Today’s trading has been calm so far, characterized by the broad USD weakness as traders locked some profits from this week’s rally.
Powell reaffirms the hawkish bias
Wednesday saw Powell’s return to Capitol Hill for the second day of his semi-annual testimony, this time before the House Financial Services Committee.
Recent economic indicators had been stronger than forecast, indicating ongoing inflationary pressures. As a result, he reiterated his prior statements that the US central bank would likely need to raise interest rates more than projected and probably in greater stages.
He did acknowledge that the discussion about future rate increases, including the anticipated March rise, was ongoing and data-dependent.
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Furthermore, Automatic Data Processing (ADP) stated that private sector employment in the United States increased by 242,000 in February, exceeding estimates of 200,000. In addition, the Bureau of Labor Statistics (BLS) of the United States said that the number of job opportunities in January hit 10.8 million, above market expectations of 10.6 million. The data continue to indicate a strong labor market, boosting the dollar and bolstering the Fed’s hawkish tone.
Later today, the usual weekly Jobless Claims report is coming. Furthermore, market players anticipate Nonfarm payrolls on Friday and the Consumer Price Index the following week.
EU data showed further weakness
According to recent statistics from Eurostat, growth in the Eurozone remained sluggish in the fourth quarter of 2022.
After an excellent performance in the third quarter, the earlier forecast of a 0.1% increase was revised down to 0.0% growth quarter-over-quarter. The updated projection for the same time in 2021 was 1.8%, a little decline from the prior estimate of 1.9%
Nonetheless, according to Eurostat statistics, employment in the eurozone increased by 0.3% in the fourth quarter of 2022.
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Lastly, per figures from the federal statistical office, German industrial production surpassed expectations in January, increasing by 3.5% compared to the revised 2.4% decline in the previous month. Estimates anticipated an increase between 1.4% and 1.5%.
Technically speaking, the EUR/USD pair still trades above previous highs and lows at 1.0480. Therefore, the medium-term outlook seems bullish if the euro remains above that level.
The inability to push the pair below 1.048, despite a massive surge in US yields and more rate hike expectations, could be USD negative in the following weeks.
EUR/USD daily chart, source: author´s analysis, tradingview.com
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