2023/03/12 (188.051) Technical Analysis – … & ICE-FX_IDC-EURUSD

Wall Street Tumbles On SVB Failure
– However, We Stay Long In Our EURUSD 4XSetUp


The Dow Jones closed 345 points lower on Thursday, while the S&P 500 and the Nasdaq shed 1.4 and 1.7%, respectively, as the collapse of Silicon Valley Bank was the main focus besides the latest jobs numbers. On Friday, regulators took control of the Californian bank after it shares sank sharply, the biggest bank failure since 2008. Other banks also suffered in the wake of Silicon Valley Bank’s demise. Earlier, the run-on deposits doomed the tech-focused lender’s share sale to shore up its balance sheet amid losses from bond sales. Meanwhile, employment report showed that US employers hired more workers than expected in February, with nonfarm payrolls increasing by 311,000. On the other hand, unemployment unexpectedly rose to 3.6% and wage inflation cooled, easing some worries that a still-tight labor market will prompt sharper interest rate hikes. For the week, the Dow was down 4.5%, marked its worst week since September, while the S&P 500 and the Nasdaq shed 4.9 and 5.1%, respectively

Treasury Yields Hold Decline After NFP As Dollar Edges Lower After Mixed Payrolls

The yield on the 10-year US Treasury note fell below 3.7% on Friday, the lowest in a month, as investors digested a batch of labor market data for February. Non-farm payrolls totaled 311,000 in the period, well above market estimates of 205,000 and in line with other hot data this week that confirms the persistent tightness in the US labor market. Still, the unemployment rate edged 0.2 percentage points higher while labor income slowed down, suggesting the job market could be starting to feel the effects of aggressive rate hikes by the Federal Reserve. Bond yields held the slide from the last session after SVB Financial Group sold debt securities to meet depositor demand, raising worries that the Federal Reserve may be forced to ease its tightening path. Money markets are now favoring the likelihood of a softer 25bps interest rate increase for the Fed’s meeting this month.

The dollar index weakened over 1% to around 104 on Friday as investors digested the labor market report. The US economy added 311K jobs in February, way more than expected, but the unemployment rate unexpectedly increased to 3.6% while wage growth slowed. Earlier in the week, the dollar hit more than a 3-month high of 105.5 after Fed Chair Powell told the US Congress that the ultimate level of interest rates could be higher than anticipated in light of strong economic data and that the central bank would be prepared to increase the pace of tightening if needed. After the NFP release, expectations eased about the need for higher interest rates. The market is now pricing a 50/50 chance of the Fed raising rates by either 25bps or 50bps this month, compared to a better-than-even chance of a 50bps increase earlier. Traders now await the US CPI report due next week.

US Economy Adds 311K Jobs
US Jobless Rate Above Forecasts
US Annual Wages Growth Below Forecasts

The US economy unexpectedly created 311K jobs in February of 2023, well above market forecasts of 205K, and following a downwardly revised 504K in January. The reading continues to point to a tight labour market, with the economy adding an average of 343K jobs per month over the prior 6 months. It is also well above 100K per month considered necessary to keep up with growth in the working-age population. Notable job gains occurred in leisure and hospitality (105K), namely food services and drinking places (70K); retail trade (50K), namely general merchandise retailers (39K); government (46K); professional and business services (45K); health care (44K); and construction (24K). On the other hand, employment declined in the information industry (-25K), namely motion picture and sound recording (-9K) and in telecommunications (-3K). Employment in information has decreased by 54K since November 2022. The transportation and warehousing also lost 22K jobs.

The unemployment rate in the US edged up to 3.6 percent in February 2023, up from a 50-year low of 3.4 percent seen in January and above market expectations of 3.4 percent. The number of unemployed people increased by 242 thousand to 5.94 million and employment levels rose by 177 thousand to 160.32 million. The so-called U-6 unemployment rate, which also includes people who want to work, but have given up searching and those working part-time because they cannot find full-time employment, rose to 6.8 percent in February from 6.6 percent in January. The labor force participation rate inched higher to 62.5 percent, the highest since March 2020.

Average hourly earnings for all employees on US private nonfarm payrolls increased by 4.6% year-on-year in February 2023, up from 4.4% in the prior month but slightly below market forecasts of a 4.7% rise.

US Stocks Turn Lower on SVB Collapse

The major US indices shed more than 1% in the afternoon trading on Friday as investors were monitoring the situation around the collapse of Silicon Valley Bank and digested the latest jobs numbers. On Friday, the Californian bank has been closed by the Federal Deposit Insurance Corporation which has taken control of its deposits. Earlier, the run on deposits doomed the tech-focused lender’s share sale to shore up its balance sheet amid losses from bond sales. Meanwhile, employment report showed that US employers hired more workers than expected in February, with nonfarm payrolls increasing by 311,000. On the other hand, unemployment unexpectedly rose to 3.6% and wage inflation cooled, easing some worries that a still-tight labor market will prompt sharper interest rate hikes. For the week, the indices are set to decline more than 4 percent, with the Dow on pace for its worst week since September.
Caterpillar decreased to a 11-week low of 232.87
Nike decreased to a 6-week low of 117.3

The ECB Is About To Raise Interest Rates In The Fight Against Inflation

According to experts, the European Central Bank (ECB) will fight the stubbornly high inflation in the euro area again next week with a sharp increase in interest rates. Among economists, it is considered a foregone conclusion that the currency watchdogs around ECB boss Christine Lagarde will raise the key rates by half a percentage point at their meeting on Thursday. It would be the sixth increase in a row since the turnaround in interest rates in July 2022. According to the experts, this is not the end of the road. “Inflation keeps the European monetary authorities on their toes,” says DZ Bank analyst Christian Reicherter. Economists expect that Lagarde & Co will tighten the interest rate reins even further in the coming months. With a significant interest rate hike on Thursday, the deposit rate, which financial institutions receive from the central bank for parking excess funds and which is currently considered the benchmark interest rate, would rise to 3.00 percent. In June 2022 it was still minus 0.50 percent – which meant penalty interest for the banks.

“The work of the European Central Bank is far from done in order to achieve its medium-term inflation target,” says European economist Ulrike Kastens from the fund company DWS. The ECB is targeting two percent inflation for the euro area. It is currently miles away from that: In February, inflation in the 20-country community weakened only minimally to 8.5 percent from 8.6 percent in January. The core rate, which excludes volatile energy and food prices, even rose to 5.6 percent in February from 5.3 percent in January.

“There is enough pressure in the pipeline that speaks for higher core inflation in the future,” says Commerzbank economist Marco Wagner.
He points to rising wages in the euro area and indications that companies have recently expanded their profit margins, also through sharp price increases.
Several monetary watchdogs had recently expressed concern about persistently high core inflation. Because this could indicate that the price surge is weakening much more slowly than previously thought. Possibly further significant rate hikes by the ECB? I don’t know it! But I see the likelihood of bigger moves than the FED. And that’s what this long EURUSD 4XSetUp is based on.It is therefore eagerly awaited what Lagarde will say at the press conference after the interest rate decision on the further path of interest rate hikes.
Some council members had already argued that further significant hikes in interest rates might be necessary after the March meeting to bring down inflation.
Other euro watchdogs, on the other hand, had advised caution. New economic and inflation forecasts by the ECB economists, which will be available to the currency watchdogs at next week’s meeting, should provide important decision-making aids.

Ruben Segura-Cayuela, an economist at the Bank of America, expects the ECB economists to raise their projections for core inflation but slightly lower their forecasts for headline inflation. “We believe that these changes will increase the disagreements in the Governing Council,” he estimates and therefore expects only a weak signal in the direction of another interest rate hike of 0.50 percentage points in May. The euro watchdogs are too divided to agree on a course beyond May. “The risk is that we don’t even get an indication of what’s to come after the next week,” says the expert. Interest rate of over four percent increasingly conceivable? I don’t know that either! Nonetheless, we remain long EURUSD with a generous stop price this year 2023.