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On May 5, according to CMEs "Fed Watch": The probability of the Fed keeping interest rates unchanged in May is 96.8%, and the probability of a 25 basis point rate cut is 3.2%. The probability of the Fed keeping interest rates unchanged in June is 63.3%, the probability of a cumulative 25 basis point rate cut is 35.6%, and the probability of a cumulative 50 basis point rate cut is 1.1%.Spot gold opened basically flat on Monday, currently trading at $3,243.89 an ounce.1. Chechen leader: Ukrainian troops try to return to Kursk. 2. Temporary restrictions imposed at Vnukovo Airport in Moscow, Russia. 3. Ukrainian military: 69 drones launched by Russia were shot down overnight. 4. Putin said he has been considering the issue of succession, but the final choice will be made by the Russian people. 5. According to Interfax: Russian President Putin said that we have enough strength and means to push the conflict with Ukraine to a reasonable end. 6. According to Ukrainian Pravda: The General Staff of the Ukrainian Armed Forces said that in the past 24 hours, the Russian army lost two fighter planes, 1,340 soldiers were killed or wounded, and 11 tanks.On May 5, Japans attitude towards using U.S. debt as a negotiating tool with the United States reversed again. According to Nikkei News, Japanese Finance Minister Katsunobu Kato said on Sunday (May 4) that Japan has no intention of using the possibility of selling its holdings of U.S. Treasury bonds to gain an advantage in trade negotiations with the United States, and Japan does not consider the sale of U.S. Treasury bonds to be a tool for Japan-U.S. negotiations. Katsunobu Kato said last Friday that although Japan would not easily sell its holdings of U.S. Treasury bonds, they were a "card" for negotiations with the United States on trade issues; he overturned this statement at a press conference on Sunday. The Japanese Ministry of Finance reported that as of the end of March, Japan held $1.27 trillion in foreign exchange reserves, most of which were U.S. Treasury bonds. Foreign exchange reserves can be used to intervene in the foreign exchange market. In April, Katsunobu Kato ruled out the possibility of using Japans holdings of U.S. Treasury bonds as a negotiating tool.On May 5, the Israeli Prime Ministers Office issued a statement on the evening of May 4 local time, saying that Israel will retaliate against the Houthi armed forces and their ally Iran in response to the missile attack on Tel Avivs Ben-Gurion International Airport earlier that day. The statement said that the attack by the Houthi armed forces in Yemen "originated from Iran" and Israel will choose the time and place to take action against Iran, the force behind the Houthi armed forces. Iran has not responded to this yet.

EUR/USD falls to 1.0850 as German/US Data escalates the ECB-Fed Conflict

Alina Haynes

Feb 01, 2023 15:32

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Mid-1.0800s intraday support is reestablished for EUR/USD on Wednesday morning, reversing Tuesday's rebound gains. This demonstrates the market's uneasiness ahead of the Federal Open Market Committee (FOMC) meeting. German economic risks to the EU, as well as mixed data from the United States and fears that Fed Chairman Jerome Powell will yet support hawks, might potentially weigh on the currency.

 

The Eurozone's Gross Domestic Product (GDP) for the fourth quarter (Q4) climbed 0.1% quarter-over-quarter (QoQ) on Tuesday, compared to 0.0% expected and 0.3% earlier. The year-over-year statistics were also good for the bloc, topping the market consensus of 1.8% to achieve 1.9%, compared to 2.3% previously. Nevertheless, German Retail Sales decreased 5.3% month-over-month in December, which was substantially worse than expected. Earlier in the week, the German GDP likewise disappointed EUR/USD pair speculators.

 

In contrast, the US Employment Cost Index (ECI) for the fourth quarter declined to 1.0% compared to market estimates of 1.1% and previous readings of 1.2%. In addition, the Conference Board (CB) Consumer Confidence index dropped from 108.3 to 107.10 in January. The US Chicago Purchasing Managers' Index (PMI) for January, which rose to 44.3 vs 41 expected and 44.9 previous readings, does not merit substantial attention.

 

Aside from the United States, higher profit reports from industry leaders including General Motors, Exxon, and McDonald's alleviated the economic downturn and lifted Wall Street indices. Nevertheless, the Dow Jones Industrial Average (DJIA), the S&P 500, and the Nasdaq all reported daily gains of greater than 1.0% on the previous trading day. In contrast, the yields on 10-year US Treasury notes reversed a three-day rise and returned to 3.51 percent, while their two-year equivalents plummeted to 4.20 percent.

 

It should be noted that JP Morgan's annual survey uncovered a reduction in inflation fears and a rise in recession fears, which tests the risk profile in the middle of pre-Fed anxiety. In spite of this, the world's largest rating agency, Fitch, forecasts that the US Consumer Price Index (CPI) would moderate to the mid-3.0% band in 2023 and the high-2.0% range in 2024, putting pressure on EUR/USD bears.

 

As a result of these variables, S&P 500 Futures see minor losses, while US Treasury bond rates remain sluggish and halt their slide from the previous day. This allows the EUR/USD pair to prepare for the Federal Reserve's dovish rate hike of 0.25 percentage points.

 

While the 0.25 basis point Fed rate hike is virtually expected and has been priced in, EUR/USD traders will also pay close attention to January activity data and Jerome Powell's ability to defend aggressive rate hikes.


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