CFD Markets News and Forecasts — 02-05-2022

• A test of the lower boundary of the demand zone could result in a pullback.
• Investors should brace for a mean reversion to the 10-EMA.
• Momentum oscillator RSI (14) is signaling an oversold situation.

The NZD/USD pair is oscillating in a narrow range of 0.6429-0.6438 after a mild rebound from 0.6413 as momentum oscillators turned extremely oversold on small and medium timeframes. The asset has displayed an eight-day losing streak and is likely to remain on tenterhooks going forward. The kiwi bulls got fragile last week after slipping below yearly lows at 0.6529 vertically.

The major has drifted lower sharply to near the demand zone placed in a narrow range from 15 June 2020 low at 0.6381 to 9 March 2020 high at 0.6450. The greenback bulls are likely to display exhaustion after an intense sell-off and a pullback rally could be witnessed.

The 10- and 20-period Exponential Moving Averages (EMAs) at 0.6559 and 0.6742 respectively are trending lower, which still favors the downside.

However, the Relative Strength Index (RSI) (14) has touched a low of 22.17 on Monday, which signals that an oversold situation could be followed by a pullback.

Should the asset touches the lower boundary of the above-mentioned demand zone at 0.6381, a pullback move will drive the asset towards Monday’s high at 0.6475, followed by mean reversion to 10-EMA at 0.6559.

On the flip side, kiwi bulls could lose further if the asset tumbles below the demand zone at 0.6381 decisively. This will drag the major further towards 8 November 2019 and 16 October 2019 at 0.6322 and 0.6282 respectively.

NZD/USD daily chart

• USD/CAD consolidates recent gains around the highest levels since late 2021.
• EU’s oil embargo on Russia favors WTI crude oil prices, as well as the CAD.
• Firmer yields, risk-aversion challenge downside momentum ahead of Wednesday’s FOMC.
• BOC’s Rogers, US Factory Orders will direct intraday moves.

USD/CAD bulls step back after refreshing the yearly high as oil prices, Canada’s key export, remains firmer amid escalating geopolitical tensions surrounding Russia. Also weighing on the Loonie pair are the latest US data, as well as the market’s consolidation ahead of the key Fed meeting. That being said, the quote eases to 1.2875 by the press time of the early Asian session on Tuesday.

WTI crude oil prices rose 0.80% to regain the $105.00 level, around $105.10 at the latest, as Germany backs the European Union’s (EU) total ban on Russian oil. The bloc’s powerhouse previously ruled out any such actions amid fears of economic recession. However, Moscow’s escalating military invasion of Ukraine might have played the role in pushing Berling toward the move.

Other than the oil prices, a pullback in the US Treasury yields after they rose to the fresh high in December 2018, as well as softer US data, can also be held responsible for the USD/CAD pair’s latest weakness.

The US 10-year Treasury yields cross the 3.0% benchmark for the first time in over three years before ending Monday’s North American trading session at around 2.97%. It’s worth noting that a holiday in Japan will restrict bond moves in Asia and can exert downside pressure on the US dollar due to the absence of yields’ momentum.

It should be noted that the US ISM Manufacturing PMI for April eased to 55.4 versus 57.6 market forecast and 57.1 prior readings while S&P Manufacturing PMI also softened to 59.2 from 59.7 expected and prior.

Looking forward, a speech from Bank of Canada (BOC) Senior Deputy Governor Carolyn Rogers will join the US Factory Orders for March, expected 1.1% versus -0.5% prior, to entertain short-term USD/CAD traders.

Technical analysis

Given the successful break of a downward sloping trend line from December 2021, around 1.2860 by the press time, USD/CAD prices are ready to aim for the 1.3000 threshold, with the late 2021 peak of 1.2966 likely acting as an intermediate halt.

• The DXY looks to reclaim 103.93 amid a broader strength in the Fx domain.
• Fed’s Powell is certain to elevate the interest rates by 50 bps.
• The 10-year US Treasury yields have sensed long-liquidations after hitting 3%.

The US dollar index (DXY) is oscillating in a narrow range of 103.58-103.66 in the early Tokyo session after a mild profit-booking from Monday’s high at 103.75. The DXY bulls are still rocking and are likely to attempt for recapturing its fresh 19-year high at 103.93, recorded last week.

A rate hike by 50 bps looks certain

The Federal Reserve (Fed) is set to elevate its interest rate by 50 basis points (bps) as galloping price pressures and consistency in full employment levels are compelling for sounding aggressively hawkish on Wednesday. Well, a jumbo rate hike looks certain now as the Fed has to return to neutral rates this year. Therefore, the mathematics behind rate reversion demands more than one rate hike by half a percent out of the remaining six monetary policy meetings to shore up rates to near 2.5%. Apart from the rate hike announcement, investors should focus on dictation over balance sheet reduction and further guidance on rates.

10-year US Treasury yields kiss 3%

The 10-year US Treasury yields have touched the psychological resistance of 3% for the first time in the last three years. A mean reversion of policy rates to neutral one is indicating a tad underperformance from the global equities due to the unavailability of helicopter money and easy liquidity into the economy going forward. This is pushing the US Treasury yields higher and is likely to keep yields stronger on a broader note for a longer horizon.

Key events this week: JOLTs Job Openings, ISM Services PMI, Initial Jobless Claims, Nonfarm Payrolls (NFP), Unemployment Rate.

Eminent issues on the back boiler: Russia-Ukraine Peace Talks, Reserve Bank of Australia (RBA) interest rate decision, European Central Bank (ECB) President Christine Lagarde’s speech, Fed interest rate decision, Bank of England (BOE) interest rate announcement.

• EUR/USD consolidates recent losses around a five-year low.
• Descending triangle, 50-HMA restricts short-term recovery moves amid sluggish oscillators.
• Bears keep their eyes on 61.8% Fibonacci Expansion level with multiple likely bounces around 1.0490.

EUR/USD stays defensive around 1.0510, paring recent losses around the lowest levels since 2017 during the sluggish Asian session on Tuesday.

In doing so, the major currency pair stays inside a one-week-old descending triangle formation, recently bouncing off the support line.

That being said, the 50-HMA adds strength to the upside hurdle surrounding 1.0530 that challenges the pair’s rebound.

Even if the quote rises past 1.0530, late April’s swing high near 1.0595 will act as an extra filter to the north before inviting the EUR/USD bulls.

Alternatively, multiple levels restrict the pair’s immediate downside around 1.0490, comprising the aforementioned triangle’s support line.

A break of 1.0490 will need validation from the latest bottom surrounding 1.0470, which in turn holds the gate for a slump towards the 61.8% Fibonacci Expansion (FE) of April 26-29 moves, near 1.0425.

Overall, EUR/USD remains on the back foot but the short-term recovery can’t be ruled out if it manages to break the 1.0530 hurdle, considering the sluggish MACD and RSI during the latest fall.

EUR/USD: Hourly chart

Trend: Bearish

• The EUR/JPY begins May with modest losses of 0.09%.
• A dismal market sentiment, increased appetite for safe-haven peers.
• EUR/JPY Price Forecast: From a daily chart perspective, a head-and-shoulders pattern has formed and, once validated, might drag the EUR/JPY towards 130.00.

The EUR/JPY records minimal gains as Tuesday’s Asian Pacific session begins, amidst a mixed market mood, as Asian equity futures gain, except for the Australian S&P/ASX 200. At the time of writing, the EUR/JPY is trading at 136.80 and record gains of 0.04%.

The market sentiment is mixed but tilted upbeat, as Asian futures carried on New York sentiment. In the FX space, the gainer was the greenback, while the euro remained defensive as the EUR/USD hovered around 1.0500. That bolstered the JPY vs. the EUR, recording gains of 0.09%, though diminute, are still gains. Meanwhile, concerns about China’s coronavirus outbreak which threatens to disrupt the supply side, while the Russia-Ukraine tussles continued, weighed some in the risk appetite.

During the overnight session, the EUR/JPY opened around 136.88 and meandered around the 50-hour simple moving average (SMA), almost horizontal, around 137.07. However, once European traders got off their desks, the US session’s sour sentiment weighed on the EUR/JPY, dragging the pair towards new daily lows around 136.60. Nonetheless, a late improvement in market mood in the New York session lifted the cross-currency pair towards 136.80.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY daily chart depicts the pair as upward biased, though it in the last couple of days was unable to break resistance at 138.00, courtesy of EUR weakness. Also, a head-and-shoulders pattern is forming, which would add downward pressure on the pair, though a break below the neckline is needed to validate the pattern.

If that scenario plays out, the EUR/JPY first support would be 136.00. Break below would drag the pair towards the head-and-shoulders necklines, around 134.70-135.00. Once broken, the next stop would be last year’s high, around 134.12, followed by some DMAs before reaching the 130.00 head-and-shoulders targets.

• USD/JPY treads water after a positive start to the key week.
• US 10-year Treasury yields rally to the highest since December 2018.
• Hawkish hopes from Fed propel yields and USD, economic fears add strength to the greenback’s safe-haven demand.
• Off in Japan to restrict the latest moves, US Factory Orders will decorate calendar.

USD/JPY bulls take a breather around 130.00 during the initial hour of Tuesday’s Asian session, having partially reversed a pullback from a 20-year high during the week-start advances. The yen major’s latest gains could be linked to the multi-month high US Treasury yields before Wednesday’s Federal Open Market Committee (FOMC), as well as a steady rise in the US dollar’s demand due to the rush for risk-safety.

The benchmark US 10-year Treasury yields crossed the 3.0% mark for the first time since late 2018, before ending the North American session near 2.97%. The bond rout takes clues from the market’s firmer belief of a faster monetary policy normalization by the Fed to combat the rising inflation, despite the latest easing in US data on Monday.

That said, the US Federal Reserve (Fed) is ready to announce a 0.50% increase in the Fed rate and may also share views of balance-sheet normalization amid ballooning debt and inflation. As per the latest readings of the CME’s FedWatch Tool, there is a 99.3% probability of a 0.50% rate hike, matching the market consensus. Hence, an outcome is mostly priced in and may not impress the greenback until surprising markets with different moves.

Talking about data, the US ISM Manufacturing PMI for April eased to 55.4 versus 57.6 market forecast and 57.1 prior readings while S&P Manufacturing PMI also softened to 59.2 from 59.7 expected and prior.

It’s worth noting that the escalating fears of the EU’s oil embargo on Russian energy and stricter covid-led activity restrictions in Beijing also join the aforementioned catalysts to add to the US Dollar’s strength, which in turn propel USD/JPY prices of late.

Moving on, a Constitution Day Holiday in Japan will restrict the bond moves in Asia and hence the USD/JPY prices may also witness inaction. However, the sour sentiment and pre-Fed hopes can keep favor the buyers. During the US session, Factory Orders for March, expected 1.1% versus -0.5% prior, will be important to watch, in addition to the qualitative factors, for near-term directions.

Technical analysis

USD/JPY remains inside a five-week-old ascending trend channel formation, between 128.15 and 131.70 by the press time, which in turn keeps the pair buyers hopeful amid the firmer RSI (14).

• AUD/USD is oscillating in a nine-pip range as investors are eyeing RBA’s policy.
• Higher inflation in aussie area will push the RBA for a rate hike.
• The 10-year US Treasury yields have kissed the 3% mark for the first time in the last three years.

The AUD/USD pair is hovering around 0.7050 as investors are awaiting the interest rate decision from the Reserve Bank of Australia (RBA), which will be announced in a few hours. As per the market consensus, the RBA will step up its interest rate by 15 basis points (bps) to 0.25%.

A scrutiny of the guidance from RBA Governor Philip Lowe indicates a neutral stance on the monetary policy this time. RBA’s Lowe dictated that the agency will remain data-dependent for any rate hike decision and currently our policymakers do not see any significant price pressures, which could weigh on interest rates. However, the recent print of Australian inflation at 5.1%, much higher than the market forecasts of 4.6%, and the prior print of 3.5% has triggered the odds of a rate hike by the RBA this time.

Meanwhile, the US dollar index (DXY) has witnessed a minor sell-off after failing to sustain above 103.70. On a broader note, the DXY is dedicated to reclaiming its 19-year high print at 103.93. Certainty of a jumbo rate hike by the Federal Reserve (Fed) is underpinning the greenback against other risk-sensitive currencies. The 10-year US Treasury yields have witnessed some profit-booking after kissing the psychological resistance of 3% for the very first time in three years. The Fed is set to tone aggressively hawkish on Wednesday to leash roaring inflation.

• The AUD/JPY printed modest gains of 0.07% on Monday.
• A risk-on market mood favors the Australian dollar; a sudden shift might boost the JPY prospects.
• AUD/JPY Price Forecast: Remains upwards, though downside risks remains, on sentiment shifts.

The AUD/JPY remained confined to a narrow trading range within 91.50-92.14, ahead of the Reserve Bank of Australia’s monetary policy decision on Tuesday, which is expected to hike rates by 15 bps. At the time of writing, the AUD/JPY is trading at 91.74.

Risk appetite improved toward Wall Street’s close

The market sentiment fluctuated through the day, though it improved around Wall Street’s close. US equities recovered ground, while Asian stock futures point to a higher open. Around 04:30 GMT, the Reserve Bank of Australia (RBA) would deliver its interest rate decision as an Australian federal election looms.

Inflation in Australia reached a 20-year high, while Trimmed CPI rose by 3.7% y/y, just shy of the 4% threshold. Most analysts widely expect a 15 bps rate hike, though the board might delay the hike to June as it asses the next round of wages data for Q1. Furthermore, some analysts expect a 40 bps increase, with the likes of Natixis, ING, and even Citi.

Therefore, if the RBA raises rates, an AUD/JPY push upwards might be on the cards. Nonetheless, it’s worth noting that the AUD/JPY is the risk barometer of the FX, so any sentiment shifts could favor safe-haven peers, like the JPY and the CHF.

AUD/JPY Price Forecast: Technical outlook

The AUD/JPY remains upward biased. A false breakout below March’s 31 swing low at 90.76 on April 26, AUD bulls quickly reclaimed that level and lifted the AUD/JPY towards 93.50s. The MACD aims lower, towards zero, though the histogram shows that the distance between the MACD and the signal lines is contracting, opening the door for a bullish signal.

With that said, the AUD/JPY first resistance would be 92.00. Break above would expose May’s two daily highs at 92.15, followed by 93.00. On the flip side, the AUD/JPY first support would be the  91.00 mark. A breach of the latter would expose the April 27 daily low at 90.43, followed by 90.00.

• GBP/USD bears in control and attack weekly demand area. 
• The bulls have moved in at weekly support, although the greenback has firmed at the start of the week. 

GBP/USD remains in the hands of the bears as per the following analysis. The price has been in a strong downtrend but there is some deceleration in the price action as per the daily chart. 

GBP/USD weekly chart

The price is moving in on the weekly demand area and there is more downside to go until it reaches the July 2020 lows near 1.2250. 

From a daily perspective, however, the price is starting to consolidate:

GBP/USD daily chart

The bulls stepped in at the end of last week as the US dollar corrected in month-end rebalancing. The Federal Reserve is due to meet this week which is underpinning the greenback yet again in this week's opening sessions. However, there is scope here for some accumulation on the shorter time frames that could equate to a significant correction on the daily chart. The Fibonacci scale is drawn and a move into the 38.2% Fibo or even towards a 50% mean reversion could be on the cards. 1.2700 is a compelling figure in this regard. 

• WTI has overstepped $105.00 after tumbling to near $100.00 as supply concerns loom.
• Lower US oil strategic reserves will upthrust the oil prices further.
• EU may exempt Hungary and Slovakia from the embargo due to their higher dependency on Russian oil.

West Texas Intermediate (WTI), futures on NYMEX, has climbed above $105.00 ahead of the OPEC meeting. The oil cartel is expected to keep the oil prices above $100.00, which may force them to squeeze the oil production in an already tight market. The tailwinds of supply concerns amid OPEC’s determination to keep oil prices above $100.00 and expectations of lower oil stockpiles are outperforming the headwinds of a plummet in oil demand of to the Covid-19 resurgence in Beijing, China.

The strategic reserves of oil in the US are expected to slump sharply as the US is becoming a net exporter of oil in fulfilling the thirst of Europe for oil and energy. Last month, the deviation between import and export of crude oil and fuel remained in favor of exports by three million barrels daily, as per Reuters. Falling oil strategic reserves of the US won’t fulfill the demand for oil by Europe going forward, as the latter is going to embargo Russian oil completely.

Meanwhile, Hungary and Slovakia, two members of the European Union (EU) are ready to veto the decision of prohibiting the oil imports from Russia amid their way higher dependency on oil from Russia. The EU may extend their timeframe for reducing their reliance on Russian oil or will consider exemptions for them.

On the demand front, tightening curbs in Beijing after Shanghai in China due to the resurgence of the Covid-19 has raised concerns for oil demand. A slump in demand by the world’s largest oil importers will have a serious impact on the oil prices.

• The USD/CHF rallied for the eight-straight session, up by some 3.50%.
• A dismal market mood boosted the greenback, with the US Dollar Index meandering around 103.600.
• USD/CHF Price Forecast: Despite RSI at overbought territory, it remains to trend higher, but it could be subject to a mean reversion move.

The USD/CHF edges higher during the North American session as the New York session winds down for the first time in May and is trading at around 0.9779, shy of two-year-highs, gaining some 0.47%.

Wall Street is set to record losses on May’s first trading day, courtesy of a dismal sentiment. US Treasury yields are soaring, with 5s, 7s, and 20s above the 3% threshold, underpinning the greenback. The US Dollar Index, a gauge of the buck’s value against a basket of six rivals, edges higher, up some 0.37%, sitting at 103.600.

On Monday, in the overnight session, the USD/CHF opened near the daily pivot at 0.9710, though some pips above the 50-hour simple moving average (SMA), lying around the aforementioned area. Nonetheless, around the mid-European session, the USD/CHF managed to rally towards fresh two-year-highs at 0.9789, some pips shy of the 0.9800 mark, around the R2 daily pivot.

USD/CHF Price Forecast: Technical outlook

The USD/CHF daily chart shows the pair remains in a steep uptrend and has just one day of losses, compared to eight days of gains once it broke above the 0.9500 mark. Oscillators already show the pair as overbought, as the Relative Strength Index (RSI) at 83.00 illustrates. However, it remains with an upslope, a signal that the USD/CHF might keep trending higher before posting a reversal.

With that said, the USD/CHF first resistance would be April’s 2020 swing high at 0.9802. Break above would expose 0.9850, followed by 0.9901, March 23, 2020, daily high.

• NZD/USD bears stay in control as the US dollar recovers from correction. 
• China is weighing on the risk sentiment surrounding the antipodeans. 

NZD/USD is under pressure again at the start of the week with no let-up in the bear cycle. At 0.6433, the bird is down by some 0.33% after falling from a high of 0.6473 to a low of 0.6412. 

The US dollar, meanwhile, has rebounded from the corrective lows made at the end of last month during month-end rebalancing. It sits at a 20-year high against a basket of currencies on Monday before an expected Federal Reserve rate hike this week. DXY reached a high of 103.747 today, pressuring the beaten-down antipodeans.

The focus is on the Federal Reserve this week and traders are on the lookout for the potential for the US central bank to adopt an even more hawkish tone than many expect. The Fed is expected to hike rates 50 bp to 1.0% Wednesday. While there will be no new forecasts until the June 14-15 FOMC meeting, another 50 bp hike is widely expected then also. In fact, as analysts at Brown Brothers Harriman note, WIRP suggests nearly 50% odds of a 75 bp hike then. 

''Looking further out,'' the analysts said, ''the swaps market is now pricing in 300 bp of tightening over the next 12 months that would see the Fed Funds rate peak near 3.5%. Because of the media blackout, there are no Fed speakers until Chair Jerome Powell’s post-decision press conference Wednesday afternoon.''

The comments by Fed Chairman Jerome Powell at the conclusion of the meeting will be scrutinized for any new indications on whether the Fed will continue to hike rates to battle rising price pressures even if the economy weakens. 

Meanwhile, global growth concerns have also boosted demand for the greenback and considering the close proximity of China and the trading relations between the antipodeans, the Chines lockdowns have weighed. Reuters reports that ''authorities in Shanghai on Monday reported 58 new cases outside areas under strict lockdown, while Beijing pressed on with testing millions of people.''

In weekend data, it has shown that China's factory activity has contracted at a steeper pace in April as the lockdowns halted industrial production and disrupted the supply chain. The data rasies fears of a sharp economic slowdown in the second quarter that will weigh on global growth.

NZD/USD technical analysis

The price has penertrated a weekly support level and is now moving deeper in the weekly demand zone as buls move aside. 

What you need to take care of on Tuesday, May 3:

The  American Dollar benefited from a poor market mood, ending the day higher against most major rivals. The dismal sentiment was the result of a combination of mounting tensions between Russia and Europe, downbeat macroeconomic figures, and concerns related to aggressive central banks, as the RBA, the US Federal Reserve and the BOE are set to announce monetary policies this week.

The German Economy Minister Robert Habeck noted that there is still no unity among EU member states on an oil embargo on Russia, although Finance Minister Christian Lindner added that it is still possible. At the same time, European Central Bank vice-president Luis de Guindos said that a rate hike in July is possible, although unlikely. The EUR/USD pair edged lower and traded around the 1.0500 level.

US data mixed expectations. The official ISM Manufacturing index printed at 55.4, much worse than the 57.6 expected. Nevertheless, Wall Street remained pressured for most of the session, although it ended the day mixed, as the DJIA and the Nasdaq managed to close with gains.

The GBP/USD pair settled around 1.2480, while AUD/USD trades at round 0.7050 ahead of the RBA. The central bank is expected to raise rates by 15-25 bps, pulling the trigger for the first time in over a decade.

The USD/CAD pair settled at 1.2870, despite higher oil prices. WTI ended the day at around $105.60  a barrel.

Safe-haven CHF and JPY shed ground vs the dollar, as well as Gold. The bright metal currently trades at around $1,860 a troy ounce.

Restrictions in China due to coronavirus extended in Beijing, further fueling concerns about global growth. The official Chinese NBS PMIs released over the weekend indicated a sharp economic contraction in April.

 XRP price proposes lower targets amidst SEC delays and inflation pressures

• The USD/CAD edges higher on Monday, some 0.27%.
• The US central bank tightening at a faster pace, China’s Covid-19 spread, and Ukraine’s war weighed on the market mood.
• USD/CAD Price Forecast: Upward biased, though facing solid resistance at 1.2900.

USD/CAD rallies ahead of the FOMC meeting and is testing the 1.2900 mark, for the first time, since March 8, when the greenback reached the previous YTD high around 1.2901. At 1.2884, the USD/CAD gains 0.33%, though shy of the YTD high previously reached during the day at 1.2913.

Sentiment has not improved since early during the North American session, as Wall Street is set to finish the first day of May with losses. The greenback remains in the driver’s seat as shown by the US Dollar Index, rising 0.48%, sitting at 103.712, underpinned by skyrocketing US Treasury yields.

Factors like expectations of the Federal Reserve rate hike of 50-bps alongside China’s struggling to control the coronavirus outbreak threaten to slow the global economy. Shanghai, China’s recent Covid-19 epicenter, reported 58 new cases due to “relaxing” restrictions. Meantime, Beijing keeps intensifying its efforts and, on Labour day, tested millions of people, reacting faster than Shanghai’s authorities

Regarding geopolitics, fighting between Ukraine-Russian continues, though things remain “unchanged,” as peace talks have not resumed. At the same time, Russian President Vladimir Putin emphasized that the “special military operation” would keep going until they achieved their goals.

Macroeconomic-wise, the US docket featured the ISM Manufacturing PMI for April grew slower to 55.4, missed expectations of 57.6, and trailed March’s 57.1 readings. On the Canadian front, the S&P Global Manufacturing PMI expanded at a slower pace in April, as Ukraine’s war added to pressures on capacity and costs.

USD/CAD Price Forecast: Technical outlook

The USD/CAD is upward biased, as shown by the daily chart. The daily moving averages (DMAs) below the spot price, alongside the MACD indicator, trending higher with both lines, confirms the uptrend.

With that said, the USD/CAD’s first resistance would be 1.2900. A breach of the latter would expose December 20, 2021, a daily high at 1.2963, followed by 1.3000. On the other hand, the USD/CAD first support would be April’s 29 daily high-turned-support at 1.2860, followed by April’s 28 daily low at 1.2791, and then the 1.2700 figure.

• GBP/JPY is under pressure and there are prospects of lower levels agead. 
• A daily downside continuation could be on the cards. 

GBP/JPY has corrected 50% of the prior bearish impulse and is meeting a prior structure on the daily chart. Subsequently, the cross is pressured and this could result in a downside continuation in the coming days should the support at 159.60 give out.

GBP/JPY daily chart

GBP/JPY chart

The cross on the hourly time frame is under pressure at a key support area after breaking below what is now the counter trendline and then support which is now expected to be resistantce if it is retested:

• The yellow-metal remains pressured ahead of the Federal Reserve May meeting.
• A downbeat market mood, courtesy of China’s Covid-19 struggling and weak PMIs reported, threatens to derail the world’s second-largest economy.
• Gold Price Forecast (XAU/USD): Neutral biased, though a daily close below the 100-DMA might put the 200-DMA in play.

Gold spot (XAU/USD) remains under pressure for the second consecutive trading day, and for the first time in May, as market participants prepare for the Fed’s May meeting, where investors expect a 50 bps increase to the Federal Funds Rates (FFR) as well as the begin of the QT. At the time of writing, XAU/USD is trading at $1865.91 a troy ounce.

Risk-aversion ahead of the Fed meeting boosts the greenback

The market sentiment remains dampened as the US central bank takes center stage in a busy week in the US economic docket. Alongside the Fed's May meeting, the US ISM Manufacturing PMI for April was released earlier as Wall Street opened, with the reading showing that manufacturing slowed to its lowest level in 21 months. The reading came at 55.4, missing expectations and lower than March’s 57.1.

Regarding the report, the ISM Manufacturing Business Survey Committee chair Timothy Fiore said new coronavirus outbreaks overseas were “creating a near-term headwind for the US manufacturing community,” noting that some manufacturers worried “about their Asian partners’ ability to deliver reliably in the summer months.”

In the meantime, US Treasury yields are skyrocketing during the day. The US 30-year broke the 3% threshold, while the barometer for US Treasury yields, the 10-year benchmark note, surges five and a half basis points, sitting at 2.998%. That, alongside overall greenback strength, as shown by the US Dollar Index up 0.42%, at 103.649, weighed on the non-yielding metal.

Factors alongside the busy US economic docket featuring ADP and US Nonfarm Payrolls employment reports remain in the backdrop. China keeps struggling to tackle the recent coronavirus flare-up that struck Shanghai and has already spread to Beijing. Restrictions could be re-established in Shanghai, while Beijing tested millions of people on a May Day holiday, as reported by Reuters. It’s worth noting that Caixin Manufacturing and Services PMIs, plunged below expectations.

Gold Price Forecast (XAU/USD): Technical outlook

The XAU/USD’s daily chart depicts the yellow metal as neutral biased. At the time of writing, gold is trading below the 100-day moving average (DMA) at $1879.51, a level that, if it gives way to XAU/USD bears to record a daily close below it, could open the door for a drop towards the 200-DMA around $1834.45.

On the downside, gold’s first support would be the 200-DMA at $1834.45. Break below would expose an upslope trendline around $1810-15, followed by a renewed test of $1800.

Upwards, XAU/USD’s first resistance would be the 100-DMA at $1879.51. A breach of the latter would expose $1890, followed by $1900, and then April’s 29 daily high at $1919.77.

• EUR/USD bears sty on top as markets get set for the Fed later this week. 
• The US dollar is recovering fo the end of the month rebalancing correction. 

The euro is under pressure in the mid-day US session and is on the verge of a break of 1.05 the figure vs the greenback. Trading at 1.0507, EUR/USD is down some 0.32% and has drifted from a high of 1.0568 to a low of 1.0501 so far at the start of this week. 

The US dollar is climbing from the corrective lows as per the DXY index which measures the greenback vs. a basket of G10 currencies. The index is trading 0.4% higher at the time of writing at 103.64, below the 103.92 bull cycle highs scored towards the end of last month's trade and month-end rebalancing. 

The markets are getting prepared for the outcome of the Federal Open Market Committee meeting this week where the Federal Reserve is expected to hike rates 50 bp to 1.0% Wednesday. While there will be no new forecasts until the June 14-15 FOMC meeting, another 50 bp hike is widely expected then also. In fact, as analysts at Brown Broerths Harriman note, WIRP suggests nearly 50% odds of a 75 bp hike then. 

''Looking further out,'' the analysts said, ''the swaps market is now pricing in 300 bp of tightening over the next 12 months that would see the Fed Funds rate peak near 3.5%. Because of the media blackout, there are no Fed speakers until Chair Jerome Powell’s post-decision press conference Wednesday afternoon.''

The sentiment is being reflected through the yield on US Treasuries. The 10-year yield traded over the 3% milestone level today, the highest since December 2018.  Similarly, the 2-year yield traded near 2.75% today, the highest since April 22 and nearing that day’s high near 2.78%. 

''This uptrend is likely to continue as US inflation runs hot and the Fed continues its aggressive tightening cycle Of note, the 2-year interest rate differentials are moving back in the dollar’s favour after a brief corrective phase last week. In particular, the spreads with Japan (276 bp) and the UK (112 bp) continue to make new cycle highs, while the spread with Germany (248 bp) is lagging a bit.  All three should continue to rise,'' analysts at BBH explained. 

The question with respect to the value of the EUR/USD is not so much if, but when will parity be seen, or, will the US dollar keep rising? 

Analysts at Westpac argue that there are factors that have scope to sustain ''further near term DXY upside.''

''Leading US activity indicators are edging lower, but the US offers a much more compelling growth story than Europe’s acute stagflationary picture and China’s Covid constrained growth story,'' the analysts said. ''The Fed is unlikely to shift tack until inflation is contained and risk appetite overall looks set to remain unsettled for some time to come.''

EUR/USD technical analysis

The weekly chart shows that the price is a strong bear trend which is meeting a critical level, 10490, that guards the June 2017 lows near 1.0450. Should the price reach these lows, then there would be prospects of a correction towards the 2020 lows and a 38.2% Fibo correction on the way to 1.0700. 

• The USD/JPY began May on the right foot, up some 0.21%.
• The market mood is risk-of, courtesy of the FOMC meeting and China’s Covid-19 spread.
• USD/JPY Price Forecast: Range-bound, contained to the upside, after last week’s language intervention by the Japanese Finance Minister.

The USD/JPY remained comfortable above the 130.00 figure on Monday, as US Treasury yields heightened the day ahead of the Federal Reserve monetary policy meeting, led by the 10-year benchmark note closing into the 3% threshold. At the time of writing, the USD/JPY is trading at 130.11, up some 0.20%.

Market sentiment weighed by the FOMC meeting and China’s Covid-19 spread

A risk-off environment struck Monday’s trading session. The sentiment is dismal ahead of the Federal Reserve meeting, as China struggles to control the Covid-19 spread, with Shanghai reporting 58 new cases as restrictions threaten to be imposed once again, while Beijing keeps pushing for more testing. On the Ukraine-Russian front, things remain unmoved, with talks going nowhere, while hostilities escalate, as newswires reported that Russia is “laying the groundwork” for a takeover of Moldova, according to the Times.

Meanwhile, earlier in the North American session, the ISM Manufacturing PMI for April grew at a slower pace to 55.4 and missed expectations of 57.6, and trailed March’s 57.1 readings. Regarding the report, the ISM Manufacturing Business Survey Committee chair Timothy Fiore said new coronavirus outbreaks overseas were “creating a near-term headwind for the US manufacturing community,” noting that some manufacturers worried “about their Asian partners’ ability to deliver reliably in the summer months.”

The positive of the reading is that the index of Prices Paid fell from 87.1 to 84.6, a signal that could probably mean that inflation could be peaking.

Also, read: US: ISM Manufacturing PMI falls to 55.4 in April versus 57.6 expected

Meanwhile, US bond yields remain elevated ahead of the Federal Reserve May’s monetary policy meeting. The US 10-year Treasury note sits at 2.99%, hovering around the 3% threshold, underpinning the greenback, with the US Dollar Index gaining some 0.28%, up at 103.502.

On the Japanese front, the Consumer Confidence nudged up in April to 33, from a 31.7 forecast and higher than the 32.8 in March. “Consumer sentiment turned positive as COVID-19 cases fell further and as the lifting of curbs paved the way for a reopening of the economy,” according to sources cited by Reuters.

USD/JPY Price Forecast: Technical outlook

The USD/JPY daily chart shows that the pair remains confined to the 130.00 area as market players await the Federal Reserve. Both MACD lines MACD and signal are trendless, which means the major is range-bound, awaiting a fresh catalyst.

Meanwhile, the USD/JPY 1-hour chart depicts the USD/JPY seesawing around the daily pivot point around 130.05, while MACD on this time frame depicts the pair as range-bound.

Upwards, the USD/JPY first resistance would be 130.50. Break above would expose the R1 daily pivot around 130.80, followed by the 131.00 mark. On the other hand, the USD/JPY first support would be the daily pivot around 130.05. A breach of the latter would expose the 100-hour simple moving average (SMA) at 129.39, followed by the S1 daily pivot near 129.10-14.

Analysts at Wells Fargo brought forward expectations for monetary tightening from the Reserve Bank of Australia; however, they still expect the Aussie to soften versus the US dollar over the medium term. They forecast AUD/USD at 0.6700 by the third quarter of 2023. 

Key Quotes: 

“In an environment of positive economic momentum and above-target underlying inflation, the Reserve Bank of Australia (RBA) has turned more hawkish. In its April statement and minutes, the RBA said that faster inflation and a pickup in wage growth have moved up the likely timing of an initial rate hike. More specifically and arguably more notable, policymakers opted to drop the "patient" language from its official statement, further cementing the hawkish shift in tone.”

“We have brought forward our expectations for RBA policy rate increases, and now expect an initial 15 bps rate hike in June, followed by 25 bps hikes at each meeting in July, August, November, and December, which would bring the policy rate to 1.25% at the end of 2022. In 2023, we expect the tightening cycle to continue with 25 bps hikes in Q1, Q2, Q3, and Q4, taking the RBA policy rate to 2.25% by the end of next year.”

“Even though we have brought forward our expectations for monetary tightening, we still believe RBA rate hikes should lag behind those of the Federal Reserve. We also believe RBA rate hikes are likely to fall short of the tightening currently priced by market participants. As a result, we expect the Australian dollar to soften against the U.S. dollar over the medium term with some potential stabilization later on.”

“We forecast the AUD/USD exchange rate to reach 0.6700 by Q3-2023. However, we believe the risks are tilted to the upside. Should inflation prove to be more persistent, the currency could experience a more gradual pace of depreciation than our base case forecast suggests.”
 

On Thursday, the Bank of England will announce its decision on monetary policy. A 25 basis point interest rate hike to 1.00% is expected. In line with consensus and market pricing, analysts at Danske Bank expected the central banks to hike by 25bp but they warn focus is definitely much more on forward guidance than the rate hike itself. 

Key Quotes: 

“We expect the Bank of England to stick to its more dovish signals, although higher-than-projected inflation and rising inflation expectations increase the probability of the BoE turning more hawkish once again. The Bank of England sounds concerned about the growth outlook and the BoE projected a rise in the unemployment rate eventually in the February 2022 Monetary Policy Report. If we are right, however, about the BoE sticking to its dovish signals, it is likely to weigh on GBP given the hawkish market pricing.”

“Markets are pricing in a total of 150bp for the rest of the year (so basically a 25bp rate hike at each of the remaining meetings with risks skewed towards a 50bp rate hike at one of the upcoming meetings). Our Bank of England call is two additional rate hikes (August and November) but see risks skewed towards more rate hikes.”

“We are still of the view that EUR/GBP will trade around 0.84 this year. On the one hand, GBP usually benefits when USD performs but on the other hand GBP is no longer supported as much by relative rates and things may turn around if ECB turns more hawkish and/or BoE remains more cautious than what markets are pricing in. GBP/USD has declined a lot recently and we think the cross can move further down over the coming year.”
 

US Manufacturing sector data released on Monday came in below market consensus. The ISM dropped to 55.4 in April from 57.1 and below the 57.6 expected.  The slowdown in the ISM manufacturing index indicated the sector expanded at the slowest pace of activity in over a year-and-a-half in April, explained analysts at Wells Fargo. 

Key Quotes: 

“The ISM manufacturing index unexpectedly slowed 1.7 points to 55.4 in April. While this reading still indicates expansion in the sector (value above 50 threshold designates expansion from contraction), it suggests activity expanded at the slowest pace in over a year-and-a-half. The underlying details of the report point to a slight pullback in the demand for goods, but purchasing manager comments continue to blame out-of-whack supply chains.”

“The employment component indicated a slower pace of hiring in April, with the largest decline of any component (-5.4 points) to 50.9, a reading that's just above the 50 threshold between expansion and contraction. Today's report doesn't materially change our expectations for Friday's nonfarm payroll report for April, where we forecast employers added 400K net new jobs during the month.”

• US dollar remains firm amid higher US bond yields.
• US data below expectations, eyes on Fed and BoE.
• GBP/USD turns negative after being rejected from 1.2600.

The GBP/USD broke under 1.2530 and dropped to 1.2505, reaching a fresh daily low. The pair remains near the lows, with a bearish tone amid a stronger US dollar across the board.

Cable is trimming half of Friday’s gains and a break under 1.2500 would increase the bearish pressure. The pound was rejected on Friday and again on Monday from above 1.2600, showing the main bearish trend still has momentum.

The US dollar rose across the board after the beginning of the American session despite weaker than expected economic data. The S&P Global and the ISM Manufacturing PMIs dropped came in below market consensus. The key report of the week will be on Friday with the Non-farm Payroll.

Higher US yields and risk aversion continues to boost the dollar. The US 10-year yield rose to 2.99% and the 30-year jumped to 3.05%. The DXY is up 0.40%, trading above 103.60. In Wall Street, the Dow Jones is falling 0.22% and the S&P drops 0.20% after falling sharply on Friday.

The key event ahead is the FOMC meeting. The Fed is expected to announce a 50 basis points rate hike on Wednesday. The statement and Chair Powell comments will likely trigger volatility.

The Bank of England will also have its monetary policy meeting. The consensus is for a 25bp rate hike. Analysts at Danske Bank expect the BoE to stick to its more dovish signals, although higher-than-projected inflation and rising inflation expectations increase the probability of a hawkish twist. “The Bank of England sounds concerned about the growth outlook and the BoE projected a rise in the unemployment rate eventually in the February 2022 Monetary Policy Report. If we are right, however, about the BoE sticking to its dovish signals, it is likely to weigh on GBP given the hawkish market pricing,” they explained.

Technical levels

• The Australian dollar begins May downbeat, losing 0.29%.
• Sentiment fluctuated risk-off/risk-on, following a worse than expected US ISM Manufacturing PMI.
• US ISM Manufacturing PMI slows and expands at a slower pace
• AUD/USD Price Forecast: Remains downward pressured and could threaten to break below 0.7000.

The Australian dollar begins May on the back foot, despite a possible rate hike by the Reserve Bank of Australia (RBA) in the week, which is following the Federal Reserve’s footsteps. However, the latter is about to accelerate the pace of tightening monetary policy on Wednesday, where market players expect a 50-bps rate increase which would lift the FFR to 1%. At the time of writing, the AUD/USD is trading at 0.7036.

US ISM Manufacturing PMI slows and expands at a slower pace

The market sentiment fluctuated to risk-off/risk-on when the Institute for Supply Manufacturing (ISM) revealed April’s Manufacturing PMI, which came at 55.4, lower than the 57.6 foreseen in the street. The drop in the month is the lowest in the last 21-months and continues the recent downturn that started in December of 2021. Timothy Fiore, chair of ISM’ said that “the US manufacturing sector remains in a demand-driven, supply chain-constrained environment.”  She added that “in April, progress slowed in solving labor shortage problems at all tiers of the supply chain.”

The positive of the reading is that the index of Prices Paid fell from 87.1 to 84.6, a signal that could probably mean that inflation could be peaking.

Also, read: US: ISM Manufacturing PMI falls to 55.4 in April versus 57.6 expected

In the meantime, in the Asian/European session, equities traded with losses. China’s coronavirus outbreak had a setback in Shanghais, reporting 58 new Covid-19 cases, while Beijing intensified testing. Geopolitical-wise, the Ukraine-Russia conflict continues, and it appears would that peace talks will not resume in the near term as Russian Foreign Minister Lavrov said that Ukrainians had sabotaged negotiations, while the Ukrainian negotiator Podolyak denied this and said that Lavrov hast has not attended a single negotiation round.

Meanwhile, US Treasury yields skyrocket ahead of the Federal Reserve May’s monetary policy meeting. The 10-year benchmark note sits at 2.975%, hovering around the 3% threshold, underpinning the greenback, with the US Dollar Index gaining some 0.33%, up at 103.562.

In the week ahead, on Tuesday, the Reserve Bank of Australia (RBA) will reveal its interest rate decision, widely expected to increase by 15 bps, while Retail Sales and the RBA Chart Pack will be unveiled on Wednesday. On Wednesday, the Federal Reserve monetary policy decision will be revealed on the US front, followed by Chair Jerome Powell’s press conference, and by Friday, the Nonfarm Payrolls report.

AUD/USD Price Forecast: Technical outlook

The AUD/USD is stills downward biased, and on Monday, broke below February’s 4 swing low at 0.7051. Also, the daily moving averages (DMAs) above the spot price have the 50-DMA at 0.7346, aims lower, and close into the 200-DMA at 0.7284, triggering a death cross, motivating sellers to break below the 0.7000 figure.

That said, the AUD/USD first support would be 0.7000. Break below would expose the January 28 YTD low at 0.6967, followed by the June 15, 2020 pivot low at 0.6777.

• In a choppy start to the month, the S&P 500 hit fresh annual lows just above 4,100.
• The index has since bounced back to the 4,150 area, though investors are cautious ahead of key risk events.
• The Fed is expected to lift interest rates by 50 bps this week and official jobs data is due Friday.

In a choppy start to the month, the S&P 500 index hit a fresh annual low just above the 4,100 level shortly after the US open, only to then reverse about 50 points higher again. At current levels near 4,150 the index trades with gains of about 0.6% on the day, with investors focused on a barrage of key upcoming risk events, including Wednesday’s Fed meeting and Friday’s release of the April US labour market report.

While investors will welcome Monday’s bounce from annual lows, most won’t be betting that the recovery extends back to mid-April levels around the 4,400s. The Fed is expected to hike interest rates by 50 bps this week, as well as signaling more rate hikes of at least 50 bps in the meetings ahead in its bid to get interest rates back to around 2.50% by the year’s end to tame inflation. The bank is also expected to announce its quantitative tightening plans.

Ahead of this, longer-term US bond yields are back on the front foot, with the 10-year looking to break back above 3.0% for the first time since late 2018. If this trend continues this week, that will create a particularly difficult backdrop for high price/earnings ratio stocks, which includes most large-cap tech and growth stocks, to continue to recover.

And it's not just higher interest rates and Fed tightening that investors have to worry about. Growth concerns have been in focus at the start of the week, with official Chinese April PMI surveys out over the weekend and missing expectations by some margin, and the latest underwhelming US ISM Manufacturing PMI figures not helping. The headline index fell to its weakest since 2020, just as the supplier delivery sub-index hit a five-month high to reflect worsening lead times the Russo-Ukraine war and China lockdowns worsen global supply chain issues.

The latest index also suggested that firms continued to struggle to hire/hold onto workers in April, suggesting that while indicators of labour market slack released in Friday’s official labour market report may remain robust, the headline NFP number might be weak.

Turning to the other major US indices; the tech-heavy Nasdaq 100 index was last trading about 0.6% higher, though also hit fresh annual lows earlier on Monday and remains unable to break back above the 13,000 level. Meanwhile, the Dow was last trading higher by about 0.3%, though still remains above 33,000 and about 2.5% above earlier annual lows.

• The April US ISM Manufacturing PMI was weaker than expected at 55.4, with drops across the major sub-indices. 
• FX markets did not react to the latest data.  

The headline ISM Manufacturing Purchasing Manager's Index (PMI) fell to 55.4 in April from 57.1 in March, below expectations for a small rise to 57.6, according to the latest release by the Institute for Supply Management (ISM). That marked the lowest reading since September 2020. 

Subindices:

• The Prices Paid Index fell a little to 84.6 from 87.1 in March. 
• The New Orders Index fell a little to 53.5 from 53.8, the lowest reading since May 2020. 
• The Employment Index dropped to 50.9 from 56.3, larger than the expected drop tp 56.0. 

Market Reaction

Currency markets didn't react much to the latest slightly softer than expected US ISM Manufacturing PMI survey data. The DXY continues to trade in the mid-103.00s, a little higher on the day and eyeing last week's multi-month highs near 104.00.   

According to the final version of IHS Markit's April Manufacturing Purchasing Managers Index (PMI) survey, the headline index fell a little to 59.2 versus the flash estimate of 59.7. That suggests that the pace of expansion in US manufacturing remained broadly robust in April. The headlines manufacturing index was 58.8 in March. 

The final Output Index for April was revised a little higher to 57.6 versus the flash reading of 57.4, while the final Output Prices Index for April was revised a little lower to 76.3 from the flash reading of 78.4, though still sharply higher than March's reading of 69.7.  

Market Reaction

FX markets did not react to the latest did, with attention instead on the release of ISM's Manufacturing PMI survey at 1500BST. 

• Silver witnessed heavy follow-through selling on Monday and dived to a near three-month low.
• Last week’s break below the 200-DMA and ascending trend-line was seen as a key trigger for bears.
• Extremely oversold RSI makes it prudent to wait for some consolidation before the next leg down.

Silver extended a three-week-old bearish trend and witnessed some follow-through selling for the eighth successive day on Monday. This also marked the ninth day of a negative move in the previous ten and dragged spot prices to the $22.00 neighbourhood, or a near three-month low during the early North American session.

Looking at the broader picture, last week's sustained breakthrough the very important 200-day SMA and an ascending trend-line extending from December 2021 was seen as a fresh trigger for bearish traders. A subsequent slide below the $22.65 static support aggravated the bearish pressure and contributed to the downfall.

That said, RSI (14) on the daily chart is already flashing extremely oversold conditions and warrants caution for aggressive traders. This makes it prudent to wait for some near-term consolidation or modest bounce back towards the $22.65 area before positioning for an extension of the ongoing downward trajectory.

Hence, any further decline is more likely to pause near the $22.00 round-figure mark. That said, a convincing break below should pave the way for additional losses and expose the next relevant support near the $21.45-$21.40 region, or the December 2021 swing low.

On the flip side, attempted recovery back above the $22.65 region could be seen as a fresh selling opportunity near the $23.00 round figure. This, in turn, should cap the upside for the XAG/USD near the aforementioned ascending trend-line support breakpoint, now turned resistance near the $23.20 area.

Silver daily chart

Key levels to watch

• Spot gold has extended on earlier losses and is now trading in the upper $1850s, down more than 2.0%.
• As focus turns to upcoming US data and Wednesday’s Fed meeting, profit-taking is seemingly weighing on XAU/USD.
• Some are also citing downside in global energy and metal markets as reducing the demand for inflation protection.

Ahead of the release of April US ISM Manufacturing PMI data that will probably show a continued robust pace of expansion in US industry last month, spot gold (XAU/USD) prices continue to trade on the back foot. Indeed, a fall in prices that had begun during Asia Pacific trade accelerated in the run-up to the US open, with the precious metal recently breaking below key support in the $1875 and extending losses into the upper $1850s.

At current levels around $1857, XAU/USD now trades with on the day losses of over 2.0%. No specific piece of news or fundamental catalyst can be pinned down as behind the latest drop. Instead, analysts and market commentators have on Monday been talking about how nerves ahead of what is likely to be a very hawkish Fed meeting on Wednesday, as well as a barrage of tier one US data releases, is encouraging profit-taking in gold markets.

The Fed is expected to lift interest rates by 50 bps, announce quantitative tightening plans and signal more 50 bps at upcoming meetings, with the bank aiming to get interest rates back to around 2.5% by the year’s end. Higher interest rates increase the “opportunity cost” of holding non-yielding assets like gold and typically weigh on its demand.

Elsewhere, market commentators also cited sharp downside in global energy and metal prices as weighing on demand for gold via a reduced need for inflation protection. Crude oil and copper markets, to take to key examples, have cratered on Monday amid concerns about growth in China following ugly April PMI data over the weekend. XAU/USD bears will now likely target a test of resistance turned support in the $1850 area ahead of a potential test of the 200-Day Moving Average in the $1830s.

The German economy minister said on Monday that Russia could gas supplies to Germany as it did with Poland and noted that Germany was not against a ban on Russian oil imports, as reported by Reuters.

Earlier in the day, the German climate minister said that  Germany has been preparing itself to be able to support a ban on Russian oil.

Market reaction

The shared currency stays on the back foot following these comments and the EUR/USD pair was last seen trading at 1.0508, where it was down 0.3% on a daily basis.

• EUR/USD fades the earlier bullish move to 1.0570.
• A visit to the YTD low at 1.0470 remains in the pipeline.

EUR/USD reverses the initial optimism and puts the 1.0500 level under pressure at the beginning of the week.

The offered stance in the pair remains well and sound despite Friday’s bounce and the door stays open to another probable visit to the YTD low around 1.0470 (April 28) in the very near term.

In the meantime, while below the 3-month line around 1.0980, extra losses in the pair are likely.

EUR/USD daily chart

• WTI has fallen back to the mid-$101.00s on Monday, down over $2.50 amid China demand concerns after weak data.
• But concerns about Russian output with the EU close to agreeing an oil import embargo may keep prices above $100.

Even though the EU looks set to agree on ending all Russian oil imports by the end of the year (aside from perhaps to Slovakia and Hungary) as soon as Tuesday, a move which is likely to exert further downwards pressure on Russian production, oil prices trade with significant losses at the start of the week. Having come within about $1.0 of its mid-April highs just above $109.00 per barrel last Friday, front-month WTI futures have reversed just over $2.50 lower on Monday to trade in the mid-$101.00s.

Traders are citing concerns about weakening economic growth in China as weighing on prices at the start of the week following the release of significantly worse than expected official April PMI survey results over the weekend. Some also cited some newsflow about the resumption of production in various oilfields located in Libya as potentially also weighing on prices. Libyan output was disrupted to the tune of 500K barrels per day in April by blockades, as the country continues to struggle with internal instability.

For the time being, so long as Chinese demand fears don’t significantly increase again in the coming days (new lockdowns could trigger this), concerns about Russian supply as the EU looks to tighten sanctions on the country following its invasion of Ukraine might be enough to keep WTI supported above the $100 mark. According to Reuters, around half of Russia’s 4.7M barrels per day in exports goes to the EU and, while some of this can be redirected to other markets at a discount (like too India), “Russia’s ability to redirect all unwanted cargoes from the West to Asia is limited,” said one analyst.

“In the case of embargoes, Russia will be forced to cut production further as it lacks storage capacity for extra crude volumes,” they continued. Russia’s sanctions-related supply woes come at a time when many OPEC+ nations were already struggling to increase output in line with the group’s recent series of output quota hikes. According to a Reuters survey, the group’s output rose by just 40K barrels per day in April, well below the 400K targeted rise, pushing the group’s compliance with its output cut pact to 164% (up from 151% a month earlier). Massive OPEC+ underproduction is another reason why WTI above, or at least near, $100 continues to make sense in the near term.

• EUR/USD loses the grips and challenges 1.0500.
• The greenback’s recovery picks up pace, yields creep higher.
• Markets’ attention remains on the US ISM Manufacturing.

Sellers regain control of the sentiment around the European currency and force EUR/USD to come down and revisit the vicinity of the 1.0500 neighbourhood on Monday.

EUR/USD looks to data, US yields

EUR/USD quickly leaves behind Friday’s bullish attempt and refocuses on the downside in a context once again dominated by the upside bias in the greenback and persistent high yields.

Indeed, US yields continue to rise in the belly and the long end of the curve, while the German 10y bund yields keep trading close to the 1.0% area.

In the euro docket, earlier results saw German Retail Sales contract 2.7% in the year to March and the final Manufacturing PMI ease to 54.6 in April. In the euro area, the Manufacturing PMI receded to 55.5, the Consumer Confidence deteriorated to -22.0 and the Economic Sentiment retreated to 105, all for the month of April.

Later in the NA session, the final Manufacturing PMI is due followed by Construction Spending and the ISM Manufacturing.

What to look for around EUR

EUR/USD leaves behind part of the recent multi-session sharp selloff and rebounds from 5-year lows around 1.0470 (April 28). The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Retail Sales, Final Manufacturing PMI, Consumer Confidence, Economic Sentiment (Monday) – Germany Unemployment Rate, Unemployment Change, EMU Unemployment Rate, ECB Lagarde (Tuesday) – Germany Balance Trade, Final Services PMI, EMU Final Services PMI, Retail Sales (Wednesday) – Germany Factory Orders, Construction PMI (Thursday) – Germany Industrial Production (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is down 0.34% at 1.0505 and a break below 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017). On the flip side, the next hurdle emerges at 1.0593 (high April 29) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level).

The Canadian dollar retains a soft undertone. USD/CAD has hit 1.29, however, economists at Scotiabank expect gains to be capped above this level.

Macro fundamentals are CAD-supportive

“We think the CAD has some – fairly obvious – fundamental virtues, such as tightening BoC monetary policy and very resilient growth but those factors continue to be overshadowed by external factors (equity market vol) which may keep the USD better supported for the moment.”

“We do think that the USD gains should remain capped above 1.29, the top of the range that has held spot for the past 10 months or so, however.”

US ISM Manufacturing PMI overview

The Institute of Supply Management (ISM) will release its latest manufacturing business survey result, also known as the ISM Manufacturing PMI at 14:00 GMT this Monday. The index is anticipated to edge higher from 57.1 in the previous month to 57.6 in April. The gauge will provide a fresh update on the manufacturing sector activity and the health of the economy as a whole amid signs of slowing global growth.

How could it affect EUR/USD?

Ahead of the release, the US dollar stood tall near a multi-year high touched last week and remained well supported by the prospects for a faster policy tightening by the Fed. A stronger than expected report will reaffirm market bets and offer additional support to the buck. Conversely, any reaction to a softer print might do little to dent the underlying bullish sentiment surrounding the buck. Apart from this, concerns about the potential economic fallout from the Ukraine crisis should act as a headwind for the shared currency. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside.

Valeria Bednarik, Chief Analyst at FXStreet, offered a brief technical outlook for the pair: “The EUR/USD pair is down from an intraday high of 1.0567, and the daily chart shows that the risk remains skewed to the downside. The 20 SMA heads firmly lower, far above the current level, while the longer ones maintain their bearish slopes above the shorter one. Technical indicators have recovered modestly but remain within oversold levels without signs that could confirm an interim bottom.”

Valeria also outlined important technical levels to trade the EUR/USD pair: “According to the 4-hour chart, the risk is also on the downside. The pair is unable to break above a bearish 20 SMA, which currently stands a few pips above the current level. The Momentum indicator is struggling to reenter positive territory while the RSI indicator consolidates around 37, indicating absent buying interest. Bears are likely to resume acting on a break below the 1.0500 level, with the ultimate bearish target at 1.0339, the January 2017 monthly low.”

Key Notes

  •  EUR/USD Forecast: Bears retake control amid exacerbated risk factors

  •  EUR/USD Forecast: Risk-aversion to limit euro's rebound

  •  EUR/USD: Poised to break firmly under 1.05 in the near-term – Scotiabank

About the US ISM manufacturing PMI

The Institute for Supply Management (ISM) Manufacturing Index shows business conditions in the US manufacturing sector. It is a significant indicator of the overall economic condition in the US. A result above 50 is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish).

GBP/USD trades in a 1.2530-1.26 consolidation zone. Economists at Scotiabank expect the pair to slide towards 1.24 on failure to rise above the 1.26 level this week.

Cable remains on a clear weakening trend

“The GBP remains on a clear weakening trend and it would take a firm break past the 1.26 figure zone to build signs of a reversal, with limited support markers between it and the 1.27 level.”

“A failure to climb back above 1.26 over the balance of the week would point to a resumption of losses that breakthrough 1.24 – which held up the GBP last Thursday – and eventually aim for the Jun 2020 low of ~1.2250.”

The EUR is tracking its peers’ losses against the dollar. In the view of economists at Scotiabank, the shared currency remains prone to weakness on fundamentals.

Resistance after 1.0570/80 aligns at the 1.06 zone

“The EUR is set to continue to trade on the defensive amid weak growth prospects and priced out ECB expectations, as it looks to break firmly under 1.05 in the near-term.”

“The 1.05 zone remains a strong floor and triggering EUR buying pressure (as it remains in oversold territory). Below the figure area, the recent low of 1.0472 stands as key support ahead of the figure and the 2020 low of 1.0341.”

“Resistance after 1.0570/80 is the 1.06 zone followed by the mid-figure.”

• USD/CAD gained traction for the second straight day and climbed back closer to the YTD peak.
• Sliding crude oil prices undermined the loonie and extended support amid modest USD strength.
• Move beyond the 1.2900 mark favours bullish traders and supports prospects for further gains.

The USD/CAD pair built on Friday's strong intraday rally from the 1.2720-1.2715 region and climbed to its highest level since March 9 during the early North American session on Monday. The emergence of fresh selling around crude oil undermined the commodity-linked loonie. This, along with the underlying bullish sentiment surrounding the US dollar, acted as a tailwind for spot prices for the second successive day.

From a technical perspective, spot prices are now looking to extend the momentum further beyond a downward-sloping trend-line extending from December 2021 swing high. Move beyond the previous YTD top, around the 1.2900 mark, now seems to have confirmed a fresh bullish breakout and supports prospects for additional gains. The USD/CAD pair could now appreciate further and test the 2021 peak, around the 1.2665 region touched in December.

That said, RSI (14) on the daily chart have moved on the verge of breaking into overbought territory and warrants some caution ahead of this week's key event/data risks. The Fed is scheduled to announce its monetary policy decision on Wednesday. This will be followed by the closely watched monthly jobs report from the US (NFP) and Canada, which will play a key role in determining the near-term trajectory for the USD/CAD pair.

In the meantime, any meaningful pullback now seems to find some support near the 1.2860-1.2855 region ahead of the daily low, around the 1.2830 area. This is followed by the 1.2800 round-figure mark, which if broken decisively will negate the positive outlook and prompt aggressive technical selling around the USD/CAD pair. The downward trajectory could then accelerate towards the 1.2720-1.2715 area en-route the 1.2700 round-figure mark.

Some follow-through selling would pave the way for a fall towards testing the 1.2650-1.2640 region. The latter marks a horizontal resistance breakpoint and coincides with the very important 200-day SMA, which, in turn, should act as a strong base for the USD/CAD pair and a key pivotal point.

USD/CAD daily chart

Key levels to watch

• GBP/USD is languishing in the mid-1.2500s with volumes thinned due to UK market closures and ahead of key BoE/Fed meetings.
• The bearish combination of a hawkish Fed plus less hawkish BoE/UK growth concerns means traders may continue selling rallies.

GBP/USD is languishing in the mid-1.2500s on Monday, with volumes thinned as a result of UK market closures and as traders braced ahead of key policy announcements from the Fed and BoE on Wednesday and Thursday. The Fed meeting is expected to be the much more hawkish of the two, with the US central bank expected to raise interest rates by 50 bps, signal more 50 bps hikes ahead and announce its quantitative tightening plans.

While the BoE might also outline quantitative tightening plans, it will likely only hike interest rates by 25 bps, and will probably further soften its tone on the need for further rate hikes ahead, given growing concerns about the state of the UK’s economic outlook. Indeed, these growing concerns about the UK economy have weighed heavily on sterling in recent sessions. This time two weeks ago, GBP/USD was trading comfortably above 1.3000, more than 3.5% higher versus current levels.

While concerns about the outlook for the UK economy amid the worst cost-of-living squeeze in decades, which has subsequently seen BoE tightening bets pared, has been a major driver of the recent drop, a broad strengthening of the US dollar has also been a key factor. Driving this strength has of course Fed hawkishness, but also concerns about geopolitics and China lockdowns, as well as general weakness in global risk assets, which spurred demand for the safe-haven buck.

This week’s central bank meetings and US data (the official April jobs report is out on Friday) may reaffirm the themes that have weighed heavily on GBP/USD in recent sessions and, as a result, traders may be looking to sell any rallies. 1.2600 looks to be a good area of resistance for now, though some technicians have also noted the 1.2670 area. After such a big move lower in recent weeks, expecting a further swift drop to 1.20 might be asking for too much in the near term. But short-term bears may well want to target a retest of last week’s lows just above 1.2400.

• DXY resumes the upside beyond the 103.00 yardstick.
• Next on the upside comes the cycle tops near 104.00.

The index leaves behind the pullback seen at the end of last week and advances above the 103.00 area on Monday.

Price action in DXY remains supportive of the resumption of the uptrend with the initial target at the 2022 highs just below the 104.00 yardstick (April 28). Above this level comes 105.63 (December 11 2002 high).

The current bullish stance in the index remains supported by the 8-month line near 96.80, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 95.76.

DXY daily chart

• Gold has started the week on the back foot, and is already about 1.0% lower in the $1880 area.
• XAU/USD is eyeing a test of last week’s lows at $1872 as focus turns to this week’s Fed meeting.

Spot gold (XAU/USD) prices trade firmly on the back foot at the start of the first trading day of May, with prices last trading lower by just under 1.0% in the $1880 per troy ounce area, having dropped about $17. Despite much worse than expected official April PMI numbers released out of China over the weekend that have exaccerbated fears about lockdown induced economic slowdown there, as well as increased jawboning from various EU officials on Monday regarding a possible embargo on Russian oil imports, gold has not been able to maintain a lasting bid.

The US dollar, with which XAU/USD has had a strong negative correlation as of late, has started the week on the front foot, as focus turns to an anticipated 50 bps rate hike from the Fed on Wednesday. Hawkish expectations going into the meeting, with the bank expected to signal more 50 bps rate hikes coming at its next few meetings as well as announce quantitative tightening plans, are discouraging investors from buying/holding gold, even as global inflation/geopolitical/growth concerns linger.

Higher interest rates as a result of central bank policy tightening tend to weigh on non-yielding assets such as gold given the rising “opportunity cost”. XAU/USD bulls will undoubtedly be eyeing a test of support in the form of last week’s lows in the $1872 area. A break below this key area of support would open the door to a run lower towards the 200-Day Moving Average in the mid-$1830s. Ahead of Wednesday’s Fed meeting, gold traders will also be watching the release of April US ISM Manufacturing data on Monday at 1500BST and March JOLTs Job Openings data at 1500BST on Tuesday for an update as to the economy’s ongoing strength and labour market tightness.

GBP/USD has been unable to break above 1.26. Analysts at BBH still target the June 2020 low near 1.2250 and then the May 2020 low near 1.2075.

Drop below 1.2075 to open up March 2020 low near 1.1410

“Cable traded last week at the lowest since July 2020 near 1.2410 and we continue to target the June 2020 low near 1.2250 and the May 2020 low near 1.2075.” 

“If the 1.2075 level breaks, then we would target the March 2020 low near 1.1410.”

USD/JPY has resumed its march higher and is trading near 130 today. Economists at BBH continue to look for a test of the 2002 high near 135.15.

Downplaying FX intervention risks for now

“We continue to target the January 2002 high near 135.15. If that level breaks, the August 1998 high near 147.65 would come into view. 

“Japan markets will be closed until Friday for the Golden Week holidays. While speculators may try to take advantage of thin markets to push USD/JPY higher, our understanding is that the Bank of Japan maintains staffing during the Golden Week to monitor markets. That said, we continue to downplay FX intervention risks for now.”

The euro remains heavy after being unable to break above 1.06. EUR/USD is trading near 1.0525 and economists at BBH expect the pair to test January 2017 low around 1.0340.

EUR/USD about to tackle last week’s cycle low near 1.0470

“EUR/USD should soon test last week’s cycle low near 1.0470.”

“We still look for a test of the January 2017 low near 1.0340. If that level breaks, we have to start talking about parity and below.”

• AUD/USD reversed an intraday slide to over a three-month low touched earlier on Monday.
• The risk-on impulse acted as a headwind for the safe-haven USD and extended some support.
• The upside seems limited ahead of the RBA decision on Tuesday and FOMC on Wednesday.

The AUD/USD pair managed to recover nearly 50 pips from over a three-month low and climbed to a fresh daily peak, around the 0.7080 region during the first half of the European session.

Disappointing Chinese PMI prints released over the weekend fueled fears about a sharp slowdown in the world's second-largest economy and weighed on the China-proxy Australian dollar. This, along with some intraday US dollar buying, dragged the AUD/USD pair to its lowest level since March, though the intraday downtick stalled near the 0.7030 region.

A generally positive tone around the equity markets acted as a headwind for the safe-haven USD and benefitted the perceived riskier aussie. Apart from this, speculations that the Reserve Bank of Australia could lift the official target cash rate on Tuesday in the wake of last week's sharp rise in inflation extended support to the AUD/USD pair.

That said, any meaningful upside still seems elusive as investors might refrain from placing aggressive bets ahead of this week's key central banks event/data risks. The RBA is scheduled to announce its monetary policy decision during the Asian session on Tuesday. The market focus, however, will remain glued to the outcome of a two-day FOMC meeting.

The US central bank is universally expected to adopt a more aggressive policy response to curb soaring inflation and hike interest rates by 50 bps. Apart from this, investors will look for clues on the Fed's plan for balance sheet reduction and guidance on future interest rate hikes. This would act as a catalyst and have a significant effect on the global markets.

In the meantime, traders on Monday will take cues from the US economic docket, featuring the release of the US ISM Manufacturing PMI< due later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and produce some trading opportunities around the AUD/USD pair.

Technical levels to watch

• EUR/JPY fades the initial bull run to 137.60 on Monday.
• The cross could face some consolidative action in the near term.

EUR/JPY could not sustain the earlier spike to the 137.60 region at the beginning of the week.

The cross could move into a consolidative phase in the very near term ahead of the potential continuation of the uptrend. Against that, the immediate hurdle still emerges at the 2022 high around 140.00 (April 21). If cleared, the cross should then focus on the June 2015 high at 141.05. Beyond this level, there are no hurdles of note until the 2014 top at 149.78 (December 2014).

In the meantime, while above the 200-day SMA at 130.72, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

The Reserve Bank of Australia (RBA) will announce its interest rate decision on Tuesday, May 3 at 04:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of 10 major banks regarding the upcoming central bank's decision.

The Australian central bank is on course to deliver its first rate hike in 11 years, as it is widely expected to raise the Official Cash Rate (OCR) by 15 basis points (bps) to 0.25% from a record low of 0.10%, seeking to keep inflation in check.

Deutsche Bank

“We now expect a 15bps hike with an additional 50bps in June.”

ANZ

“We now expect the RBA to hike by 15bp. Inflation pressures have momentum and have broadened. A cash rate target of 0.1% is inappropriate against this backdrop.”

Natixis

“We expect the RBA to act already in May given that headline CPI inflation has been above the 2-3% target range for four consecutive quarters. And the labor market is tight. More specifically, we expect the RBA to raise the cash rate by 40 bps to 0.5% at the May meeting.”

Westpac

“We anticipate an increase of 15bps, to 0.25%, up from a record low of 0.10%. There will be the adoption of a strong tightening bias justifying the decision, as well as the signalling of a follow-up move in June. We expect a series of moves in 2022 (including 25bps hikes in June, July and August), lifting the cash rate by year-end to 1.5%, then rising to a peak of 2.0% in mid-2023.”

Standard Chartered

“The RBA is likely to start its rate hiking cycle at the upcoming May meeting. We expect the central bank to lift its policy rate from emergency levels of 0.10% to 0.25%. We think the latest high inflation print (Q1 trimmed mean rose to 3.7% YoY, well above the central bank’s target range of 2-3%) may mean that the RBA needs to move earlier, but not necessarily by a full 25bps, in May. Thereafter, we expect the central bank to hike 25bps per meeting from June through to December, taking the policy rate to 2% by year-end. However, we think the RBA may only hike once by 25bps in March 2023, taking the near-term terminal rate to 2.25% (unchanged from our previous call), a slight positive real rate as growth and inflation slow.”

ING

“What was shaping up to be just a position-setting meeting ahead of an actual hike later this quarter is now looking likely to deliver not just a rate hike, but perhaps a 40bp one together with a strong nod towards front-loading at subsequent meetings. This follows a much higher-than-expected inflation reading for 1Q22. The market is already heavily pricing in rate hikes from the RBA so the market reaction may be modest.”

CE

“We think the RBA needs to begin tightening policy. The RBA might want to avoid politicising its decision and wait until after the federal election in May. But with a number of politicians voicing their opinion on rate hikes, the RBA should demonstrate its independence by ignoring the politics and focusing on the economic data. We now think the Bank will kick off its hiking cycle with a 15bp hike in May.”

TDS

“After the red-hot inflation print, next week's meeting is a very close call but for now we maintain our view of no hike. We don't expect the RBA to hike in an election month, and it could wait for Q1 wages print on 18th May to justify a June hike given its focus on wages growth. However, the risk for a 40bps hike in June is likely higher if wage growth surprises to the upside.”

SocGen

“We expect the RBA to increase the cash rate target from 0.10% to 0.25%. The RBA is likely to acknowledge that underlying inflation significantly deviated from the 2-3% target range in 1Q22, and to say that it will set policy to support inflation outcomes consistent with the target. In other words, policymakers will become decisively hawkish, suggesting a fast pace of rate hikes in the near-term. The RBA will likely maintain its upbeat outlook on economic growth, despite the uncertainty surrounding the war in Ukraine and the lockdowns in China.”

Citibank

“The RBA is expected to raise the cash rate by 15bps, from 10bps to 25bps. Risk is that the Board could consider a 40bp increase (in line with market pricing), but we expect a follow-up 25bp rate hike in June, which should negate the reason to lift by 40bps this week. The other risk is that the Board may delay the hike to June because it’s waiting for Q1 WPI and National Accounts. Balance sheet roll-off – the Board will likely allow maturing bonds to roll-off its balance sheet, rather than reinvest maturities.”

The US Dollar Index recorded another gain last week – the fourth consecutive of gains. The primary driver remains rates divergence and hence the FOMC meeting will be key. In the view of economists at MUFG Bank, the US dollar may be entering overshooting territory, therefore, the greenback’s strength may be reaching its limit.

USD upside risks persist but entering overshoot levels

“Fed Chair Pow ell is certainly likely to talk very tough on tackling inflation risks – it will be the first 50bp rate increase since May 2000 – and Pow ell and the FOMC w ill not want to undermine expectations of further 50bp moves at this stage. While such hawkishness may not lead to big market rates moves, it should nonetheless be supportive for the dollar.”

“We see scope for the US dollar to strengthen further through this phase of 50bp rate increases (May/June for sure) but the scale of strength from here is certainly more limited now. Our DXY-weighted 2yr spread is at the same level as at the start of April suggesting some topping out that could start to play a role at curtailing further notable US dollar strength from here.”

“Leveraged funds’ long USD positioning is relatively light and with the Fed set to endorse market pricing at this early stage of tightening in circumstances of negative risks abroad, further USD gains are likely over the short-term.”

The oil market remains on the razor’s edge, which is highlighted by relatively large price swings over the past week. Strategists at the Bank of Montreal expect oil prices to hover around a wide $90-$110 range.

Oil market to experience more major twists and turns in the coming months

“We expect the price of crude oil to be quite volatile, trading in a fairly wide range, say $90-$110/bbl or so, unless there is a major development that could lead to a sharp break-out to the up or downside.”

“Key downside scenarios of which we need to be mindful are: A sudden end to the war with a long-lasting peace agreement. Global oil supply picks up significantly, especially among non-OPEC+ countries. Global oil demand contracts sharply in response to monetary tightening by the world’s major central banks.”

“Upside risks essentially revolve around the following: EU sanctions on Russian imports of crude oil. The West imposes secondary sanctions on countries that continue to purchase Russian crude oil. A sharp decline in OPEC+ production as Russian output, in particular, is under pressure.”

• USD/CHF was seen consolidating its recent strong bullish run to a nearly two-year high.
• Aggressive Fed rate hike bets continued underpinning the USD and acted as a tailwind.
• A positive risk tone weighed on the safe-haven CHF and further extended some support.
• Investors now eye US ISM PMI for some impetus, though the focus remains on FOMC.

The USD/CHF pair seesawed between tepid gains/minor losses through the first half of the European session and was last seen trading in neutral territory, around the 0.9725 region.

The pair quickly reversed a modest bearish gap opening to sub-0.9700 levels on the first day of a new week, albeit struggled to capitalize on the move further beyond the 0.9750 region. The growing market conviction that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation remained supportive of elevated US Treasury bond yields. This, in turn, continued acting act as a tailwind for the US dollar and the USD/CHF pair.

Apart from this, a generally positive tone around the equity markets undermined traditional safe-haven assets, including the Swiss franc and offered additional support to spot prices. Despite the support factors, bulls seemed reluctant to place aggressive bets and preferred to wait for the outcome of the two-day FOMC monetary policy meeting. The Fed is scheduled to announce its decision on Wednesday and is widely expected to hike interest rates by 50 bps.

Hence, the focus will be on the Fed's plan to reduce the size of its balance sheet. Apart from this, investors will take cues from this week's important US macro data, including the closely watched US monthly jobs report (NFP) scheduled at the start of a new month. A rather busy week kicks off with the release of the US ISM Manufacturing PMI, which, along with the US bond yields, will influence the USD and provide some impetus to the USD/CHF pair.

From a technical perspective, the rangebound price action witnessed over the past three sessions or so could be categorized as a bullish consolidation phase. Moreover, the fundamental backdrop supports prospects for an extension of over a one-month-old upward trajectory, suggesting that any meaningful dip would still be seen as a buying opportunity. Sustained strength beyond the mid-0.9700s will reaffirm the positive bias and pave the way for additional gains.

Technical levels to watch

Gold Price has dropped below $1,880 as the new week gets underway. On Wednesday, the US Federal Reserve is broadly expected to raise interest rates by 50 basis points. However, this event should not impact the yellow metal, in the opinion of strategists at Commerzbank.

Gold under pressure as eventful central bank week begins

“Gold is pushing lower. This is presumably due in part to the persistently firm US dollar and the recent renewed rise in bond yields.” 

“Financial investors have been retreating from gold: the gold ETFs tracked by Bloomberg registered outflows every day last week (12 tons in all), bringing the series of 14 consecutive weeks of inflows to an end. According to the CFTC’s statistics, speculative financial investors likewise reduced their net long positions further in the week to 16 April – namely by 20% to a good 81,000 contracts. This puts them at their lowest level since early February.”

“According to the Fed Fund Futures, the market expects interest rate hikes of 200 basis points in total by the end of September. A rate hike of 50 basis points on Wednesday evening should therefore come as no surprise, nor weigh additionally on the gold price, especially as Fed Chair Powell has more or less announced this in advance.”

GBP/USD has started the new week in a calm manner. According to FXStreet’s Eren Sengezer, technical fluctuations could be seen as trading opportunities ahead of key events.

Technical trading opportunities ahead of central bank meetings

“Ahead of this week's highly-anticipated central bank meetings, the pair's fluctuations in the well-defined range could be seen as technical trading opportunities.”

“GBP/USD faces first resistance at 1.26 (psychological level). In case this level turns into support, the next recovery targets are located at 1.2660 (Fibonacci 38.2% retracement) and 1.27 (psychological level, 50-period SMA on the four-hour chart).”

“On the downside, 1.2530 (20-period SMA) aligns as interim support ahead of 1.25 (psychological level). A daily close below the latter could be seen as a bearish development and open the door for additional losses toward 1.2420 (static level).”

EUR/USD has been having a difficult time building on Friday's recovery gains with investors turning cautious at the beginning of the week. In the view of FXStreet’s Eren Sengezer, the pair is unlikely to gather bullish momentum in the current market environment.

Risk-aversion to limit euro's rebound

“The ISM Manufacturing PMI report will be featured in the US economic docket. The headline PMI is expected to rise to 58 in April from 57.1 in March. Ahead of Wednesday's all-important FOMC meeting, however, the market reaction to the PMI data is likely to remain muted. Hence, the risk perception should continue to drive EUR/USD's action.”

“On the downside, 1.05 (psychological level) aligns as first technical support. In case sellers drag the price below that level, the next bearish target is located at 1.0470 (multi-year low set on April April 26).”.

“In order to extend its rebound, EUR/USD needs to rise above 1.0560 (static level) and start using that level as support. Next resistances align at 1.0600 (psychological level) and 1.0660 (static level, 50-period SMA).”

• NZD/USD witnessed some follow-through selling for the eighth successive day on Monday.
• Aggressive Fed rate hike bets continued underpinning the USD and exerted some pressure.
• Investors now await NZ jobs data, FOMC decision, NFP report before placing directional bets.

The NZD/USD pair maintained its offered tone through the early European session and was seen trading around the 0.6435-0.6440 region, down nearly 0.40% for the day.

The pair prolonged its descending trend witnessed over the past one month or so and continued losing ground for the eighth successive day on Monday. The downward trajectory dragged spot prices to the lowest level since June 2020 and was sponsored by the prevalent strong bullish sentiment surrounding the US dollar.

Investors seem convinced that the Fed would adopt a more aggressive policy to curb soaring inflation. The bets were reaffirmed by Friday's release of the March Personal Consumption Expenditure (PCE) Price Index, which remained supportive of elevated US Treasury bond yields and continued underpinning the greenback.

That said, a generally positive tone around the equity markets acted as a headwind for the safe-haven buck and extended some support to the perceived riskier kiwi. Traders also seemed reluctant to place aggressive directional bets and preferred to wait on the sidelines ahead of this week's key event/data risks.

New Zealand employment report for the first quarter of 2022 is scheduled for release during the Asian session on Wednesday. The focus, however, will remain on the outcome of a two-day FOMC monetary policy meeting, where the US central bank is expected to hike interest rates by 50 bps and 
announce balance sheet normalization.

Apart from this, the closely watched US monthly jobs report - popularly known as NFP on Friday - will be looked upon to determine the next leg of a directional move for the NZD/USD pair. In the meantime, traders on Monday will take cues from the US ISM Manufacturing PMI for some impetus later during the North American session.

Technical levels to watch

• GBP/USD oscillated in a range below the 1.2600 mark through the early European session.
• Aggressive Fed rate hike bets continued underpinning the USD and acted as a headwind.
• The downside remains cushioned ahead of the key FOMC/BoE monetary policy meetings.

The GBP/USD pair recovered its modest intraday losses and was last seen trading in neutral territory, around the 1.2575-1.2580 region during the early European session.

The pair struggled to capitalize on Friday's strong recovery move from its lowest level since July 2020 and edged lower on the first day of a new week amid the emergence of fresh US dollar buying. The prospects for a more aggressive policy tightening by the Fed assisted the greenback to regain positive traction and inch back closer to the multi-year peak touched last week.

In fact, the markets expect the US central bank to hike interest rates at a faster pace and ultimately lift the benchmark rates to around 3.0% by the end of the year to combat stubbornly high inflation. This was reinforced by elevated US Treasury bond yields, which, in turn, continued acting as a tailwind for the greenback and exerted some downward pressure on the GBP/USD pair.

On the other hand, the British pound was undermined by signs that the UK economy is under stress from the soaring cost of living. Weak UK Retail Sales figures released last month highlighted that high inflation might have already started taking its toll on consumer spending. This forced investors to scale back expectations for any further rate hikes from the Bank of England.

Despite the negative factors, the downside remains cushioned as investors seemed reluctant to place aggressive bets ahead of this week's key central bank event risks. The Fed is scheduled to announce its decision at the end of a two-day policy meeting on Wednesday and is anticipated to hike rates by 50 bps. This will be followed by the BoE policy update on Thursday.

Apart from this, important macro data scheduled at the beginning of a new month, including the closely watched US monthly jobs report, or NFP on Friday will help determine the near-term trajectory. In the meantime, traders will take cues from the US ISM Manufacturing PMI, which might influence the USD and provide some impetus to the GBP/USD pair later during the North American session.

Technical levels to watch

• USD/CAD retreats from intraday high, battles the key resistance line from December 2021.
• WTI crude oil bounces off daily low as DXY pares gains amid mixed sentiment.
• US, Canadian PMIs for April may offer short-term directions but Wednesday’s FOMC is the key catalyst.

USD/CAD consolidates intraday gains around 1.2855 as European traders take over from their Asian friends on Monday.

The Loonie pair’s latest pullback takes clues from the US dollar’s failures to stay strong at the 20-year high as traders brace for Wednesday’s Federal Open Market Committee (FOMC).

The greenback’s consolidation helps oil prices to recover losses made in Asia. That said, WTI crude oil prices pick up bids to 103.35, down 0.10% by the press time. Fears of Russia’s full-blown attack on Mariupol and the European oil embargo also favor the oil prices of late even as China’s covid woes test energy bulls.

The US Dollar Index (DXY) retreat diverts from the firmer US Treasury yields as the 10-year benchmark rises 5.7 basis points (bps) to 2.942% at the latest. However, the risk profile remains weak as Eurostoxx 50 and DAX print losses at the latest, following Friday’s Wall Street moves and Asian session pessimism.

Looking forward, the pre-Fed woes may exert downside pressure on the greenback, which in turn can help the USD/CAD bears. Though, today’s the US and Canadian PMIs for April can offer intermediate directions.

That being said, Canada’s S&P Global Manufacturing PMI may ease from 58.9 to 57.9 whereas US ISM Manufacturing PMI might improve to 58.0 versus 57.1 prior. In that case, the USD/CAD north-run remains intact, unless oil prices refrain from rising further and the risk appetite remains weak.

Technical analysis

A daily closing beyond the five-month-old descending trend line, around 1.2860 by the press time, becomes necessary for the bulls to aim for March’s high of 1.2909.

• EUR/USD starts the week on a positive footing near 1.0550.
• German 10y bund yields gradually approach the 1.00% level.
• US ISM Manufacturing next of relevance in the docket.

The single currency extends the positive mood seen last Friday and pushes EUR/USD back to the mid-1.0500s on Monday.

EUR/USD focused on USD, risk trends

EUR/USD posts gains for the second straight session on Monday and manages well to keep business above the 1.0500 yardstick against the backdrop of an inconclusive price action around the greenback.

The European currency might have met some extra support following earlier comments from ECB’s Vice-President, who deemed an ECB interest rate hike in July as feasible albeit kind of unlikely.

Gains in spot also remain underpinned by the continuation of the uptrend in the German 10y bund yields, as they approach the critical 1.00% level for the first time since the summer of 2015.

In the domestic calendar, Retail Sales in Germany contracted 0.1% MoM in March and 2.7% over the last twelve months. Later in the session, the final Manufacturing PMI will be published in Germany and the broader Euroland as well as Consumer Sentiment and Economic Sentiment gauges in the region.

What to look for around EUR

EUR/USD leaves behind part of the recent multi-session sharp selloff and rebounds from 5-year lows around 1.0470 (April 28). The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Retail Sales, Final Manufacturing PMI, Consumer Confidence, Economic Sentiment (Monday) – Germany Unemployment Rate, Unemployment Change, EMU Unemployment Rate, ECB Lagarde (Tuesday) – Germany Balance Trade, Final Services PMI, EMU Final Services PMI, Retail Sales (Wednesday) – Germany Factory Orders, Construction PMI (Thursday) – Germany Industrial Production (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is up 0.05% at 1.0546 and faces the next hurdle at 1.0593 (high April 29) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level). On the other hand, a break below 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017).

Gold declined last week amid prospects of progressively more aggressive monetary tightening by the Federal Reserve moved further and further in the forefront. Consequently, strategists at TD Securities expect the yellow metal to fade any rallies.

Fed will continue to emit very hawkish policy signals for a while yet

“Talk of a possible 75 bps increase in the Fed Funds rate at Wednesday's meeting, a robust USD and a slide in prices, prompted money managers to aggressively cut their net long gold exposure.”

“Given that high food and energy prices are here for a significant period of time and considering that inflation is well-rooted in the economy, it is very likely that the US central bank will continue to emit very hawkish policy signals for a while yet. This implies that any rallies, like the one over the last few days, may have a limited life span and long liquidations may be a fact of life well into the second half of the year.”

In the view of economists at TD Securities, the Chinese yuan depreciation path will likely remain in place. They expect the USD/CNY to reach the 6.80 mark by the end of the year.

USD/CNY could test the 50% Fib level around 6.7139 in the near-term

“A likely worsening current account picture, reduced portfolio inflows and likely moderation in direct investment flows, all point to further CNY weakness in the months ahead.”

“We maintain our forecast of USD/CNY 6.80 by end year, with risks towards an even weaker CNY outcome.”

“In the near-term, if USD/CNY sustains a break of the 23.6% Fib resistance level around USD/CNY 6.6028 it could see a test of the 50% Fib level around 6.7139.”

Economists at TD Securities see value in being long PLN/HUF, which could rise to 84 in the coming months.

Hungary is in a slightly worse position than Poland

“We think that Hungary is in a slightly worse position than Poland.”

“Huge fiscal spending, wage pressure, risk of not receiving the EU funds and policy normalisation, which seems to have lost momentum, will not be doing the forint a favour.”

“PLN/HUF could reach an all-time high with the 84 mark well within reach in the coming months.”

• AUD/USD seesaws around the lowest levels since February, recently off daily low.
• Risk profile remains weak as traders brace for the key week.
• Aussie PMIs came in better but China-linked woes, headlines from Russia weigh on prices.
• RBA hawks have less ammunition than Fed bulls, suggesting pair’s further downside despite anticipated rate hikes.

AUD/USD pares intraday losses around the lowest levels since February during the initial hour of Monday’s European session. In doing so, the Aussie pair licks its wounds amid a three-day downtrend near 0.7060 by the press time.

The Aussie pair’s latest rebound could be linked to the US dollar’s pullback from the intraday high as European traders jump on their desks The US Dollar Index (DXY) retreat diverts from the firmer US Treasury yields as the 10-year benchmark rises 5.7 basis points (bps) to 2.942% at the latest.

It’s worth noting, however, that the market sentiment remains sour as Eurostoxx 50 and DAX print losses by the press time.

Downbeat German Retail Sales back the fears of economic weakness in the bloc due to the Russia-Ukraine crisis. The same geopolitical fears join China’s covid-led lockdown and activity contraction in April to weigh on the risk-barometer AUD/USD prices.

Hence, the latest rebound remains elusive and may reverse should today’s US ISM Manufacturing PMI for April, expected at 58.0 versus 57.1 prior, disappoint traders. Earlier in the day, Markit and AiG both came out with upbeat figures of Australia’s PMI for April but the weekend readings of China’s NBS activity numbers cloud the road for bull’s return.

Tuesday’s Reserve Bank of Australia’s (RBA) monetary policy meeting becomes more important for the AUD/USD prices as the policymakers have recently shifted towards the rate hike signals, suggesting a 0.15% increase in the benchmark rate. However, the AUD/USD may not be able to cheer the RBA-led gains if the Fed extends its fire-fighting role against inflation, via a 0.50% rate hike and clues for the balance-sheet normalization.

Read: AUD/USD Outlook: Seems vulnerable to retest YTD low, focus remains on RBA/FOMC

Technical analysis

AUD/USD recovery remains elusive until the quote provides a daily closing beyond the August 2021 bottom of 0.7105. On the downside, the yearly low of 0.6966 lures the bears.

Over the long-term, economists at TD Securities continue to like zloty. In their view, EUR/PLN could drop to 4.50 by the end of 2022.

The NBP has been much more decisive in tightening than the ECB

“We continue to hold a long-term positive view on zloty and think that EUR/PLN will fall back to 4.50 by the end of the year.” 

“Although inflation is still of great concern, the NBP has been much more decisive in tightening than the ECB. In addition, it seems that Poland is on a path to resolving the issues that stand in the way of receiving EU pandemic recovery funds.”

“Near-term, the fact that Poland borders Ukraine will likely continue to be a huge driver of zloty volatility.”

• The index leaves behind Friday’s pullback and retakes 103.00
• US yields add to the recent uptick and extend the march further north.
• ISM Manufacturing will be the salient event later in the NA session.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, regains upside traction and advances past the 103.00 mark at the beginning of the week.

US Dollar Index looks to yields, Fed, data

The index quickly reverses Friday’s decline and resumes the strong upside above the 103.00 mark on Monday.

The dollar saw its upside particularly exacerbated in April in response to the hawkish message from Fed’s rate-setters as well as Chief Powell, which opened the door to a more aggressive normalization of the monetary conditions.

On the latter, a 50 bps interest rate hike is already priced in at the FOMC gathering later in the week, while market participants continue to see an extra six or seven hikes in the next months.

The upside bias in the buck remains well supported by the march higher in US yields, where the 10y benchmark note yields approach the key 3.00% mark and the short end of the curve flirt with an area last visited more than three years ago near 2.80%.

Later in the NA session, the ISM Manufacturing for the month of April will be in the limelight seconded by Construction Spending and the final S&P Global Manufacturing PMI. In addition, there will be a 3m and 6m Bill Auctions.

What to look for around USD

The dollar regains the smile following Friday’s retracement and aims at a potential test of the recent cycle peaks just below 104.00 the figure (April 28). The Fed’s more aggressive rate path continues to be the main driver behind the robust bullish stance in the dollar, which also appears reinforced by the current elevated inflation narrative and the solid health of the labour market. Collaborating with the latter appear bouts of geopolitical tensions as well as the move higher in US yields.

Key events in the US this week: ISM Manufacturing, Final Manufacturing PMI (Monday) – Factory Orders (Tuesday) – Mortgage Applications, ADP Report, Balance of Trade, Final Services PMI, ISM Non-Manufacturing, FOMC Meeting (Wednesday) – Initial Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is advancing 0.03% at 103.24 and the breakout of 103.92 (2022 high April 28) would open the door to 104.00 (round level) and finally 105.63 (high December 11 2002). On the other hand, the next support emerges at 99.81 (weekly low April 21) seconded by 99.57 (weekly low April 14) and then 97.68 (weekly low March 30).

Gold prices declined amid a worsening demand outlook last week. The focus turns to a two-day FOMC monetary policy meeting, starting this Tuesday. The possibility of a 75 bps rate hike in the future would weigh on the yellow metal, FXStreet’s Eren Sengezer reports.

Fed's rate outlook and balance sheet reduction plan to impact dollar valuation

“The ISM will release the US Manufacturing PMI on Monday. A weaker-than-expected PMI reading is likely to force the greenback to stay under bearish pressure and help XAU/USD push higher. In case the headline PMI surprises to the upside, the dollar might have a tough time capitalizing on it ahead of Wednesday’s all-important FOMC meeting.” 

“The Fed is widely expected to hike its policy rate by 50 basis points and unveil its plan to shrink the balance sheet. A QE reduction of less than $95 billion could be seen as a slight dovish tilt in the Fed’s policy outlook and trigger a voluminous dollar selloff. Such an action is likely to cause US Treasury bond yields to fall sharply and provide a boost to XAU/USD.” 

“In case either the policy statement or FOMC Chairman Jerome Powell outright dismisses the possibility of 75 bps rate hikes in 2022, the dollar will have more room for a downward correction. On the other hand, any mention of a 75 bps rate hike being on the table in the near future would be assessed as a confirmation of the Fed’s willingness to tighten the policy in an aggressive way and not allow gold to hold its ground.”

“In the meantime, gold’s gains are likely to remain limited regardless of the dollar’s performance in case Beijing goes into a lockdown.”

• USD/JPY regained positive traction and reversed a part of Friday’s heavy losses.
• The BoJ’s dovish stance, improving risk sentiment weighed on the safe-haven JPY.
• Aggressive Fed rate hike bets underpinned the USD and offered additional support.
• Investors now eye US ISM for some impetus, though the focus remains on FOMC.

The USD/JPY pair maintained its bid tone through the early European session and was last seen hovering near the daily high, just below the mid-130.00s.

A combination of supporting factors assisted the USD/JPY pair to attract fresh buying on the first day of a new week and reversed a part of Friday's retracement slide. Signs of stability in the equity markets undermined the safe-haven Japanese yen, which was further weighed down by a more dovish stance adopted by the Bank of Japan. It is worth recalling that the Japanese central bank last week stuck to its ultra-loose policy setting and vowed to conduct daily operations to defend its “near-zero” target for 10-year bond yields.

Conversely, the market conviction that the Fed would tighten its monetary policy at a faster pace to combat stubbornly high inflation remained supportive of elevated US Treasury bond yields. This has resulted in the widening of the Japanese-US government bond yield differential, which was seen as another factor that drove flows away from the JPY. This, along with the emergence of fresh US dollar buying, offered additional support to the USD/JPY pair. Bulls, however, refrained from placing fresh bets ahead of this week's key event/data risks.

Investors might prefer to wait for the outcome of a two-day FOMC monetary policy meeting, starting this Tuesday. The Fed will announce its decision on Wednesday and is widely expected to hike interest rates by 50 bps. Traders this week will further take cues from important US macro releases scheduled at the beginning of a new month, including the closely watched monthly jobs report - popularly known as NFP on Friday. In the meantime, the US ISM Manufacturing PMI might provide some impetus to the USD/JPY pair later during the North American session.

Technical levels to watch

Here is what you need to know on Monday, May 2:

The dollar started the first trading day of May on a firm footing after having weakened against its major rivals on Friday. The cautious market mood helps the greenback find demand early Monday and investors await the consumer and business sentiment data from the euro area. Later in the day, the ISM will release the April Manufacturing PMI data for the US. In the early trading hours of the Asian session on Tuesday, the Reserve Bank of Australia (RBA) will announce its interest rate decision.

Escalating geopolitical tensions and heightened concerns over a slowdown in global economic activity don't allow a risk rally to gather momentum at the beginning of the week.

The European Union (EU) is reportedly planning to phase out Russian oil imports by the end of the year and the Financial Times reported that China had a discussion with banks on how to protect their assets in case the US were to impose sanctions.

Beijing announced Sunday that it will ban all restaurants dining and order residents to provide proof of a negative COVID test to enter public venues. This comes as the nation heads into a five-day holiday season. Meanwhile, the data from China showed over the weekend that the economic activity in the private sector contracted at a stronger pace in April than it did in March.

EUR/USD struggles to build on Friday's gains and trades in negative territory slightly above 1.0500. In an interview with Bloomberg on Sunday, European Central Bank (ECB) Vice President Luis de Guindos said that an ECB rate hike was "possible but not likely" in July.

GBP/USD trades in a relatively tight range around mid-1.2500s after having gained more than 100 pips on Friday. UK markets will be closed due to the Early May holiday on Monday.

USD/JPY edged lower toward 130.00 in the early Asian session but started to push higher in the European morning. The benchmark 10-year US Treasury bond yield is clinging to small gains near 2.95%.

Gold is pushing lower and trading below $1,890, pressured by the coronavirus-related lockdowns in China. 

Bitcoin struggled to make a decisive move in either direction during the weekend and was last seen fluctuating near $39,000. Ethereum rose nearly 4% on Sunday but continues to trade below the key $3,000 level early Monday.

Despite a wobble late April, AUD/NZD has rallied solidly since mid-March, in a channel from just above 1.06 to just below 1.10. Economists at Westpac expect the pair to simmer a move higher towards the 1.14 mark.

AUD/NZD may be due for some consolidation short-term

“While the NZ$ yield premium over A$ should remain for some time, we see markets trimming the scale of RBNZ tightening ahead (we see a 3% OCR peak versus >4% priced in).”

“Although pricing for the RBA extends well beyond Westpac’s view of a 2% cash rate peak, near-term the momentum should be in favour of RBA delivering substantial tightening.”

“AUD/NZD may be due for some consolidation short-term, perhaps as far as sub-1.08. But this would only be a pause, with multi-week/month scope for a push towards model fair value around 1.14.”

The Reserve Bank of Australia (RBA) is likely to initiate monetary policy normalization on Tuesday. The Australian dollar could benefit from the decision, economists at Commerzbank report.

The market is expecting a rate hike from 0.10% to 0.25% 

“The market is expecting a rate hike from 0.10% to 0.25%. For the AUD to be able to benefit from the RBA’s rate decision the RBA would probably have to send out additional hawkish signals. That seems realistic though in view of recent inflation developments.”

“Rate expectations on the market have already gone a long way and it is likely to become difficult to top these expectations. Additionally, the outlook for China's economy is becoming increasingly gloomy in view of the ongoing lockdowns there.”

“After AUD/USD eased notably over the past days the RBA rate decision might nonetheless be able to support AUD to some extent as long as the general market environment allows for that.”

There are still Russian natural gas deliveries to Europe. But if we see an EU-wide recession due to disruptions in the energy supply, EUR/USD could test parity levels, economists at Commerzbank report.

Consider whether technical analysis really helps 

“If we see a wide-reaching, energy-related recession in Europe I consider EUR/USD levels around parity to be possible. Depending on the extent of the recession even more than that. However, if we do not see that, I continue to expect EUR/USD to recover.”

“You will have to decide whether you hedge EUR-USD risks or not. The hedging trades work regardless of what else might happen in the world. To give you a false sense of security does not help anyone either.”

“Technical analysis is an act of desperation amongst market participants who do not understand the reasons for market developments and instead rely on recognizing patterns – of course without rigorous statistical tests as to whether significant patterns are even discernible. The latter would usually produce a negative result. Even if I cannot tell you which way EUR/USD is going to go at least I want to save you from that.”

• Asia-Pacific markets remain pressured as investors  brace for the key week.
• Off in China fails to recall buyers as covid woes, Russia-Ukraine crisis challenge growth expectations.
• New Zealand opens border for 60 more countries, Australia witnesses upbeat PMI but activity contraction in China favor bears.
• South Korea raises concerns about rapid FX rate change.

Equity traders stay depressed during a comparatively light trading session in Asia, with Chinese markets off. The reason could be linked to the firmer US Treasury yields and anxiety ahead of this week’s key Federal Open Market Committee (FOMC). Also weighing on the market sentiment are the latest updates from Beijing and Russia.

That said, MSCI’s index of Asia-Pacific shares ex-Japan drop 0.30% while Japan’s Nikkei 225 printed mild gains around 26,900.

New Zealand opens its national borders for 60 countries, after a multi-month block due to the covid, but downbeat China PMIs for April drowned shares in Auckland, down 1.60% by the press time. On the same line is the Australian stock market where monthly PMIs print better readings for April but the ASX is down 1.5% by the press time.

Indian equities are down too amid the highest active covid cases in five weeks whereas South Korea’s KOSPI drops 0.40% amid hopes of market intervention.

On a broader front, the International Monetary Fund (IMF) also conveyed economic fears for the Asia-Pacific region, including India, while saying, “Economic growth in Asia and the Pacific will slow this year to 4.9%, less than last year’s 6.5% pace, amid the war in Ukraine, a resurgent pandemic, and rising interest rates.”

Additionally weighing on the risk appetite are the updates from Ukraine suggesting Russia’s aggression towards acquiring Mariupol and Germany’s step back from obstructing the oil ban on Russia.

Moving on, markets in Japan and China are mostly off till Wednesday but US ISM Manufacturing PMI, New Zealand Jobs report and the RBA meeting will entertain Asia-Pacific investors ahead of the key Fed meeting.

Also read: S&P 500 Futures turn pale above 4,100 as US Treasury yields stay firmer ahead of Fed, NFP

Considering advanced prints from CME Group for natural gas futures markets, open interest reversed the previous daily drop and increased by around 13.2K contracts on Friday. On the other hand, volume dropped for the second session in a row, now by around 38.5K contracts.

Natural Gas still looks to $8.00 and above

Prices of natural gas rebounded moderately on Friday amidst rising open interest, which should be indicative of the continuation of the ongoing bounce to, initially, the 2022 high past the $8.00 mark per MMBtu (April 18).

FX option expiries for May 2 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0575 378m
• 1.0600 744m
• 1.0640 240m
• 1.0700 940m
• 1.0800 1.37b
• 1.0900 364m

- GBP/USD: GBP amounts        

• 1.3145 300m

- USD/JPY: USD amounts                     

• 127.60 270m
• 130.00 345m

- AUD/USD: AUD amounts  

• 0.7200 289m
• 0.7320 386m

- USD/CAD: USD amounts       

• 1.2665 225m

- EUR/GBP: EUR amounts

• 0.8500 342m

• Renewed demand worries in China due to the resurgence of Covid-19 in Beijing have barricaded oil prices.
• The impact of expectations of an embargo on Russian oil by Europe is fading away.
• Fed’s interest rate hike could also tighten the demand for oil in the US.

West Texas Intermediate (WTI), futures on NYMEX, are hovering around $103.00 as renewed fears of demand worries in China amid tight restrictions due to the resurgence of the Covid-19 in Beijing has dented oil prices.

Oil was boiling last week after Germany withdrew its opposition to an embargo on oil imports from Russia. Germany’s support for the decision of Russian oil prohibition bolstered the supply worries in Europe as the latter has significant dependence on Moscow for its oil requirements.

The epidemic of the Covid-19 in China has forced the Chinese administration to bank upon a zero Covid policy and to justify the same the administration has levied curbs on the movement of men, materials, and machines. Price rise due to the impact of supply worries in Europe is offset by the demand worries in China, which has barricaded oil prices in a tight range.

It would be justified to claim that a firmer US dollar index (DXY) has also restricted the upside in oil prices. The DXY is eyeing to reclaim its 19-year high at 103.93 amid the negative market sentiment. Uncertainty ahead of the interest rate decision by the Federal Reserve (Fed) has underpinned the risk-off impulse and has eventually improved the appeal for the greenback. The Fed is expected to elevate the interest rates by 50 basis points (bps). Also, the dictation over balance sheet reduction and hawkish guidance looks certain.

• German Retail Sales arrived at -2.7% YoY in March vs. 7.0% previous
• Retail Sales in Germany stood at -0.1% MoM in March vs. 0.3% expected.

Germany's Retail Sales dropped by 0.1% MoM in March versus 0.3% expected and 0.3% last, the official figures released by Destatis showed on Monday.

On an annualized basis, the bloc’s Retail Sales came in at -2.7% in March versus 7.0% recorded in February.

FX implications

The euro is little changed on the downbeat German data. At the time of writing, EUR/USD is trading at 1.0518, down 0.22% on the day.

About German Retail Sales

The Retail Sales released by the Statistisches Bundesamt Deutschland is a measure of changes in sales of the German retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. The positive economic growth is usually anticipated as "bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

Gold has dropped back closer to a multi-week low on Monday. As FXStreet’s Haresh Menghani notes, XAUUSD bears eye break below the 100-day moving average (DMA) around the $1,878-$1,877 zone.

Focus remains on FOMC

“The Fed is widely expected to hike interest rates by 50 bps. Apart from this, traders will take cues from this week's important US macro releases, including the closely watched US monthly jobs report on Friday. This, in turn, will play a key role in determining the next leg of a directional move for the XAU/USD.”

“Weakness below the 100-day SMA, currently around the $1,878-$1,877 region, will reaffirm the negative outlook and pave the way for additional losses. Gold could then fall towards intermediate support near the $1,850-$1,848 zone en-route the very important 200-day SMA, near the $1,834 area.”

“The $1,900 round figure now seems to act as an immediate strong resistance ahead of the $1,906-$1,907 region and Friday's swing high, around the $1,920 zone. Sustained strength beyond could trigger a short-covering move towards the $1,940 region, above which the recovery momentum could get extended to the $1,962 resistance.”

CME Group’s flash data for crude oil futures markets noted traders added around 1.4K contracts to their open interest positions at the end of last week. Volume, instead, partially reversed the previous daily build and shrank by around 43.5K contracts.

WTI keeps targeting $109.00

WTI prices could not sustain a move to the $108.00 region on Friday amidst rising open interest. That said, further decline should not be ruled out in the very near term, while bullish attempts continue to target the April high past the $109.00 mark (April 18).

• The greenback bulls are set to print fresh yearly highs above 1.2900.
• The RSI (14) has shifted into a bullish range for the very first time this year.
• A bull cross of 20- and 50-EMAs adds to the upside filters.

The USD/CAD pair is facing barricades around 1.2870 in the Asian session however, the broader picture looks extremely bullish. The asset has displayed a sheer upside move after hitting a low of 1.2719 on Friday.

On the daily scale, the greenback bulls have driven the major above the slightly declining trendline placed from 20 December 2021 high at 1.2964, adjoining the March’s high at 1.2901, followed by April’s high at 1.2880. The asset has strongly moved higher after sensing an intense responsive buying activity to near 10-period Exponential Moving Average (EMA) at 1.2760.

A bull cross of 20- and 50- EMAs at 1.2640 is indicating more upside in the counter ahead. Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a bullish range of 60.00-80.00, which signals a firmer bullish momentum going forward. The momentum oscillator has established above 60.00 for the very first time this year.

For an upside momentum, the asset needs to overstep April’s high t 1.2880, which will send the asset towards March’s high at 1.2901. Breach of the latter will drive the asst towards the 20 December 2021 high at 1.2964.

On the contrary, Lonnie bulls could regain control if the asset tumbles below Thursday’s low at 1.2791. This will drag the asset towards the 10-EMA at 1.2760, followed by the round level support at 1.2700.

USD/CAD daily chart

Open interest in gold futures markets went up for the second session in a row on Friday, this time by around 2.6K contracts according to advanced prints from CME Group. In the same line, volume extended the choppy activity and rose by around 7.4K contracts.

Gold could now target the 200-day SMA

Gold prices briefly tested the $1920 region on Friday, although it later faded the move and closed with marginal gains for the day. The move was amidst rising open interest and volume and leaves the door open to further downside in the near term, with the next key target at the 200-day SMA at $1834.

• EUR/GBP refreshes one-week low, extending the previous day’s downside moves.
• 200-SMA, fortnight-old support line challenge pair bears of late.
• Descending trend line from Thursday, downbeat oscillators keep sellers hopeful.

EUR/GBP drops to a fresh one-week low as sellers attack the 0.8380 level heading into Monday’s European session.

In doing so, the cross-currency pair extends the previous day’s losses towards the key 0.8365 support confluence, including the 200-SMA and an ascending trend line from mid-April.

While keeping the EUR/GBP sellers hopeful are the bearish MACD signals, descending-but-not-oversold RSI line and a three-day-old downward sloping resistance line.

Hence, the odds of the pair’s break of the 0.8365 key supports are firmer at the moment, which in turn keeps sellers hopeful to witness the 0.8335 level on the chart, comprising the 61.8% Fibonacci retracement level of April 14-26.

Alternatively, a clear upside break of the immediate resistance line, at 0.8390 by the press time, will direct EUR/GBP bulls to the previous monthly peak of 0.8467.

Following that, the 0.8500 and March’s high surrounding 0.8515 will lure the pair buyers.

EUR/GBP: Four-hour chart

Trend: Further weakness expected

• EUR/USD is eying a test of 1.0500 as the risk-off impulse intensifies.
• Fed’s rate hike announcement on Wednesday has sidelined the risk-sensitive currencies.
• Germany’s support for Europe’s embargo on Russian oil has renewed the fears of recession.

The EUR/USD pair is scaling lower after a flat opening on Monday. The asset has displayed a bearish open test-drive session as the asset moved strongly higher to 1.0553 posts a flat opening but faced intense selling pressure in the initial few ticks and tumbled below the opening price to a low of 1.0517.

The shared currency is facing a lot of pressure against the greenback as the uncertainty ahead of the monetary policy announcement by the Federal Reserve (Fed) on Wednesday has strengthened the negative market sentiment. Risk-perceived currencies are facing a lot of heat while the greenback’s safe-haven appeal is streaming firmly. The euro has been battered to a higher risk of recession as Germany has withdrawn its opposition to an embargo on Russian oil. Germany is ready to prohibit oil imports from Russia by the end of summer. It is worth noting that Europe addresses around 30% of its oil requirements from Russia and finding an alternative won’t be a cakewalk. Therefore, the time lag required to shift to other suppliers would dent the employment in the eurozone.

Meanwhile, the US dollar index (DXY) is scaling gradually higher as investors are channelizing their funds into the asset. The asset is establishing above 103.40 on expectations of a mega-rate hike announcement by the Federal Reserve. Liquidity in the economy is set to tighten extremely as the Fed is likely to tantalize the massive balance sheet and dictate the roadmap of achieving neutral rates by the end of this year.

• GBP/USD retreats towards the two-year low marked last week, fades the previous day’s rebound.
• BOE vs. Fed drama keeps the pair pressured, Brexit woes also keep sellers hopeful.
• US dollar stays firmer around 20-year high as yields back bulls ahead of the Fed’s 0.50% rate hike.
• BOE sounds less optimistic due to economic challenges, which in turn can supersede Fed’s normal action, if any, to favor bears.

GBP/USD fails to extend the previous day’s corrective pullback from a two-year low, down 0.15% intraday as sellers attack 1.2550 during early Monday morning in Europe.

The cable pair’s latest weakness could be linked to the US dollar’s strong start to the key week comprising the monetary policy meeting of the Fed, as well as April’s Nonfarm Payrolls (NFP). Also weighing on the quote are the chatters surrounding the Bank of England (BOE) policymakers’ inability to copy the Fed’s tune, due to economic hardships at home.

The US Dollar Index (DXY) reverses the previous day’s pullback from a 20-year high with 0.22% intraday gains around 103.45 as traders rush to the greenback in search of risk-safety during the key week. Also helping the USD are the firmer US Treasury yields and recent fears emanating from Russia and China.

It’s worth noting that the uncertainties surrounding Brexit, the UK’s inability to match NATO spending commitments and doubts over UK PM Boris Johnson’s “right to buy” policy also exert downside pressure on the GBP/USD prices.

Amid these plays, the US stock futures rise half a percent but the US 10-year Treasury yields regain upside momentum, around 2.93% at the latest.

Although week-start buying of the USD recently weighed on the GBP/USD prices, today’s US ISM Manufacturing PMI for April, expected at 58.0 versus 57.1 prior, will be important for intraday directions. However, major attention will be given to Wednesday’s Fed moves and Thursday‘s BOE action.

Also read: GBP/USD Weekly Forecast: In search of a bottom, with eyes on Fed and BOE

Technical analysis

Late 2020 bottom surrounding 1.2675 guards the quote’s immediate rebound. Until then, GBP/USD remains vulnerable to refreshing the multi-day low, currently around 1.2410.

The Chinese holiday mood is dampened by the country’s ongoing covid outbreak, which is the worst since Wuhan.

While Shanghai city is set to ease the lockdown restrictions amid fewer than 10,000 cases reported for the second straight day on Monday, Beijing tightens curbs, in adherence to the government’s zero-covid policy.

Beijing announced Sunday that it will ban all restaurants dining and shut down Universal Studios, ordering residents to provide proof of a negative covid test to enter public venues. This comes as the nation heads into a five-day holiday season.

Meanwhile, in Shanghai, officials said Sunday that community transmission in the city had been "effectively controlled.”

Mainland China reported 7,822 new COVID-19 cases on May 1, including 865 symptomatic cases and 6,957 asymptomatic infections, the National Health Commission said on Monday.

Shanghai reported 7,872 local cases Sunday, continuing a general downward trend since April 13. Beijing recorded 41 new cases on Sunday compared with 59 cases on Saturday.

Market reaction

Risk sentiment in Monday’s Asian trading remains dour amid China’s covid concerns and deeper contraction in the world’s biggest manufacturing hub.

Also read: China's purchasing managers indices fell deeper into contraction in April

The S&P 500 futures report 0.60% gains, although the same tone is not reflected in the Asian equities.

The regional indices ex-China are in the red, led by steep losses in New Zealand’s stocks. Chinese markets are closed today in observance of Labor Day.

• USD/JPY has moved above 130.00 firmly as DXY attracted bids on rate hike expectations.
• BOJ’s ultra-loose monetary policy has brought another bearish impulsive wave for yen.
• Uncertainty ahead of the Fed’s rate announcement has underpinned the risk-off impulse.

The USD/JPY pair has rebounded sharply after failing to sustain below the round-level support of 103.00. A firmer responsive buying move has pushed the asset higher from a low of 102.85 and later has supported to recover of its intraday losses. The asset has turned into a bullish open-rejection reverse day as the asset has recovered at the fullest after sensing selling pressure at open. The asset is likely to move strongly now in the remaining session.

A commitment to stick with an ultra-loose monetary policy by the Bank of Japan (BOJ) has put the Japanese yen on tenterhooks. The BOJ adopted a neutral stance on its interest rates and dictated that stimulus will remain in the pipeline to reach pre-pandemic growth rates. Moreover, higher oil and other commodity prices are widening the fiscal deficit. It is worth noting that Japan is one of the largest importers and consumers of oil in the world and higher oil prices are denting the confidence of households in Japan.

Meanwhile, the US dollar index (DXY) is trying to hold above 103.40. The asset has recovered its entire losses after witnessing decent selling pressure at the open. The asset is enjoying massive liquidity as investors are hiding amid uncertainty over the rate hike by the Federal Reserve (Fed) on Wednesday. Multi-decade high inflation levels and consistency in full employment levels are compelling Fed policymakers to vote for a jumbo rate hike.   

No doubt, the event of interest rate decision announcement by the Fed will remain in the spotlight this week but investors will also focus on the release of the US Manufacturing PMI on Monday, which is seen at 58 against the prior print of 57.1.

• USD/INR fades bounce off 100-SMA inside a bullish chart formation.
• India’s active covid cases rally to the highest since March 25, crude prices refrain from declining.
• Sluggish market sentiment, pre-Fed anxiety also challenge moves ahead of the key data/events.
• US ISM Manufacturing PMI will direct intraday moves but major attention will be given to risk catalysts, Fed and NFP.

USD/INR renews intraday low around 76.48, extending the previous day’s weakness, as bears keep reins amid the initial hour of the Indian trading session on Monday.

The Indian rupee (INR) pair’s latest weakness ignores the resurgent covid woes and mostly firmer oil prices. Also challenging the INR bulls are the US dollar’s safe-haven appeal and the market’s risk for risk-safety due to the Ukraine-Russia crisis, as well as China’s coronavirus-led lockdowns. It should be noted that the greenback’s consolidation ahead of this week’s key data/event seems to have helped the USD/INR sellers of late.

As per the latest official update, India reports the highest active COVID-19 cases since March 25, per Reuters. That said, the daily infections eased to 3,157 versus 3,324 while the daily death toll also dropped from 40 to 26.

Elsewhere, the International Monetary Fund (IMF) also conveyed economic fears for the Asia-Pacific region, including India, while saying, “Economic growth in Asia and the Pacific will slow this year to 4.9%, less than last year’s 6.5% pace, amid the war in Ukraine, a resurgent pandemic, and rising interest rates.” For India, the IMF expects 8.2% growth in 2022 versus 8.9% for 2021.

Looking forward, the US ISM Manufacturing PMI for April, expected at 58.0 versus 57.1 prior, will offer intraday directions while major attention will be given to Wednesday’s Fed meeting and Friday’s US NFP data. Should the Fed disappoint markets, the bears may return to the table.

Technical analysis

USD/INR remains inside a monthly rising channel, recently fading the bounce off 100-SMA.

Given the steady RSI and bearish MACD signals, as well as the pair’s inability to cross the 76.75-80 region, the USD/INR bears remain hopeful.

However, the quote’s successful trading above the key SMAs and the bullish cross of the 100-SMA over the 200-SMA hints at a short-term recovery.

Hence, intraday buyers may aim for the 76.75-80 region while any further upside will be challenged by the stated channel’s resistance line close to the 77.00 threshold.

Alternatively, the 100-SMA and the 200-SMA, respectively around 76.35 and 76.15, will test the USD/INR bears before giving them control.

USD/INR: Four-hour chart

Trend: Short-term upside expected

• The asset is approaching the demand zone in a range of 0.6970-0.7000 swiftly.
• Momentum oscillator RSI (14) has slipped below 30.00, which signals an oversold scenario.
• A bear cross of 20-and 50-EMAs adds to the downside filters.

The AUD/USD pair is scaling lower sharply after slipping below the previous week’s low at 0.7055. The asset has continued its two-day losing streak on Monday and is likely to test its yearly lows at 0.6967. The major has been trading lower continuously this month after failing to sustain above the round-level resistance of 0.7600 on April 5.

On the daily scale, the asset is approaching its crucial demand zone, which is placed in a narrow range of 0.6966-0.7000. A bear cross of 20- and 50-period Exponential Moving Averages (EMAs) at 0.7340 is advocating more weakness in the counter going forward.

The Relative Strength Index (RSI) (14) has registered a fresh low at 27.27, which adds to the downside filters. The momentum oscillator RSI (14) is not showing any sign of divergence but a pullback based on an oversold situation cannot be ruled out.

Investors should keep an eye on a pullback towards the 10-EMA at 0.7182, which will provide a selling opportunity to the market participants.  This will activate responsive sellers, which may drag the asset towards the previous week’s low at 0.7055, followed by the lower boundary of the demand zone at 0.6966.

On the flip side, aussie bulls may regain strength if the asset oversteps February 10 high at 0.7250, which will send the asset towards the January high at 0.7315. A beach of the latter will drive the asset towards the round level resistance at 0.7400.

AUD/USD daily chart

South Korea’s Finance minister nominee Choo Kyung-ho said that he respects the foreign exchange rates set by the market forces but that rapid changes in the rate are a problem.

He responded to a lawmaker's question during a confirmation hearing,

Choo refused to comment on the prospects of the South Korean won (KRW) falling as low as the psychological 1,300-won level per dollar.

He said that he preferred a delay by about two years of a planned financial investment income tax and a reduction in the stock transaction tax.

Market reaction

Having faced rejection near 1,267 on multiple occasions, USD/KRW came under pressure on the above comments.

The spot is currently trading near daily lows of 1,265.21, still up 0.16% on the day.

Analysts at Scotiabank offer a sneak peek at what they expect from Tuesday’s Reserve Bank of Australia’s (RBA) monetary policy decision.

Key quotes

“Most economists expect the Reserve Bank of Australia to hike its cash rate target on Tuesday. Thirteen of 21 within consensus expect a 15bps hike, five expect a bigger hike from 0.1% to 0.5% and a minority of three economists expect a hawkish hold.”

“Futures markets have a hike to 0.25% fully priced such that either a hold or a larger hike would be a surprise.”

“The case for a hike is, well, much the same as everywhere else these days. Inflation has been sharply accelerating ....”

“The case against a hike at this meeting, or at least against a large hike, is two-fold. One is that the RBA has an eye on wages and may wish to see the Q1 figures on May 17th given that to date wage gains have been below the rate of inflation.”

“Secondly is the matter of politics with the May 21st election just around the corner.”

• GBP/JPY pares intraday gains as short-term moving average tests buyers.
• Downbeat MACD signals, the previous day’s bearish candlestick also tease sellers.
• Bears need validation from 50% Fibonacci retracement level to retake controls.

GBP/JPY retreats from the intraday high while consolidating the daily gains around 163.45 during Monday’s Asian session.

In doing so, the cross-currency pair justifies the previous day’s Doji candlestick, as well as bearish MACD signals, by taking a U-turn from the 21-DMA.

Other than the 21-DMA hurdle of 163.60, a horizontal area comprising multiple levels marked since late March also challenges the GBP/JPY buyers around 164.65-75.

Should the quote rise past-164.75, the odds of witnessing a run-up towards April’s peak of 168.43 can’t be ruled out.

On the flip side, the 160.00 threshold may entertain GBP/JPY bears ahead of directing them to the 50% Fibonacci retracement (Fibo.) of March-April upside, near 159.65.

It’s worth noting, however, that a daily closing below 159.65 will need validation from March’s low surrounding 159.00 before highlighting the 61.8% Fibo level of 157.59 for the pair sellers.

To sum up, GBP/JPY buyers seem exhausted but the bears have a long way before retaking the control.

GBP/JPY: Daily chart

Trend: Pullback expected

EUR/USD fades Friday’s corrective pullback from a five-year low, down 0.20% intraday around 1.0520, during Monday’s Asian session.

In doing so, the major currency pair justifies the bearish bias of the options market portrayed by one-month risk reversal (RR). That said, by the monthly print of 0.638, the RR reversed the March month’s rebound in April.

Looking deeply into the options market data, conveyed by Reuters, the weekly RR was the lowest since early March, down to -0.713.

It’s worth noting that the hawkish expectations from this week’s Federal Reserve (Fed) meeting and the economic fears emanating from the bloc, mainly due to the Ukraine-Russia crisis, exert downside pressure on the EUR/USD prices of late.

Read: EUR/USD retreats towards 1.0500 amid anxiety over ECB vs. Fed action

• NZD/USD bears running into a wall of support.
• The weekly M-formation is a compelling feature on the charts. 

NZD/USD has been in supply of late, as the following weekly analysis illustrates, beaten down amid a general deterioration in global risk appetite as US bond yields rose. April has been a pood month for the bird, dropping its lowest level since mid-2020 and right on key support.

''How it fares this week will likely be influenced not just by broad global risk appetite, but also Thursday’s Fed decision and NZ labour market data on Wednesday,'' analysts at ANZ Bank said.  In the meantime, there is scope for a bullish correction if the bulls can fend off the bears at a critical weekly support structure. 

NZD/USD weekly chart

NZD/USD's weekly chart sees the price running into a long-term structure area and the focus is on the prior low near 0.6530. Above there, the bulls will be looking to the next line of the M-formation near 0.68 the figure. 

• Silver prices remain pressured for the eight consecutive days.
• Weekly support line and 138.2% Fibonacci retracement join oversold RSI conditions to test bears.
• Recovery moves remain elusive until the quote stays below $24.15.

Silver (XAG/USD) drops to the lowest levels since late February as it portrays the eight-day downtrend during Monday’s Asian session. That said, the bright metal prints 0.55% intraday losses as bears attack the $22.65-60 support zone at the latest.

A clear downside break of an ascending trend line from February 24 triggered the bright metals south-run during late April. The downside momentum also gained support from the sustained trading below the 200-SMA. However, oversold RSI conditions have triggered intermediate bounces of the XAG/USD.

The bullion’s latest weakness is also prone to a corrective pullback as RSI (14) turns down to 30.00. Also challenging the bears is the convergence of the 138.2% Fibonacci retracement of February 24 to March 08 upside and a one-week-old descending trend line near $22.65-60.

Even so, the recovery moves remain elusive until crossing the previous support line from late February, around $24.15 by the press time.

On an immediate basis, a downward sloping resistance line from April 18, close to $23.40 at the latest, can test the short-term rebound.

Alternatively, a downside break of the $22.60 will make the silver price vulnerable to testing the 161.8% Fibonacci retracement level surrounding $21.95.

Silver: Four-hour chart

Trend: Corrective pullback expected

• S&P 500 Futures dribble around nine-week low, retreat from daily high of late.
• US 10-year Treasury yields hold onto Friday’s recovery moves.
• Sentiment remains pressured as Chinese activities contracted in April, Ukraine signals Russia’s rush to takeover Moldova.
• Fed’s 0.50% rate hike is given and hence balance-sheet normalization will be crucial to watch.

Market sentiment remains dubious amid a quiet Asian session on Monday as traders await the key catalysts scheduled during the week.

That said, the S&P 500 Futures print mild gains around 4,130, up 0.20% intraday, as bears take a breather around the lowest levels since late February, marked the previous day. It’s worth noting that the Wall Street benchmarks slumped the previous day on firmer yields, as well as disappointments from tech giants like Amazon and Apple.

On the other hand, the US 10-year Treasury yields extend the previous day’s recovery moves while rising 6.4 basis points (bps) to 2.947% by the press time. In doing so, the key bond coupon approaches the four-year high marked during late April surrounding 2.98%.

The mixed concerns could be linked to the market’s anxiety ahead of this week’s Federal Reserve (Fed) verdict, as well as Friday’s US Nonfarm Payrolls (NFP). Also challenging the market moves, mainly for the bears, are the receding odds in favor of the hawkish Fed and downbeat activity numbers from China.

China’s PMIs for April came in softer than expected and prior, with the headline NBS Manufacturing PMI declining to 47.4 versus 48 forecast and 49.5 previous reading.

Although a 0.50% rate hike by the Fed is almost given, traders are concerned more about the balance sheet normalization and the pace of the rate hikes in near future.

Elsewhere, comments from Ukraine suggest that Russia braces to takeover Moldova, which in turn poses a serious challenge to Kyiv. On the other hand, Moscow rejects chatters that support Russia’s readiness to use nuclear weapons.

Hence, mixed headlines and anxiety at the start of the key week keep traders on their toes during early Monday, which in turn favors the US Treasury yields and the US Dollar. That said, today’s ISM Manufacturing PMI for April, expected 58.0 versus 57.1 prior, will offer intraday directions to the market.

Also read: Week Ahead on Wall Street: Apple and Amazon can't save us, is it time to abandon ship?

• USD/JPY remains near the highest levels in 20 years following the recent bounce off intraday low.
• Short-term resistance line, sluggish RSI conditions challenge recent rebound.
• Weekly support line and 200-HMA challenge bears amid recently bullish MACD signals.

USD/JPY picks up bids to pare the previous day’s losses around 130.00 on Monday. Even so, the yen pair remains below the 50-HMA, as well as a downward sloping trend line from Thursday.

Given the sluggish RSI conditions and recently bullish MACD signals posing a dilemma for traders, the latest rebound needs validation from the 130.25-30 resistance confluence, comprising the 50-HMA and the aforementioned descending trend line, to lure the USD/JPY bulls.

Following that, the latest multi-month high around 131.25 and the yearly high of 2002 surrounding 135.15 will be in focus.

Meanwhile, pullback moves remain elusive until staying beyond the one-week-old support line, at 129.50 by the press time. Also challenging the USD/JPY sellers is the 200-HMA level of 128.67.

It’s worth noting, however, that the USD/JPY pair’s weakness past 200-HMA will trigger the downside momentum towards the 2015 high close to 125.85.

Overall, USD/JPY prices are likely to remain firmer but the further upside hinges on the 130.30 breakout.

USD/JPY: Hourly chart

Trend: Further upside expected

• AUD/JPY is establishing below 92.00 on improvement in yen’s safe-haven appeal.
• The BOJ will continue to stick with ultra-loose monetary policy to inject more stimulus.
• The RBA is expected to elevate its interest rates to 0.25% on higher inflation.

The AUD/JPY pair has surrendered the majority of its gains recorded in the first hour of the Asian session. The risk barometer opened at 91.58, moved higher to an intraday high of 92.16 but slipped lower modestly to near its intraday low. The asset has been trading in a tad wider range after the Bank of Japan (BOJ) reported its monetary policy unchanged last week. The BOJ believes that its economy needs more stimulus to spurt the aggregate demand.

Japan’s central bank has been maintaining an ultra-loose monetary policy to achieve the growth rates of pre-pandemic levels. The BOJ is facing the issues of weaker currency recently amid higher commodity prices. Elevated prices of crude oil, food prices, and base metals are going to result in widened fiscal deficit for the economy.  Higher energy bills and food prices have impacted strongly the households’ real income. The BOJ states that a weaker yen will ramp up the corporate profits but it will also have some drastic effects on the economy.

Moving on to the Aussie front, the market participants are awaiting the interest rate decision announcement by the Reserve Bank of Australia (RBA) on Tuesday. Taking into account, the soaring inflation in the aussie area, the RBA is likely to consider mounting price pressures while drafting the rate decision. The street is expecting a rate hike by 15 basis points (bps), which will push its benchmark rates to 0.25%.

• DXY bulls turn cautious after Friday’s pullback from two-decade high, also amid anxiety ahead of the key data/events.
• Multiple holidays in Japan, China challenge US Dollar Index moves but mildly bid S&P 500 Futures keep intraday sellers hopeful.
• US ISM Manufacturing PMI will decorate today’s calendar but Fed, NFP will be crucial for clear directions.

US Dollar Index (DXY) drops towards 103.00 during Monday’s Asian session, extending the previous day’s pullback from a 20-year high, as an absence of bond moves and mildly bid stock futures favor sellers amid a sluggish session. That said, the DXY drops 0.10% intraday to 103.10 by the press time.

The greenback gauge’s latest weakness could be linked to the inaction of the US Treasury yields around 2.90% level. The reason could be linked to multiple holidays in China and Japan during this week. Also challenging the DXY bulls are the cautious sentiment ahead of this week’s key Fed meeting and the monthly US employment data.

With the Fed’s 0.50% rate hike seems mostly priced in, anxiety over the balance sheet normalization and a likely cautious stand of the Fed policymakers during Wednesday’s meeting seem to favor the DXY’s pullback. In doing so, the USD bulls also pay a little attention to the recently firmer US data and downbeat equities.

That said, the S&P 500 Futures print mild gains for the day, which in turn allow DXY to extend the previous day’s weakness amid a sluggish session.

Moving, US ISM Manufacturing PMI for April, expected at 58.0 versus 57.1 prior, will decorate today’s calendar and can entertain DXY traders. However, major attention will be given to Wednesday’s Fed verdict and Friday’s US Nonfarm Payrolls (NFP). Should the Fed disappoint markets, the odds of witnessing further downside of the DXY can’t be ruled out. On the contrary, the further upside of the greenback hinges on how strong the policymakers feel for the balance-sheet normalization and the future path of rate hikes, as well as Friday’s jobs report.

Also read: The week ahead: Bank of England, Federal Reserve to raise rates, RBA, BP, Shell and Next results

Technical analysis

Although overbought RSI conditions and the market’s anxiety trigger the greenback gauge’s latest pullback, March 2020 peak and an ascending trend line from late March, respectively around 103.00 and 102.10, challenge the US Dollar Index bears.

• A failed attempt to breach 0.9740 has brought some offers to the asset.
• The DXY is expected to skid below 103.00 amid signs of exhaustion on higher levels.
• The Swiss inflation is seen higher at 2.5% against the earlier figure of 2.4%.

The USD/CHF pair is struggling to breach 0.9740 as the US dollar index (DXY) is displaying lackluster performance in the Asian session. As investors are waiting for the interest rate announcement by the Federal Reserve (Fed), which is due on Wednesday and already recorded a fresh 19-year high at 103.93 by the DXY, a sense of exhaustion has been witnessed at the elevated levels. Therefore, investors should brace for a higher uncertainty in the DXY and eventually in the greenback-denominated Fx pairs.

Fed chair Jerome Powell, on Wednesday, is likely to feature a 50 basis point (bps) interest rate hike. To tame the untamed inflation, Fed is going to shrink liquidity from the economy vigorously. Apart from the interest rate decision, the dictation of the roadmap for further hawkish guidance will remain in the spotlight. More than one 50 bps interest rate hike is the talk of the town this year and the Fed will lighten up its balance sheet quickly to squeeze the liquidity to fix the inflation mess.

On the Swiss front, the Swiss Federal Statistical Office will release the Consumer Price Index (CPI) on Thursday. A preliminary reading shows yearly CPI at 2.5% against the prior print of 2.4%. The Swiss inflation is gradually inching higher above the targeted print of 2%. Therefore, a slightly hawkish tone from the Swiss National Bank (SNB) further cannot be ruled out.