USD eases back amid lower Chinese CPI and a tempering Powell

USD giving back gains, broad markets look cautious

• Fed chair Powell tempers the mood: Powell admits that no decision has been made on March tightening.
• Chinese inflation falls: Both CPI and PPI are lower than forecast.
• USD eases back: The USD is just giving back some of its previous gains on major forex 
• Equities look cautious: European indices are slipping lower in early moves as US futures have fallen marginally.
• Precious metals supported by the weaker USD: In commodities, gold and silver have found support overnight.

Cautious markets forming ahead of crucial data 

The huge USD strength of Tuesday has eased and markets are beginning to look more cautious. 

This comes as Chinese inflation has fallen (less inflationary pressure for the world) and markets prepare for a crucial Nonfarm Payrolls report. 

Chinese inflation falls back

Chinese inflation for February has fallen. Both the CPI and PPI metrics have dropped and also come in lower than consensus forecasts.

• Chinese CPI for February has fallen to 1.0% (from 2.1% in January), lower than the 1.9% expected
• Chinese PPI for February has fallen to -1.4% (from -0.8% in January), lower than the -1.3% expected

This suggests that despite China’s re-opening in December, there has been no increase in inflationary pressures. This will come as a relief to central bankers around the world.

Powell just tempers the hawkish rhetoric, for now

In his second day of testimony to Congress, Fed Chair Jerome Powell just took some of the steam out of the hawkish rhetoric yesterday. 

It was just a subtle comment, but he said that no decision had been made yet on a March hike.

Powell remains hawkish, but it would suggest that the Fed is still undecided. Any weaker-than-expected data may still induce a 25bps hike, rather than the increasingly priced 50 bps.

All eyes will be on tomorrow’s Nonfarm Payrolls, hence an air of caution that is slipping over markets today.

USD eases back, equity markets slip lower

With less inflationary pressure from China and no certainty over a 50bps hike in March, this has given markets an excuse to lock in a few profits on the USD rally.

However, this still looks to be a minor unwinding move within the trend of USD recovery strength.

There is also a cautious mood weighing on equities this morning.

AUD/USD is rebounding, for now

The Aussie is the best-performing major currency today. However, the chart of AUD/USD shows this move is minor within a corrective trend lower.

• The market has a run of lower highs and lower lows.
• The 21-day moving average has fallen over ais is a good basis of resistance now
• Daily RSI momentum is bearishly configured but for now, is unwinding from around 30.

This all suggests that there is room for a near-term unwind higher. However, rallies remain a chance to sell for the continued downside.

Above yesterday’s high of 0.6629, the initial resistance comes in at 0.6695.

Initial support is 0.6567 but the next important support is not until 0.6520.

S&P 500 futures (SP500ft) look cautious

US futures fell sharply on Tuesday, with traders worried about the implications of a more hawkish Federal Reserve.

On the technicals, this meant resistance forming at 4082 as a lower high. This is now an important resistance.

• The resistance also comes around the underside of the old four-month uptrend, which is now a basis of resistance
• It is also around the falling 21-day moving average.
• The daily RSI turning lower from around 50 is in corrective configuration.

These are all negative developments.

It points towards near-term rallies struggling.

It also suggests that a test of the initial support band 3890/3925 could be seen.

Support and resistance levels for Forex, Commodities, and Futures/Indices

Data: MT5/IXOne

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