It’s tough to be doctrinaire about trade policies in the real world. I’m a champion of free trade, which allows consumers and producers alike to enjoy the greatest choice and flexibility to satisfy their trading objectives. Still, free trade doesn’t necessarily work for everyone in the short run. In dynamic markets, actors come and go and changing relationships foster a lack of permanence. More concretely, once-thought to be good-paying jobs or careers may fall by the wayside as prevailing trading arrangements are disrupted and replaced. We’ve certainly seen these effects over the last several decades as substantial numbers of US manufacturing jobs have been outsourced to foreign competitors. This seeming downside notwithstanding, I don’t think the issue of job losses is necessarily overriding. Job losses from industries migrating across borders can be devastating to households and communities, as well; but these effects can – and should – be mitigated by instituting well-targeted safety net programs intended for affected workers, to facilitate their transitions to other employment opportunities. The alternative of trying to institute protectionist policies such as trading bans or imposing tariffs seems shortsighted and costly to the broader public who would end up bearing higher costs for goods and services. For me, the vulnerability of the free trade orientation stems from its implications relating to war and peace. I used to believe that entangling trading relationships were a force for peace. Given current developments in Ukraine, however, I’ve come to recognize some naïveté about that perspective. It may still hold when trading partners are democracies; but when authoritarian regimes are involved, not so much. In the face of Putin’s unprovoked invasion of Ukraine, the wanton bombing of civilian targets, and the broad-based pain and dislocation that Putin has inflicted on Ukrainians, the idea of using trade sanctions to isolate and punish Putin seems more than justified, but thus far the public face of Putin has shown few signs of retiring his goal of domination; and despite the heroic resistance to the Russian assault on the part of the Ukrainians, the country remains in a precarious predicament. Without question, Putin will suffer under this regime, but so too will those seeking to enforce it. It’s also not at all clear that the coalition currently committed to punishing Russia economically will hold. As time goes by, channels to circumvent these efforts to isolate will likely start to develop. Even with the thus-far coordination of efforts to isolate Russia and the surprisingly stiff resistance being shown by the Ukrainians, the big question still seems to be not whether Ukraine can force a withdrawal of Russian troops, but rather how long Ukraine will be able to hold out. The answer will depend on the level of military assistance that the West is willing to offer, but that assistance is limited by the West’s understandable resistance to the risk of expanding the scope of military activity beyond Ukrainian borders. With or without direct military involvement by US or NATO forces to assist Ukraine, Putin’s persistence in pursuing his goals despite the extraordinary costs Russia has been realizing gives credence to the possibility of his doubling down by using chemical and even nuclear weapons. I had always recognized that a nuclear arsenal would serve as a defensive safeguard, but I hadn’t fully appreciated how that same weaponry could foster greater adventurism by nuclear powers in conflict with nations lacking those same capabilities. That imbalance is tacitly allowing Putin to perpetrate some of the most extensive war crimes in history. From this vantage point, it seems like the most promising outcome of this travesty will come from Putin being deposed by those in his inner circle, closest to the levers of power. Hopefully, diplomatic pressures toward that end are being applied behind closed doors, and those involved won’t take too long to achieve success. Tragically, circumstances require at least some measure of patience. In the meantime, wide-scale suffering will continue – seemingly because of the will of one man.

EUR/USD - 1.1086 Euro's strong rebound from last Monday's fresh 22-month bottom at 1.0807 signals erratic decline from 1.1495 (February) has made a low there and yesterday's break of last Thursday's 1.1120 top to a 12-day peak at 1.1137 in New York on broad-based usd's weakness signals gain to 1.1145/55 is envisaged but 1.1187 should hold. On the downside, only a daily close below Wednesday's 1.1009 trough signals temporary top is made and would risk weakness to 1.0951/55 on next Monday. Data to be released on Friday: New Zealand GDP, Japan nationwide CPI, BOJ interest rate decision, tertiary industry activity. Italy trade balance, EU labour costs, trade balance, Canada retail sales, new housing price index, U.S. leading index change and existing home sales.  

AUD/USD Current Price: 0.7372 Upbeat Australian employment figures boosted demand for the commodity-linked currency. Wall Street changed course after a soft start to the day, providing support to AUD. AUD/USD could extend its advance to 0.7555 once above the 0.7400 threshold. The Australian Dollar was among the best performers on Thursday, advancing against its American rival to 0.7391, holding nearby at the beginning of the Asian session. The commodity-linked currency got boosted by Australian employment data released at the beginning of the day, which resulted much better than anticipated. The country managed to add 121.9K full-time jobs, and while the number of part-time positions was down by 44.5K, the final total resulted at 77.4K, more than doubling the 37K expected. The Unemployment Rate contracted to 4%, while the Participation Rate was up to 66.4%. A substantial recovery in gold prices provided additional support to the aussie, as the bright metal recovered towards $1,950 a troy ounce. Additionally, US indexes managed to shrug off the sour tone of their overseas counterparts and posted modest gains, underpinning AUD/USD. Wall Street trimmed early losses following news that international bondholders received Russian bond coupon payments due March 16th in dollars. Australia will not publish relevant macroeconomic data on Friday. AUD/USD short-term technical outlook The AUD/USD pair is firmly up for a second consecutive day, pressuring the daily high and looking strong enough to extend its gains. The daily chart shows that the pair has accelerated north after breaking above a still bearish 200 SMA, while the 20 SMA gains bullish traction below the longer one. Technical indicators, in the meantime, head firmly higher within positive levels, maintaining the risk skewed to the upside. The 4-hour chart shows that technical indicators reached overbought readings before losing their bullish strength, now holding on to extreme levels. At the same time, the pair is well above all of its moving averages, with the 20 SMA gaining bullish traction between the longer ones, reflecting resurgent buying interest. Support levels: 0.7365 0.7330 0.7290 Resistance levels: 0.7400 0.7440 0.7475 View Live Chart for the AUD/USD

Summary A broad-based increase in almost every category of manufacturing output despite only a slight improvement in supply chain dynamics offers a peek at the potential boom in American manufacturing if the bottlenecks in global supply lines could be cleared. The impact of Russia's invasion of Ukraine, while mostly not reflected in this February report, could worsen supply problems, but our analysis suggests only minimal direct exposure for manufacturing. Manufacturing getting back on it's feet U.S. industrial production increased 0.5% in February (chart) as incremental improvement in supply chains gave businesses (mostly manufacturers) the wherewithal to start chipping away at backlogged orders. Manufacturing output rose 1.2% in February, the largest single-month increase since October. Remarkably, this happened despite a 3.5% drop in motor vehicles and parts production. It was the third straight monthly decline for this industry, which has become synonymous with the supply chain crisis. Other manufacturing categories are seeing some improvement–or were seeing improvement in February (see the section below for potential war impact.) Durable goods industries like primary and fabricated metals as well as nonmetallic mineral products and wood products all posted monthly gains of 2% or higher in the month. Every category within non-durable industries was either fiat or posted gains as well with the largest increase of 3.0% coming from apparel and leather. Yesterday's retail sales report saw again in clothing store sales in February as well. The fact that the return to the office is occurring alongside increased output and spending on clothing and apparel suggests something similar to back-to-school shopping for the grown-ups. After a 10.4% weather-induced surge in January, utility production slowed 2.7% in February. That is not much of a giveback; we could be due for another decline in the current month. Mining output edged up 0.1%. Download The Full Economic Indicators

The Bank of England (BOE) is set to hike rates by another 25 bps on Thursday. BOE in a dilemma amid Ukraine crisis-led uncertainty, growth concerns and raging inflation. Focus on whether BOE will deliver a dovish or hawkish rate hike in March. The Bank of England (BOE) is eyeing a hat-trick, with the third straight 25 basis points (bps) rate hike at its March monetary policy meeting this Thursday. Russia’s invasion of Ukraine has thrown the central bank in a dilemma as it attempts to combat inflationary pressures while maintaining economic growth. BOE caught between a rock and a hard place The BOE is widely expected to raise the benchmark interest rate by 25 bps from 0.50% to 0.75% in its March monetary policy meeting, marking a lift-off for a third consecutive meeting. It’s not a ‘Super Thursday’, as there is no Governor Andrew Bailey’s press conference, leaving markets focussed on the voting composition for a rate hike as well as Bailey and Co.'s statement on the policy outlook. The economic forecasts will be of little relevance as they were prepared before Russia invaded Ukraine. In its February meeting, the British central bank unanimously increased rates by 25 bps to 0.5% – the first back-to-back hikes since 2004 – and hawks were joined this time by December’s lone dove, Silvana Tenreyro. As the rate hike itself was already priced in it did not come as a surprise to markets, however, the vote hike composition did deliver a significant hawkish surprise, with four of the nine voting members, Ramsden, Saunders, Haskel and Mann, all in favor of a 50 bps move in rates.  It remains to be seen if the BOE delivers a hawkish or dovish rate hike this month, as Bailey is put in a fix, courtesy of the Russia-Ukraine war. Heading into the decision, the UK’s annualized inflation stands at the highest level in 30 years at 5.5% and is no longer seen peaking at 7.5% in April, as the Ukraine crisis shot energy prices through the roof, with oil prices up roughly 25% so far this year. We may see inflation pump even higher. Meanwhile, wages jumped 4.8% YoY in January, underscoring concerns that higher inflationary conditions may get entrenched, which could prompt policymakers to act more aggressively now than before. Acting too aggressively, however, could provide the biggest risk to the growth outlook, as warned by policymaker Tenreyro earlier this month. She said that the latest rise in oil prices will increase inflation and dampen UK economic activity. Therefore, all eyes will remain on the BOE’s future rate hike plans, as it attempts to balance inflation and growth concerns. The market pricing is for interest rates to reach 2% by the end of this year. GBP/USD probable scenarios If the BOE follows in the hawkish footsteps of the European Central Bank (ECB) by hinting at probable rate hikes in each of its upcoming meetings, the pound could receive some much-needed respite. GBP/USD could then extend its recovery momentum from the lowest level since November 2020. The ECB, at its last policy meeting, announced accelerated tapering of bond purchases, in an unexpectedly hawkish shift while acknowledging the uncertainty due to the Ukraine crisis. Cable may resume the downtrend should the central bank adopt a flexible approach, leaving options open, dependent on the geopolitical developments and incoming economic data. The pound may also be hit by less hawkish dissent (vs. seen in February) if fewer policymakers now see the need for a 50 bps hike. Although it's also worth noting, GBP/USD’s reaction to the BOE outcome could also be influenced by near-term factors such as the prevalent risk trend going into the meeting, in the wake of the Ukraine saga and the Fed’s policy decision on Wednesday, March 16. 

GBP/USD jumped back above mid-1.3100s on Wednesday amid a broad-based USD weakness. The risk-on mood undermined the safe-haven buck, while the hawkish Fed failed to impress bulls. Odds of a 50-bps BoE rate hike benefitted sterling and remained supportive of the movement. The GBP/USD pair built on the previous day's modest bounce from the 1.3000 psychological mark, or the lowest level since November 2020 and gained strong follow-through traction on Wednesday. The momentum pushed spot prices back above mid-1.3100s and was sponsored by a broad-based US dollar weakness. Signs of progress in the Russia-Ukraine ceasefire talks remained supportive of the optimistic mood in the markets. In fact, Russian Foreign Minister Sergey Lavrov said that there were hopes for compromises and some formulations of agreements with Ukraine are close to being agreed. Apart from this, Chinese officials promised to support economic growth and capital markets, which further boosted investors' confidence and triggered a risk-on rally. This, in turn, drove flows away from traditional safe-haven assets and weighed on the greenback. On the economic data front, the US Retail Sales showed a plunge in consumer spending and decelerated sharply from the previous month's surge of 4.9% to record a modest 0.3% growth in February. Adding to this, sales excluding autos also came in weaker than anticipated and increased by 0.2% last month, down from the 4.4% jump recorded in January (revised higher from 3.3% reported previously). The data did little to provide any respite to the USD as traders preferred to wait for the outcome of a two-day FOMC meeting. The greenback did get a minor lift after the Fed announced its policy decision and hiked its target fund rate by 25 bps for the first time since 2018. The Fed also hinted at a more aggressive policy response to combat stubbornly high inflation and hinted that it could raise rates at all six remaining meetings in 2022. In the post-meeting press conference, Fed Chair Jerome Powell emphasised that the economy was strong enough to withstand tighter monetary policy. Powell added that the US central bank could start shrinking its near $9 trillion balance sheet as soon as the next meeting in May. The initial market reaction, however, turned out to be short-lived as the hawkish tilt was more or less in line with market expectations. This was evident from the emergence of fresh selling around the USD. Meanwhile, the pair finally settled near the top end of its daily trading range and was further supported by expectations of a more hawkish Bank of England. In fact, the markets have been pricing in the possibility of a 50 bps rate hike at the BoE meeting on Thursday, which was seen as another factor that acted as a tailwind for the British pound. Nevertheless, the pair, for now, seems to have entered a consolidation phase as investors seemed reluctant to place aggressive bets heading into the key central bank event risk. Apart from this, trades on Thursday will take cues from the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Industrial Production data. This, along with fresh developments surrounding the Russia-Ukraine saga, will influence the USD price dynamics and infuse some volatility around the pair. Technical outlook From a technical perspective, the attempted recovery from the YTD low paused near the 1.3150-1.3160 support breakpoint, turned resistance. The said area coincides with the 23.6% Fibonacci retracement level of the 1.3643-1.3001 downfall, which is followed by the 1.3200 round-figure mark. Some follow-through buying has the potential to lift the pair towards the 38.2% Fibo. level, around the 1.3245 region. The momentum could further get extended towards reclaiming the 1.3300 mark en-route the 50% Fibo. level, around the 1.3320-1.3325 zone (50% Fibo. level). On the flip side, any meaningful pullback now seems to find decent support near the 1.3100 round figure, which if broken will set the stage for the resumption of the previous bearish trajectory. The pair might then turn vulnerable to slide back to challenge the 1.3000 mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and accelerate the fall towards the 1.2950 area before the pair eventually drops to the 1.2900 mark. The next relevant support is pegged near 1.2855 ahead of the 1.2820 region.