Week 3 Q1 2024 Review
Rate cut narrative fading out...
A week that started out with US bank holiday where the main economic events in focus were the Retail Sales, Manufacturing index and Consumer, not forgetting of course the weekly jobless claims, this week we had more data that went more against the current narrative in play than the opposite, but is it loosing steam?
A quick overview on the economic results, we started by receiving a very bad Empire State Manufacturing Index on Tuesday at -43.7 where the expectations were to rebound but the Philly Fed Man. beside keeping in negative was a bit better than revised previous at -10.6. On the other hand, we got very positive data that goes against the narrative in play with Retail Sales, on Wednesday, above expectations at 0.6% and Industrial Production against expectations at 0.1%. On Thursday Jobless Claims with a surprise of 187k and to close of the week, Preliminary Mich. Cons. Sentiment at 78.8.
All of this positive data and remember that last week, we still received high inflation readings and good NFP even the week before (with a stable UER) contributes to fade away some “excitement” on early rate cuts as the markets are pricing in since November 2023. So, answering to our initial question that “is the rate cuts narrative loosing steam?” we can answer - yes this week lost some steam. Before jumping in into the charts to show it, remember what we wrote on our preview for the week:
If we will see Dollar breaking and holding above such consolidation area, heading to the 104s, that could tell us that such narrative is fading out (if we also see bearish move on Gold)
Looking at the charts below, we can clearly see that Dollar and Gold printed new highs and lows respectively.
Dollar started such impulsive move on Tuesday breaking above the 102.5 consolidation area and remained ranging at highs between 103.2s and 103.6 for the remainder of the week. Gold on the other hand printed a new low at 2001s on Wednesday after Retail Sales data report failing to hold the 2015 AOI and bounced not respecting that visual trendline representation of Higher Lows that have been printing since Nov. 2023. Such PA and break of such areas of interest show us that narrative rate cuts is loosing steam but it doesn’t shift the sentiment yet, which is a different situation, so for us Dollar is still bearish until breaking above and hold the 104s and Gold bullish if still respecting the 1980. Such market structure breaks will tell us that the sentiment could have shifted but so far, it cooled down and such can also be seen by CME on how rate cut probabilities close of the week.
We started the week with 70% chances of rate cuts in March and now we have more than half of the economist and investors seeing no changes for March.
Looking more close to the charts, Monday was pretty quiet as expected with Gold ranging on that 2050 area and rejecting multiple times the break of the 2056 HTF AOI. On Tuesday, the day was bearish for Gold in all sessions. During London we broke below the the 2048 PSA on intraday and on NY we had the first economic bad report creating a lot of whipsaws on LTF since data was feeding into narrative cuts but sellers were in complete control allowing price to retest 2048 for a better supply before making Gold print a new intraday low almost in the end of the day.
On Wednesday we had optimistic retail sales and beside we see a bearish 1h candle on NY open on the data report, on LTF we had indecision as with the data report Gold print a new low, but 10m later faded it out ranging within 50pips until the new 4h. NYSE finally brought the price down to print new weekly lows and we can see the break of that visual representation of the bullish trendline we have on HTF setting the weekly low at 2001. From here Gold start to rebound where sellers took some profits with buyers providing that exit relief and not even the optimistic Jobless claims together with mixed NY Fed Man index made the buyers to fade away. We also had some minor Red Sea tensions on Thursdays supporting such upside and on Friday Gold hit 2040 price point before the optimistic consumer confidence which represents a 50% correction of the downside move that we had on the first half of the week.
Looking now on the Dollar side, the things were a bit more messy as of Tuesday we started to see the upside move (on the same day we had Gold to downside) breaking the consolidation area of 102.5 to find a range between 103.1s and 103.6s.
As we can see, Dollar failed to break and hold that area of 103.6 that we have marked out as it is an HTF AOI, although our still make or break area is 104.
On the FEDs speeches point of view we had mixed comments but most were on the hawkish side playing such balancing act game before the blackout period for the next FOMC decision.
Last but not least, as we referred on our weekly overview as GJ would be a pair to watch we had a brilliant bullish move with the important data for UK and Japan giving strength to GBP and Yen weakness, making GJ to revisit pre-brexit prices from Nov 2015 and breaking highs of Nov 2023.
Not much to add for the past week and now it’s time to reset refresh and start the preparation for the week ahead as we will have important US data to work with.
Stay safe, refresh and reset.