The euro rallies continue after a brief pause boosted by signs of Germany's political breakthrough over key defense and infrastructure spending. The consensus appears to have emerged around large-scale funding contracts, a game-changer to strengthen Europe's economic and defence resilience, particularly amid ongoing geopolitical conflicts in Ukraine.
The German Green Party is reportedly ready to reach a contract this week with CDU/CSU Prime Minister Friedrich. Greens co-leader Franziska Brantner showed that negotiations could move quickly, citing the urgent need for Europe to “speed up” defensive capabilities given the “disastrous” situation in Ukraine. The inflow of expenditures of hundreds of billions of euros could serve as a key stimulus for the German economy, thereby supporting the broader eurozone.
The dollar, on the other hand, generally reflects a weak and cautious mood towards European majors. US futures are also slow, reversing an early recovery and struggling to find direction within a narrow trading range. It appears that many investors are waiting for tomorrow's CPI release to guide the next market move.
The expectations remain sticky, despite a slight decline from 3.3% to 3.2%. The pace of development has clearly lost momentum over the last few months, suggesting that inflationary pressures are not fully included. If data confirms a slow decline in inflation, we will solidify the Fed case to maintain a stable rate at the March 19 meeting.
Still, market participants are increasingly betting that the Fed needs to ease second quarter policies as the economic impact of tariffs and weak sentiment gradually translates into weaker hard data. The uncertainty surrounding trade policy, coupled with signs of slowing economic momentum, maintains the hind legs.
Looking at the weekly performance, the euro is the most powerful currency ever. The British pound and yen are also well-bearing. On the other end of the spectrum, the Canadian dollar was the worst performance this week, followed by the Australian and New Zealand dollars as there are weak feelings of risk and commodity-related currencies. The dollars and yen are currently located in the center of the pack.
In Europe, FTSE has declined by -0.09% at the time of writing. DAX has increased by 0.21%. CAC has increased by 0.03%. The UK's 10-year yield is 4.626, an increase of 0.024. Germany's 10-year yield increased by 0.046 to 2.883. In the first half of Asia, the Nikkei fell -0.64%. Hong Kong HSI fell -0.01%. China's Shanghai SSE rose 0.41%. The Singapore Strait Times fell by -1.88%. The yield of Japan's 10th year JGB has decreased from -0.065 to 1.506.
ECB's Rehn warns that US tariffs can reduce global production by 0.5% in both 2025 and 2026
In today's speech, Olli Rehn, a member of the Council administering the Finland ECB, highlighted the damage that US tariffs could inflict on global economic activity.
According to the Bank of Finland estimates, 25% import duties on US imports from the eurozone, 20% of imports from China, and mutual measures by those regions will cut global output by more than 0.5% this year and next year.
Lane emphasized that this looming trade conflict would bring both deflation and inflationary implications for Europe. “Remember, if growth slows in the global and euro-regional economies compared to forecasts, it puts downward pressure on inflation,” Lane said.
Given this uncertainty, he noted that the ECB would evaluate new economic data ahead of its April meeting before its ECB commits additional interest rate cuts or suspensions.
Australia's Westpac Consumer Sentiment jumped to 95.9 and soft landing achieved
Australian consumer sentiment gained a strong rebound in March, with Westpac's consumer sentiment index jumping 4.0% moms to 95.9, the highest level in three years, not far from the neutral 100 mark.
Westpac believes the improvement slowed inflation and earned trust across households due to the RBA's interest rate cuts in February. A positive view on job safety suggests that “soft landing has been achieved.” Nevertheless, “New International News” continues to weigh broader economic outlooks.
Westpac looks forward to the upcoming RBA meetings from March 31st to April 1st, and hopes that the central bank will change its cash charges. The RBA clearly saw a 25bps cut in February “not that further cuts would be expected at subsequent meetings.”
Westpac added: “If we slow inflation further, the RBA will provide enough confidence to achieve more interest rate cuts with the next move this year at its May meeting.”
The confidence of Australia's NAB business will slip back to negative as cost pressure continues
Australia's NAB business' confidence fell from 5 to -1 in February, slashing profits from last month and returning to below average levels. Although business conditions have improved slightly from 3 to 4, the decline in reliability suggests that businesses are cautious despite recent rate cuts from RBA and positive Q4 GDP data.
NAB chief economist Alan Oster noted that the emotional lift seen in January was not sustained, indicating continued uncertainty in the business environment. Sustained cost pressure and suppressed profitability appear to be a key factor compared to emotions, and maintains confidence below long-term norms.
Within business terms, trading terms have been incremented from 7 to 8, while profitability terms have risen slightly from -2 to -1, but remain in negative territory. However, the employment conditions have weakened from 5 to 4.
Cost pressure remains a concern as purchase costs grows from 1.1% to 1.5% on quarterly equivalent terms. On the positive side, the increase in labor costs has been eased from 1.7% to 1.5%, indicating that wage price pressures are gradually cooling. Meanwhile, the final product price growth slowed from 0.8% to 0.5%, while retail price inflation remained stable at 1.0%.
EUR/JPY Noon Outlook
Daily Pivot: (S1) 158.86; (p) 159.62; (R1) 160.35; More…
The EUR/JPY rally resumed with a temporary top of 161.25 and breaking through the daytime bias. The rise from 154.77 is considered another rising leg in the integrated pattern from 154.40. The next target is 164.89 resistance. For now, further increases are expected for retreats as long as 158.87 support is retained.
In the big picture, the price action from 175.41 is considered a revision to the rally from 114.42 (2020 Low). There should be strong support inclusion of the downside from 38.2% retracement from 114.42 to 175.41 on 152.11. However, the sustained break at 152.11 will drop even deeper as a fix.
