CFD Markets News and Forecasts — 05-03-2023

• NZD/USD kick-starts crucial week with mild losses, holds lower ground of late.
• Cautious mood ahead of Fed Chair Powell’s testimony, US jobs report and China inflation data weigh on Kiwi pair.
• China sets modest growth target during annual session of its National People's Congress (NPC), eyes to overhaul major government departments.
• Risk catalysts, US Factory Orders to offer intraday directions.

NZD/USD retreats to 0.6210 after posting the first weekly gain in five as challenges to sentiment probe the Kiwi pair buyers early Monday. In doing so, the quote takes clues from the market’s cautious mood ahead of Federal Reserve (Fed) Chairman Jerome Powell’s half-yearly Testimony and the US employment report for February. Adding strength to the pullback moves could be the headlines from China’s annual session of the National People's Congress (NPC).

As per the latest updates, China NPC eyes a modest growth of 5.0%, versus market expectations of 6.0%, for the current year. Apart from the softer Gross Domestic Product (GDP) expectations, after reporting the slowest yearly GDP growth of 3.0% in decades, geopolitical concerns were also discussed and weighed on the sentiment, as well as the NZD/USD prices. “China should promote the peaceful development of cross-Strait relations and advance the process of China's "peaceful reunification", but also take resolute steps to oppose Taiwan independence,” said outgoing China Premier Li Keqiang.

Elsewhere, recently downbeat US data and a retreat in the US Treasury bond yields from the multi-year high allowed the NZD/USD buyers to print the first weekly gains in five. That said, US ISM Services PMI for February came in as 55.1 versus 54.5 market expectations and 55.2 market forecasts. The inflation component of the PMI survey, the Price Paid sub-index, edged lower to 65.6 in February from 67.8 but surpassed analysts' estimate of 64.5. The New Orders sub-index rose to 62.6 from 60.4 and the Employment Index advanced to 54 from 50 in the same period. Previously in that week, the US Durable Goods Orders for January eased while the Conference Board’s (CB) Consumer Confidence also flashed mostly downbeat details.

It should be noted, however, that the Federal Reserve (Fed) talks remained hawkish and tried to defend the US Dollar bulls, as well as propel the US Treasury bond yields. Over the weekend, San Francisco Federal Reserve Bank President Mary Daly said that if data on inflation and the labor market continues to come in hotter than expected, interest rates will need to go higher, and stay there longer, than Fed policymakers projected in December, as reported by Reuters.

Meanwhile, US Treasury bond yields initially refreshed the multi-month high before weighing on the US Dollar, as well as previously allowing the NZD/USD buyers to retake control. The reason could be linked to the unimpressive US data and the market’s receding fears of recession, mainly favored by headlines from China. That said, the US 10-year Treasury bond yields rose to the highest levels since November 2022 before easing to 3.95% at the latest while the two-year counterpart poked the July 2007 levels.

Amid these plays, Wall Street managed to close in the green zone but the S&P 500 Futures printed mild losses by the press time.

Looking ahead, NZD/USD traders should pay attention to Fed Chair Powell’s testimony and China inflation data, as well as updates from China NPC, for clear directions. Following that, the US jobs report for February could direct the Kiwi pair moves. Given the recently softer US data, the odds of witnessing a positive surprise for the pair buyers can’t be ruled out.

Technical analysis

Despite the latest pullback, the NZD/USD price remains firmer past 200-DMA support of 0.6165, which in turn keeps the buyers hopeful of crossing the immediate 100-DMA hurdle of 0.6230.

• GBP/USD pares the first weekly gain in three as traders brace for the key data/events.
• Upside break of one-month-old descending trend line, bullish MACD signals favor buyers.
• Bulls need clear break of 50-DMA to retake control; 200-DMA puts a floor under the Cable price.

GBP/USD bulls take a breather around 1.2030 during Monday’s initial Asian session, after posting the biggest weekly jump since mid-January.

In doing so, the Cable pair fails to extend the previous day’s upside break of the one-month-old descending resistance line, now support around 1.2020.

However, the Cable price is yet to drop back below the resistance-turned-support and the MACD signals are bullish too, which in turn keeps the GBP/USD buyers hopeful amid steady RSI. Adding strength to the upside bias is the quote’s successful trading beyond the 200-DMA.

In addition to the 200-DMA support of around 1.1900, an upward-sloping trend line from early January, close to 1.1940 at the latest, also acts as the short-term key support for the GBP/USD pair.

In a case where the GBP/USD remains bearish past 1.1900, lows marked during January 2023 and late November 2022, respectively near 1.1840 and 1.1760, will be in focus.

On the flip side, a daily closing beyond the 50-DMA hurdle surrounding 1.2140 could quickly propel the Cable pair toward the mid-February swing high surrounding 1.2270.

It’s worth noting, however, that the GBP/USD pair’s successful trading above 1.2270 enables the buyers to aim for the 2.5-month-old horizontal resistance area nearing 1.2445-50.

GBP/USD: Daily chart

Trend: Limited upside expected

“Underlying inflation in the Eurozone will stay high in the near term so a 50 basis point European Central Bank (ECB) interest rate increase later this month is increasingly certain,” ECB President Christine Lagarde told Spanish media group Vocento per Reuters.

Lagarde said in Sunday’s speech, per Reuters, that the flagged increase is now "very very likely" but she also warned that underlying inflation, which filters out volatile food and fuel prices, could stay uncomfortably high even as the overall inflation rate drops in the coming months.

"In the short term, core inflation is going to be high," per ECB’s Lagarde.

ECB’s Lagarde also stated that they must continue to take whatever measures are necessary to bring inflation back to 2%. And they will do so. “Eurozone economy is holding up better than feared and output should accelerate from near stagnation in the closing quarter of 2022,” adds the central banker.

Market reaction

EUR/USD bulls take a breather around 1.0625 after posting the biggest weekly gains in nearly two months.

Also read: EUR/USD Price Analysis: Bulls eye a test of bear's commitments near 1.0700

• Gold price snaps four-week downtrend amid early March, eyes more upside.
• Mixed United States data, cautious optimism surrounding China strengthen XAU/USD upside moves.
• Equities closed positive, US Treasury bond yields retreat from multi-month high to favor Gold buyers.
• Federal Reserve Chairman Jerome Powell’s bi-annual Testimony, US jobs report appears the key for XAU/USD traders for fresh impulse.

Gold price (XAU/USD) began March on a front foot, by posting the first positive weekly close in five. The XAU/USD bulls keep the reins during the early hour of Monday’s Asian session, despite retreating from the highest levels in two weeks to around $1,857.

That said, the broad US Dollar weakness, amid a pullback in the United States Treasury bond yields, mixed United States data and the market’s cautious optimism, appears the key catalyst behind the Gold price run-up. The recent pause in the bull run could be linked to the market’s cautious mood ahead of the top-tier event, namely Federal Reserve (Fed) Chairman Jerome Powell’s half-yearly Testimony and the US employment report for February.

Gold price rallies on softer US Dollar

US Dollar Index (DXY) paused a four-week uptrend the last week by ending Friday’s North American session around 104.50. In doing so, the greenback’s gauge versus the six major currencies justified downbeat prints of the United States statistics, as well as a pullback in the US Treasury bond yields.

That said, US ISM Services PMI for February came in as 55.1 versus 54.5 market expectations and 55.2 market forecasts. The inflation component of the PMI survey, the Price Paid sub-index, edged lower to 65.6 in February from 67.8 but surpassed analysts' estimate of 64.5. The New Orders sub-index rose to 62.6 from 60.4 and the Employment Index advanced to 54 from 50 in the same period. Previously in that week, the US Durable Goods Orders for January eased while the Conference Board’s (CB) Consumer Confidence also flashed mostly downbeat details.

While the United States data eased, the Federal Reserve (Fed) talks remained hawkish and tried to defend the US Dollar bulls, as well as propel the US Treasury bond yields. Over the weekend, San Francisco Federal Reserve Bank President Mary Daly said that if data on inflation and the labor market continues to come in hotter than expected, interest rates will need to go higher, and stay there longer, than Fed policymakers projected in December, as reported by Reuters.

It should be noted, however, that the US Treasury bond yields initially refreshed the multi-month high before weighing on the US Dollar, as well as allowing the Gold buyers to retake control. The reason could be linked to the unimpressive US data and the market’s receding fears of recession, mainly favored by headlines from China. That said, the US 10-year Treasury bond yields rose to the highest levels since November 2022 before easing to 3.95% at the latest while the two-year counterpart poked the July 2007 levels.

China inspires XAU/USD bulls

Being one of the biggest Gold consumers, the recent improvements in China’s headline activity numbers for February, as well as the 5.0% growth target, appear to underpin the XAU/USD’s latest run-up. It’s worth noting that the chatters surrounding the resumption of the China-US trade negotiations also improved the market sentiment and pleased the Gold buyers.

Alternatively, the US-China tension surrounding Taiwan and Russia seems to flag tensions for the Gold buyers ahead of the key data/events scheduled for this, which in turn can probe the XAU/USD upside.

Key data, events could challenge Gold buyers

While the aforementioned catalysts keep the Gold buyers hopeful, a cautious mood ahead of this week’s key catalysts could probe the metal’s immediate upside. Among the headline factors, Federal Reserve (Fed) Chairman Jerome Powell’s half-yearly Testimony and the US employment report for February are crucial for clear directions. Also important are inflation data from China.

Should Fed Chair Powell defends his hawkish bias and the US Nonfarm Payrolls (NFP) offers a positive surprise, together with an absence of any negatives from other employment details, the Gold price may witness a pullback.

Gold price technical analysis

Gold price defends the previous day’s successful rebound from the 61.8% Fibonacci retracement level of November 2022 to February 2023 upside.

Adding strength to the upside bias was the metal’s successful closing beyond the 21-DMA for the first time in a month. Furthermore, the Moving Average Convergence and Divergence (MACD) flashed the first bullish signal in a five weeks while the Relative Strength Index (RSI), placed at 14, also crosses the 50 mid-line to suggest strength in the upside momentum.

As a result, the XAU/USD price is likely to continue the latest run-up towards the $1,870 resistance confluence, including the 50-DMA and 38.2% Fibonacci retracement.

It should be noted that the early February’s swing high around $1,890 and the $1,900 threshold could challenge the Gold buyers past $1,870 hurdle, a break of which could direct the bulls towards the 2023 peak surrounding $,1960.

Alternatively, a fresh Gold price weakness needs to break of the 21-DMA support of near $1,844, as well as provide a daily closing below the 50% Fibonacci retracement level of around $1,840 to recall the sellers.

Even so, the XAU/USD bears remain off the table unless the quote remains beyond the 61.8% Fibonacci retracement level close to $1,812, also known as the golden Fibonacci ratio.

Gold price: Daily chart

Trend: Further upside expected

• EUR/USD bears are lurking in key supply areas.
• 1.0700 is key while trendline support holds up. 

EUR/USD was supported on Friday as the US Dollar fell and was headed for the largest weekly loss since mid-January against a basket of six major currencies. However, it will be a busy week for the greenback and that leaves the technical outlook for the bulls thwarted with danger as they balance on a tightrope as the following illustrates: 

EUR/USD H4 and daily charts

The 40-hour chart sees the price testing resistance in the upper quarter of the 1.06 area but on the backside of a prior downtrend. Nevertheless, while there are prospects of a move to test the 1.07s, the daily charts show this as an area of potential supply:

While the day ahead could see a continuation of Friday's given the strong bullish close, the trendline support has yet to be tested which leaves scope for a move by the bears as we head over to key event risks this week.

• AUD/USD traders get set for a busy week. 
• The RBA, NFP and Fed chair will be the main focus. 

The Australian dollar is taking its cues from sentiment surrounding the Federal Reserve, robust US data, local economic data and while also looking to China's upcoming parliament meeting for new economic support.

The Aussie is correcting higher and away from the January low of 0.6689 in the footsteps of the return of risk appetite. Markets got a boost last week on the back of comments by Atlanta Fed President Raphael Bostic. The central banker said on Thursday that the impact of higher US interest rates on the economy may only begin to "bite" in earnest this spring. Earlier that day, US data, however, pointed to a still strong U.S. jobs market ahead of this week's Nonfarm Payrolls and Federal Reserve chairman Jerome Powell's testimony. 

A number of regional Fed Presidents have expressed their openness to increasing the amplitude of rate hikes from 25bp to 50bp if the data warrants so markets will be looking to Powell for confirmation and a hint of a bias this week one way or another. 

''Powell may be questioned on this at his testimony; if so he is likely to reiterate that the absolute level of rates is ultimately what matters,'' analysts at ANZ Bank said. ''The text of the semi-annual report was released on Friday and noted that further interest rate rises will be appropriate and that a period of below-trend growth may be needed to get inflation back to 2.0%.''

However, the analysts also argued that ''the recent jobs and inflation data do not support arguments that interest rates are restrictive and it will be important to scrutinize the next round of hard data, starting with non-farm payrolls this Friday. ''

Analysts at TD Securities said that ''US payrolls likely mean-reverted to a still firm pace in Feb after an unexpected 517k surge in Jan. We also look for the Unemployment Rate rate to stay unchanged at 3.4%, and wage growth to print a strong 0.4% MoM.'' It is worth noting that the range of economists’ estimates is 100-325k.

China's annual parliament session

Meanwhile, the focus is now turning to China's annual parliament session where it set its economic goals for the year and unveiled fresh policy support to consolidate an economic recovery following the removal of stringent COVID-19 curbs. China’s National People’s Congress (NPC) has kicked off its annual parliamentary session by announcing a modest target for economic growth of about 5 percent. The session is lso set to hand President Xi Jinping a third term in office and implement the biggest government shake-up in a decade. “Global inflation remains high, global economic and trade growth is losing steam, and external attempts to suppress and contain China is escalating,” outgoing Premier Li Keqiang said during his speech to open the parliament, which will run through March 13.

All eyes on the RBA

The focus will be on whether the Reserve Bank of Australia softens its language in light of recent weaker data. ''On the back of the widening breadth and persistence of inflation, the cash rate in Australia remaining below comparable G10 economies, and the Australian economy more likely to benefit from China's reopening, we expect the RBA to push on with hikes in Apr and May,'' analysts at TD Securities said.

AUD/USD technical analysis

The price has been range bound within last week's opening range for the most part. A break of the upside opens risk to the next 100 pip box and 0.6920 above there. To the downside, a break of support op[ens risk to a test of the 0.6580s and then the 0.6520s.

Over the weekend, San Francisco Federal Reserve Bank President Mary Daly said that if data on inflation and the labor market continues to come in hotter than expected, interest rates will need to go higher, and stay there longer, than Fed policymakers projected in December, as reported by Reuters.

"If the momentum in the economy is reaccelerating, and inflation is moving off of its disinflationary trend and into a period of accelerating inflation, then I'm prepared to do more in terms of the level of the interest rates that will be necessary to really bring us to price stability," Daly told reporters after a speech.

Her comments come ahead of the Federal Reserve's chairman, Jerome Powell, who will speak this week and Friday's Nonfarm Payrolls. Her comments are gearing up the market for hawkish rhetoric from Powell and a solid outcome in the jobs data. 

"More is likely to be needed, and for a longer period of time," she said.

However, as Reuters reported, she said ''that to return to raising rates by bigger increments as the Fed did last year, instead of the quarter-point-a-meeting pace now expected, she would need to be very certain of how high rates will need to go. She said she is less certain now than she was last year,'' Reuters added. 

US Dollar update

The US Dollar index, DXY, which measures the greenback's value against six major currencies, fell 0.4% to end Friday at 104.527. The index made a low of 104.485, losing ground from a high of 105.36 at the start of the week, its strongest level since Jan. 6.