Price action got livelier at the return of U.S. and Canadian traders, though the major assets still took cues from individual catalysts.
Which headlines moved the major assets around on Tuesday?
Let’s break them down:
Headlines:
- RBA cut its interest rates by 25bps but remained cautious about future easing
- In her presser, RBA Gov. Bullock shared that this month’s reduction was a “difficult decision” and that future easing would depend on incoming data
- U.K. jobless claimants for Jan: 22.0K (10.0K forecast, -15.1K previous); Unemployment rate remained at 4.4% in Dec (vs. 4.5% forecast); 3-month avg earnings accelerated from 5.5% to 6.0% in Dec
- BOE Gov. Bailey warned against potential “second-round” inflation effects amid a “weak growth” environment
- German ZEW economic sentiment for February: 26.0 (19.9 forecast, 10.3 previous)
- Euro Area ZEW economic sentiment for February: 24.2 (24.3 forecast, 18.0 previous)
- CAD slipped on headline CPI but rebounded on oil and core inflation
- U.S. Empire State manufacturing index for February: 5.7 (-1.9 forecast, -12.6 previous); Number of Employees fell 2.6 pts; Prices Received dipped by 0.6pts
- A Ukraine drone attack on a Russian pumping station reduced oil flows through the Caspian Pipeline by 30% – 40%
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Markets had plenty to digest on Tuesday, as geopolitical tensions and shifting Fed expectations sent asset prices moving in different directions. While U.S. and European stocks climbed, with the S&P 500 locking in another record close, the real action was in commodities and safe-haven plays.
U.S. crude oil prices surged to just under $72.00 after a Ukrainian drone strike disrupted Russian oil shipments, taking over a million barrels per day off the market. Uncertainty around U.S.-Russia peace talks in Riyadh also sent gold soaring to fresh record highs above $2,935.
Meanwhile, bitcoin had a wild ride, tumbling sharply midday before staging a late-session recovery despite the lack of direct catalysts.
In bonds, the 10-year Treasury yield jumped as Fed officials pushed back against rate cut hopes and stronger-than-expected manufacturing data reinforced the case for higher-for-longer rates. The session underscored how investors are juggling economic optimism with geopolitical risks, piling into traditional safe havens even as stocks continue their climb.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar started the day on a strong note, likely as traders braced for this week’s anticipated events and the markets’ less dovish expectations from the Fed. AUD/USD was an exception, as it reflected AUD’s strength following the RBA’s “hawkish cut” event. Governor Bullock’s hawkish stance also kept the Aussie from sliding too much, keeping price action contained.
Things got more interesting in Europe. The dollar dipped initially after strong U.K. wage growth and solid employment data, but it didn’t stay down for long. Softer German ZEW economic sentiment numbers helped the greenback regain momentum, setting the stage for a stronger move in the U.S. session.
That momentum kicked into high gear as the NY Fed’s manufacturing index surprised to the upside and Fed officials Bowman and Waller pushed back on rate cut expectations. Both emphasized the need for more progress on inflation before easing policy.
The dollar’s strength was most pronounced against commodity currencies, with USD/NZD leading gains ahead of a likely RBNZ rate cut. USD/JPY cleared 152.00, while EUR/USD and GBP/USD gave up their early gains. Even in-line Canadian CPI at 1.9% couldn’t stop USD/CAD from marching higher, as broader dollar strength dominated the session.
Upcoming Potential Catalysts on the Economic Calendar:
- U.K. CPI reports at 7:00 am GMT
- Euro Area current account at 9:00 am GMT
- U.K. house price index at 9:30 am GMT
- U.S. building permits at 1:30 pm GMT
- U.S. housing starts at 1:30 pm GMT
- FOMC Meeting Minutes at 7:00 pm GMT
- RBNZ Gov Orr to give a speech at 7:10 pm GMT
- FOMC Member Jefferson to give a speech at 10:00 pm GMT
The U.K. CPI report will likely drive GBP moves in the European session, while U.S. housing data and FOMC minutes may shape Fed rate expectations later.
Speeches from RBNZ Gov Orr and FOMC Member Jefferson could offer additional policy clues, with potential USD and NZD reactions.
Oh, and keep tabs on geopolitical and trade-related headlines as they could inspire increased volatility for the major assets.
Don’t forget to check out our brand new Forex Correlation Calculator when taking any trades!