EUR/USD holds key support ahead of NFP, US dollar on the ropes

Market Summary:

The US dollar was lower across the board after traders digested the latest Fed meeting and are now focusing on four cuts this year, beginning in May. EUR/USD is just one of several pairs to rise from key support levels.
AUD/USD printed an elongated bullish pinbar following a false break of the Jan 17 low. As the rally was driven by a weaker US dollar, I remain sceptical of any runaway gains – especially if we’re treated to a soft set of producer prices today
Wall Street rebounded on Thursday ahead of key earnings reports expected after the close
Positive earnings reports from META, Amazon and Apple helped Nasdaq futures rally over 1% after the close
Gold rose for a fourth day and reached a 19-day high before pulling back but still closing above $2050
Crude oil futures fell for a second day with the front-month contract seeing its largest daily volume since last November and closed below $74

The BOE tread carefully over timing of first cut

This Bank of England struck a similar tone to the Fed where central banks are treading very carefully as not to over promise and under-deliver the rate cuts markets so desperately want. The BOE held their interest rate at 5.25% as expected, although one MPC member voted to cut for the first time since January 2020 and one less voted to hike. Six voted to hold, two to hike and one to cut.

Whilst this is a subtle but important shift towards their first cut, the BOE were careful not to overpromise on such action, with Governor Bailey saying the current level of rates is appropriate and it is not yet the time to lower them. He also warned not to expect further big falls in energy prices and that the continuation of trade disruptions are an upside risk to inflation. And that it is not as simple as saying “inflation returns to target and spring and job done”.

GBP/USD was the second strongest FX major of the session and formed a bullish outside day after finding support at its 50-day EMA. Whilst prices remain on the choppy side, it looks as though it may at least want to have another crack at 1.28.

The USD dollar was the weakest FX major a day after the FOMC meeting, where traders are now focussing on a May cut despite the Fed pushing back on rates for march. Fed fund futures imply a 60% chance of a 25bp cut in May, with June, July and September all showing >50% chance of another 25bp for a total of four.

Events in focus (AEDT):

11:30 – Australian home loans, producer prices
23:15 – BOE chief economist Pill speaks
00:30 – US nonfarm payrolls
02:00 – Michigan consumer sentiment

EUR/USD technical analysis (daily chart):

A prominent bullish engulfing candle formed on the spot EUR/USD daily chart around the 1.08 handle, which also landed on a volume cluster from the previous rally. The fact that EUR/USD futures also rallied from its 200-day EMA adds another layer of conviction that the euro may have just printed a key swing low.

A falling wedge has also formed on the daily chart, which projects a target back at the base of the wedge just above 1.11. Whilst I remain sceptical that the US dollar will simply collapse from current levels, I do see the potential for further gains on EUR/USD should we be treated to a softer set of nonfarm payroll figures and the ECB continue to push back on rate cuts in H1.

Bulls could seek dips within Thursday’s range and simply target the 1.09 and 1.10 handles. We can reconsider its potential to continue higher as the story evolves.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.