Asian Open: Inflation goes 'meh', the dollar stands corrected

Any fears or rising inflation were quickly put t rest with a slight undershoot of core CPI. Wall Street’s reaction was mixed and USD continued to retrace.

Charts (1)

Asian Futures:

  • Australia's ASX 200 futures are up 34 points (0.51%), the cash market is currently estimated to open at 6,748.10
  • Japan's Nikkei 225 futures are up 170 points (0.59%), the cash market is currently estimated to open at 29,206.56
  • Hong Kong's Hang Seng futures are up 10 points (0.03%), the cash market is currently estimated to open at 28,917.52

UK and Europe:

  • The UK's FTSE 100 futures are down -8.5 points (-0.13%)
  • Euro STOXX 50 futures are up 33 points (0.87%)
  • Germany's DAX futures are up 102 points (0.71%)

Wednesday US Close:

  • The Dow Jones Industrial rose 464.28 points (1.46%) to close at 31,802.44
  • The S&P 500 index rose 23.37 points (0.61%) to close at 3,898.81
  • The Nasdaq 100 index fell -42.424 points (-0.33%) to close at 12,752.07

The Nasdaq 100 gapped higher at the open by +1.3%, yet quickly gave back gains and meandered around flat (relative to Tuesday’s cash close) for the remainder of the session. Whilst the initial surge invalidated the head and shoulders top pattern on the daily chart, price action continues to respect a bearish trendline projected from this record high. So bears may still get the last laugh if the channel holds.

The S&P 500 etched out a minor gain and trades around 3,900. All but technology sectors were up on the day led by the energy and financial sectors, with 395 stocks advancing, 109 declining and 1 unchanged.

In Europe the CAC 40 index led the rally with a 1.1% gain and trades just below 6,000 and not too far from record highs. Europe’s STOXX 50 index was up 0.9% whilst the DAX closed to a new record high for the third consecutive session with a 0.7% gain and closed at 14,540.25.

Inflation rises (but not so fast)

There has been a lot of excitement over the potential for inflation to rise at a rapid rate, partly to do with the basing effect but also to do with pent up demand and incoming stimulus. And perhaps it will still come, but its clearly not in this month’s report.

CPI prices rose 1.7% YoY and 0.4% MoM in February, which is right on target. Core inflation, which strips out food and energy was slightly below target at 1.3% YoY (vs 1.4% forecast) and 0.1% MoM (versus 0.2% expected). A rise in gasoline prices was a key driver behind inflation in February and, perhaps not surprisingly, demand for hotels and airline travel held inflation back. Meh.

BOC hold policy steady (and expect them to keep it at that)  

The Bank of Canada (BOC) held interest rates as widely expected and kept QE unchanged at least $4 billion per week. They upgraded growth to now be positive Q1 as their “economy is proving to be more resilient than anticipated”. Still, the message remained clear within their statement - don’t expect BOC to withdraw their easy policies any time soon, because plenty of slack remains in the economy. They expect CPI to rise to the top of their 1-3% target band temporarily over the next few months due to basing effects. And they don’t expect to raise rates until 2023.

Forex: The dollar extends its softer stance

NZD and GBP were the strongest majors, USD and CHF were the weakest. None of the forex majors or crosses we track exceeded their 10-day ATR (average true range).

  • GBP/USD is testing the highs of its 3-day bullish reversal pattern (morning star reversal). With the January bullish trendline intact we suspect the path of least resistance points higher
  • EUR/USD produced a 2nd consecutive bullish day after finding support at its 200-day eMA. However, bullish momentum is already waning so we are now alert of a potential swing high.
  • EUR/CAD remains anchored around the May / June 2020 lows yet above key support around 1.5000.
  • NZD/USD rose to a 3-day high but, like EUR/USD, didn’t rise at a rapid rate. 0.7096 support remains a key level for bears to break once USD has completed its correction.
  • AUD/USD tracks NZD higher and rose to its 10-day eMA.

NZD/CAD: Breakout pending?

NZD/CAD appears set to breakout of a bullish continuation pattern on the daily chart.

The commodity FX cross remains in a strong uptrend on the daily chart and prices have bee coiling up within an ascending triangle. Moreover, a bullish engulfing candle has formed and is testing the upper trendline of the triangle. If successful, the pattern projects a target around 0.6900, just beneath the December 2018 high.

  • Bulls could enter a breakout of the triangle and initially target the 0.6767 highs, then target the 0.6900 - 0.6940 resistance zone
  • Given the strength of the daily trend, we’d assume it will break to new highs at this stage
  • A break beneath yesterday’s (bullish engulfing low) invalidates the bullish triangle, although the daily trend remains bullish above 0.6566

Commodities: All rise in honour of the weaker dollar

The softer greenback helped commodities broadly rise with the CRB commodities index producing a small bullish candle. WTI has found support above $62 and printed a small bullish candle above its 10-day eMA, which suggests its (relatively minor) correction from multi-year highs may be complete. Gold prices rallied for a 2nd consecutive session and trade around 1725, with the 10-day eMA capping as resistance. We remain ‘gold bugs’ above the 1680 lows. Platinum continues to suggest its correction is over and trades around 1201 at a 5-day high, closing above its 10 and 20-day eMA’s.

The ECB (European Central Bank) monetary policy meeting is the main event in today’s calendar. Read Joe Perry’s ECB Preview: Will the ECB be all bark and no bite?

You can view all the scheduled events for today using our economic calendar, and keep up to date with the latest market news and analysis here.

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