The futures open (mostly 10:00 AEDT) will be interesting and we should see European equity futures on Eurex (open 11:15 AEDT) under pressure (my guess is -2%) – EURUSD is already -1% (interbank) – XAU and Crude should find buyers and many will focus here, with NatGas also front and centre. Month-end flows – given the huge moves we’ve seen in February, if it hasn’t happened already, we may see some rebalancing flows that cause questionable price action.
Fed chair Jay Powell’s testimony to the House and Senate Panel – with a 23% chance of a 50bp hike at the 17 March FOMC, Powell’s comments could position rate expectations and subsequently the USD, front-end yields, and XAU/NAS100. Traders hold a trading range in EURUSD of 1.1400 to 1.1100 – will flip bullish through 1.1400.
Bank of Canada meeting (Thursday 02:00 AEDT) – interesting to see implied volatility in USDCAD at the 35th percentile of the 12-month range and pricing 108 pips (higher or lower) over the week (NY cut). Consider every economist (of 25 surveyed by Bloomberg) is calling for a 25bp hike, so there’s a universal view they hike by 25bp (and not 50bp), while the rates market also call for just over one hike –looking forward, the market is pricing in 6.6 hikes by year-end, will the statement share this view – as we reconcile the two, this is where we should see movement in the CAD should come from.
USDCAD holds a 1.2800 to 1.2650 range – on the week, higher conviction preference to fade strength into 1.2950. RBA meeting (Tuesday 14:30 AEDT) – the market isn’t pricing any chance of action at this meeting, but traders will be watching for signs of nuance and subtle change in the statement – modest wage growth and a challenging macro backdrop should see the statement largely unchanged, and the bank should retain a patient stance. With rates lift-off (from the RBA) now priced for July and 4.8 hikes priced this year, the market will start to question this position in the next few weeks.
Risk sentiment will impact the AUD, but with funds cautiously bullish on commodity currencies I’m keen to turn outright bullish AUDUSD through 0.7280. EURAUD shorts may be the better trade and work for a move to 1.5262 – add on a close through the Oct swing low. Aussie Q4 GDP (Wed 11:30 AEDT) is expected at 3.6% - should be a non-event for the AUD.
US non-farm payrolls (Sat 00:30 AEDT) – the market expects 400k net jobs to be created in Feb, with the U/E rate to tick down to 3.9% - wages are key, so focus on average hourly earnings (consensus 5.8% from 5.7%) – the participation rate is expected to remain at 62.2%. Along with US Feb CPI (released 11 March), the NFP report has the potential to increase the prospect of a 50bp hike in March FOMC, although given the geopolitical backdrop one could argue 25bp hike is far more suitable.
Good support in USDJPY below 114.78 – a weekly close through 114.78 targets 113.50 driven by US 2YR Treasury yields falling towards 1.45%. China manufacturing PMI (Tuesday 12:30 AEDT) – given the recent easing measure from the PBOC/govt this data point may see limited market movement - the market expects the diffusion index to drop to 49.8 (from 50.1). The CN50 index has solid support into 14,500 – shorts through here seem compelling although expect authorities to support the market into here.
Key Central bank speakers from the BoE and ECB – Lagarde's meeting with German Chancellor Scholz (Wed 00:00 AEDT) could get some headlines. GBPUSD holds a 1.3640 to 1.3350 range – a break targets 1.3800 and 1.3170. EUR CPI (Wed 21:00 AEDT) – market expects core CPI to rise to 2.5% and the headline estimate to rise 30bp to 5.4%