The US Dollar gains on renewed tariff fears, focus on PCE data

Despite beating both revenue and earnings expectations and the forecasts for the current quarter, Nvidia got beaten by the market. The share price tanked 8.50% in yesterday’s post-earnings session, took out the 200-DMA and closed near the $120 level – which also matches the minor 23.6% Fibonacci retracement on the AI rally. The stock remains in the bullish trend, from a technical perspective, following a more than 900% surge since the beginning of 2023, and will remain in the bullish trend above the $100 per share – which beautifully matches the major 38.2% Fibonacci retracement that could distinguish between the AI rally and a medium-term and a more persistent pullback. But the short-term direction looks bearish, with trend and momentum indicators hinting at the possibility of a deeper pullback.

And while Nvidia was bearing the brunt of having fallen short of the most euphoric analyst expectations this Wednesday, Amazon revealed an update to its Alexa which now uses AI to answer questions. The company also announced to have built its first quantum-computing chip – that may not be excellent news for Nvidia. But Amazon fell too, by more than 2.50%, on the kind of news that could’ve easily trigger a rally. Salesforce’s results also fell short of market expectations and further weighed on optimism that their AI product would boost sales. CRM is on its way to test an important critical support range between $275/290 area including the 200-DMA and the major 8.2% Fibonacci retracement on the AI-boosted rally since the beginning of 2023. One bright spot this week was Snowflake. The company forecasted a better-than-expected revenue growth thanks to its AI products and expanded a deal with Microsoft Azure to give access to OpenAI’s services. The share price jump opened but couldn’t resist to the overall selloff and spent the session giving back gains. It closed some 4.50% higher. Microsoft lost 1.80%.

Overall, Nvidia’s failure to satisfy the increasingly-hard-to-satisfy investors weighed on market mood, along with new tariff talk from Donald Trump. The Tariff Man said that he would go ahead with tariffs on Mexico and Canada as soon as the beginning of March and unveiled plans to impose 25% tariffs on EU imports – details will land soon. The Stoxx 600 eased yesterday, the DAX lost more than 1% as the carmakers, there, will almost certainly be concerned by the 25% levies that Trump is referring too. But the European defense stocks continued to see demand. BAE Systems rose near 3.50% yesterday, Rheinmetall gained 3.50% and traded at a record high, and Leonardo gained nearly 4% and hit a fresh ATH level, too.

Meanwhile, the British PM Keir Starmer met Trump in Washington yesterday to try to smooth things over between the two old friends. And he probably did better than Macron earlier this week... who couldn’t prevent the announcement of 25% tariffs on the EU products hours later... As such, the FTSE 100 index was standing out yesterday, as the index eked out gains as its European peers were hit by tariff fears.

In the FX, the fresh tariff threats hammered both the euro and sterling. The EURUSD slipped below the 1.04 level and is testing the 50-DMA to the downside this morning despite higher-than-expected Spanish CPI update yesterday. More CPI updates from euro are countries are due today but the data could remain under the shadow of the tariff fears. Potentially stronger-than-expected numbers may not weaken European Central Bank (ECB) rate cut expectations; the tariffs and their negative implications are expected to hit the European economies enough to give the ECB doves a leverage beyond data.

Across the Channel, Cable slipped below its 100-DMA and sterling bulls abandoned the fight near the major 38.2% Fibonacci retracement front on September to January Trump-led selloff, and is preparing to close the week without having successfully reversed the bearish trend. The USDJPY is testing the 150 resistance on the back of a broadly stronger US dollar and weaker-than-expected inflation numbers released in Japan. You want to laugh? The latest Marvel movie pictures US entering in war with Japan, apparently. Anyway, even gold fell yesterday faced with a stronger US dollar. The price of an ounce slipped below the $2900 level. While a pullback after having flirted with the $3000 level is healthy, the outlook for gold remains positive on the back of tense global geopolitical environment.

US PCE in focus

Yesterday, the US GDP data confirmed that the US grew 2.3% in Q4, as expected, but the price pressures were stronger than pencilled in by analysts. Initial jobless claims, on the other hand, hit the highest level since last October, with a visible rise in Washington’s jobless claims – as Federal workers are being thanked en masse by Elon Musk’s DOGE. Will the latter soften the Federal Reserve (Fed) outlook and increase bets for more rate hikes this year? It depends on the inflation’s trajectory. Due today, the US will reveal its latest core PCE data – the Fed’s favourite gauge of inflation - that could show easing in January. If that’s the case, we could maybe see the US indices recover a part of the latest weakness.