Forex Signals Brief April 5: Swiss CPI and ECB Minutes Today

Yesterday started with the CPI (Consumer Price Index) from the Eurozone, which showed a larger-than-expected decline, from 2.6% to 2.4%. However, that didn’t hurt the Euro, which closed the day 100 pips higher against the USD as the US ISM services missed expectations, initiating a retreat in the USD.

The US services index for March 2024, reported by Supply Management (ISM), came in at 51.4 points. This figure was lower than the projected value of 52.7 points and down from 52.6 points the previous month. Despite a slight improvement in the employment component, the service sector continued to contract slightly.

New orders also decreased to 54.4 points from 56.1 points, indicating a decline in demand. A notable observation from the report was the significant decrease in prices paid, which fell to 53.4 points from 58.6 points. This marks the lowest figure since March 2020 and suggests diminishing inflationary pressures in the industry. This unexpected decline in prices paid garnered attention from the market, particularly amid concerns about a potential resurgence of inflation.

Subsequent comments by Federal Reserve Chair Powell were largely consistent with previous statements, which helped to reassure the market. Powell reiterated the central bank’s cautious approach to interest rate adjustments, indicating that there is ample time for careful consideration regarding any prospective reduction.

The forecast for Switzerland’s Consumer Price Index (CPI) Year-on-Year (Y/Y) is expected to show an increase to 1.4%, up from 1.2% in the previous year. Additionally, the Month-on-Month (M/M) measure is anticipated to be 0.3%, compared to 0.6% previously. It’s worth noting that the Swiss National Bank (SNB) decided to decrease rates by 25 basis points at the March meeting. This decision was based on the sustained reduction in inflation and the inflation rate remaining well within the 0-2% objective since last summer. If the upcoming CPI data confirms further easing in inflation, the market is expected to fully price in another rate decrease in June. Currently, there is a 60% probability of this occurring. This indicates market expectations of continued accommodative monetary policy from the SNB to address inflationary pressures and support economic growth.

The European Central Bank (ECB) decided to maintain its current interest rates, with policymakers continuing to assess progress towards the Bank’s inflation target. Rate guidance was reaffirmed, emphasizing that rates will remain at sufficiently restrictive levels for as long as necessary. However, some market participants were disappointed by the lack of language indicating that negotiations on the policy normalization process had commenced. This omission was viewed as a setback by those who had hoped for clearer signals regarding the ECB’s future monetary policy trajectory. Nevertheless, the accompanying macroeconomic estimates provided some relief to the more dovish observers. Inflation forecasts for 2024 and 2025 were revised downward, with the latter aligning with the Bank’s 2% target. Additionally, growth projections for 2024 were reduced from 0.8% to 0.6%, while the forecast for 2025 remained unchanged at 1.5%.

The Unemployment Claims report will be released in the afternoon. Initial Claims are hovering near cycle lows, indicating a relatively stable labor market, while Continuing Claims have remained stable around the 1800K level. Last week, Initial Claims outperformed expectations at 210K compared to the projected 212K, while Continuing Claims rose slightly to 1,820K from the previously upwardly revised figure of 1,790K. Today unemployment claims are expected to remain stable at 213K.

Yesterday the volatility increased all of a sudden as the USD reversed after continuing to gain in the Asian and European sessions. We were long on the USD with several forex signals, but got caught on the wrong side after the reversal and ended up with 4 losing signals, however the improved sentiment sent stock markets higher so we booked profit on our long S&P 500 signal.

GOLD has experienced a significant surge, surpassing the $2,300 mark recently, with a target price of $2,500 in sight. This impressive rally underscores the resilience of gold buyers, who are quick to intervene and support the market whenever there is a downturn, highlighting the underlying bullish sentiment in the gold market. Yesterday, gold prices continued their ascent, reaching a fresh high of $2,280. This further reinforces the bullish momentum in the gold market and underscores the ongoing demand for the precious metal as a safe-haven asset and a hedge against economic uncertainty.

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