Rangebound markets, Bitcoin and bond yields bounce

Headlines

* Markets relatively quiet in data light, holiday shortened week

* UN Security Council passes resolution demanding Gaza ceasefire

* Yen fails to respond to Japan Ministry of Finance threats

* Gold “record march higher set to continue” Goldman Sachs says

FX: USD unsurprisingly pulled back after breaking higher at the end of the last week. Markets are digesting last week’s bunch of heavyweight central bank meetings. The reality is policymakers other than those at the Fed may cut rates faster or ahead of the FOMC. Support on the DXY is 103.94, resistance at 104.96/97.

EUR bounced back to the 200-day SMA at 1.0837. Support was seen at last week’s low at 1.0801. The weekly report for big speculators showed that net euro longs slashed their positions by 10% and are now down roughly one third from the peak in May 2023. After the surprise SNB rate cut, the spotlight will be on ECB chatter. A June rate cut is fully priced with little chance of an earlier April move.

GBP bounced off support at the 200-day SMA at 1.2592 which is around the previous range lows. BoE Governor Bailey backed up the dovish tilt by the bank last week. Indeed, he suggested that several rate cuts would be coming later in the year as inflationary pressures ease.

USD/JPY continues to hover just below previous intervention levels around 151.94. Verbal jawboning from BoJ officials early in the session about rapid fluctuations in the currency market driven by speculative trades had little impact on the yen. The largest union group Rengo said the average wage hike was seen at 5.25% after the second tally on Friday. This is only slightly lower than the first tally, indicating that wage growth is more broad-based and supporting the BoJ’s narrative for exiting NIRP. Japan CPI data is released on Thursday.  

AUD rebounded off Friday’s low at 0.6510 as the antipodeans were modestly firmer benefitting from a stronger yuan. Inflation data is released on Wednesday and retail sales on Friday.

Stocks: US equities closed lower with indices trading in narrow ranges. The broad-based benchmark S&P 500 closed 0.31% lower to 5218. The tech-dominated Nasdaq 100 lost 0.34% to finish at 18,277. The Dow Jones settled 0.41% down at 39,313. In a holiday shortened week, stocks paused after last week’s strong gains. They recorded their biggest weekly advance in three months as investors welcomed signals of rate cuts and policy easing. The S&P 500 last rose by as much in a week in mid-December and has now climbed more than 27% since the low in late October.

Asian futures are mildly in the green. APAC stocks traded mixed as we head into month end and quarter end. The Nikkei 225 pulled back from record highs above 41,000 on Friday. The ASX 200 settled higher with outperformance in tech and property on softer yields.

Gold steadied at a near-term Fib level at $2166. Yields ticked up but the dollar moved lower after its strong few days last week. US core PCE inflation data will be front and centre on Friday.

Chart of the Day – Bitcoin breaks $70,000, eyes record highs

After pushing up to a new all-time peak at $73,835 ten days ago, Bitcoin dipped as it paused for breath after its stellar run from below $40,000 in late January.  Unusually small inflows into Bitcoin ETFs, together with huge outflows from the Grayscale Bitcoin Trust hit the world’s most popular cryptocurrency.

But last Friday saw buying after a major Investor Day conference. BlackRock, one of the biggest investment management firms, labelled the digital currency as a “good portfolio diversifier”. The asset’s price movements were said to have historically correlated with real interest rates and inflation expectations. Watch the highs above $72k as momentum turns bullish once again.

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