Dollar Rises after Job and Inflation Data, Euro Rally Falters

Dollar rises in early US session with help from solid job and strong inflation data. But Yen is even stronger as it continues to pare back recent steep losses. On the other hand, Euro turned weaker again as the rally attempt failed. Underlying momentum in the common currency is very disappointing, mainly because the uncertainty over Ukraine remains unclear. Commodity currencies also turned weaker on mild risk averse sentiments.

Technically, near term outlook in Euro pairs will be reassessed with today’s retreats. For now, further rise will be in favor as long as 1.0943 support in EUR/USD, and 0.8924 support in EUR/GBP hold. However, break of 1.0184 support in EUR/CHF will revive near term bearishness for retesting 0.9977 low. Such development, if happens, could drag down EUR/USD and EUR/GBP too.

In Europe, at the time of writing, FTSE is down -0.25%. DAX is down -0.30%. CAC is down -0.44%. Germany 10-year yield is down -0.052 at 0.594. Earlier in Asia, Nikkei dropped -0.73%. Hong Kong HSI dropped -1.06%. China Shanghai SSE dropped -0.44%. Singapore Strait Times dropped -0.99%. Japan 10-year JGB yield dropped -0.0040 to 0.216.

US PCE inflation rose to 6.4% yoy, core PCE rose to 5.4% yoy

US personal income rose 0.5% mom or USD 101.5B in February, matched expectations. Spending rose 0.2% or USD 34.9B, below expectation of 0.6% mom.

The PCE price index for February increased 6.4% yoy, up from January’s 6.0% yoy, but missed expectation of 6.7% yoy. The increase reflected rise in both goods and services. Excluding food and energy, core PCE price index was at 5.4% yoy, up from January’s 5.2% yoy, slightly below expectation of 5.5% yoy. Energy prices rose 25.7% yoy while food prices rose 8.0% yoy.

US initial jobless claims rose to 202k, continuing claims dropped to 1,307m

US initial jobless claims rose 14k to 202k in the week ending March 26, slightly above expectation of 200k. Four-week moving average of initial claims dropped -3.6k to 208.5k.

Continuing claims dropped -35k to 1307k in the week ending March 19. That’s the lowest level since December 27, 1969, when it was 1304k. Four-week moving average of continuing claims dropped -41k to 1389k, lowest since February 7, 1970.

Canada GDP grew 0.2% mom in Jan, to rise further 0.8% in Feb

Canada GDP grew 0.2% mom in January, a below expectation of 0.4% mom. But that’s still the eight month of increase in a row. Goods-producing industries grew 0.8% mom. Services-producing industries rose 0.0% mom. Overall, 9 of 20 industrial sectors increased in January.

Statistics Canada said advance information indicates an approximate 0.8% expansion in real GDP in February. Notable increases were observed in the manufacturing sector as well as in mining, quarrying, and oil and gas extraction, accommodation and food services, and construction.

ECB Lane: Important for optionality to be two-sided

ECB Chief Economist Philip Lane said in a speech, “the Governing Council sees it as increasingly likely that inflation will stabilize at our two per cent target over the medium term”. Under this pathway, ‘the degree of monetary policy stimulus put in place to address the pre-pandemic challenge of persistent below-target inflation can be normalized in a gradual fashion towards a more neutral setting.

“In current conditions, it is especially important to remain data-dependent and for optionality to be two-sided,” he said. “On the one side, we should ensure that our policy settings are adjusted if de-anchored inflation expectations, an intensification in catch-up wage dynamics or a persistent deterioration in supply capacity threaten to keep inflation above target in the medium term.”

“On the other side, we should also be fully prepared to appropriately revise our monetary policy settings if the energy price shock and the Russia-Ukraine war were to result in a significant deterioration in macroeconomic prospects and thereby weaken the medium-term inflation outlook. ”

Eurozone unemployment rate dropped to 6.8% in Feb, EU dropped to 6.2%

Eurozone unemployment rate dropped from 6.9% to 6.8% in February, above expectation of 6.7%. EU unemployment rate also dropped from 6.3% to 6.2%. Eurostat estimates that 13.267 million men and women in the EU, of whom 11.155 million in the euro area, were unemployed in February 2022. Compared with January 2022, the number of unemployed persons decreased by 221,000 in the EU and by 181,000 in the euro area.

Also released from Europe, Germany retail sales rose 0.3% mom in February, versus expectation of 0.8% mom. Germany unemployment rate was unchanged at 5.0% in March. Italy unemployment rate dropped from 8.8% to 8.5% in February. France consumer spending rose 0.8% mom in February, versus expectation of 0.9% mom. Swiss retail sales rose 12.8% yoy in February, versus expectation of 5.3% yoy. UK Q4 GDP growth was finalized at 1.3% qoq.

Japan industrial production rose 0.1% mom in Feb, to expand further in Mar

Japan industrial production rose 0.1% mom in February, below expectation of 0.5% mom. That’s nevertheless the first rise in three months. index of production stood at 95.8, against the 2015 base of 100.

Auto production rose 10.9% mom, after plunging -17.3% mom in January. Output of transport equipment pink 7.9% mom. Chemical products dropped -9.6%.

Looking ahead, the Ministry of Economy, Trade and Industry expects output to keep expanding, up 3.6 percent in March and 9.6 percent in April, respectively, based on a poll of manufacturers.

China PMI manufacturing dropped to 49.5 in Mar, services dropped to 48.4

China official PMI manufacturing dropped from 50.2 to 49.5 in March, below expectation of 50.0. PMI non-manufacturing dropped from 51.6 to 48.4, below expectation of 50.7. Both indexes were below 50 level together for the first time since the start of the pandemic in February 2020.

“Recently, clusters of epidemic outbreaks have occurred in many places in China, and coupled with a significant increase in global geopolitical instability, production and operation of Chinese enterprises have been affected,” said Zhao Qinghe, senior NBS statistician.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1104; (P) 1.1137 (R1) 1.1192; More…

EUR/USD retreats notably after hitting 1.1184 today. Intraday bias is turned neutral first. For now, further rise is mildly in favor as long as 1.0943 support holds. Break of 1.1184 will resume the rebound from 1.0805 to 38.2% retracement of 1.2265 to 1.0805 at 1.1363. However, break of 1.0943 will revive near term bearishness and bring retest of 1.0805 low first.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1494 resistance holds. Firm break of 1.0635 (2020 low) will raise the chance of long term down trend resumption and target a retest on 1.0339 (2017 low) next. Nevertheless, break of 1.1494 will maintain medium term neutral outlook, and extending term range trading first.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Industrial Production M/M Feb P 0.10% 0.50% -0.80%
00:30 USD Building Permits M/M Feb 43.50% 9.00% -27.90% -27.10%
00:30 USD Private Sector Credit M/M Feb 0.60% 0.70% 0.60%
01:00 CNY NBS Manufacturing PMI Mar 49.5 50 50.2
01:00 CNY Non-Manufacturing PMI Mar 48.4 50.7 51.6
05:00 JPY Housing Starts Y/Y Feb 6.30% 1.10% 2.10%
06:00 USD Germany Retail Sales M/M Feb 0.30% 0.80% 2.00% 1.40%
06:00 GBP GDP Q/Q Q4 F 1.30% 1.00% 1.00%
06:00 GBP Current Account (GBP) Q4 F -7.3B -19.0B -24.4B
06:30 CHF Real Retail Sales Y/Y Feb 12.80% 5.30% 5.10% 5.70%
06:45 USD France Consumer Spending M/M Feb 0.80% 0.90% -1.50% -2.00%
07:55 USD Germany Unemployment Change Mar -18K -20K -33K
07:55 USD Germany Unemployment Rate March 5.00% 5.00% 5.00%
08:00 USD Italy Unemployment Rate Feb 8.50% 8.70% 8.80%
09:00 USD Eurozone Unemployment Rate Feb 6.80% 6.70% 6.80% 6.90%
12:30 CAD GDP M/M Jan 0.20% 0.40% 0.00% 0.10%
12:30 USD Initial Jobless Claims (Mar 25) 202K 200K 187K 188K
12:30 USD Personal Income M/M Feb 0.50% 0.50% 0.00% 0.10%
12:30 USD Personal Spending M/M Feb 0.20% 0.60% 2.10% 2.70%
12:30 USD PCE Price Index M/M Feb 0.60% 0.60%
12:30 USD PCE Price Index Y/Y Feb 6.40% 6.70% 6.10% 6.00%
12:30 USD Core PCE Price Index M/M Feb 0.40% 0.40% 0.50%
12:30 USD Core PCE Price Index Y/Y Feb 5.40% 5.50% 5.20%
13:45 USD Chicago PMI Tue 56.4 56.3
2:30 p.m. USD Natural Gas Storage 23B -51B

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