AUD/USD traded on the defensive and broke below 0.6500. Further weakness could drag spot to the 2024 lows. Retail Sales in Australia increased 1.1% MoM in January. AUD/USD added to Wednesday's decline and breached the key support at 0.6500 on the back of the firmer note in the US Dollar (DXY) on Thursday. Further loss of traction in the pair came amidst the increasing pick up in upside momentum in the Greenback, particularly after US inflation figures gauged by the PCE showed that disinflationary pressure remains well in place in the US economy, although comments from Fed officials continued to signal a potential rate reduction in June. In the meantime, the Aussie dollar suffered another slump in iron ore prices, which retreated sharply to levels last seen in late August near the $110 mark per tonne, always on the back of omnipresent concerns surrounding the still-absent economic rebound in China. Although potential stimulus measures in China may offer temporary support for a rebound, it is the sustained recovery news from the country that holds greater significance in providing stronger support to the Australian dollar and potentially initiating a more significant upward trend in AUD/USD. A revival in the Chinese economy is also expected to align with an uptick in commodity prices, which would further contribute to a stronger Australian currency. Regarding the Reserve Bank of Australia (RBA), it is hoped that the central bank's cautious approach should help alleviate substantial downward pressure on the AUD. The RBA is seen as one of the latest major central banks to initiate interest rate cuts, which contributes to this expectation. A look at the data releases Down Under show the Housing Credit expanded by 0.4% MoM in January, and preliminary Retail Sales rose by 1.1% on a monthly basis also in January. AUD/USD daily chart AUD/USD short-term technical outlook If sellers continue pushing stronger, AUD/USD initially confronts conflict near its 2024 bottom of 0.6452 (February 13). Breaking below this level might lead to a possible visit to the 2023 low of 0.6270 (October 26), followed by the round level of 0.6200 and the 2022 low of 0.6169 (October 13). On the upside, after clearing the weekly top of 0.6595 (February 22), the pair may retest the temporary 55-day SMA at 0.6623, which coincides with the late-January highs (January 30). A break above this range might lead to the December 2023 peak of 0.6871 (December 28), followed by the July 2023 high of 0.6894 (July 14) and the June 2023 top of 0.6899 (June 16), all before the important 0.7000 barrier. It is worth noting that the AUD/USD's downward bias should be minimized once it clears the crucial 200-day SMA at 0.6559 convincingly. According to the 4-hour chart, further retracements appear in place for the time being. The initial support level is 0.6442, followed by 0.6347 and 0.6338. On the other side, the 200-SMA aligns at 0.6554 before 0.6595 and 0.6611. Furthermore, the MACD fell below zero, and the RSI dropped to the proximity of 37.

Markets Amid persistent optimism surrounding artificial intelligence, Thursday saw the S&P 500 and Nasdaq Composite continue their ascent, marking a positive trend for the major averages as they headed towards a successful month for investors. This positive momentum persisted despite the release of the consensus PCE print. The personal consumption expenditures price index, considered the Federal Reserve's preferred inflation gauge, showed a 0.3% rise in January compared to December. Similarly, the core index, which excludes volatile food and energy prices, saw a 0.4% increase. These figures aligned with economists' expectations, and given the upward trajectory of stocks throughout the year; some investors perceived the absence of hotter-than-expected inflation news as a less problematic macro signal. Indeed, market participants continue to focus on the broader bullish sentiment, especially in sectors associated with artificial intelligence, which continues to drive the sustained upward trajectory of major market indices. This trend persists despite indications of sticky inflation at the beginning of the year. The resilience of investor optimism in sectors related to artificial intelligence underscores broader confidence in the potential for technological innovation to fuel economic growth and corporate performance. All in all, at the end of the day, it seems that investors were lathered in relief, especially those who were concerned that inflation would accelerate further, potentially leading the Fed to delay rate hikes for an extended period or, worse, to initiate rate increases again. The PCE warmer reality  While the quickest and warmest inflation PCE development in a year is likely not the ideal setup, it could have been worse. Leading up to the release, the BLS stirred controversy with an email sent to so-called "super users," indicating that the high reading on rental inflation in the January CPI release was partially attributed to the calculation method rather than actual inflation. This communication added a layer of complexity to the interpretation of the inflation data. This is an absolute PR comedy show. Following the email, which raised concerns among recipients regarding the calculation of rental inflation in the January CPI release, the agency attempted to retract its statement, urging recipients to disregard the previous communication. However, this attempt to rectify the situation came after the news spread, leading to confusion and speculation. Meanwhile, Bloomberg journalist Matthew Boesler encountered difficulties obtaining information as inquiries were redirected among government departments, raising questions about the reliability of everything the BLS is doing. The Federal Reserve has consistently emphasized its reliance on data to inform decisions regarding monetary policy. So, if the data is unreliable, where does that leave most who are not " super users"? Lathered in relief From a cross-asset perspective, the component in the PCE data still underscores the challenges the Fed may encounter in navigating monetary policy amid evolving inflationary conditions. Excluding energy and housing, services inflation surged by 0.6% last month compared to December. This type of inflation, often called "sticky" inflation, represents a significant challenge for the Fed and overall price dynamics. The 0.6% increase marks the most robust growth in services inflation since March of 2022, a notable period coinciding with the Federal Reserve's interest rate liftoff. Although the in-line core inflation readings might lather a bit of relief, especially as the event risk is now behind us, which can sometimes serve as a bullish catalyst on its own, it's essential to acknowledge that the warmer, bordering on hot inflation data underscores the prevailing belief that navigating the final stretch of managing inflation will likely be a challenging and uneasy journey for all. However, we join the prevailing belief that the direction of travel is lower. Forex markets 149.20 Given How Are You Left? If you are a dollar-yen trader like us, you should expect some volatile times leading up to the next Bank of Japan meeting as traders jump on and off the BoJ policy hamster wheel. As we suggested yesterday, if not for the constant and overly noisy PCE coverage, USDJPY would have traded closer to 149 ( 149.20 was the low post-PCE).  Still, given the noisy end-of-month rebalancing, especially with fully hedged funds needing to adjust Yen hedges after spectacular gains on Tokyo stocks this month, I would not read too much into mid-day New York price action that coincides with WMR London Fix, where month-end rebalance noise tends to crescendo  A drop below 140 USD JPY (135 is our H2 target) will also require support from the Fed to initiate rate cuts, narrowing the policy divergence with the Bank of Japan (BoJ). But currently, the recent series of robust US economic activity and inflation data at the beginning of this year challenges any bearish US dollar outlook. 

EUR/USD stays below 1.0850 in the European morning on Thursday. German and US inflation data will be watched closely by market participants. The pair faces key near-term support level at 1.0800. EUR/USD recovered from the weekly low it touched below 1.0800 and ended the day virtually unchanged on Wednesday. The pair fluctuates in a tight range near 1.0850 early Thursday as investors await key data releases. The data from France showed on Thursday that the Consumer Price Index (CPI) rose 0.9% on a monthly basis, surpassing the market expectation for a 0.7% increase. This reading helped the Euro edge higher in the early European session.

Markets Unless you were out caving, like Lando Norris was and missed out on when the Lewis Hamilton to Ferrari news broke, you likely heard that Equities hit fresh record highs last week in several markets from Europe to Japan. In North America, the rally was fuelled by a stellar earnings report by Nvidia on Wednesday, which sparked broader exuberance on AI's benefits and resulted in the largest single-day value creation event in US stock-market history. In classic melt-up fashion, a stampede of investors has been gobbling up virtually every investible asset with some attachment to Nvidia, leaving bewildered bears in the wake. While one might have anticipated some profit-taking on Friday, it may very well occur to some extent this week ahead of the PCE. Still, with call skew experiencing a crazy surge in demand as investors seek upside protection, it suggests that investors of all stripes could be coming around the idea that Nvidia is not a bubble. Indeed, we are only at the start of the runway, so it's conceivable that the AI plane has not yet taken full flight. Financial markets have adjusted their rates expectations, now pricing 75-100 basis points of Federal Reserve interest rate cuts for the year, a notable shift from the 150-175 basis points favoured just a few weeks ago. Risk-sensitive assets typically experience downward moves when rate cut expectations fizzle; however, in the equity markets, the prevailing narrative is outperformance driven by the technology sector, overruling normal market dynamics. All the talk is about the PCE this week, but with January's Producer Price Index (PPI) and Consumer Price Index (CPI) reports suggesting outsized increases in critical components of the PCE deflator, the market is already braced for an uptick with the consensus forming around .4 % month on month increase. And it certainly won't sit well with the Feds, who need to see more month-on-month prints below 0.2% to convince them that inflation is confidently returning to the 2% year-on-year target before entertaining rate cuts. Still, policymakers and investors could look through the January increase. Temporary factors, including residual seasonality and the increase in portfolio-management service prices, are critical drivers behind the January increase. Similarly, some of the expected gains in personal income come from cost-of-living adjustments and an unsustainably high nonfarm payroll print. Even if prices exhibit a 0.3% to 0.4% rise in January, the yearly rate could decrease slightly due to a favourable comparison with the previous year. Consequently, the gap between core inflation measures may widen to 1.2 percentage points, marking the most significant disparity over 22 years and three times the long-run median since 1960. Indeed, the muddled macro environment continues, and we completely understand the Fed's frustrations. That said, we think the impact of Nvidia wanes slightly this week on the build-up of the PCE, creating a few opportunities to score some reversion points on risk betas. Forex Global investor risk sentiment has improved at the start of this year, reflecting growing optimism about a softer landing for the global economy. Furthermore, evidence suggests that the emergence of AI is bolstering corporate revenues and ultimately enhancing productivity. This trend underscores the increasing confidence among investors regarding the resilience and adaptability of businesses in the face of economic challenges. USD/JPY has returned to the "intervention zone," if not for that, it is conceivable we would be trading on 152's The prevailing global risk-on conditions and the new record high in Japanese equities have likely bolstered the Bank of Japan's (BoJ) confidence in achieving price stability. Governor Ueda's recent remarks in the Diet reflect a more optimistic and assertive tone, suggesting increasing confidence within the BoJ regarding the prospects of fostering higher wages and inflation. Economists are considering the possibility of a rate hike by the BoJ in April. However, a hike could take place as early as March, which may be underestimated by the markets at present. The current movements in USD/JPY are dominated by the changes in the 2-year and 10-year US Treasury yields. The latter has historically shown a strong correlation. Still, if traders pick up on any indications of a potential rate hike by the BoJ in March, it may cause a reversal in USD/JPY, pushing the pair back towards the 142 level.

Gold price rises for the second straight day on Thursday, eyes $2,050. US Dollar slips on risk reset and expectations of soft US Core PCE inflation data. The technical setup on the 4H chart remains in favor of Gold buyers. Gold price is trading in the green zone for the second straight day early Thursday, stretching toward the two-week high of $2,041. A broad US Dollar (USD) selling amid an improvement in risk sentiment is underpinning the Gold price ahead of the all-important Personal Consumption Expenditures - Price Index (PCE) data due later in the day. Will US inflation data aid the Gold price upside? China's stock markets are making a strong comeback after the previous rout, aiding the recovery in the overall market sentiment. The risk-recovery is undermining the US Dollar, allowing Gold price to extend Wednesday's upswing. The Greenback is also bearing the brunt of the heavy selling seen in the USD/JPY pair after the Japanese Yen rallied hard on the hawkish comments from the Bank of Japan (BoJ) board member Hajime Takata said that "momentum is rising in spring wage talks," signaling that a policy pivot could be on the cards sooner than expected. That said, Gold price remains on the front foot also on the back of expectations that US Core PCE Price Index, the US Federal Reserve's (Fed) preferred inflation measure, is expected to rise 2.8% YoY in January, slowing from a 2.9% increase in December. The headline annual PCE  inflation is seen falling to 2.4% in the same period from 2.6% in December. Cooling inflation could revive early Fed rate cut bets, offering the much-needed boost to the non-interest-bearing Gold price. Markets are currently pricing in about 80% chance of a no rate cut by the Fed in the May meeting while the probability that the Fed will begin lowering rates in June stands at 62%, down from about 70% seen a week ago. Gold price technical analysis: Four-hour chart The pennant breakout and the Golden Cross confirmed on Tuesday and Wednesday respectively indicate more gains are in the offing for the Gold price. The 50-Simple Moving Average (SMA) cross the the 200-SMA for the upside on the four-hour timeframe, validing a Golden Cross. Th Relative Strength Index (RSI) is pointing north above the midline, adding credence to the bullish potential. Acceptance above the two-week high of $2,041 is needed to continue to the bullish momentum toward the $2,050 psychological barrier. The next upside target for Gold buyers is aligned the static resistance near $2,065. On the other side, if Gold buyers fail to defend 21-SMA at $2,033, a fresh downswing toward the 50-SMA at $2,028 cannot be ruled out. A breach of the latter could trigger a fresh drop toward the 100-SMA at $2,022. The last line of defense for Gold buyers is Friday's low of $2,016.

AUD/USD resumed the downward bias and breached 0.6500. Extra pullbacks could shift the attention to the 2024 low near 0.6450. Inflation in January remained sticky around 3.4%. The Australian dollar resumed its downward path after a sluggish start to the week, retreating to the area of multi-day lows in the sub-0.6500 region on Wednesday. This sharp downtick in AUD/USD occurred in response to a noticeable rebound in the Greenback, which lifted the USD Index (DXY) back above the 104.00 hurdle despite the move lower in US yields. Contributing to the decline in spot remained the still unabated corrective move in iron ore prices, which extended their retracement to fresh multi-month lows near the $125.00 mark per tonne against the backdrop of equally persevering concerns around the Chinese housing market. Spot price movements mirrored the subdued performance of the US Dollar, with investors weighing the likelihood of the Federal Reserve (Fed) implementing monetary easing around June or later. This sentiment was reinforced by recent comments from certain Fed officials as well as solid fundamentals. While potential stimulus measures in China could temporarily support a rebound, sustained recovery news from the country is crucial for providing stronger backing to the Australian dollar and potentially triggering a more substantial uptrend in AUD/USD. A resurgence in the Chinese economy is also anticipated to coincide with an increase in commodity prices, which should be supportive of a stronger AUD. Concerning the Reserve Bank of Australia (RBA), the cautious stance of the central bank is expected to mitigate significant downward pressure on the Australian dollar, as it is among the latest G10 central banks to begin the process of interest rate cuts. Regarding the RBA, its Monthly CPI Indicator showed consumer prices rose by 3.4% in January, matching December's uptick. In the wake of the release, the expectation for RBA easing saw minimal influence, despite market indicators suggesting an 80% probability of the first cut occurring in August, while the swap market continues to anticipate approximately 40 bps of total easing within the year. AUD/USD daily chart AUD/USD short-term technical outlook In case sellers keep pushing harder, AUD/USD initially faces contention at its 2024 low of 0.6452 (February 13). Breaking below this level may result in a potential visit to the 2023 low of 0.6270 (October 26), followed by the round level of 0.6200 and the 2022 low of 0.6169 (October 13). On the upside, after clearing the weekly high of 0.6595 (February 22), the pair may retest the temporary 55-day SMA at 0.6626, which coincides with the late-January tops (January 30). A break above this range may take spot to the December 2023 peak of 0.6871 (December 28), followed by the July 2023 high of 0.6894 (July 14) and the June 2023 top of 0.6899 (June 16), all before the key 0.7000 barrier. It is worth mentioning that AUD/USD should see its downside bias mitigated once it clears the important 200-day SMA at 0.6559 on a convincing fashion. The 4-hour chart indicates that further weakness now appears in the pipeline. The initial support emerges at 0.6442 ahead of 0.6347 and then 0.6338. On the other hand, the 200-SMA aligns at 0.6554 prior to 0.6595 and 0.6611. Furthermore, the MACD slipped below zero, while the RSI navigated around 32.