CFD Markets News and Forecasts — 04-04-2022

• USD/CHF is struggling to cross 0.9280 as investors await US Services PMI.
• The outperformance of DXY is failing to push the major higher amid a firmer Swiss franc.
• Swiss Unemployment Rate and FOMC minutes are major events that investors will keep on the radar.

The USD/CHF pair is facing barricades around 0.9280 despite the strong gains in the US dollar index (DXY). The DXY is scaling higher after the upbeat US Unemployment Rate. The US Bureau of Labor Statistics reported the Unemployment Rate at 3.6% lower than the estimates of 3.7% and the prior figure of 3.8%. The US administration is continuously recording the Jobless rate below 4%, which indicates achievement of full employment and course higher odds of a fat interest rate hike by the Federal Reserve (Fed).

The Fed is likely to approach a tight-aggressive monetary policy to corner the soaring inflation.  An interest rate hike by 50 basis points (bps) is more likely on cards as the dual mandate of the Fed: inflation and Jobless rate are indicating exhaustion. Meanwhile, CME Group's FedWatch tool is showing 71% odds of a half-point rate increase.

On the Swiss franc front, the currency is performing decently against the greenback on positive market sentiment. The risk-on impulse is favoring the risk-sensitive currencies amid progress in the Russia-Ukraine peace talks. Apart from that, the Swiss franc is firmer ahead of the Swiss Unemployment Rate. The Swiss State Secretariat of Economic Affairs is likely to report the monthly jobless rate at 2.2%, similar to the previous figure.

Going forward, the minutes from the Federal Open Market Committee (FOMC) will be the major event, which is due on Wednesday. But before that, investors will focus on Tuesday’s US Services PMI, which may land at 58 against the previous print of 56.5.

• The Australian dollar broke above the 0.7540 resistance level, unsuccessfully tested four times.
• The Reserve Bank of Australia (RBA) is expected to keep rates unchanged.
• Market players expect the central bank’s rhetoric, any hawkish tilt or hints, would push the AUD/USD higher.
• AUD/USD Price Forecast: Upward biased, and a break above 0.7600 could pave the way for further gains.

The Australian dollar advanced on Monday, ahead of Tuesday’s Reserve Bank of Australia monetary policy decision, amidst an upbeat market mood. Portraying the aforementioned, were US equities rallying, while Asian futures point to a higher open. The AUD/USD is trading at 0.7544, near YTD new highs.

The Reserve Bank of Australia (RBA) expected to hold rates unchanged

Later at around 04:30 GMT, the Reserve Bank of Australia would unveil its monetary policy decision. Uncertainty around the Russo-Ukraine conflict, global inflation, and the domestic election in Australia are factors in the backdrop.

Market participants expect the RBA to stay dovish and keep the Cash Rate unchanged at 0.10%. Given that money market futures have priced in 200 bps in 2022, it would be expected that the RBA would “lay the groundwork for at least one hike in the fourth quarter – or even a Q3 start,” analysts at Scotiabank noted.

Australian inflation is back in the target band. However, the RBA stated that it would not lift rates until inflation is ‘sustainably’ within the target band, requiring a lift in wages growth from current relatively modest levels.

Therefore, and due to the recent lift in the AUD/USD, it would be no surprise that AUD/USD traders witness a “buy the rumor, sell the fact” development in price action, opening the door for a mean-reversion move. If the RBA turns “hawkish,” the AUD would further appreciate. However, it is worth noting that traders should be aware of the market mood as the Australian dollar is a risk-sensitive currency.

AUD/USD Price Forecast: Technical outlook

The AUD/USD holds into gains as the Asian session begins, though short of the 0.7555 YTD highs. It is worth noting that the break of the 0.7500-40 range exposed the AUD/USD to further upside, and with the RBA meeting looming, any “hawkish” language or hints could send the pair to the 0.7600 mark.

If that scenario plays out, the AUD/USD first resistance would be 0.7600. Breach of the latter would clear all the path to the 0.7700 mark, followed by June 11, 2021, 0.7775 daily high. Otherwise, the AUD/USD first support would be 0.7500. A sustained break would expose the September 3, 2021, daily high turned support at 0.7478, followed by March 7 high turned support at 0.7441.

• XAU/USD is juggling in a range of $1,915.78-1,949.86 amid upbeat market mood.
• Russia-Ukraine peace talks look de-escalated as Ukraine accused Russia for death of civilians.
• The DXY is scaling higher on lower US Jobless rate.

Gold (XAU/USD) is oscillating in a range of $1,915.78-1,949.86 from the last three trading sessions amid positive market sentiment. The digestion of worst-case scenarios amid Russia’s invasion of Ukraine by the market participants has kept the tone of the market favorable. The precious metal is trading lackluster and is looking for a trigger to find direction.

A progress in the Russia-Ukraine peace talks was clearly witnessed by investors after the discussions over the major stipulations to be printed in a special document of ceasefire. Also, the month long military activity of Russian rebels in Ukraine was indicating that Russia might be out of military equipments, liquidity and resources soon, which will force it to approach a ceasefire. However, the allegation from Ukraine President Volodymyr Zelenskyy on Russia over the death of civilians by the Russian forces in Bucha, Ukraine has stretched the ceasefire expectations.

Meanwhile, the US dollar index (DXY) has reclaimed 99.00 on expectation of strong US Services PMI on Tuesday. A preliminary estimate for the US Services PMI is 58 against the prior print of 56.5. Also, the odds of a jumbo interest rate hike have increased sharply after the upbeat Unemployment Rate. The US Jobless rate at 3.6% and its consistency below 4% is bracing a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed). Strong labor market amid achievement of full employment levels is hoping an aggressively tight monetary policy in May. Also, the US Treasury yields are balanced in a limited range. The 10-year benchmark US Treasury yields is trading close to 2.4% and is expecting to witness higher levels going forward.

This week, the minutes from the Federal Open Market Committee (FOMC) will remain the major event for the FX domain. The FOMC minutes will dictate the strategy behind advocating the 25 bps hike interest rate decision by the Fed.

Gold Technical Analysis

On an hourly scale, XAU/USD is oscillating in a diamond pattern that signals a bullish reversal after a steep fall. The formation indicates inventory adjustment in which the inventory is shifted from retail participants to institutional investors. The 20- and 50-period Exponential Moving Averages (EMAs) near $1,930 are overlapping to each other, which signal a consolidation ahead. Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which indicates a lackluster performance.

Gold hourly chart

• NZD/USD bulls firmer on bid Wall Street despite Ukraine crisis risks. 
• Eyes turn to the RBA interest rate decision, kiwi rides coattails of AUD.

NZD/USD is starting out in Asia around 0.6950 after climbing from the 0.6920s in New York trade when it scored a high of 0.6969 despite a firmer US dollar in general. US stocks managed to close higher on Monday, propelled by technology shares, and in turn supported high beta currencies such as the antipodeans. 

Nevertheless, the US dollar was robust at the start of the week, with the DXY higher on Monday by some 0.5% and for three straight sessions in a row. US yields were firmer due to the narrative surrounding the Federal reserve and as civilian killings in north Ukraine keep the safe-haven appeal alive in financial markets. In turn, the US dollar climbed in tandem with the yield on the US 10-year note rising 3.3bps to 2.415% on the narrative surrounding the Federal Reserve. 

In this regard, this week will see the minutes of the last meeting when Fed officials began the process of policy normalization by lifting rates 25bp to 0.25%-0.50% at the March meeting. ''The FOMC pull no hawkish punches in its policy guidance, with Chair Powell also hinting further information about QT plans will be provided in the minutes (possibly including caps details),'' analysts at TD Securities said. ''We continue to expect an official QT announcement at the May FOMC meeting.''

Eyes on RBA

''The Kiwi is higher this morning, having been better bid since the reopen yesterday, before then riding on the coattails of the AUD rally and the generalised rebound in global risk sentiment,'' analysts at ANZ Bank explained. 

''With regard to the former, today’s RBA meeting is absolutely crucial because it has been the rise in rate hike expectations in the Aussie rates market that have helped propel the AUD higher, and that has, in turn, given the NZD a boost. No change in policy is expected, but any perceived shift away from their erstwhile very dovish tone will be latched onto, especially with Q1 CPI due before the next meeting (in May). Other than that, as noted, Kiwi is just going along with the global vibe.''

• Formation of the symmetrical triangle is indicating a contraction in volatility and volumes going forward.
• A bull cross of 20- and 50-period EMAs is intact.
• The greenback bulls need to explode the symmetrical triangle for an upside move.

The USD/JPY pair seems losing the interest of the market participants and is trading lackluster since the first trading session of April. After a steep fall from its six-year high at 125.10 on March 28, the major is inside the woods.

On an hourly scale, USD/JPY is oscillating in a symmetrical triangle that signals indecisiveness in the sentiment of the market participants. Usually, a symmetrical triangle denotes volatility contraction and volume squeeze. The pair is juggling in a narrow range of 122.26-123.04 from the last three trading sessions.

The 200-period Exponential Moving Average (EMA), which is trading near the round level figure of 122.00 has acted as major support earlier. Adding to that, the 20- and 50-period EMAs are continued with their bull cross despite the range-bound move in the asset.

The Relative Strength Index (RSI) (14) has shifted into a 40.00-60.00 range from the bullish range of 60.00-80.00, which signals back and forth moves going forward.

A breakout of the symmetrical triangle above 123.00 will be followed by a swift move, which will send the asset towards the March 29 high at 124.30. A breach of the latter will drive the greenback bulls to a six-year high at 125.10.

On the contrary, yen bulls may strengthen on breaking of the symmetrical triangle at 121.33, which will drag the major towards the round level support at 120.00, followed by the March 18 low at 119.08.

USD/JPY hourly chart

• GBP/USD holds the fort despite US doll strength to start the week.
• Markets still pricing a lot more than what the Bank of England has guided.

GBP/USD is flat on the day and has traded between a low of 1.3086 and a high of 1.3136, sustaining US dollar strength better than its rival, the euro, for now. The US dollar is robust at the start of the week, with the DXY higher on the day so far by nearly 0.5% and for three straight sessions.

US yields have been on the up due to the narrative surrounding the Federal reserve and as civilian killings in north Ukraine keep the safe-haven appeal alive in financial markets. ''For the moment, risk markets are taking the expectation of successive 50bp rate rises at the May and June FOMC meetings in their stride,'' analysts at ANZ Bank said. 

Meanwhile, with markets still pricing a lot more than what the Bank of England has guided to markets, the focus will be on the MPC speak this week as it is becoming more and more important. ''We look for continued pushback on market pricing, with Bailey, Cunliffe, and Pill all making appearances in the week. Cunliffe will be most interesting, as he was the lone dove in March, so we watch for any change in position,'' analysts at TD Securities said. 

Meanwhile, analysts at Rabobank said, ''central bankers are well aware that there is an economic cost to hiking interest rates. They are also aware that conventional theory suggests that taking the necessary action to keep inflation expectations confined brings a far better economic outcome long-term than allowing hyper-inflation to become entrenched.''

Noting that there is an energy price crisis which has been exacerbated by the war in Ukraine, the analysts explained that ''this came on top of the supply side issues brought about by the pandemic and by Brexit.  The market has re-considered the outlook for UK rates in the wake of the BoE’s dovish tightening in March.  However, in our view, the market may still have too many rate hikes priced in. This leaves GBP vulnerable against both the USD and the EUR.''

• In the North American session, the white metal slides almost 0.50% on high US yields and a positive market mood.
• Germany and France expel Russian diplomats as a response to the Bucha killing.
• Silver Price Forecast (XAG/USD): The bias is neutral upwards, but caution is warranted due to the closeness of the 200-DMA.

Silver (XAG/USD) extends its fall to three-consecutive trading sessions, struggling to get to the $25.00 mark, weighed by rising US Treasury yields and an upbeat market mood, despite the escalation of the Russia-Ukraine conflict. At the time of writing, XAG/USD is trading at $24.50.

As reflected by European and US equities, an upbeat market mood weighs on the safe-haven status of the non-yielding metal. The Russia-Ukraine conflict further escalates after Ukrainian forces found that Russia’s army had killed 410 unarmed people in the city of Bucha. Europe’s response came at the expulsion of Russian diplomatics in German and France, as Europe weighed the possibility of an energy-oil embargo on Russia.

In the US, President Biden said that Vladimir Putin could face a war crimes trial and vowed Washington would impose another tranche of sanctions against Russia.

In the meantime, US Treasury yields are rising, portraying the Federal Reserve’s hawkishness of late, as some officials expressed the possibility of 50-bps hikes. The US 10-year Treasury yield gains four basis points, sits at 2.421%, a tailwind for the greenback, which, as shown by the US Dollar Index, remains buoyant, up 0.38%, at the 99.000 mark.

The US economic docket unveiled Factory Orders for February on a monthly basis, which came at -0.5% as estimated but trailed January’s 1.5% reading. The economic calendar would feature more Fed speaking on Tuesday and Wednesday’s FOMC minutes.

Silver Price Forecast (XAG/USD): Technical outlook

XAG/USD’s bias is upwards, though, in the last three trading sessions, a series of subsequent lower highs/lows sent silver towards the 50-day moving average (DMA) at $24.33, a solid line of defense for XAG bulls, lifting the white-metal to the $24.30s area.

Upwards, the XAG/USD’s first resistance would be April 1 daily high at $24.86. A breach of the latter would expose the $25.00 figure, followed by November 16, 2021, a $25.40 daily high, and then August 4, a daily high at $26.00.

On the flip side, XAG/USD’s first support would be the 50-DMA at $24.33. Once cleared, the following demand zone would be $24.00, followed by the 200-DMA at $23.94.

Technical levels to watch

• AUD/JPY rallied above 92.50 on Monday and is now over 2.0% higher versus last Thursday’s lows.
• Buoyant commodity prices and advancing equities made for a bullish mix for the pair.
• Focus now turns to the upcoming RBA meeting as markets brace for a hawkish shift.

In a strong start to the week for AUD/JPY, the pair has risen about 0.8% and was last trading to the north of the 92.50 level, roughly 2.0% higher versus last week’s lows in the 90.70 area. Commodity prices rose nearly across the board on Monday as tensions between the West and Russia amped up in wake of a growing pile of evidence of war crimes committed by Russian forces in the areas where they have now withdrawn from in northern Ukraine. Despite this, global equities remained resilient and have even seen reasonable gains during US trade, creating the perfect conditions for the Aussie to outperform.

The announces its latest monetary policy decision during the coming Asia Pacific session. If the central bank opts for a more hawkish stance regarding its guidance on interest rates hikes (i.e. signaling they could come in the coming months), that could add to AUD/JPY tailwind by highlighting the contrast between the hawkish-turning RBA versus the still ultra-dovish BoJ. AUD/JPY bulls will be eyeing a test of last week’s highs in the 94.00 area, perhaps for sometime later this week.

Dutch central bank head and European Central Bank governing council member Klaas Knot said on Monday that the ECB should act in the face of high inflation and that gradual but timely normalisation of policy is needed, reported Reuters. High inflation is not entirely due to the supply shock and demand has recovered far quicker than expected, Knot added.  

Knot's remarks comes after data last week showed Eurozone inflation to have risen to a record 7.5% YoY in March, according to the headline Consumer Price Index and comes amid increased media reporting on rising food costs. 

• WTI bulls move in as US and EU move towards sanctioning Russia further. 
• US Strategic Petroleum Reserve (SPR) does little to cool down supply concerns. 

West Texas Intermediate (WTI) crude oil rose on Monday on persisting supply concerns as Russian energy sanctions are very much on the table following the Russian forces' civilian killings in north Ukraine. For a fresh high of the day, at $103.82. WTI spot is up by some 4.5% as White House's National Security Advisor, Jake Sullivan, announced that the US is working with European allies to coordinate further sanctions on Russia.

Sullivan said that they have concluded Russia has committed war crimes, Bucha offers further evidence to support that, pointing to a protracted war. '' Ukraine-Russia conflict may not be just a few more weeks, could be months.'' 

Ukraine’s top prosecutor has said 410 bodies had been found in towns recaptured from retreating Russian forces around Kyiv as part of an investigation into possible war crimes. The weekend media reported mass killings of civilians in the town of Bucha which had been under Russian occupation until recently.

The reports led to an array of calls from within the European Union for the bloc to go further in punishing Moscow. Consequently, a fifth package of sanctions against Russia is being arranged with the new round of measures expected to be approved later this week.

Meanwhile and despite the release of 180-million barrels from the US Strategic Petroleum Reserve (SPR) and an agreement last week from members of the International Energy Agency (IEA) to release some of their own strategic reserves, oil is firmer due to the persistence of geopolitical concerns.

"The global oil market remains in deep deficit of likely 1.5 mb/d over the last 4 weeks, before the loss of Russian supply even started, with global inventories at their lowest levels in recent history on a demand-adjusted basis and with limited OPEC and shale elasticity in months to come. Demand destruction requires higher prices, yet this dynamic is being nullified by increased government interventions in cutting gasoline taxes," Goldman Sachs said in a report.

''Indeed, while the SPR release can quell near-term tightness concerns, it does not solve the longer-term issues in the crude market. Structural deficit conditions could still persist down the road as these reserves will need to be replenished at a time when global spare capacity and inventory levels will still be stretched,'' analysts at TD Securities explained. 

''In this sense, the right tail in energy markets is set to remain structurally fat as depleted reserves would add to the existing risks of self-sanctioning, stretched spare capacity across OPEC+, constrained shale production, an uncertain Iran deal and OECD inventories at their lowest since the Arab Spring. We expect this vast array of supply risks to remain the driving force in the energy market.''

What you need to take care of on Tuesday, April 5:

Most major pairs struggled for direction on Monday, as market participants remained cautious ahead of the announcement of new sanctions on Russia. The EUR was the worst performer and the AUD was the best one.

The focus remained on the Eastern Europe crisis. As announced, Moscow has moved troops away from Ukraine’s northern region. However, Kyiv reported the massive assassination of civilians and war crimes, which resulted in western nations announcing plans to add sanctions on the Kremlin.

French President Emmanuel Macron called to add sanctions on Moscow, while Germany and France decided to expel Russian diplomats from their countries. The US is also preparing more sanctions against Putin & Co. Ukraine’s President Volodymyr Zelenskyy said that considering what Russia has done in the country, it's difficult to negotiate with them.

The EUR/USD pair trades at around 1.0960, while AUD/USD trades near a fresh 2022 high of 0.7555. The GBP/USD pair is stable at around 1.3110, while USD/CAD hovers around 1.2485. The USD/JPY pair is unchanged at around 122.80, as USDCHF changes hands at 0.9260.

Gold advanced within range, finishing the day at around $1,930 a troy ounce. Crude oil prices edged also higher, with WTI settling at 103.80.

The yield on the 10-year Treasury note stands at 2.42%, while that on the 2-year note is currently at 2.43%. The inverted yield curve spurred recession-related concerns, although the market’s reaction has been limited so far. Nevertheless, mounting concerns hint at potential gains of safe-haven assets.

Crypto.com price consolidates before a major breakout

• USD/CAD is lower, weighed by strong Building Permits data and a BOS survey that supports fast BoC tightening.
• However, the pair continues to trade within recent ranges near 1.2500, as the buck remains broadly buoyant.
• But strategists think that given advancing equities, high commodity prices and a hawkish BoC, USD/CAD can fall towards 1.2400.

Though the latest Business Outlook Survey (BOS), released by the Bank of Canada once per quarter, was broadly interpreted as supporting the case for a faster pace of rate hikes from the BoC in the quarters ahead, its impact on the loonie was limited. USD/CAD was last trading down about 0.2%, but continues to respect recent ranges and remains close to the 1.2500 level that has been acting as a magnet for the past week or so. For reference, the headline BOS indicator dipped back from Q4 2021’s record highs reading of 5.9 to 4.98 in Q1 2022, leaving it still well above pre-pandemic levels.

The general takeaway from the release was that Canadian firms continue to face elevated inflationary pressures and continue to face struggles in hiring/retaining workers, who are demanding higher pay. The BOS survey was conducted before Russia's invasion of Ukraine and a special survey that was conducted in March showed that about half of firms said they expected to impacted by the war, mostly through higher commodity prices.

Elsewhere, strong Canadian Building Permits figures were also supportive to the loonie, after the headline figure recorded a 21% MoM leap in February versus January to hit a record one-month high. But the US dollar has also performed quite well on Monday as tensions on the Russo-Ukraine front rise and this is, for now preventing USD/CAD from breaking lower towards last week’s multi-month lows in the 1.2430 area.

Russian forces stand accused of committing war crimes in Ukraine after evidence emerged of mass civilian killings in the north post-Russia’s withdrawal and European currencies have been underperforming on the chatter of tougher sanctions. But the loonie has in recent weeks been immune to geopolitical-related risk-off given its positive exposure to higher commodity prices, which are now seen as “structurally higher” in wake of the Russo-Ukraine war.

WTI remains well supported to the north of the $100 per barrel mark and global equities have been advancing, which is a cocktail for a lower USD/CAD. If the BoC can maintain its lead over the Fed in terms of monetary tightening (a 50bps move is very much expected at the bank’s next meeting), the pair stands a good chance at pushing to fresh annual lows under 1.2400 and on towards 2021 lows at 1.2300.

• The shared currency falls against safe-haven peers like the greenback and the yen on Russo-Ukraine woes.
• EUR/JPY Price Analysis: In consolidation around the 134.50-135.30 area, trendless.

The EUR/JPY pair slides as the North American session, following the footprints of the EUR/USD, which also falls, below the 1.1000 mark, as Germany and France expel Russian diplomats from their embassies as a response to the Ukrainian genocide in Bucha. At the time of writing, the EUR/JPY is trading at 134.74, near the day’s lows.

European and US equities reflect a positive market mood. However, in the FX space, the continuation of the Russo-Ukraine war weighs on the shared currency and benefits safe-haven peers, like the greenback and the Japanese yen.

Overnight, the EUR/JPY meandered around the 135.00 area and, at a certain point in the mid-European session, reached a daily high above 135.50, followed by a dip towards 134.70s since the mid-North American session, as geopolitical jitters keep the euro pressured.

EUR/JPY Price Analysis: Technical outlook

Even though the EUR/JPY is falling, it found some buyers near the 134.50s highs, as depicted by the last three days’ price action. Nevertheless, the size of the wicks on top of the candlesticks indicates that selling pressure remains in the 135.30-137.50 area, which would be a problematic resistance area to overcome for EUR bulls.

Upwards, the EUR/JPY’s first resistance would be 134.87, which, once cleared, would expose 135.00, followed by 135.30.

On the flip side, the EUR/JPY’s first demand zone would be 134.50. A decisive break would expose 134.05, followed by October 20, 2021, 133.48.05 daily high.

Technical levels to watch

• EUR/USD bears take control due to a firmer US dollar and Ukraine crisis risks. 
• Investors are buying into the greenback and the long position in building ahead of the Fed.

The US dollar is robust at the start of the week, with the DXY higher on the day so far by nearly 0.5% and for three straight sessions. US yields are firmer due to the narrative surrounding the Federal reserve and as civilian killings in north Ukraine keep the safe-haven appeal alive in financial markets. In turn, the euro is on the backfoot and weighed also by the prospect of increased sanctions.

At the time of writing, EUR/USD is trading lower by 0.7% and some change after falling from a high of 1.1054 to a low of 1.0960. The euro is trapped between mixed sentiment surrounding the path of the European Central bank, Ukraine crisis risks to the economy and runaway inflation in the US which, for now at least, is supporting demand for the greenback.

ECB President Lagarde heavily caveated the central bank’s hawkish policy outlook in March, though speculation of ECB rate hikes has since stepped up on the back of rising inflation pressures in the Eurozone as well. However,  traders are concerned that French President Emmanuel Macron has called for new sanctions and said there were clear indications Russian forces had committed war crimes in the town of Bucha. The German Defence Minister Christine Lambrecht also advocated for much of the same, saying that the European Union should discuss ending Russian gas imports. Russia supplies some 40% of Europe's gas needs. In this regard, markets will also be closely watching the price of oil and its implications for EZ inflation.

Ulrich Leuchtmann, Commerzbank Head of FX. argued that, "More sanctions of course also mean that the risk of energy disruptions in Europe rises, because of our own sanctions or because Russia might get completely serious with its counter-sanctions rather than just changing the payment mode for natural gas."

The ECB minutes for further insight into the impact of war on growth and inflation. ''While the information set at the time of the last ECB meeting (2 weeks after Russia's invasion of Ukraine) will be somewhat stale, the Minutes are likely to reveal details about the change to forward guidance, alongside the Governing Council's view on rapidly-rising inflation and how best to tackle it,'' analysts at TD Securities said. 

Meanwhile, the US data on Friday showed US Unemployment hit a two-year low of 3.6% last month. This was leading investors to assess if the numbers would force the hand o the Fed, in anticipation of rapid-fire from the central bank in order to tackle inflation by lifting rates sharply. Subsequently, the two-year US yields hit 2.4950%, their highest level since March 2019.

However, while the US dollar is firmer as a consequence, it is still not breaking out of the 2022 highs at 99.41.  The latest CFTC data suggest the market has been rebuilding its long dollar position which could be why the greenback is unable to really take off in the spot market. The market is already oversubscribed to the greenback. Speculators' net long bets on the dollar rose to an 11-week high in the latest week as Fed funds futures price in an 80% chance of a 50 basis point hike next month. 

• US equities shrugged off geopolitical concerns and advanced on Monday amid outperformance in large-cap tech stocks.
• Recent Russo-Ukraine war developments raise the risk of an EU embargo on Russian energy imports and peace talk breakdown.
• But major US banks have been becoming more bullish on the equity market’s outlook.

US equity markets rose on Monday despite a resoundingly negative tone to the geopolitical newsflow and further hawkish commentary from Fed officials over the weekend. The S&P 500 was last up roughly 30 points to just over 0.6% and trading in the 4575 area, led by gains in large-cap tech stocks. That has helped the Nasdaq 100 to outperform healthily, with the tech-heavy index last up over 1.6%, versus more modest gains for the Dow of just 0.2%.

As Russian forces pull back from parts of northern Ukraine, a mountain of evidence of war crimes against the civilian population has emerged and, as a result, the pressure on Western leaders to further toughen sanctions against Russia has ramped up. Talk of an EU-wide embargo on Russian oil imports has re-emerged and, with it, downside risks to the Eurozone economy. Meanwhile, mounting evidence of Russian war crimes casts a dark shadow over peace negotiations.

But, as noted, equities are becoming increasingly resilient, not least as a chorus of big US banks adopt a more bullish outlook for the asset class. The equity market’s “risk-reward is not as poor as it is currently fashionable to believe,” noted JP Morgan on Monday. “The Fed repricing might be closer to the end, and headline inflation will mechanically peak soon… The start of Fed tightening should not be seen as a negative for stocks”.

In terms of individual movers, the biggest story was micro-blogging social media site Twitter’s historic near-30% on-the-day gain on the news that eccentric Tesla CEO Elon Musk had taken out a 9.2% stake in the company. TWTR shares jumped above $50 on Monday after closing below $40 last Friday on speculation that Musk’s stake, which was acquired in mid-March but only disclosed on Monday, was just the first step towards a total takeover of the company.

The Tesla CEO has been critical of Twitter for failing to adhere to free speech principles in recent weeks and the speculation is that Musk might want to takeover the company change how it regulates discource on the platform. Of course, Monday’s price action means musk is now sitting on healthy profit on his 9.2% stake, but the biggest boon to his net worth came in the form of a more than 5.5% surge in the value of Tesla’s share price after the company reported record deliveries in the quarter just gone.

• Gold consolidates above the $1900 mark amidst a lack of catalyst and seesawing market sentiment.
• Germany and France expel Russian diplomats from their countries to respond to the Bucha genocide.
• Gold Price Forecast (XAU/USD): Range bound in the $1900-$1950 area.

Gold (XAU/USD) is almost flat but edges high during the North American session amid a risk-on market mood, as portrayed by US equities trading with gains. A rebound in oil prices boosted the prospects of the precious metals sector, in particular the yellow metal, so in consequence, XAU/USD is trading at $1931.05, up some 0.35% at press time.

US equities began the New York session lower but lifted in the mid of the trading session. The Russia-Ukraine war drags on, and the atrocities committed by Moscow of Bucha would exacerbate several tranches of new sanctions imposed by European countries. Germany’s response to that, expelled a substantial number of Russian diplomats, according to AFP, citing a minister. In the same tone as Germany, France has decided to remove “a lot” of Russian diplomatic personnel, a signal of escalation in the Eurozone.

Aside from this, US Treasury yields are recovering from Friday’s losses. The US 10-year benchmark note is up two and a half basis points sitting at 2.399%, though stills below the 2-year, which sits at 2.440%, extending the yield curve inversion for the second straight day.

Following the rise of US yields is the greenback, as portrayed by the US Dollar Index, a gauge of the buck’s value against a basket of peers, is up 0.42%, sitting at 99.05%.

Before Wall Street opened, the US economic docket featured Factory Orders for February on a monthly basis, which came at -0.5% as estimated but trailed January’s 1.5% reading. That said, the docket would turn to Fed speaking on Tuesday, followed by Wednesday’s FOMC minutes.

Gold Price Forecast (XAU/USD): Technical outlook

XAU/USD’s price action depicts the bias as neutral. The current environment keeps non-yielding metal traders waiting for a catalyst, as fluctuating market sentiment, alongside higher US T-bond yields, keeps prices more volatile than pre-war levels. Gold has been seesawing through the last fourteen days, and the escalation of sanctions on Russia from Western countries would keep XAU/USD trading in familiar ranges.

Upwards, XAU/USD’s first resistance would be $1950. Once cleared, the next resistance would be February 24, a daily high at $1974.48, followed by the $2000 mark, and then the YTD high at $2070.63.

On the flip side, XAU/USD’s first support would be $1915.57. A breach of the latter would expose the 50-day moving average (DMA) at $1899.90, followed by November 16, 2021, $1877.14 daily high.

Technical levels to watch

• AUD/USD bulls need to close above 0.7560 or 0.7400 the figure will be exposed.
• Bears will look to the 38.2% Fibonacci retracement level as a target on repeated upside breakout failures. 

AUD/USD has moved higher in New York trade as US equities rally. From a technical standpoint, the price is breaking into fresh cycle highs but until the October 2021 highs are well and truly cleared, the resistance could keep the bulls contained and the monthly W-formation should be noted. 

AUD/USD monthly chart

The W-formation is a reversion pattern and the price would be expected to revert to restest the neckline of the formation. In this case, the neckline is aligned with the 50% mean reversion level near 0.7260.

AUD/USD daily chart 

Meanwhile, the daily chart shows that the price is running into a wall of daily resistance, so should the bulls be unable to break and close above 0.7560, then the focus will remain on the downside with 0.7400 the figure exposed as it comes near to the 38.2% Fibonacci retracement level. 

• The USD/CHF edges higher but remains trapped between the 0.9240-80 range.
• A positive market mood boosts the prospects of the greenback.
• USD/CHF Price Forecast: Range-bound between the 0.9200-0.9300 range.

The USD/CHF grinds higher but fails to break above Friday’s high at 0.9279 as the pair probes an eleven-month-old downslope trendline. At press time, the USD/CHF is trading at 0.9266 during the North American session.

Of late, an improved market sentiment, as portrayed by European and US equities, lifted the USD/CHF pair. The USD/CHF was about to break below the 50-hour simple moving average (SMA), but a positive tone in the markets, alongside renewed demand for the greenback, lifted the pair so far. Nevertheless, it is not outside the woods unless the USD/CHF reclaims the 0.9280 area.

USD/CHF Price Forecast: Technical outlook

The USD/CHF bias is neutral-upwards. Its daily chart depicts a subsequent series of higher highs/lows since the beginning of 2022. March 31 dip towards the 200-day moving average (DMA) at 0.9209 was rejected, forming a “spinning top” candlestick, meaning failure to commit between buyers/sellers.

Upwards, the USD/CHF first resistance would be 0.9280. Once cleared, a test of February’s ten high at 0.929600 is on the cards, immediately followed by 0.9300. A decisive break would open the door toward January 31 daily high at 0.9343.

On the downside, the USD/CHF first support would be the 50-DMA at 0.9258, followed by April 1 daily low at 0.9215, and then the 200-DMA at 0.9209.

• NZD/USD is trading sharply higher on Monday, with the pair having jumped 0.6% to the 0.6960s.
• The pair has shrugged off Russo-Ukraine pessimism and recent hawkish Fed speak after bouncing at its 200DMA.
• It is now eyeing a test of recent highs at 0.7000, aided by buoyant equity markets.

NZD/USD is trading sharply higher on Monday, with the pair having jumped 0.6% to the 0.6160s after finding solid demand earlier in the session at the 200DMA just above 0.6900. Hawkish Fed commentary from the weekend which alluded to faster rate hikes (in 50 bps intervals) and imminent QT, as well a deterioration in the tone of Russo-Ukraine developments after evidence of widespread atrocities committed by the Russian military in Ukraine’s north emerges has failed to dent risk appetite in the FX space.

Indeed, though the growing pile of evidence of war crimes committed by Russian troops against Ukrainian civilians throws a dark cloud over Russo-Ukraine peace talks, global equity market are trading firmly on the front foot. This is giving the likes of the risk-sensitive kiwi and its other risk-sensitive G10 peers a lift, but the New Zealand dollar is also gaining (alongside AUD) as a result of its exposure to commodity prices, which are again broadly on the front foot.

In recent weeks, commodity-sensitive G10 currencies like the kiwi have been in demand, despite broader risk appetite, given expectations that country’s like New Zealand and Australia, who are located geographically far from Ukraine, will benefit from structurally higher commodity prices as a result of the war there. Looking at NZD/USD from a technical standpoint, the pair looks to very much still be in the pattern of posting higher highs and higher lows that has been in play since late January.

The fact that the pair found such strong support at its 200DMA on Monday will be taken as a bullish technical signal and makes a test of recent annual highs in the 0.7000 area this week likely. A break above 0.7000 could potentially open the door to a move towards Q4 2021 highs in the 0.7200 area. So long as the risk/commodity backdrop remains favourable and the RBNZ remains ahead of the Fed in terms of the tightening of monetary policy, a push to these levels is definitely on the cards.

A key event during the current week will be on Wednesday when the Federal Reserve releases the minutes of the latest FOMC meeting. At that meeting, the central bank rose interest rates as expected. Analysts at Wells Fargo point out the importance of the additional information that will contain the minutes regarding the balance sheet runoff. 

Key Quotes: 

“The Federal Open Market Committee (FOMC) elected to raise rates by 25 bps at its March 15-16 meeting. At the conclusion of the meeting, the committee released its quarterly Summary of Economic Projections (SEP), in which all current members submit individual forecasts for key economic indicators and the path of policy. For example, the median forecast for 2022 PCE inflation jumped to 4.3% (on a Q4-over-Q4 basis) from 2.6% in December. Moreover, the median forecaster called for 175 bps of rate hikes in 2022, up from 75 bps in December. All told, the SEP indicated that the FOMC has broadly adopted a hawkish stance on policy.

“The statement from this past meeting said “the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.” Moreover, Chair Powell signaled that the meeting minutes, due for release on Wednesday, will contain additional information on the balance sheet runoff. While we previously expected the FOMC to decide on balance sheet reduction in June, the statement indicates that an announcement could very much be in play at the next meeting on May 3-4, depending on developments in coming weeks.”

• Mexican peso keeps rising versus the US dollar, hit highest since July 2021.
• USD/MXN shows oversold readings but no significant sign of consolidation.
• Price remains under the 200-week SMA at 20.15.

The USD/MXN opened the week falling back under 19.80, after posting the third weekly decline in a row. The bearish bias remains intact, with the pair looking to test 19.70 in the short-term and near the critical support area of 19.55.

The US dollar needs to recover levels above 19.85 to alleviate the immediate bearish pressure, favoring some consolidation. While under 20.15, moves to the upside could look unstable; a weekly close above could suggest a temporal bottom has been established.

The fact that USD/MXN has fallen in seventeen out of the last nineteen trading days puts in perspective how far the Mexican peso’s rally has gone. Technical indicators like RSI under 30 show oversold levels. Despite the descriptions, no significant signs of a reversal or stabilizations are noted yet as the cross keeps breaking support levels.

A consolidation under 19.70 should keep the doors open to further losses. The next medium-term solid support is seen at 19.55, the 2021 low before an interim level at 19.65.

USD/MXN daily chart

• GBP/JPY has advanced on Monday in tandem with other risk-sensitive currency pairs as US equities push higher.
• Dovish BoE commentary and recent negative Russo-Ukraine war developments have failed to dent risk appetite, with GBP/JPY now at 161.00.

Dovish commentary from BoE Deputy Governor Jon Cunliffe, who said that a drop in demand through household consumption and business investment as a result of the Russo-Ukraine war will be larger than expected failed to dent GBP/JPY on Monday. The pair was last trading 0.2% higher around the 161.00 level and earlier came within a whisker of matching its highs from last Wednesday in the 161.30s. Cunliffe was the lone dissenter against a 25 bps rate hike at the BoE’s last meeting, and so market participants don’t seem surprised that he is taking a more dovish view on the economy.

Global equities are performing well on Monday, with US equities erasing pre-open indecision and now firmly on the front foot, despite concerns about recent geopolitical developments in the Russo-Ukraine war and this is lifting the risk-sensitive GBP/JPY cross. Russia’s troop pullback in the north has revealed a mountain of evidence of potential war crimes and, as a result, international pressure is mounting on the EU to implement a ban on Russian energy imports. But risk assets are for now immune and if this remains the case, then GBP/JPY could remain supported and perhaps even advance on towards the 162.00 mark.

• Japanese yen steady as US yields move sideways on Monday.
• USD/JPY consolidation, unable to recover 123.00.
• Dollar mixed across the board; DXY up for the third day in a row. 

The USD/JPY is rising modestly on Monday, supported by higher US yields and a mixed US dollar. The pair peaked at 122.94 and then pulled back toward the 122.70 area.

In the short-term. USD/JPY is moving sideways with a bullish bias, facing resistance below 123.00. On the flip side, immediate support emerges at 122.50 followed by the daily low at 122.25.

US yields bounced after the beginning of the American session hitting fresh daily highs. The 10-year yield stands at 2.42% and the 2-year at 2.45%. The DXY is up for the third consecutive day, gaining 0.30% at 98.85. Equity prices are mixed in Wall Street while crude oil rises more than 3%.

Regarding US economic data, Factory Orders declined 0.5% in February, in line with expectations. The key event of the week will be the FOMC minutes on Wednesday. The divergence in monetary policy expectations between the Bank of Japan and the Federal Reserve, with risk sentiment, remain the key drivers of price action in USD/JPY.

Analysts at BBH point out that for now, the Bank of Japan won the battle to maintain Yield Curve Control. “The 10-year yield is trading near 0.21%, below the 0.25% limit under YCC.  However, the struggle to contain JGB yields is by no means over, not when bond yields in the rest of the world continue to march higher.  While last week’s spike in USD/JPY was an overreaction to the BOJ’s YCC operations, the direction for this pair remains clear with central bank divergence particularly strong here. A break above 123.65 is needed to set up a test of the March 28 high near 125.10.”

Technical levels

• The Russian rouble recovered to pre-war levels after a steeper depreciation of 70%.
• A mixed market mood keeps the USD/RUB within Friday’s levels.
• USD/RUB Price Forecast: Technically is upward biased but would be subject to market sentiment and developments around the Russo-Ukraine war.

The USD/RUB barely advances in the North American session, though it remains near pre-war levels, before a steeper surge that sent the pair to a multi-year-high around 154.24. At the time of writing, the USD/RUB is trading at 83.7570, contained within Friday’s high/low at 86.3461/81.7161, respectively.

Market sentiment fluctuates, though putting a lid on the USD/RUB

The market sentiment is mixed, as European bourses record losses while US ones fluctuate. The Russo-Ukraine conflict dominates the headlines as the war is set to extend for a sixth week and weighs on energy and food prices. That would spur global inflation, which, added to supply chains issues and elevated commodity prices, begin to paint a stagflation scenario.

Meanwhile, on Monday, the Russian Chief Negotiator said Russia’s stance on Crimea and Donbas remains unchanged and negated that a draft peace agreement exists. He added that talks would resume on Monday. The Russian Foreign Minister Lavrov stated that Russia does not rule out charging in Roubles for other commodities if “hostility continues from the West.”

Of late, NATO’s Secretary General Stoltenberg said that what is going on in Ukraine is not an actual withdrawal of Russian troops via Reuters.

The German Chancellor Scholtz stated that the West would agree on further Russian sanctions in the coming days.

In the meantime, the US Dollar Index, a gauge of the greenback’s value vs. a basket of peers, rises 0.26%, sits at 98.830, following Friday’s US Nonfarm Payrolls report, even though missed expectations, was solid. Also, the US ISM Manufacturing Index came lower than expected, but Manufacturing Prices rose to 87.1, higher than the 80 estimated, further cementing the case for a 50-bps Fed rate hike.

Therefore, the USD/RUB pair would still be subject to developments in Eastern Europe. Any hints of the progress of talks, Russian troops withdrawal, or cease-fire agreements could be a headwind for the USD/RUB; otherwise, the uptrend could resume short to medium-term.

USD/RUB Price Forecast: Technical outlook

The USD/RUB is contained within the 81.7161-86.3461 range, and if it stays inside those boundaries, it could mean the pair might consolidate. Nevertheless, it is worth noting that the USD/RUB exchange rate is stills above the 200-day moving average (DMA), which sits at 78.1428, maintaining the uptrend bias intact.

That said, the USD/RUB first resistance would be 86.3461. Breach of the latter would expose March 30 daily high at 87.7500, followed by the 92.3961 50-DMA.

The Bank of Canada just released its latest Business Outlook Survey (BOS) and the headline indicator dipped back to 4.98 in Q1 2022 from the record high of 5.9 it hit in Q4 2021. The BOS survey was conducted before Russia's invasion of Ukraine and a special survey that was conducted in March showed that about half of firms said they expected to impacted by the war, mostly through higher commodity prices. 

Additional Takeaways:

• 81% of firms reported capacity pressures related to labor or supply chain challenges, a new record high. 
• Firms expect significant growth in wages, input prices and output prices due to persistent capacity pressures and strong demand, while there were widespread plans to increase investment spending and add staff.
• Firms continued to expect strong sales growth but at a more moderate pace than over the past year.
• Businesses tied to hard-to-distance services anticipate significant increases in their sales as restrictions related to the Covid‑19 pandemic ease. 
• The balance of opinion on indicators of future sales growth fell to 39 in Q1 from 57 in Q4 2021.
• 70% of firms said they expect inflation to be above 3% over the next two years, up from 67% in Q4 2021, though most predicted that it will return close to the BoC's target within 3 years. 
• In its special survey on the impact of the Ukraine war, firms said they expect input costs to be hit by higher energy and commodity prices, further supply chain disruptions and many said they plan to pass cost increases on to customers. 
• Moreover, several businesses, predominantly those tied to energy and other commodities, expect higher sales. 
• In a separate BoC survey of Consumer Expectations, expectations for 1-year ahead inflation increased slightly in Q1 2022 to 5.07% from 4.89% in Q4 2021, with most respondents expecting strong spending growth to continue. 
• Despite greater concerns about inflation today, longer-term expectations have remained stable and are below pre-pandemic levels, the Consumer Expectations survey revealed. 

The Reserve Bank of Australia will announce its decision on monetary policy on Tuesday, April 4 at 04:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of seven major banks regarding the upcoming central bank's decision.

Uncertainty around the Ukraine crisis, minor signs of wage inflation and the May Federal election are some of the key factors that could lead the RBA to maintain its cautious stance.

Scotiabank

“The bank should nevertheless lay the groundwork for at least one hike in the fourth quarter – or even a Q3 start. We project that the RBA will hike this year, but with a large number of hikes already priced in, the RBA would need to at least meet expectations to support the AUD and, ultimately, markets have got ahead of themselves and the unwinding of RBA hike bets should weigh on the AUD through the remainder of the year. Unless the RBA quickly changes its tone from dovish to very hawkish – something that we don’t anticipate – the AUD faces limited tailwinds. A normalization of commodity prices from very elevated levels would be an additional drag over the coming months.”

Westpac

“The cash rate will be held at the record low of 0.1%. The focus will be on any shift in language in the decision statement. Westpac expects the tightening cycle to begin this August. Inflation is now back in the target band and the unemployment rate, at 4.0%, will soon move below 4% for the first time since 1974. However, the RBA has stated that it will not lift rates until inflation is ‘sustainably’ within the target band – which requires a lift in wages growth from current relatively modest levels. We anticipate that by August, with the benefit of additional information on inflation, wages and unemployment, the case will be made for the tightening cycle to commence.”

Standard Chartered

“We currently expect the RBA to start normalising rates in August. At the last meeting in March, the RBA reiterated that it will be patient in hiking rates and said it may take some time before labour cost growth is consistent with inflation being sustainably at target. That said, the RBA’s reference to supply-side inflation appears to have shifted towards its being more persistent than thought versus how strong demand inflation is after supply-side problems are solved. Since the meeting, February labour data pointed to sustained tightness in the labour market. RBA governor speeches also noted that a rate hike this year may be plausible. That said, the governor noted that the RBA is monitoring inflation psychology and domestic labour costs, and noted that wage growth may remain moderate. We expect further subtle shifts in inflation and rate hike views amid current strong growth and rising inflation dynamics.”

Danske Bank

“Despite the global inflationary pressures, we do not yet expect to see changes to their monetary policy.”

TDS

“We expect the RBA to reiterate that it remains 'patient', looking past the Budget handouts. The RBA seems comfortable with the risk of moving too late than too early and noted that it won't respond until there is "evidence of pervasive price pressures". Thus, we like Rec Jun'22 RBA OIS. We retain our call for the first 15bps hike in Aug but now expect another hike in Sep.”

SocGen

“We expect the RBA to hold the cash rate target at 0.10%. The RBA’s rate guidance likely won’t change. The policy statement will probably say that the RBA will not increase the cash rate until actual inflation is sustainably within the 2-3% target range and that it is too early to conclude that this condition has been met. The RBA will likely maintain its upbeat outlook on economic growth and the labour market. It should continue to acknowledge the war in Ukraine as a major source of uncertainty. The key question for the RBA is when the first rate hike will take place. Our base-case scenario points to August, after the release of 2Q22 CPI. We cannot rule out the first hike in May, especially if 1Q22 CPI provides an upside surprise. But we think that the RBA’s usual step-by-step approach reduces the likelihood of ‘hasty’ action.”  

Citibank

“Although any major policy changes are unlikely in this week’s April Policy Board Meeting, it could still hold clues as to when the RBA is considering its first hike (our base case remains August, markets are pricing June). The recent more hawkish tilt implies that the Bank now considers it ‘plausible’ to move rates higher later this year though Governor Lowe is still pushing back against aggressive market pricing which currently suggests that the cash rate could be 1.8% by the end of this year.” 

In all probability, Bank of England Deputy Governor Jon Cunliffe said on Monday, the Ukraine invasion will intensify the prolong the surge in inflation and tighten the squeeze on household incomes, reported Reuters. A drop in demand through household consumption and business investment will, to an extent that is not yet clear, be greater than be thought in February, he added. 

Additional Remarks:

"It's possible that some labour market weakness will prove to be structural rather than cyclical."

"The lower participation has been compounded by lower migration either as a result of the pandemic or Brexit."

"There is no material evidence of sectoral mismatches in the labour market, which has remained highly flexible."

"What we have seen in the labour market coming out of Covid has very much been a story of weak labour supply and strong labour demand."

"The impact of higher energy prices will not be felt evenly, these factors could amplify the hit to aggregate demand."

• Oil prices rebounded on Monday as calls for an EU-wide Russian energy import ban gained traction.
• WTI is back to trading in the $103.00s, which will dissappoint the White House after their massive reserve release announcement.

Global oil prices rebounded sharply on Monday as international calls for the EU to place a blanket ban on Russian energy imports mounted in light of mounting evidence of war crimes committed by Russian forces in Ukraine. Front-month WTI futures were last up $4.0 per barrel to trade in the $103.00s, where they now trade more than $5.50 above the near-two-week lows printed last Friday underneath $98.00. Traders also cited the news of a pause to US/Iran nuclear negotiations as supportive to oil prices, as hopes of a near-term agreement that could pave the way for as much as 1.3M barrel per day in Iranian exports to return to global markets diminished.

Monday’s rebound will come as a disappointment to the White House, who likely expected their announcement last week of a historic release of oil reserves (1M barrels per day for the next six months) to have a bigger market impact. Since the announcement, which came last Thursday, WTI prices are down only about $4.0. Technicals have likely also impacted Monday trade, with the 50-Day Moving Average offering strong support just below $100 per barrel. To the upside, short-term bullish speculators will likely target a retest of the 21DMA, which currently sits just above $107.

In past days, that has acted as a solid area of resistance, but should the push for an EU-wide ban on Russian energy imports continue to gain momentum, an upside break is very much on the cards. Massive US reserve release aside, another key bearish factor for crude oil market participants to keep an eye on right now is the lockdown situation in China, as tough restrictions in Shanghai drag on as authorities race to test all 26M of the city’s inhabitants.

• USD/CAD witnessed fresh selling on Monday and snapped two days of the winning streak.
• Strong intraday rally in oil prices underpinned the loonie and exerted downward pressure.
• Fed rate hike expectations, the Ukraine crisis benefitted the USD and should limit losses.

The USD/CAD pair remained depressed through the early North American session and was last seen flirting with the daily low, around the 1.2480-1.2485 region.

The pair struggled to capitalize on last week's late recovery from the YTD low and met with a fresh supply on Monday, snapping two successive days of the winning streak. A sharp intraday rally in crude oil prices, now up over 4% for the day, underpinned the commodity-linked loonie. This, in turn, was seen as a key factor that attracted fresh selling around the USD/CAD pair, though the downside seems limited amid a goodish pickup in the US dollar demand.

The market sentiment remains fragile amid fading hopes for a de-escalation in the Ukraine war and talk of additional sanctions on Russia. This, along with growing acceptance that the Fed would tighten its monetary policy at a faster pace to combat high inflation, acted as a tailwind for the greenback.  In fact, the markets have been pricing in a 100 bps Fed rate hike move over the next two meetings, which remained supportive of elevated US Treasury bond yields.

Moreover, the US announced a plan last week to sell up to 1 million bpd of oil from the Strategic Petroleum Reserve (SPR) for six months starting in May 2022. Moreover, the International Energy Agency also agreed to release more oil on Friday. This, along with a two-month truce between a Saudi Arabia-led coalition and the Houthi group aligned with Iran, eased oil supply concerns. Adding to this, the COVID-19 outbreak in China could cap the upside for oil prices.

The combination of the aforementioned factors favours bullish traders and supports prospects for the emergence of some dip-buying around the USD/CAD pair. That said, traders might refrain from placing aggressive bets ahead of the FOMC monetary policy meeting minutes, scheduled for release on Wednesday. Hence, any attempted recovery move is more likely to attract fresh selling at higher levels and runs the risk of fizzling out rather quickly.

Technical levels to watch

Gold remains firm in the aftermath of another strong jobs report. Talk of war crimes and the potential for more sanctions are set to keep haven flows particularly strong, strategists at TD Securities report.

Hawkish Fed backdrop is increasingly weighing on the upside momentum of gold

“Aside from geopolitical flare-ups, the focus for the precious metals market this week will shift toward the FOMC minutes and clues surrounding balance-sheet runoff, which we expect will be announced at the May FOMC. In this sense, while safe-haven appetite and massive ETF inflows provide a strong offset, the drag of a hawkish Fed backdrop is increasingly weighing on the upside momentum of the yellow metal.” 

“So long as material progress on ceasefire talks and de-escalation remains elusive, haven flows are likely to keep the yellow metal supported.”

“While geopolitical tensions and yield curve recession signals re-ignite investor interest in gold, downside risks are more prevalent amid a hawkish Fed backdrop and as negotiators continue to work towards a ceasefire.”

The EUR/USD pair is under strong selling pressure, falling below the 1.10 threshold. Below here, the way is clear for a significant slide to the 1.09 level, economists at Cotiabak report.

Key support at 1.0805 remains vulnerable

“Last Thursday’s rejection of the upper 1.11s (bearish outside range session) suggests a renewed bear phase for spot may be developing.”

“Gains since the early March low have held in a clear consolidation pattern (bear wedge), the base of which lies at 1.10 today; a sustained push under the figure should see spot retest 1.09 fairly quickly.”

“Key support at 1.0805 remains vulnerable.”

• EUR/USD extends the downtrend to the sub-1.1000 area.
• A close below 1.1000 should spark extra weakness.

EUR/USD trades on the defensive for the third straight session and puts the 1.1000 mark to the test at the beginning of the week.

Considering the ongoing price action, further declines should not be discarded on a close below the 1.1000 level. That said, the immediate target emerges at the weekly low at 1.0944 (March 28) followed by another weekly low at 1.0900 (March 14) and prior to the 2022 low at 1.0807 (March 7).

The medium-term negative outlook for EUR/USD is expected to remain unchanged while below the key 200-day SMA, today at 1.1479.

EUR/USD daily chart

USD/JPY looks to have set an exhaustive peak at the 125.29/86 highs of 2015. Analysts at Credit Suisse stay biased toward further sideways consolidation.

An exhaustive peak looks to be in place

“USD/JPY has reversed lower and entered a short-term consolidation phase since extending to just shy of the key 2015 highs at 125.29/86, with weekly RSI momentum still above 80. We have likely seen the peak in this phase of USD/JPY strength and look for further sideways consolidation.”

“Key support during this phase remains at the 38.2% retracement of the rally from late February and 13-day exponential average at 121.33/121.20, which we look to try and hold for now. A closing break would complete a clear top though to trigger a deeper corrective move lower.” 

“Above 123.21 is needed to clear the way for a move back to 124.31, but with a break above here needed to clear the way for strength back to the 125.11/86 highs.”

GBP/USD is more or less flat on the session. Economists at Scotiabank expect cable to suffer a decline towards 1.30 after failing to sustain gains above the 1.33 level.

Intraday support aligns at 1.3095/00

“The GBP’s failure to hold gains through 1.33 in late March leaves a negative impression on the longer run charts and tilts risks towards renewed losses towards 1.30.” 

“We spot intraday support at 1.3095/00.” 

“Resistance is 1.3150/55.”

The S&P 500 Index reversed lower during the second half of last week. However, analysts at Credit Suisse stay biased tactically higher for now following the recent break above key moving averages at 4487/4455. 

S&P 500 to inch higher toward 4663/68

We stay directly biased higher for now for a test of the 78.6% retracement of the 2022 fall and price resistance at 4663/68. Above here would open the door to a move to 4707/12 next, then what we look to be tougher resistance, starting at 4744/49 and stretching up to the 4819 record high. We expect a cap in this zone, in line with our broader medium-term view that the market is set to stay trapped in a broader mean-reverting phase.” 

“First support is seen at 4514/01, which includes the 23.6% retracement of the recent recovery and 13-day exponential moving average, which floored the market on Friday last week. Below here the next level is seen at the 200-day average at 4488, then the 63-day average and price lows at 4461/55. Only a break below here would turn the short-term risks back lower within the range.”

• AUD/USD regained positive traction on Monday, though the uptick lacked bullish conviction.
• Hawkish Fed expectations, the Ukraine crisis underpinned the safe-haven USD and capped gains.
• Investors also seemed reluctant to place directional bets ahead of the RBA decision on Tuesday.

The AUD/USD pair maintained its bid tone through the early North American session and was last seen hovering near the daily high, just above the 0.7500 psychological mark.

The pair attracted fresh buying on Monday and inched back closer to the top end of a near two-week-old trading range, though the uptick lacked bullish conviction. The uncertainty over Ukraine continued acting as a tailwind for commodity prices, which, in turn, extended some support to the resources-linked Australian dollar.

In the latest developments, Ukraine accused Russian forces of carrying out a massacre in the town of Bucha. This prompted German Defence Minister Christine Lambrecht to say that the European Union should talk about ending Russian gas imports. Moreover, Germany and France said that a new round of sanctions targeting Russia was needed.

This comes on the back of the lack of progress in the Russia-Ukraine peace negotiations, which tempered investors' appetite for perceived riskier assets. Apart from this, expectations that the Fed would adopt a more aggressive response to combat high inflation underpinned the US dollar and capped gains for the perceived riskier aussie.

The markets have been pricing in a 100 bps Fed rate hike move over the next two meetings. Hence, the focus will remain glued to the FOMC meeting minutes, scheduled for release on Wednesday. Investors will look for fresh clues about the pace of the policy tightening by the US central bank, which, in turn, will drive the USD demand.

In the meantime, traders also seemed reluctant to place aggressive bets and preferred to wait on the sidelines ahead of the Reserve Bank of Australia (RBA) policy decision on Tuesday. This makes it prudent to wait for some follow-through buying before positioning for an extension of the recent strong bullish run from the YTD low.

Technical levels to watch

The Australian dollar is expected to be one of the stronger currencies in Q2. In the view of analysts at Credit Suisse, AUD/USD looks like it is in the process of forming a small bullish “pennant”, which would be confirmed above 0.7541/57 and would mark an important medium-term breakout.

Key support aligns at 0.7455/41

“This consolidation phase could be a small bullish ‘pennant’ continuation pattern, which would be triggered above the October and recent range high at 0.7541/57. Above here would open up a move to the late June and July highs at 0.7599/7616, with only a sustained break above here making a solid case for a fresh medium-term uptrend to arise, with next resistance then seen at 0.7715, before 0.7777/85.” 

“Support is seen at 0.7479/68 initially, ahead of the last week’s low at 0.7455/41. Below here would shift our bias to tactically neutral, with next support at the recent price low at 0.7372/58, with a move below here shifting the near-term risk lower and warning of a potential fall back to mid-March low at 0.7173/63.”

USD/BRL broke below key support at the 5.00-level in a more consistent way after several attempts to do so. Although the Brazilian real may stay resilient longer than expected, in the end, economists at MUFG Bank forecast USD/BRL at 5.60 by end-2022.

More meaningful BRL depreciation in the second half

“The BRL could remain at strong levels for longer this year. However, we don’t see the bullish trend as sustainable in the medium to the long run.”

“On the domestic side, we consider that the campaign for the October presidential election might produce some noise, followed by growing concerns on how the new administration that will take office in 2023 will address the fiscal imbalance. Keep in mind that the current good figures don’t solve the structural fiscal problem.” 

“In the external environment, we may expect some stabilization of commodity prices or not a huge raise, and the predominance of Fed actions in normalizing the monetary policy in the US.”

“We expect the BRL to re-weaken to the 5.60-level by year-end”

• DXY pushes higher and approaches the 99.00 mark.
• Beyond 99.00 comes the 2022 peaks around 99.40.

DXY adds to Friday’s gains and trades just pips away from the key 99.00 barrier on Monday.

DXY manages well to extend further the bounce off the decent contention area in the 97.70 zone (March 30,31), while the ongoing rebound keeps targeting the 99.00 yardstick and beyond in the near term. Above this level is seen the YTD highs around 99.40.

The current bullish stance in the index remains supported by the 6-month line near 96.20, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 94.90.

DXY daily chart

EUR/USD has been decisively capped below the 55-day moving average (DMA) at 1.1182/85. However, a break below 1.0944 is needed to reassert the downward pressure, economists at Credit Suisse report.

55-DMA at 1.1182/85 to cap on a closing basis 

“We are biased toward further sideways consolidation in the short-term, with the broader downtrend still in place following the cap below the falling 55-DMA at 1.1182/85. With this in mind, a break below 1.0944 is needed to mark an important turn lower again, with next supports at 1.0900, then crucial medium-term support at 1.0825/0806, which is the confirmed uptrend from the January 2017 low. A break below here would open up a move to the 2018 low at 1.0635.”

“We are concerned about the loss of short and medium-term momentum, however, only a close above 1.1182/85 would provide the first real sign that we may have seen a more important low at our 1.0825 core objective.”

Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggests that USD/IDR should keep navigating the 14,320-14,395 range for the time being.

Key Quotes

“USD/IDR traded between 14,325 and 14,368 for the whole of last week, narrower than our expected sideway-trading range of 14,300/14,390.”

“The quiet price actions offer no fresh clues and further sideway trading would not be surprising. Expected range for this week, 14,320/14,395.”

USD/JPY is moving higher again. Despite rising official concerns, analysts at BBH look for further yen weakness as it should eventually test last week’s high near 125.10.

Japan officials are getting more concerned about the weak yen

“Japan officials are getting more concerned about the weak yen. This time, it was Keiichi Ishii, Secretary General of junior coalition partner Komeito who said the Bank of Japan should pay close attention to exchange rates as a by-product of its ultra-loose policies.”

“For now, the BoJ won the battle to maintain Yield Curve Control. The 10-year yield is trading near 0.21%, below the 0.25% limit under YCC. However, the struggle to contain JGB yields is by no means over, not when bond yields in the rest of the world continue to march higher. The direction for USD/JPY pair remains clear with central bank divergence particularly strong here.”  

“A break above 123.65 is needed to set up a test of the March 28 high near 125.10. After that is the June 2015 high near 125.85.”

• EUR/JPY fades part of the Friday’s advance and retests 135.00.
• Further decline is expected to meet support near 134.40.

EUR/JPY faces some downside pressure and gives away part of Friday’s gains, returning at the same time to the 135.00 region at the beginning of the week.

The underlying upside momentum in the cross remains unchanged for the time being, although further retracements are not ruled out in the near term. Against that, EUR/JPY is predicted to remain supported by the 134.40 region, where a Fibo level (of the March rally) is located.

In the meantime, while above the 200-day SMA at 130.11, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

Ukrainian President Volodymyr Zelenskyy on Monday said that it is very hard to negotiate with Russia after seeing what they have done in Ukraine. Zelenskyy has accused Russia of war crimes and genocide against the Ukrainian people in light of the emergence of evidence of widespread atrocities committed by Russian forces against civilians. Russian forces have withdrawn from various areas to the north of Kyiv and seemingly left a trail of destruction in their wake.

Zelenskyy said that Ukraine will not rest until it has identified those responsible for the atrocities in the Kyiv region. He noted that the longer Russia drags out the negotiation process, the worse it will be for them.    

• Silver is subdued at the start of the week in the $24.60s as traders weigh geopolitical developments and Fed rhetoric.
• The former is acting as a tailwind as calls grow for the EU to ban Russian energy imports.
• The latter is a headwind as rhetoric turns increasingly hawkish, keeping upside risks to USD and US yields alive.

Its been a subdued start to the week for spot silver (XAG/USD) as markets weigh developments in the Russo-Ukraine war and recent commentary from Fed policymakers and what that means for the outlook of the world’s most important central bank. XAG/USD trades a modest 0.3% higher on the day in the $24.60s. On the one hand, Eurozone bond yields are seeing a pullback and the euro is weaker as international pressure builds on the EU to embargo Russian energy imports as evidence emerges of war crimes committed by Russian forces in Ukraine. This has sparked a mild bid for safe-haven assets at the start of the week like bonds and the US dollar, which is also likely helping support precious metals.

However, precious metal markets are also having to contend with the tailwind of increasingly hawkish rhetoric coming from Fed policymakers ahead of the highly anticipated May meeting where a 50 bps rate hike is seen as now all but a certainty. There is also plenty of focus on what the Fed’s quantitative tightening programme could look like after influential FOMC member John Williams said that it could be kicked off in May. The release of the minutes of the last Fed meeting on Wednesday should shed some light on the possibilities.

Hawkish Fed vibes keep upside risks to the US dollar and US yields alive, a downside risks to the likes of XAG/USD. Firstly, a stronger US dollar makes the purchase of dollar-denominated silver more expensive for the holder’s of international currencies and, secondly, higher yields increase the “opportunity cost” of holding non-yielding assets. If the buck does break higher and yields do start tracking higher once more, XAG/USD could be looking at a break lower towards support in the form of last week’s lows near $24.00 per troy ounce from current levels in the $24.70 area.

Further upside pressure in USD/MYR is likely to meet a tough barrier at 4.2360, suggested Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“Our expectations for USD/MYR to retest the 4.2360 level did not materialize as it traded between 4.1980 and 4.2285 before closing at 4.2080. USD/MYR opened on a firm note today and the bias for this week appears to be tilted to the upside.”

“That said, any advance is unlikely to break 4.2360 (there is another resistance level at 4.2240). Support is at 4.2050 followed by 4.1960.”

• The uncertainty over Ukraine assisted gold to reverse an early dip to the multi-day low.
• Hawkish Fed expectations, elevated US bond yields, modest USD strength capped gains.
• Mixed fundamental/technical backdrop warrants caution before placing directional bets.

Gold attracted some dip-buying near the $1,915 region, or the four-day low touched earlier this Monday and recovered a major part of its losses recorded on Friday. The XAU/USD held on to its modest intraday gains through the mid-European session and was last seen trading just below the $1,930 level. The market sentiment remains fragile amid fading hopes for a de-escalation in the Ukraine war and talk of additional sanctions on Russia. Germany and France said that a new round of sanctions targeting Russia was needed amid reports of war crimes in Ukraine. In fact, German Defence Minister Christine Lambrecht said the European Union should talk about ending Russian gas imports. This, in turn, was seen as a key factor that extended some support to the safe-haven precious metal.

That said, rising bets for a more aggressive policy tightening by the Fed kept a lid on any meaningful gains for the non-yielding yellow metal. The markets have been pricing in a 100 bps Fed rate hike move over the new two policy meetings, which was reinforced by stronger US monthly jobs report on Friday. This, in turn, pushed the yield on the two-year US government note - which is highly sensitive to rate hike expectations - to its highest since early 2019. Elevated US Treasury bond yields assisted the US dollar to build on its gains recorded over the past two trading sessions and scale higher for the third successive day. Stronger USD was seen as another factor that collaborate to cap the upside for the dollar-denominated gold and warrants caution for aggressive bulls.

Hence, the market focus will remain glued to the FOMC monetary policy meeting minutes, due for release on Wednesday. In the meantime, fresh developments surrounding the Russia-Ukraine saga will drive the broader market risk sentiment and provide some impetus to gold prices. Apart from this, traders will take cues from the US bond yields, which will influence the USD price dynamics and produce short-term opportunities around the XAU/USD.

Technical outlook

Gold has been oscillating in a familiar trading band over the past three weeks or so, forming a rectangle on short-term charts. Given the recent sharp pullback from the vicinity of the all-time high, the range-bound price action might still be categorized as a bearish consolidation phase. That said, repeated failures to find acceptance below the $1,900 round-figure mark make it prudent to wait for strong follow-through selling before positioning for any further decline.

From current levels, any subsequent move up is more likely to confront stiff resistance near the $1,940-$1,942 region. Sustained strength beyond has the potential to lift spot prices back towards the $1,964-$1,966 area. The momentum could further get extended towards the $1,986-$1,988 zone, above which bulls are likely to aim to reclaim the $2,000 psychological mark.

On the flip side, the daily low, around the $1,915 region, now seems to protect the immediate downside ahead of the $1,900-$1,890 area. A convincing break through the latter would set the stage for a slide towards the $1,872-$1.870 zone.

Gold daily chart

Key levels to watch

• EUR/USD looks on the verge of breaking back below its 21DMA and the 1.1000 level.
• Calls for an EU-wide boycott of Russian energy imports have risen as evidence of Russian war crimes in Ukraine emerges.
• That is weighing on EUR while further hawkish Fed vibes continue to support USD, with EUR/USD bears eyeing 1.0950 support.

EUR/USD reversal lower from last week’s peaks around the 50-Day Moving Average in the upper 1.1100s has continued at the start of this week, with the pair now on the verge of breaking back under 1.1000. A break below this key psychological level, which also coincides with the 21-Day Moving Average at 1.1007, would likely open the door to a test of last Monday’s lows in the 1.0950 area. Below that, there is very little by way of technical support ahead of the annual lows just above 1.0800 and recent fundamental developments support an increasingly bearish outlook for EUR/USD in the short-term.

Over the weekend, as the Ukrainian military recaptured large swathes of territory to the north of Kyiv as the Russians pullback to redeploy more towards the East, Western media outlets have been abuzz reporting on evidence of Russian war crimes. As a result, calls within the EU for a blanket ban on Russian energy imports have once again resurfaced. Most recently, French President Macron was on air calling for a ban on Russian oil and coal imports. As more evidence of war crimes emerge and the pressure to take tougher action build, the downside risks to the euro also grow. After all, a blanket ban on all Russian energy imports would likely thrust the bloc into a deep recession, with the likes of Germany particularly affected.

All the while, the tense geopolitical situation continues to favour inflows in the safe-haven US dollar, which is also benefitting from the backdrop of increasingly hawkish Fed rhetoric. Fed’s John Williams warned that balance sheet reduction could start as soon as May and Fed’s Mary Daly said the case for a 50 bps rate hike in May has grown. Various further Fed policymakers will be making public appearances and talking policy throughout the week and the minutes of the Fed’s most recent, hawkish meeting will be published on Wednesday. That should keep EUR/USD focus on bullish US dollar fundamentals, meaning data like German Industrial Production likely won’t get a whole lot of attention.

• GBP/USD is trading with a downside bias as the euro underperforms and 21DMA continues to act as a ceiling.
• A break lower to test last week’s 1.3050 lows looks on the cards, with bears also eyeing 1.3000 annual lows.
• Following hawkish Fed commentary over the weekend and ahead of possibly more this week, USD risks are tilted higher.

In a relatively tame start to the week for currency markets, GBP/USD is trading with a downside bias and is currently threatening a downside break of the 1.3100 level. Sterling is likely weighed by underperformance in its cross-English Channel peer the euro, which is underperforming ahead of the resumption of Russo-Ukraine peace talks later in the session and amid further chatter about a possible EU embargo on Russian energy imports. Commentary from BoE policymakers on Monday did not stray into the territory of monetary policy and thus hasn’t impacted cable, which probed last Friday’s lows in the 1.3080s earlier in the session and is eyeing a break lower towards last week’s lows around 1.3050.

“Despite much focus on the heaviest cost of living rise since British records began (1950s), the market still prices the BoE Bank Rate at 2.20% at the December meeting later this year,” noted analysts at ING. “That pricing of the BoE cycle is likely keeping GBP relatively well bid, although we do think the risks are growing of Cable breaking down to the $1.25/28 area over coming months,” they warn. Amid a light UK data schedule this week, the risks posed to GBP from fears of a weakening UK economy likely won’t be the major market focus.

Rather, the outlook for Fed policy is likely to be a much more important topic. Already over the weekend, there has been fresh hawkish commentary. Fed’s John Williams warned that balance sheet reduction could start as soon as May and Fed’s Mary Daly said the case for a 50 bps rate hike in May has grown. Various Fed policymakers will be making public appearances and talking policy throughout the week and the minutes of the Fed’s most recent, hawkish meeting will be published on Wednesday.

Risks seem tilted towards the upside for the US dollar amid the risk of further hawkish Fed vibes. GBP/USD’s 21-Day Moving Average in the 1.3120s, which has been providing solid resistance over the past few weeks, looks likely to continue acting as a ceiling for the time being.

According to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, USD/CNH now looks to keep the range bound trade within 6.3450-6.3900 in the short-term horizon.

Key Quotes

24-hour view: “The advance in USD to a high of 6.3720 came as a surprise (we were expecting USD to trade sideways between 6.3480 and 6.3650). Despite the advance, upward momentum has not improved by much. That said, there is room for USD to edge higher to 6.3780 before easing off. The next resistance at 6.3900 is not expected to come under threat. Support is at 6.3620 followed by 6.3550.”

Next 1-3 weeks: “Last Friday (01 Apr, spot at 6.3560), we highlighted that a break of 6.3450 would not be surprising but oversold shorter-term conditions could lead to 1-2 days of consolidation first. Instead of consolidating, USD rose to a high of 6.3720. While our ‘strong resistance’ level at 6.3730 not breached, downward momentum has fizzled out quickly. USD appears to have moved into a consolidation phase and is likely to trade sideways between 6.3450 and 6.3900.”

• EUR/GBP witnessed some follow-through selling for the third successive day on Monday.
• The uncertainty over Ukraine was seen as a key factor behind the euro’s underperformance.
• Hawkish ECB expectations, BoE’s view on future rate hikes should help limit further losses.

The EUR/GBP cross dropped to a four-day low during the first half of the European session, with bears now looking to extend the descent further below the 0.8400 round-figure mark.

The cross struggled to capitalize on its early uptick, instead met with a fresh supply near the 0.8430 region on Monday and drifted into negative territory for the third successive day. Fading hopes of diplomacy in Ukraine were seen as a key factor behind the shared currency's relative underperformance and dragged the EUR/GBP cross further away from the YTD peak touched last week.

Investors remain worried that the European economy, which relies heavily on Russia to meet its energy needs, will suffer the most from the spillover effect of the Ukraine crisis. In fact, Christian Sewing, President of BDB - Germany’s top bank lobby - warned on Monday that the German economy will face a considerable recession if there is a halt to imports or delivery of Russian gas and oil.

That said, expectations that the European Central Bank will scale back its ultra-loose monetary policy as soon as year-end to tame surging inflation should lend some support to the euro. Apart from this, the fact that the Bank of England had softened its language on the need for further interest rate hikes should act as a headwind for the British pound and help limit losses for the EUR/GBP cross.

Hence, the ongoing retracement slide might still be seen as a buying opportunity and is more likely to remain shallow. This, in turn, warrants some caution for aggressive bearish traders and before confirming that the EUR/GBP cross has topped out in the near term.

Technical levels to watch

USD/JPY should stick to the 121.00-124.00 consolidative range for the time being, noted FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected USD to ‘trade between 121.30 and 122.60’ last Friday. However, USD rose to 123.03 before pulling back. The pullback has room to extend to 121.90. The next support at 121.50 is unlikely to come into the picture. Resistance is at 122.85 followed by 123.05.”

Next 1-3 weeks: “There is no change in our view from late last week. As highlighted, USD is likely to consolidate and trade within a range of 121.00/124.00 for now.”

The Kremlin, in a statement on Monday, declined to comment on Bucha allegations and how they will affect the talks.

The Russian government office said it condemns comments by the leader of Poland's ruling party saying Warsaw would be open to having US nuclear weapons on its soil.

“Such action would only lead to heightened tensions,” the Kremlin added.

On Sunday, Ukraine accused Russia of genocide after mass graves and 20 bodies in civilian clothes were recovered from Bucha town on the outskirts of the capital city of Kyiv, per AFP.

World leaders condemned those atrocities in Bucha while Russia denied the allegations, calling it a ‘provocation’ by Ukraine.

In light of the Russian attacks on innocent civilians, the European Union (EU) is preparing further sanctions against Moscow.

Polish Prime Minister Mateusz Morawiecki responded by saying, "The crimes Russia has committed on close to 300 inhabitants of Bucha and other towns outside Kyiv must be called acts of genocide and be dealt with as such.”

"Everyone responsible - directly or indirectly- must be severely punished by an international tribunal,” he added.

Market reaction

The S&P 500 futures are seen recovering after a brief pullback in the last hour while the European stocks are also clawing back early losses. Despite a better mood, investors will remain on the edge ahead of another round of peace talks between Russia and Ukraine.

The fallout from Russia’s war on Ukraine exerted a sharp hit on the lira, as USD/TRY climbed above the 14.00 handle. Economists at Société Générale expect the pair to surge towards the 19.00 zone by end-2022 on a prolonged conflict in Ukraine.

USD/TRY to skyrocket towards 20.00 in Q2 if geopolitical tensions escalate

“In a scenario of a prolonged conflict in Ukraine, the lira would likely see a weakening towards USD/TRY 16.00 in 2Q22 and 19.00 in 4Q22, probably without tightening by the CBRT.” 

“If geopolitical tensions escalate, the TRY could see a sharp sell-off towards USD/TRY 20.00 in 2Q22 – and only in this scenario would we expect the CBRT to deliver emergency rate hike.”

In the near-term, the euro outlook is still all about the evolution of the conflict in Ukraine. The EUR/USD pair could move back to 1.30 on a return to lasting peace while a test of parity would be seen on a significant interruption to gas flows, economists at Société Générale report. 

Rates market has priced in so much Fed tightening

“A significant interruption to gas flows could take EUR/USD back below 1.05, testing parity.”

“A return to lasting peace and a shift in European fiscal policy would lay the groundwork for an eventual move back to EUR/USD 1.30.”

“Our forecasts are less ambitious, looking for a modest decrease in tensions and a gradual turn higher in EUR/USD now that the rates market has priced in so much Fed tightening.”

• USD/CHF attracted some buying on the first day of a new week, though lacked follow-through.
• A positive risk tone undermined the safe-haven CHF and extended some support to the major.
• Subdued USD demand kept a lid on any meaningful upside amid the uncertainty over Ukraine.

The USD/CHF pair traded with a mild positive bias through the first half of the European session and was last seen hovering near the daily high, around the 0.9275 region. 

The pair attracted some dip-buying near the 0.9240 region on Monday and turned positive for the second successive day, with bulls looking to build on last week's bounce from sub-0.9200 levels. A generally positive tone around the equity markets undermined the safe-haven Swiss franc and acted as a tailwind for the USD/CHF pair. The uptick, however, lacked bullish conviction amid subdued US dollar demand.

The greenback, so far, has struggled to gain any meaningful traction as investors preferred to move on the sidelines ahead of the FOMC meeting minutes, scheduled for release on Wednesday. The markets seem convinced that the Fed would adopt a more aggressive policy stance to combat stubbornly high inflation. Hence, the minutes will be looked upon for fresh clues about the pace of policy tightening by the Fed.

In the meantime, rising bets for a 100 bps Fed rate hike move over the next two policy meetings remained supportive of elevated US Treasury bond yields. This, in turn, continued lending some support to the greenback and favours bullish traders. Some follow-through buying beyond Friday's swing high, around the 0.9280 region, will reaffirm the positive bias and pave the way for additional gains.

That said, the uncertainty over Ukraine, along with talks of more sanctions against Russia, should keep a lid on any optimistic move in the markets. This should continue to drive some haven flows towards the CHF and cap the upside for the USD/CHF pair, at least for the time being. The mixed fundamental backdrop warrants caution before placing aggressive directional bets amid absent relevant market-moving economic data.

Technical levels to watch

USD/KRW was volatile in March and ended 0.6% higher on the month amid the background of a 1.36% appreciation of US dollar. Risk sentiment will still be the key factor driving USD/KRW movements in April. Economists at MUFG Bank forecast the pair at 1,210 by the end of the second quarter.  

Potential lower risk aversion would provide some support for KRW in the medium-term

“For now, geopolitical conflict still is a key driving force for the USD/KRW. As Russia and Ukraine are negotiating, we expect no escalation but think the uncertainty of Russia-Ukraine situation will remain in near-term, and keep KRW weak in near-term. We forecast USD/KRW at 1,210 by end of Q2.”

“As the country relies on imports to meet almost all of its dry natural gas and crude oil consumption, higher energy prices caused by the Ukraine war will have a direct negative impact on Korea’s trade balance. That said, we still remain positive on the KRW against USD in the medium term.”

“We expect USD/KRW to fall to 1,185.0 by year-end, assuming a resolution to the Ukraine war, better contained pandemic and normalized investor sentiment toward Korean assets.”

Christian Sewing, the Chief Executive of Deutsche Bank and President of BDB, Germany’s top bank lobby, warned on Monday that the German economy will face a considerable recession if there is a halt to imports or delivery of Russian gas and oil, per Reuters.

developing story ....

In the view of economists at Société Générale, the Australian dollar should be a winner from monetary policy normalisation. The AUD/USD pair could head towards 0.80 and beyond if inflation data supports the case for rate hikes from the Reserve Bank of Australia (RBA).

AUD has more than most to gain from a focus on inflation

“The rates market doesn’t expect a hike at the 5 April RBA meeting but does expect the first hike to come in 2Q. The 1Q CPI data release, on 27 April, will be important in that regard.”

“If it is a green light for policy tightening, it can set AUD/USD 0.80 and beyond.”

• Gold’s fate hinges on the US bond market action, Ukraine updates.
• The US dollar draws renewed safe-haven demand amid firmer Treasury yields.
• Gold price turns bearish with technicals amid bond rout, 50-DMA back in sight.

Gold price continues to remain at the mercy of the dynamics in the US bond market and the developments surrounding the Russia-Ukraine crisis. Gold price has enjoyed good two-way businesses so far this Monday, although the renewed upside lacks follow-through momentum. Risk sentiment has turned sour as the EU readies more sanctions against Russia, which will buoy the safe-haven US dollar’s demand at gold’s expense. Further, the hawkish Fed’s outlook-led rally in the US Treasury yields is also likely to keep gold sellers cheerful, in the absence of top-tier economic events.

Read: Will commodities continue to outperform In Q2 2022? [Video]

Gold Price: Key levels to watch

The Technical Confluences Detector shows that gold price is testing offers at powerful resistance of the Fibonacci 61.8% one-week at $1,934.

If the latter is scaled, then gold bulls will face the next relevant resistance around $1,937, which is the confluence of the pivot point one-day R1, SMA 50, 100 and 200 four-hour.

The previous day’s high at $1,940 will test the bearish commitment further up. A sustained break above that level will fuel a fresh rally towards the pivot point one-day R2 at $1,949.

On the flip side, gold sellers are attacking strong support at $1,928, which is the SMA5 one-day.

The next downside target aligns at $1,925, the confluence of the SMA5 four-hour and the Fibonacci 23.6% one-day.

Fierce cap at around $1,917 will be the last resort for gold bulls, as the latter is the intersection of the Fibonacci 38.2% one-week, the previous day’s low and the pivot point one-day S1.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

Today, the Bank of Canada (BoC) is set to release its quarterly Business Outlook survey. A strong reading could drag the USD/CAD pair down to test the 1.2450/30 support, economists at ING report.

Building expectations of a 50bp hike from the BoC next week

“Strong readings for sales, employment, investment, and inflation expectations could build expectations of a 50bp hike from the BoC next week – a 44bp hike is currently priced.”

“Expect the Canadian dollar to stay well supported on the crosses (e.g. versus the Japanese Yen) and USD/CAD could retest strong support at 1.2430/50 if the Outlook survey is strong enough.”

• NZD/USD attracted some dip-buying on Monday amid subdued USD price action.
• The Ukraine crisis, hawkish Fed expectations should help limit losses for the buck.
• The fundamental backdrop warrants some caution for aggressive bullish traders.

The NZD/USD pair held on to its modest intraday gains through the first half of the European session and was last seen trading near the daily high, around the 0.6935-0.6940 region.

Having defended the very important 200-day SMA, the NZD/USD pair attracted fresh buying on Monday and stalled its recent pullback from the 0.7000 psychological mark, or the YTD high touched last week. Stable performance in the equity markets undermined the safe-haven US dollar and turned out to be a key factor that benefitted the perceived riskier kiwi. The uncertainty over Ukraine, along with hawkish Fed expectations, helped limit losses for the USD and should cap any meaningful upside for the major, at least for now.

In the latest geopolitical developments, Ukraine accused Russian forces of carrying out a massacre in the town of Bucha. Adding to this, British Prime Minister Boris Johnson said that his government would step up sanctions, as well as military and humanitarian support for Ukraine. Moreover, German defence minister Christine Lambrecht said on Sunday that the European Union must discuss banning imports of Russian gas. This, in turn, should keep a lid on any optimistic move in the markets and lend support to the safe-haven buck.

Apart from this, growing acceptance that the Fed would adopt a more aggressive policy stance to combat stubbornly high inflation should act as a tailwind for the greenback. In fact, the markets have been pricing in a 100 bps Fed rate hike move over the past two policy meetings, which was reinforced by Friday's US monthly jobs report. This, in turn, remained supportive of elevated US Treasury bond yields, which supports prospects for the emergence of some USD dip-buying and warrants caution before placing bullish bets around the NZD/USD pair.

Technical levels to watch

In opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, the upside bias in AUD/USD now seems over and some consolidation should emerge in the next weeks.

Key Quotes

24-hour view: “Our expectations for AUD to ‘edge lower’ last Friday did not materialize as it traded sideways between 0.7473 and 0.7525. Further sideway-trading appears likely, expected to between 0.7465 and 0.7520.”

Next 1-3 weeks: “We have held a positive view in AUD since two weeks now. In our latest narrative from last Friday (01 Apr, spot at 0.7490), we highlighted that AUD has to close above 0.7520 within these 1 to 2 days or the chance for further AUD strength would diminish quickly. AUD subsequently traded between 0.7473 and 0.7525 before closing at 0.7498. Upward momentum has more or less dissipated and the strong phase in AUD has come to an end. AUD appears to have moved into a consolidation phase and is likely to trade between 0.7435 and 0.7540 from here.”

The rebound in the Russian rouble is garnering much attention both sides of the Atlantic. Capital controls are set to remain in place, thus, the direction of the RUB relies on the purchases of oil and gas from Europe, strategists at ING report. 

Recovery 'is not sustainable'

“US Secretary of State, Anthony Blinken, said the rouble's recovery was unsustainable and artificially supported by capital controls. In addition to capital controls and a collapse in rouble liquidity, real sector flows are playing a role in supporting the rouble too. As long as foreigners, primarily Europe and Asia, buy Russian oil and gas, Russia will be receiving hard currency it can use to support the rouble.”

“Last week's decree from President Putin about 'unfriendly' countries needing to pay for Russian gas in roubles is playing a role too.”

“Presumably, Russian authorities are unlikely to lift capital controls any time soon and the fate of the rouble will very much be dependent on the continued Western purchase of Russian oil and gas.”

• EUR/USD meets support near 1.1000 on Monday.
• The dollar extends gains amidst the mixed note in yields.
• EMU Sentix Index worsened to -18.0 in April.

Sellers remain in control of the sentiment surrounding the European currency and force EUR/USD to visit the vicinity of 1.1000 early on Monday.

EUR/USD weaker on dollar gains, Ukraine

EUR/USD loses ground for the third session in a row and gradually approaches the 1.1000 neighbourhood, where some initial support seems to have emerged so far.

The continuation of the buying interest around the greenback keeps the pair depressed at the beginning of the week, as market participants continue to gauge Friday’s release of a quite solid US labour market during March. In addition, no news from the geopolitical scenario seems to be good news for the buck, while peace talks remain stuck without any progress for the time being.

The move lower in the pair comes pari passu with another corrective downside in the German 10y bund yields, which return to the 0.50% region, or multi-session lows.

In the domestic calendar, Germany’s trade surplus widened to €11.5B during February (from €8.9B) with Exports and Imports up 6.4% and 4.5%, respectively. In addition, the Sentix Index – which tracks the Investor Confidence – worsened to -18.0 for the current month. In the NA session, February’s Factory Orders will be the sole release.

EUR/USD came under pressure and approaches the 1.1000 area following recent 4-week highs around the 1.1180 region, all in response to the firm performance of the greenback and renewed geopolitical concerns. As usual, pockets of strength in the single currency should appear reinforced by the speculation of the start of the hiking cycle by the ECB at some point by year end, while higher German yields, elevated inflation, the decent pace of the economic recovery and auspicious results from key fundamentals in the region are also supportive of a rebound in the euro.

Key events in the euro area this week: Eurogroup Meeting, Germany Balance of Trade, EMU Sentix Index (Monday) – Germany, EMU Final Services PMIs, EcoFin Meeting (Tuesday) – Germany Construction PMI (Wednesday) – EMU Retail Sales, ECB Accounts (Thursday) – France Presidential Election (Sunday, April 10).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Presidential elections in France in April. Impact of the geopolitical conflict in Ukraine.

EUR/USD levels to watch

So far, spot is losing 0.19% at 1.1026 and a drop below 1.0944 (weekly low March 28) would target 1.0900 (weekly low March 14) en route to 1.0805 (2022 low March 7). The next up barrier emerges at 1.1184 (weekly high March 31) followed by 1.1240 (100-day SMA) and finally 1.1395 (weekly high February 16).

German Economy Minister Robert Habeck said on Monday, European Union (EU) has room for more sanctions against Russia.

Germany’s efforts to reduce its dependence on Russian energy harm President Vladimir Putin, Habeck added.

These comments come as the EU prepares to ramp up sanctions against Russia amid reports of civilians atrocities in Ukraine.

Market reaction

Risk sentiment takes a fresh hit on potential EU sanctions on Russia, with the European markets trading mixed after a positive open.

The S&P 500 futures have erased gains to now trade 0.06% lower on the day.

The krone has extended its advance against the euro resulting in EUR/NOK falling to briefly falling below the 9.50-level for the first time since autumn 2018. In the view of analysts at MUFG Bank, elevated price of oil is set to encourage a stronger NOK unless triggers a sharper global slowdown.

Norges Bank buys foreign currency for 1st time since 2013

“Our oil analyst expects upward pressure to build further on the price of oil in Q2 and to remain at much higher levels for the rest of this year.”

“The Norges Bank will purchase foreign currency in April for the first time since 2013 to help offset increased krone purchases by oil and gas companies for tax payments. At the same time, the krone is benefitting from the Norges Bank’s relatively hawkish policy stance. NB signalled that they will continue to raise rates this year at a quarterly pace and flagged the next 25bps hike in June.”

“We expect the krone to strengthen further until global growth concerns become a bigger concern.”

EUR/USD is moving sideways in a tight range near 1.1050. Economists at ING think the world’s most popular currency pair can stabilise within a 1.10-1.1120 range over the coming days.

Focus on sanctions

“It still seems that the EU is some way from weaning itself off Russian oil. Presumably, any moves from the EU toward a Russian oil embargo would see crude prices spike higher again and the euro come under pressure via the Terms of Trade channel – plus the physical risks of rationing energy in the European industrial sector.”

“EUR/USD can probably consolidate in a 1.1000-1.1120 range over the coming days.”

The New Zealand dollar advanced notably for the second consecutive month with the US dollar weakening notably versus commodity-linked G10 currencies. In the view of economists at MUFG Bank, NZD support through commodities is unlikely to be sustained.

Downside growth risks related to China

“The traction for NZD from the RBNZ acting more aggressively by moving by 50bps is no longer the FX support vs USD that it was given the market is now so aggressively positioned for larger rate hikes from the Fed.”

“The risks in Asia with New Zealand exporting over 60% to the region means downside growth risks related to China.”  

“We see risks of a correction over the short-term and slowing global growth will limit the scale of upside.”

Eurozone’s investor sentiment kept deteriorating in the fourth month of 2022; the latest data published by the Sentix research group showed on Monday.

The gauge crumbled to -18 in April from -7 in March vs. -9.2 expected. The index hit its lowest level since July 2020, hinting toward an incoming recession in the second quarter.

A current conditions index fell to -5.5 in April from 7.8 booked in March.

An expectations index fell to -29.8 from -20.8, its lowest level since December 2011.

Key takeaways

“While the dip in March's morale had been expected due to the start of the war in Ukraine, the strong fall in sentiment in April once again puts investors on the back foot.”

"Investors do not expect that the central bank can rush to the rescue with a more relaxed, more expansive monetary policy because of the still considerable pace of inflation growth."

"No region is able to resist the negative momentum at the moment, even the important Asian region is already fighting stagnation.”

EUR/USD reaction 

The shared currency remains unfazed by the disappointing Eurozone Sentix data. EUR/USD is losing 0.15% on the day, currently trading at 1.1035.

About Eurozone Sentix Investor Confidence

Among 1600 financial analysts and institutional investors, the Sentix Investor Confidence is a monthly survey that shows the market opinion about the current economic situation and the expectations for the next semester. The index, released by Sentix GmbH, is composed by 36 different indicators. Usually, a higher reading is seen as positive for the Eurozone, which means positive, or bullish, for the Euro, while a lower number is seen as negative or bearish for the unique currency.

• GBP/USD gained positive traction on Monday and reversed the previous day’s modest losses.
• A positive risk tone undermined the safe-haven USD and extended some support to the major.
• Hawkish Fed expectations, the Ukraine crisis favours the USD bulls and should cap spot prices.

The GBP/USD pair edged higher through the early European session and climbed to a fresh daily high, around the 1.3135 region in the last hour.

Having shown some resilience below the 1.3100 round-figure mark, the GBP/USD pair attracted some buying on the first day of a new week and has now reversed the previous day's modest losses. A positive risk tone acted as a headwind for traditional safe-haven assets, including the US dollar, which, in turn, was seen as a key factor that extended support to the major. That said, the uncertainty over Ukraine should keep a lid on any optimistic move in the markets.

In the latest developments, Ukraine accused Russian forces of carrying out a massacre in the town of Bucha. British Prime Minister Boris Johnson said that his government would step up sanctions, as well as military and humanitarian support for Ukraine. Moreover, German defence minister Christine Lambrecht said on Sunday that the European Union must discuss banning imports of Russian gas. This, along with hawkish Fed expectations, should act as a tailwind for the buck.

Investors seem convinced that the Fed would adopt a more aggressive policy stance to combat stubbornly high inflation and have been pricing in a 100 bps rate hike over the next two meetings. The market bets were reaffirmed by the US monthly jobs report on Friday. This, in turn, pushed the yield on the two-year US government bond - which is highly sensitive to rate hike expectations - to a three-year top and supports prospects for the emergence of some USD dip-buying.

The fundamental backdrop favours the USD bulls, though market participants might prefer to wait on the sidelines ahead of the release of the FOMC minutes on Wednesday. In the meantime, traders might take cues from a scheduled speech by the Bank of England Governor Andrew Bailey. This further makes it prudent to wait for some follow-through buying before positioning for the resumption of the recent recovery from the YTD low, around the 1.3000 psychological mark touched in March.

Technical levels to watch

Cable is predicted to navigate within the 1.3050-1.3250 range in the next weeks, noted FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Our expectations for GBP to ‘trade sideways’ last Friday were incorrect as it dropped to 1.3087 before settling at 1.3115 (-0.22%). Downward momentum has improved a tad and the bias for today is on the downside. However, any weakness is not expected to challenge the major support at 1.3050 (there is another support at 1.3075). Resistance is at 1.3125 followed by 1.3150.”

Next 1-3 weeks: “There is not much to add to our update from last Thursday (31 Mar, spot at 1.3140). As highlighted, GBP is likely to trade between 1.3050 and 1.3250 for now.”

• DXY extends the rebound to the vicinity of 98.70.
• Investors’ attention shifts to the inversion of the 10y yield curve.
• February’s Factory Orders will take centre stage in the US docket.

The greenback, in terms of the US Dollar Index (DXY), adds to the recent gains and retests the 98.65/70 band at the beginning of the week.

US Dollar Index looks to Fed, geopolitics

The index advances for the third session in a row on Monday and puts further distance from last week’s lows in the 97.70 region.

The lack of positive news from the Ukraine war appears to lend some support to the buck along with rising speculation of a Fed’s tighter rate path in the next months. Furthermore, Friday’s release of quite a strong labour market report supports this latter view.

In the US cash markets, the yield curve inverted on Friday and sparked once again some concerns regarding the likeliness that the US economy could enter a recession in the medium term in response to the most likely faster pace of tightening by the Federal Reserve.

Later in the US docket, Factory Orders for the month of February is due along with short-term bill auctions.

What to look for around USD

The dollar managed to regain strong upside traction after bottoming out in the 97.70 region in the second half of last week. In the meantime, the near-term price action in the greenback continues to be dictated by geopolitics, while the case for a stronger dollar in the medium/long term remains well propped up by the current elevated inflation narrative, a potential more aggressive tightening stance from the Fed, higher US yields and the solid performance of the US economy.

Key events in the US this week: Factory Orders (Monday) – Balance of Trade, Final Services PMI, ISM Non-Manufacturing (Tuesday) – MBA Mortgage Applications, FOMC Minutes (Wednesday) – Initial Claims, Consumer Credit Change (Thursday) – Wholesale Inventories (Friday).

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

US Dollar Index relevant levels

Now, the index is up 0.02% 98.62 and a break above 99.36 (weekly high March 28) would open the door to 99.41 (2022 high March 7) and finally 100.00 (psychological level). On the flip side, the next down barrier emerges at 97.68 (weekly low March 30) seconded by 97.16 (55-day SMA) and then 96.66 (100-day SMA).

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang suggest EUR/USD is likely to trade between 1.0900 and 1.1170 for the time being.

Key Quotes

24-hour view: “We highlighted last Friday that EUR ‘could decline further to 1.1035 but the major support at 1.0990 is unlikely to come under threat’. Our view was not wrong as EUR dropped to a low of 1.1026 before settling at 1.1053 (-0.11%). While downward momentum has barely improved, there is room for EUR to dip to 1.1015 first before a rebound can be expected. A break of the major support at 1.0990 still appears unlikely. Resistance is at 1.1065 followed by 1.1090.”

Next 1-3 weeks: “Our view from last Friday (01 Apr, spot at 1.1085) still stands. As highlighted, EUR appears to have moved into a consolidation phase and is likely to trade between 1.0990 and 1.1170 for now.”

• USD/CAD witnessed fresh selling on Monday and snapped two successive days of the winning streak.
• An uptick in oil prices underpinned the loonie and exerted pressure amid subdued USD price action.
• Hawkish Fed expectations should act as a tailwind for the buck and limit the downside for the major.

The USD/CAD pair extended its steady intraday descent through the early European session and dropped to a fresh daily low, below the 1.2500 psychological mark in the last hour.

Following an early uptick to the 1.2525-1.2530 region, the USD/CAD pair met with a fresh supply on Monday and for now, seems to have snapped two successive days of the winning streak. Modest recovery in crude oil prices underpinned the commodity-linked loonie and exerted downward pressure on the major amid subdued US dollar demand. That said, a combination of factors should act as a tailwind for spot prices and help limit deeper losses, at least for the time being.

Last week, the US announced a plan to sell up to 1 million bpd of oil from the Strategic Petroleum Reserve (SPR) for six months starting in May 2022. Moreover, the International Energy Agency also agreed to release more oil on Friday. This, along with a two-month truce between a Saudi Arabia-led coalition and the Houthi group aligned with Iran, eased oil supply concerns. Adding to this, the COVID-19 outbreak in China could cap the upside for oil prices.

On the other hand, growing acceptance that the Fed would adopt a more aggressive policy stance to combat stubbornly high inflation should lend support to the buck. The markets have been pricing in a 100 bps Fed rate hike over the next two meetings and the bets were reaffirmed by the US jobs report on Friday. This, in turn, pushed the US Treasury bond yields higher, which favours the USD bulls and supports prospects for the emergence of dip-buying around the USD/CAD pair.

Hence, the focus will remain on the FOMC meeting minutes, scheduled for release on Wednesday. In the meantime, fresh developments surrounding the Russia-Ukraine saga, along with the US bond yields, might influence the USD. Apart from this, traders will take cues from oil price dynamics to grab some short-term opportunities. Nevertheless, the USD/CAD pair, for now, seems to have stalled its recovery from the YTD low, around the 1.2430-1.2425 area touched last week.

Technical levels to watch

The Australian dollar has strengthened sharply since the Ukraine conflict began. Commodity terms of trade benefit are unlikely to consistently trump global growth uncertainty, capping substantial gains for the aussie.

China growth slowdown risks will weigh on AUD 

“The scale of the price increases in energy and base metals implies a substantial terms of trade boost that will provide support for the economy going forward.” 

“While the markets’ conviction on RBA rate hikes has increased, the minutes from the RBA meeting held in March indicated less urgency. We do not expect the RBA to deliver what is priced and given the scale of the move in March, some correction lower seems likely.” 

“High level of indebtedness in housing will continue to be reason for caution while the China growth slowdown risks will also weigh on AUD at higher levels.” 

“We expect AUD gains but weakening global growth will limit the upside.”

The pound was the second-worst performing G10 currency in March with only the yen performing worse. Economists at MUFG Bank believe that weaker growth compels the Bank of England (BoE) to act cautiously.

Weaker growth compels the BoE to move to the sidelines

“We see potential for the BoE to pause its tightening cycle after hiking in May and August as weaker growth throughout the remainder of the year will provide justification for that and act to weigh on GBP performance.”

“We have revised lower our GBP forecasts based on a more cautious BoE given the weaker growth outlook.” 

During March the euro weakened versus the US dollar, moving from 1.1243 to 1.1098. Economists at MUFG Bank see the European Central bank (ECB) turning more hawkish and while this would be only endorsing current market pricing, it will help provide support for the euro.

EUR at a turning point 

“While the inflation surge is more of an energy-specific influence than in the US or the UK (over 50% of the entire YoY increase is energy alone) we believe it will become increasingly difficult for the ECB to ignore and suspect the ECB could turn more hawkish and commence rate hikes before December.” 

“We may also see fiscal support adding to reasons for sooner action by the ECB.”

“The failure of EUR/USD to sustain levels below 1.10 indicates strong support from here.”

The dollar advance versus the yen in March was the largest since November 2016 when Donald Trump won the US election. Economists at MUFG Bank forecast further upside for USD/JPY before the yen recovers.

MoF a distance away from any actual intervention

“We see the fundamental drivers that fuelled yen selling remaining over the coming months which could see new highs in USD/JPY before any recovery of the yen takes place.”

“While the US short-term yields are now richly priced for rate hikes, the FOMC hiking by 50bps in May and possibly again in June will help support front-end yields in Q2. Secondly, we expect crude oil prices to advance notably in Q2 with physical shortage of oil driving up the spot price. That will have a further negative impact on Japan’s trade balance. Thirdly, inflation expectations in Japan are elevated at level last seen in 2015 when USD/JPY was last trading above 120.00 and the BoJ’s monetary stance is likely to remain ultra-dovish.”

“MoF rhetoric voicing concerns will likely continue ahead of the Upper House elections. We doubt circumstances will arise for actual intervention by the MoF to halt yen selling. The rhetoric itself should create better two-way flows at higher USD/JPY levels, limiting the scale of upside potential from here.”

“A peak in short-term US yields may well be in place which will result in USD/JPY then beginning to correct lower.”

Economists at MUFG Bank had expected the dollar to finish Q1 stronger. Thus, limited USD strength in March may be a signal of a turn. 

Fed action more than priced reflecting hawkish rhetoric

“This tightening cycle is already extraordinary given the 2s10s is close to inverting with only one rate hike undertaken but we would still argue that the scope for the 2yr to increase much further is limited now which will leave the US dollar more vulnerable to downside risks.”

“With QT set to commence, it is likely to take some onus away from higher rates. Historic DXY performance after the first rate hike is clear – the dollar weakens.”

“The appetite of market participants to buy into equity market weakness remains and in sharp contrast to the high level of volatility in the rates market, the VIX fell sharply toward month-end to 19.0 – below the average over the period since the start of 2021. This divergence in volatility in rates and equities can’t be sustained and we expect rates vol to subside after the incredible Q1, which should weigh on USD.”

“The limited scale of strength versus EUR in circumstances of risks related to Ukraine and the huge move higher in US yields suggest to us that we may now be at a turning point. We now expect the dollar to stabilise in Q2 and then weaken more notably in the second half of the year.”

Here is what you need to know on Monday, April 4:

There seems to be a positive shift in risk sentiment at the start of the week as investors, once again, turn optimistic about a diplomatic solution to the Russia-Ukraine conflict. The economic docket will not be featuring any high-impact data releases on Monday and market participants will remain focused on geopolitical headlines. The US Dollar Index stays relatively quiet near the mid-98.00s supported by a more-than-1% rise in the benchmark 10-year US Treasury bond yield and the US stock index futures up around 0.2%.

Over the weekend, a top Ukrainian negotiator said they have reached an agreement on enough elements of a potential peace agreement that it is ready to be discussed between Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky. Meanwhile, US Secretary of State Antony Blinken said that the west could lift sanctions on Russia depending on the outcome of the upcoming negotiations.

EUR/USD is moving sideways in a tight range near 1.1050 early Monday. Earlier in the day, the data from Germany showed that the trade surplus narrowed to €11.5 billion in February from €11.6 billion in January, compared to the market expectation of €9.6 billion, but failed to help the euro find demand.

GBP/USD edged higher in the European morning and was last seen trading near 1.3130. Bank of England Governor Andrew Bailey is scheduled to deliver a speech at 0905 GMT.

After fluctuating wildly last week, USD/JPY stays calm on Monday and trades in positive territory above 122.50. Japan’s Deputy Chief Cabinet Secretary Seiji Kihara voiced his support for the Bank of Japan's (BOJ) ultra-loose policy. "It's hard to tighten monetary policy to deal with cost-push inflation, which means the monetary policy must remain loose," Kihara said and added that loose policy was necessary amid fragile economic recovery.

Gold started the new week under modest bearish pressure and declined toward the lower limit of last week's range. Rising US T-bond yields and the improving market mood weigh on the yellow metal so far on the day.

USD/CAD trades in the red near 1.2500 after closing the previous two trading days higher.  The Bank of Canada will publish its Business Outlook Survey later in the day.

Bitcoin is having a tough time making a decisive move in either direction and fluctuates near $46,000 early Monday. Ethereum reached its highest level since the first week of January at $3,580 on Sunday but returned to the $3,500 area.

USD/IDR has been relatively range-bound in Q1, hovering mostly around 14,250 to 14,400. In the view of economists at MUFG Bank, the Indonesian rupiah is vulnerable to disorderly financial conditions, although it holds some resilience to higher commodity price.

USD/IDR is likely to be anchored by BI’s goal to maintain financial stability

“The current account returned a surplus of 0.4% of GDP in Q4-2021 and is likely to remain in surplus in the near-term. We think that Indonesia may see a current account surplus (instead of a deficit) this year, if its major commodity export prices rise further. At the same time, the economy is likely to benefit from reduced restrictions for travel into Indonesia, boosting the depressed tourism sector.” 

“With inflation likely to be around BI’s 2-4% target of 2022, BI is in no hurry to hike policy rates. We anticipate rate hikes in H2-2022 when inflation is higher then. USD/IDR is likely to be anchored by BI’s goal to maintain financial stability.”

“There is slight risk of IDR weaknesses during periods of market volatility and non-commodity market-related risk aversion. Hence, we anticipate USD/IDR to only move slightly higher in the coming quarters, with some chance of lower numbers instead of our end-2021 forecast of 14,600.”

South Korean Finance Minister Hong Nam-ki said Monday that uncertainties to export conditions remain due to higher oil prices.

Hong said that they will “review policies for exporters given risks such as economic slowdown, Ukraine crisis and supply disruptions.”

Earlier this morning, Bank of Korea’s (BOK) Senior Deputy Governor Lee Seung-heon said that the upcoming rate decision meeting will be difficult due to higher inflationary risks and downward pressure on growth.

Market reaction

USD/KRW is keeping its corrective downside intact towards 1,200, despite the concerning comments from the South Korean government official.

The pair was last seen trading at 1,214, down 0.45% on the day.

In the absence of the risk of a Europe-specific energy crisis and recession things are looking quite rosy for the European single currency, according to economists at Commerzbank. However, sanctions against Russia are set to cap the EUR/USD pair below the 1.11 level.

Euro between sanction risks and ECB about turn

“More sanctions mean that the risk of energy disruptions in Europe rises. Of course, things look fundamentally different for the US side. An economy that can largely provide its own energy is much more robust.”

“The risk of significant euro weakness increases. That is why it is so difficult at present for EUR/USD to establish itself in the area above 1.11.”

“The EUR-positive argument is a qualitative one: the fact that the ECB ends its ultra-expansionary monetary policy at all.”

“If the ECB ends the period of permanently negative interest rates in the next few months, then at least there is a chance that it will pursue a monetary policy that supports the euro.”

FX option expiries for April 4 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0800 1.2b
• 1.0975 485m
• 1.1000 1.1b
• 1.1100 767m

- USD/JPY: USD amounts                     

• 122.50 604m
• 123.00 305m
• 123.50 749m

Gold price kicks off a fresh week on a downbeat note. XAU/USD’s daily chart favors bears as Russia-Ukraine peace talks offer a ray of hope, FXStreet’s Dhwani Mehta reports.

XAU/USD turns bearish with technicals

“Later in the day, the sentiment around the bond market and the incoming headlines from the scheduled peace talks will likely be the main market drivers, in absence of the top-tier US economic data releases.”

“Gold’s daily technical setup suggests that the tide has turned in favor of bearish traders, as the 14-day Relative Strength Index (RSI) has slipped gradually below the midline to now trade in the negative territory.”

“On renewed selling wave, gold price could retest four-day lows near $1,915, below which a fresh downside will open up towards the ascending 50-Daily Moving Average (DMA) at $1,900. Further down, sellers will aim for the previous week’s low of $1,890, which emerge as a tough nut to crack for them.”  

“Should the recovery pick up pace, Friday’s high of $1,940 will be put to test. The horizontal 21-DMA at $1,950 will be seen as the next relevant resistance level. The previous year’s high at $1,960 will be the level to beat for bulls.”

• The asset is trading subdued amid the Darvas box formation.
• A bull cross, of 20- and 50-EMAs points more upside ahead.
• The yen bulls may dictate prices if the asset tumble below 121.30.

The USD/JPY pair has performed lackluster in the previous four trading sessions after falling sharply from recording a six-year high at 125.10 last week. On Monday, the major is trading subdued amid a weak US dollar index (DXY).

On the hourly scale, USD/JPY is oscillating in a ‘Darvas box’ that indicates a volatility contraction, which is followed by an expansion in the same. Usually, explode of a Darvas box results in a continuation of the ongoing trend after a corrective move. The chart pattern has been placed in a narrow range of 121.33-123.00.

It is worth noting that the 20- and 50-period Exponential Moving Averages (EMAs) have given a bullish crossover at 122.10, which adds to the upside filters. However, the Relative Strength Index (RSI) has shifted in the 40.00-60.00 range, which signals that the greenback bulls have lost momentum.

Should the asset surpass the Darvas box high at 123.00, a swift move will be observed towards March 29 high at 124.30, followed by a six-year high at 125.10.

On the contrary, if the asset drop below the Darvas box low at 121.33, yen bulls will send the major towards the round level support at 120.00. Breach of the latter will drag the major toward the March 18 low at 119.08.

USD/JPY hourly chart

According to advanced figures from CME Group for natural gas futures markets, open interest increased for the fourth session in a row on Friday, now by around 16.5K contracts. In the same line, volume increased by nearly 91K contracts, reaching the third consecutive daily build.

Natural Gas keeps targeting $6.00

Prices of natural gas extended the uptrend for yet another session on Friday against the backdrop of rising open interest and volume. That said, the commodity looks poised to extend the upside momentum in the very near term with the immediate target at the $6.00 mark per MMBtu.

Considering preliminary readings from CME Group for crude oil futures markets, traders scaled back their open interest positions for the second session in a row on Friday, now by nearly 13K contracts. Volume followed suit and dropped by almost 295K contracts.

 WTI remains supported near $95.00

Prices of the WTI remained on the defensive at the end of last week amidst shrinking open interest and volume. That said, further downside looks unlikely in the very near term, while the $95.00 region still emerges as a decent contention.

Strategists at UOB Group’s Quarterly Global Outlook suggest USD/PHP could pick up further upside traction and retest the 53.00 area in Q2 2022.

Key Quotes

“Locally, expectations of twin deficits for two consecutive years and uncertainty surrounding the country’s presidential election on 9 May could sap investors’ risk appetite in Philippine assets.”

“Therefore, we project a slight upward trajectory for USD/PHP to 53.0 in 2Q22, 53.5 in 3Q22, and 54.0 in both 4Q22 and 1Q23 (vs previous target range of 52.5-53.5).”

• AUD/USD has surpassed 0.7500 as investors are bullish over a truce between Moscow and Kyiv.
• Risk-on impulse has trimmed the appeal of safe-haven assets.
• RBA’s monetary policy decision and FOMC minutes will remain in the spotlight this week.

The AUD/USD pair has displayed a bullish open-drive session on Monday in which the asset initiates advancing right from the first tick of the trading session. The expectations of a ceasefire between Moscow and Kyiv have expanded strongly after the negotiators from the counterparts sounded positive.

Ukrainian Foreign Minister Dmytro Kuleba said Russian negotiators have not agreed to the draft documents in writing but did give a verbal answer on all Ukrainian positions, according to Arakhamia. While, David Arakhamia, head of the Ukrainian delegation at the talks cited that Russia is agreed to all of Ukraine’s positions, except on Crimea.

Also, Russian leader Vladimir Putin and Ukrainian President Volodymyr Zelenskyy will meet after the draft of a special document containing the ceasefire stipulations.

Apart from the positive undertone, aussie is performing stronger on rising commodity prices. Australia, being a major exporter of iron ore, energy, and other commodities is benefitting from the elevated material prices.

On the dollar front, the US dollar index (DXY) is performing subdued on heightening risk-on impulse. However, the expectations of a 50 basis point (bps) interest rate hike have increased sharply on the falling US jobless rate. The Unemployment Rate at 3.6% since January is indicating an achievement of full employment on a consistent basis, which may call for an aggressive interest rate hike by the Federal Reserve (Fed).

Going forward, the interest rate decision from the Reserve Bank of Australia (RBA) on Tuesday will be the mega event this week. The RBA is likely to hold the interest rates and will bank upon a ‘wait and watch’ policy until price pressures soar. While, the US docket will release the Federal Open Market Committee (FOMC) minutes on Wednesday, which will dictate the rationale behind the decision-making by the Fed’s policymakers.

CME Group’s flash data for gold futures markets noted open interest shrank by around 4.6K contracts on Friday, clinching the second consecutive daily pullback. In the same line, volume went down by nearly 31K contracts, reversing the previous daily build.

Gold remains side-lined

Friday’s downtick in gold prices was accompanied by shrinking open interest and volume, indicative that further losses appear unlikely in the veery near term. That said, the precious metal is expected to keep the ongoing consolidation well in place for the time being.

Economist at UOB Group Lee Sue Ann suggests the RBA would leave the policy rate unchanged on Tuesday.

Key Quotes

“We expect the RBA to keep policy unchanged at the Apr meeting. However, the upgrade to our inflation forecasts, alongside an even tighter labour market, has led us to bring forward our RBA rate hike call.”

“We now see the cash rate target being lifted by 15 bps in Aug and then by 25 bps in Nov. This will see the cash rate target at 0.50% by the end of 2022.”

• GBP/USD’s weekly closing below 21-DMA points to more pain ahead.
• GBP bears need a decisive break below the rising trendline support on the 1D chart.
• Bearish RSI keeps sellers hopeful, as they await BOE-speak due later this Monday.

GBP/USD is reversing a brief dip below 1.3100, although remains almost unchanged on the day, as traders remain cautious ahead of a slew of speeches from the Bank of England (BOE) official later this Monday.

The US dollar is off the multi-day highs against its major peers but holds a major portion of the last week’s rebound, keeping the upside limited in cable. Adding to it, the bond rout extends into a fresh week, with the Treasury yields racing back towards three-year highs amid hawkish Fedspeak.

The FOMC minutes this week will be key for cable traders, as BOE Governor Andrew Bailey’s speech is awaited in the day ahead. Bailey said last Monday that the situation remains very volatile when asked about the May rate decision.  

Looking at GBP/USD’s daily chart, the pair is defending the critical rising trendline support at 1.3104.

Daily closing below the latter will trigger a fresh downswing towards the previous week’s low of 1.3051.

The next downside target is envisioned at the multi-week lows of 1.3000 reached during mid-March.

The pair closed the week below the critical bearish 21-Daily Moving Average (DMA) resistance, now at 1.3129, warranting caution for dip buyers.

Further, the 14-day Relative Strength Index (RSI) remains sluggish below the midline, suggesting that there is enough room for bears to flex their muscles.

GBP/USD: Daily chart

However, acceptance above the 21-DMA support-turned-resistance is critical for initiating a sustained recovery towards the previous week’s high of 1.3190.  

Bulls will then gear up for a test of the three-week highs of 1.3298.

GBP/USD: Additional technical levels

• USD/INR has tumbled near 75.80 as falling oil prices are hoping for lesser outflows for India.
• The DXY is losing strength on upbeat market sentiment.
• An announcement of a ceasefire is likely after the Putin-Zelenskyy meeting.

The USD/INR pair has witnessed intense selling pressure at open and has slipped near 75.80 at the press time. The Indian rupee is benefitting from falling oil prices and a risk-on impulse amid de-escalation in the Russia-Ukraine war.

Oil prices are falling like a house of cards amid easing supply worries. West Texas Intermediate (WTI) oil has slipped below the $100 market after a halt in military operations on the Saudi-Yemeni borders. The move has trimmed the concerns over the supply issue. However, the mega event that dragged the oil prices was the additional oil supply from the US Strategic Petroleum Reserve (SPR) announced by US President Joe Biden. This has resulted in a bloodbath for the oil prices as the asset nosedived more than 12% last week.

Meanwhile, the progress in the Russia-Ukraine peace talks has improved the risk appetite of investors. Risk-sensitive assets are outperforming amid easing geopolitical tensions. The negotiators from Russia and Kyiv cited a ceasefire verbally however; an official confirmation holds significant importance. The meeting between Russian leader Vladimir Putin and Ukraine’s President Volodymyr Zelenskyy after the development of a specific written document is likely to bring a ceasefire soon.

Meanwhile, the US dollar index (DXY) is trading lackluster despite the record low jobless numbers. The US Unemployment Rate landed at 3.6%, printing record lows since February 2020. The US Jobless rate has outperformed the estimate of 3.7% and the previous figure of 3.8%. This has raised the odds of an interest rate hike by the Federal Reserve (Fed) in May’s monetary policy.

• USD/CHF offers something for both the bulls and bears from a longer-term perspective.
• The weekly bullish bias is intact while above the dynamic support.

USD/CHF technical picture is somewhat blurred given the opposite biases on the weekly and daily chart and the following illustrates a bullish weekly outlook vs a bearish daily outlook:

USD/CHF weekly chart

The price is riding a dynamic weekly support line and is completing a retracement to a golden ratio of 61.8% on the Fibonacci scale. This is an area that meets the prior resistance of the W-formation and its neckline. Bulls would be expected to move in at this juncture resulting in a continuation for the coming weeks. 

USD/CHF daily chart

However, the daily chart's bearish impulse was powerful and broke the old lows. The price has since corrected into the 38.2% and 50% ratios where resistance would be expected, forcing the price lower and back towards the dynamic weekly support line. 

• Gold is under pressure on US dollar strength. 
• The US dollar is firm as investors price in the Fed and US yields rise. 

Gold, XAU/USD, has been pressured at the start of the week while mixed sentiment prevails surrounding the Ukraine crisis vs expectations of rapid-fire from the Federal reserve following last week's Nonfarm Payrolls outcome. 

At the time of writing, XAU/USD, is down 0.26%, falling from a high of $1,926.86 and sliding to below Friday's low printing of $1,918.32. The greenback got off to a solid start o Monday, buoyed by a rise in US Treasury yields on the expectations of a series of interest rate rises from the Fed. Following the NFP report, US 2-year bond yields closed at a high for the year in the North American session and the US 10-year yields also rose, weakening investor demand.

Non-farm payrolls increased 431k in March, following a strong upward revision to the February data to 750k. The Unemployment Rate also fell slightly to 3.6% while the average hourly earnings increased 0.4% MoM to bring annual growth to 5.6%. The data was a mixed bag, with hourly earnings for February revised back to 0.1%, which along with the March figure, indicates the heat may be coming off the US labour market. Overall, however, the report has strengthened the Fed’s case to use aggressive rate hikes to tame inflation. Fed funds futures have priced a near 4/5 chance of a 50 basis point hike next month.

Nevertheless, the ongoing war in Ukraine is likely to see demand for safe have assets remain strong, analysts at ANZ Bank argued. ''Our gold valuation model of the spread between fair value and spot gold prices has shot from zero to USD300/oz since Russia invaded Ukraine, suggesting a hefty risk premium. In addition, the secondary impacts of the Russia-Ukraine crisis will provide a strong level of support. The broader isolation of Russia will see a structural shift in the energy sector, which will be inflationary.''

Elsewhere, talk of new sanctions kept the broad mood cautious in early trade, but this too supports the US dollar. Germany's defence minister said on Sunday that the European Union must discuss banning imports of Russian gas after Ukrainian and European officials accused Russian forces of atrocities. Ukraine accused Russian forces of carrying out a "massacre" in the town of Bucha, which was denied by Russia's defence ministry.

''So long as material progress on ceasefire talks and de-escalation remains elusive, haven flows are likely to keep the yellow metal supported,'' analysts at TD Securities said. ''At the same time, the 2-year and 10-year curve flirting with inversion has further fueled talk of a recession on the horizon, offering another positive dynamic for the gold market.''

Gold technical analysis

The price is heading deeper into the demand and supporting area following a 61.8% Fibonacci correction of the prior bearish impulse. However, should bulls commit, then there will be prospects of a move beyond the current resistance near $1,950 for the days ahead and the potential for an onward continuation. 

• GBP/JPY has recorded yearly highs at 164.64 after a nine-month consolidation breakout.
• A breakout of a flat channel is followed by the re-test of the flat channel.
• The RSI (14) has been established in a 60.00-80.00 range, which adds to the upside filters.

The GBP/JPY pair is oscillating in a narrow range of 160.28-160.85 since Friday. A correction has been witnessed by the cross after hitting a high of 164.64 the previous week. The pair is looking to overstep the ongoing consolidation and is likely to witness gains after breaching the last two trading sessions' high at 161.18.

On the weekly scale, the asset has turned imbalance after remaining balanced in a nine-month prolonged consolidation in a range of 148.60-158.3.0 last week. The cross was auctioning in a flat channel, which indicates tightening volatility. The asset has advanced after breaching the consolidation and has made a high of 164.64 last month.

The 20- and 50-period Exponential Moving Averages (EMAs) at 156.00 and 153.08 respectively are scaling higher, which indicates a continuation of an upside.

Adding to that, the Relative Strength Index (RSI) (14) has established a bullish range of 60.00-80.00, which adds to the upside filters.

A re-test of the upper boundary of the flat channel near 158.00 will trigger the pound bulls and the cross will start advancing towards April’s high at 161.19, followed by March’s highs at 164.65.

On the contrary, yen bulls may dictate the price if the cross drops below the March 21 low at 156.38, which will drag the asset towards the round level support at 154.00. Breach of the latter will send the asset towards the 50-EMA at 153.08.

GBP/JPY weekly chart        

Despite China’s dynamic zero-covid policy, the country is struggling to contain the recent coronavirus flare-ups. China’s financial hub of Shanghai city is entirely under lockdown after the authorities last Monday imposed a two-stage lockdown.

Shanghai reported 8,581 asymptomatic COVID-19 cases and 425 symptomatic cases on April 3. That compared with 7,788 new asymptomatic cases and 438 new cases with symptoms reported a day earlier.

China's armed forces PLA has sent a health and logistics team consisting of over 2,000 people to Shanghai on Sunday evening to support covid prevention and control work.

Adding to China’s misery, the state media reported a case infected with a new subtype of the omicron variant after the country recorded 13,000 new infections.

more to come ....

• EUR/USD bulls are eyeing an upside daily extension at this juncture. 
• H4 resistance needs to give to enable the way to 1.1150 for the first instance. 

EUR/USD has corrected to a 61.8% Fibonacci retracement level near 1.1030 from which bulls have started to engage. The following illustrates a bullish bias:

EUR/USD daily chart

Should the correction decelerate here, more demand could be encouraged to lift the price higher. If the bulls manage to take over at that juncture, then there will be prospects of a bullish extension for the coming week with eyes towards 1.1250 and beyond. 

EUR/USD H4 chart

As illustrated, the price is stuck below a resistance area. Should the bears manage to break beyond here, the bulls will be on the path for a run towards the 1.1150 resistance area. 

Japan’s Deputy Chief Cabinet Secretary Seiji Kihara defends the Bank of Japan’s (BOJ) ultra-loose monetary policy amid weakening yen and cost-push inflationary pressures, per Reuters.

Key quotes

“Prime Minister Fumio Kishida's administration meanwhile continues to defend the BOJ's ultra-easy policy as a necessary support to a still-fragile economic recovery.”

"It's hard to tighten monetary policy to deal with cost-push inflation, which means the monetary policy must remain loose."

Meanwhile, in the face of the ongoing depreciation in the yen, Reuters cited some analysts, as saying that pressure to tweak the yield cap could become overwhelming if the yen, now hovering near 122.00 to the dollar, plunges to around 130.00.

Market reaction

USD/JPY was last seen trading at 122.59, adding 0.09% so far.

Bank of Korea’s (BOK) Senior Deputy Governor Lee Seung-heon said on Monday that the upcoming rate decision meeting will be difficult due to higher inflationary risks and downward pressure on growth.

The South Korean central bank policymaker said that a “thorough analysis on rising commodity prices and its impact on local economy crucial.”

The BOK will meet on April 14 to decide on its bank’s current base rate of 1.25%, as of now.

Market reaction

The Korean won (KRW) remains firmer on the session, despite the cautious comments from the BOK official. At the press time, USD/KRW is trading at 1,217.44, down 0.19% on the day, snapping a three-day uptrend.

In an interview with the Financial Times (FT), San Francisco Fed President Mary Daly said that the odds of a 50-basis points (bps) rate hike at the next policy meeting in May have grown, in a sign that the US central bank is preparing aggressive moves to bring persistent inflation under control.

Key quotes

“The case for 50, barring any negative surprise between now and the next meeting, has grown.”

“I’m more confident that taking these early adjustments would be appropriate.”

“Estimating the neutral policy rate to be between 2.3 percent and 2.5 percent, and advocating for getting to that level “efficiently” this year.”

Market reaction

The US dollar index is off the three-day highs of 98.74 but preserves most of the previous week’s gains around 98.60, as of writing.

European Central Bank (ECB) Governing Council member Isabel Schnabel made some comments on monetary policy normalization over the weekend, per Reuters.

Key quotes

"We will hike interest rates sometime after, as appropriate, in light of incoming data."

"The speed of normalization ... will depend on the economic fallout from the war, the severity of the inflation shock and its persistence.”

“Inflation risk was skewed towards even higher readings given sharply rising producer prices, structural economic changes like de-globalization and likely wage hikes.”

Market reaction

EUR/USD is on the defensive at around 1.1050, licking its wounds after Friday’s slump to near 1.1030. The US dollar index holds onto its recent gains amid a cautious start to the Fed minutes week.

• Oil prices plunged on truce move by Yemen as it may ease supply worries.
• Additional oil release by US President Joe Biden from the SPR has dragged the oil prices sharply.
• Record lows US Unemployment Rate is favoring an aggressive interest rate hike by the Fed.

West Texas Intermediate (WTI), futures on NYMEX, has plunged below $100.00 after the United Arab Emirates (UAE) welcomed the announcement of a truce by Hans Grundberg, Special Envoy of the United Nations (UN) Secretary-General for Yemen. The officials have announced a halt on military operations on the Saudi-Yemeni borders. The move has ended the seven-year conflict and is going to allow fuel imports in the Houthi areas. The action has reduced the supply worries and has impacted the oil market.

Earlier, the oil prices saw a massive sell-off after US President Joe Biden announced a release of one million barrels per day for six months out of their Strategic Petroleum Reserve (SPR). The additional oil release will initiate from May and is intended to release a total of 180 million barrels in the designated period. This is the third time in the last six months when the US administration has announced an oil release from the SPR. An additional oil release of 180 million barrels is equivalent to about two days of global demand, as per Reuters.

Meanwhile, the US dollar index (DXY) is scaling higher on record lows US Unemployment Rate. The US Jobless rate fell to record lows of 3.6% since February 2020, which indicates that the US economy is returning to its pre-Covid-19 levels and the full employment target of the Federal Reserve (Fed) is hoping a 50 basis point (bps) interest rate hike from the Fed.

• EUR/JPY bears move in at the start of the week. 
• Eyes on the US dollar and the FOMC minutes. 

EUR/JPY leans bearish at the start of the week with a lack of impetus to move the needle so far. At 135.27, the price is a touch in the red, sliding from a high of 135.51 to a low of 135.10. The euro is under pressure as the US dollar firms due to central bank divergences.

On Friday, the Nonfarm Payrolls arrived with positive revisions and a further fall in the Unemployment Rate. Despite a miss in the headline, the majority of the data was solid and has underpinned the notion in the market that a hawkish Federal Reserve is here to stay. Subsequently, this is underpinning the greenback. 

431,000 new jobs were added vs. estimates of 490,000. However, the data for February job increases were revised higher. Additionally, the Unemployment rate fell to 3.6%, the lowest since February 2020. The DXY index that measures the greenback vs. a basket of currencies was higher for the second straight day after two straight down days and is trading back near 98.50. This month’s cycle high near 99.418 should eventually be tested.

Meanwhile, equity markets finished the week strongly. Markets ended last week with the S&P 500 up 0.3%, the Euro Stoxx 50 up 0.4% and the FTSE up 0.3%. The yield on the US 10-year Treasury added 4bps to 2.38%. However, global data points to ongoing strong inflation.

Eurozone inflation hit a record high of 7.5% in March. Energy costs have surged 44.7% YoY. Meanwhile, non-energy goods increased by 3.4% and services lifted 2.7%. Nevertheless, the divergence to date between the European Central Bank and the Federal reserve is more favourable to a lower EUR/USD rate which is weighing on the EUR/JPY cross. 

''The latest prices data indicates central banks certainly have some work ahead of them,'' analysts at ANZ bank said. ''Meanwhile,'' however, the analysts argue, ''it really looks like it is time for the European Central Bank to act. While the ECB will be cautious about raising rates, it certainly looks like it should act sooner to abolish its QE program, which is only adding fuel to the inflationary fire, that is already quite hot enough.''

Eyes on the FOMC minutes

Analysts at TD Securities explained that ''Fed officials began the process of policy normalization by lifting rates 25bp to 0.25%-0.50% at the March meeting.''

''The FOMC pull no hawkish punches in its policy guidance, with Chair Powell also hinting further information about QT plans will be provided in the minutes (possibly including caps details). We continue to expect an official QT announcement at the May FOMC meeting.''

EUR/JPY technical analysis

The price has corrected into daily support, so bulls could be on the verge of moving in. 

EUR/JPY H1

From a lower term perspective, the bulls will need to clear the immediate resistance for a run through the 136.00 area and towards 138.00

• Failure to sustain above 61.8% Fibo retracement hopes a correction.
• The asset is oscillating in a slightly wider range of 0.6864-0.6998.
• The RSI (14) has slipped into a 40.00-60.00 range, which signals a consolidation ahead.

The NZD/USD pair is oscillating in a slightly wider range of 0.6864-0.6998 for the last two weeks and has been facing barricades near the psychological resistance of 0.7000.

On the daily scale, the pair has sensed selling pressure above 61.8% Fibonacci retracement (placed from 21 October 2021 high at 0.7219 to 28 January low at 0.6529) at 0.6956 and has been dragged lower. The trendline placed from the 28 January low at 0.6529 will continue to act as major support going forward.

The 20- and 50-period Exponential Moving Averages (EMAs) at 0.6895 and 0.6836 respectively are scaling higher, which signals more upside ahead.

However, the Relative Strength Index (RSI) (14) has slipped into a 40.00-60.00 range, which signals a consolidation ahead. Kiwi bulls have lost control after the RSI (14) failed to sustain in a 60.00-80.00 range.

A breach of the psychological resistance of 0.7000 is likely to underpin the kiwi bulls and will drive the asset higher towards the 19 November 2021 high at 0.750, followed by the 22 October 2021 low at 0.7131.

On the flip side, if the asset drop below 50% Fibo retracement at 0.6875, greenback bulls may get strengthened, which will drag the major towards 50-EMA at 0.6836. Breach of the latter will send the asset towards March 15 low at 0.6728.

NZD/USD daily chart

• Bulls failing at critical daily resistance near 0.7540.
• A break of H4 support will open the risk of distribution towards the daily target.

As per the prior analysis of March 31, AUD/USD Price Analysis: Bears prowl and are moving in with 0.7450 eyed, the bears are holding off the bulls and the bias remains with the downside. 

AUD/USD prior analysis

AUD/USD live market

As illustrated, there is a build-up of failures at daily resistance and the prospects for a move to the downside to correct the prior bullish impulse are fortified by the subsequent price action on the 4-hour chart as follows:

AUD/USD H4 chart

A break of support will open the risk of distribution towards the daily target.

• AUD/JPY has found buyers near 91.00 after the hangover of a four-day bond-buying program by the BOJ.
• Rising raw-material prices are hurting the Japanese yen.
• Aussie is performing against the yen despite poor China’s Caixin Manufacturing PMI.

The AUD/JPY pair has witnessed a decent buying interest near 91.00 as the risk-perceived assets got underpinned after progress in the Russia-Ukraine peace talks. The negotiators from both nations stated that they have reached an agreement on enough elements of a potential peace agreement that it is ready to be discussed between Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskyy.

Also, the hangover of unlimited buying of the Japanese Government Bonds (JGBs) by the Bank of Japan with an intention to cap the yields at 25 basis points got over and the yen surrendered its gains. A follow-up buying was observed after the conclusion of the four-day bond-buying program in which the BOJ bought longer period JGBs to halt yield curve inversion.

The Japan Chief Cabinet Secretary Matsuno cited that, according to the BOJ’s Tankan survey the economy is marching upward despite persisting issues from the Covid-19 pandemic. Adding to that, the BOJ is cautious about the rising commodity prices. The BOJ officials stated that Japanese manufacturers have mainly pointed to the impact of rising raw material prices and parts shortages on current business conditions.

Meanwhile, the aussie dollar has performed against the Japanese yen despite poor China’s Caixin Manufacturing Purchase Managers Index (PMI) data. The IHS Markit has reported the Caixin Manufacturing PMI on Friday at 48.1, much lower than the market consensus of 49.7 and the previous figure of 50.4. Australia, being a leading exporter to China claims a positive relationship with the Chinese economic data. Also, the antipodean has been the most preferred pick on rising commodity prices globally, which are fetching more flows into the Australian economy.