dollar’s fortunes coincided with a risk-off sentiment that saw the EUR/USD pair retreating to the mid-1.0800s, exacerbated by disappointing PMI data from Germany. Despite the Federal Reserve’s projections of a gradual approach to interest rate cuts aimed at reaching a 2% inflation target, market sentiment, fueled by the FedWatch Tool, anticipates more aggressive rate reductions beginning as early as June. This speculation, along with the expectation of both the Fed and the European Central Bank (ECB) initiating their easing cycles simultaneously, albeit at potentially different paces, has cast the EUR/USD in a light of vulnerability. The pair now faces the prospect of a pronounced correction, with initial sights set on the year-to-date low around 1.0700, and potentially extending to lows not seen since late 2023, around the 1.0500 mark, underscoring a medium-term outlook favoring a stronger dollar against a backdrop of divergent central bank strategies and the euro area’s sluggish economic fundamentals.
On Thursday, the EUR/USD moved lower, able to reach below the middle band of the Bollinger Bands. Currently, the price is moving slightly below the middle band, suggesting a potential slight downward movement to reach the lower band. Notably, the Relative Strength Index (RSI) maintains its position at 45, signaling a neutral outlook for this currency pair.
Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.
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The above data is for reference only, please refer to the MT4/MT5 software for specific data.
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