• The EUR/GBP pair began the week on the wrong foot, losing 1%.
• Tensions increased between Russia and Ukraine on Bucha developments and Western war crimes accusations against Russia.
• EUR/GBP Price Forecast: Aiming towards the YTD low, but upside risks remain.

EUR/GBP begins the Asian Pacific session barely flat, around 0.8339, after Tuesday’s fall below the 50-day moving average (DMA) at 0.8366, pushing the pair towards a descending channel’s bottom-trendline. At the time of writing, the EUR/GBP is trading at 0.8340, down 0.01%.

The EUR/GBP pair is down in the week, so far 1%. The fall in the cross-currency is courtesy of the Ukraine-Russia conflict, which aims to extend not for another week but instead for months. The findings of civilians bodies in Bucha, and accusations of war crimes against Russia, deteriorated peace talks discussions between the parties involved.

Overnight, the EUR/GBP pair seesawed around the 0.8370s area but fell once the European traders got to their desks and reached a daily low at 0.8328.

EUR/GBP Price Forecast: Technical outlook

The EUR/GBP is trading near the bottom of a descending channel and found support near the 0.8320s area, which once hit, the pair jumped to current levels. Nevertheless, the Relative Strength Index (RSI) at 45.75, in a bearish area, and the daily moving averages (DMAs) above the spot price, keep the EUR/GBP downtrend intact, but upside risks remain.

That said, the EUR/GBP’s first support would be March 23 swing low at 0.8295. A sustained break would expose March 4 low at 0.8233, followed by the YTD low at 0.8202.

Technical levels to watch

• The DXY has established above 99.00 and is eyeing 100.00 amid hawkish Fed officials.
• Fed Governor Lael Brainard has cleared that the Fed will start reducing the balance sheet size soon.
• An outperformance of US Services PMI has infused fresh blood into the DXY.

The US dollar index (DXY) has finally turned imbalance after consolidating in a range of 97.68-99.42 over one month. The strength of the asset amid an aggressive hawkish stance from the Federal Reserve (Fed) policymakers has supported the DXY to establish above 99.00 and has also exposed it to kiss the psychological figure of 100.00.

Fed Governor Lael Brainard’s speech

The hawkish remarks from Fed Governor Lael Brainard have injected an adrenaline rush into the DXY. The Federal Open Market Committee (FOMC) member from her speech has cleared that the Fed is going to transfer the burden of soaring inflation and therefore investors should brace for an aggressive interest rate hike in May. Adding to that, the FOMC member has stated that the Fed is “inclined to announce a stronger action if the parameters of inflation and its expectations indicate that such action is highly required.” Also, the Fed will start reducing its balance sheet size at a rapid pace to corner the sheer inflation.

US ISM Services PMI

US Institute for Supply Management (ISM) has unfolded the Services Purchase Managers Index (PMI) on Tuesday and has displayed an outperformance from the US economy against the estimates. The US ISM Services PMI landed at 58.3, higher than the preliminary estimate of 58.3 and prior print of 56.5, which has infused fresh blood into the mighty DXY.

10-year US Treasury yields cross 2.5%

The hawkish stance on May’s monetary policy by Fed Governor Lael Brainard has raised the odds of a 50 basis point (bps) interest rate hike significantly. This has fueled the 10-year US Treasury yields, which have recaptured 2.55%.

Going forward, the Fed will release the FOMC minutes on Wednesday, which will unfold the mindset of Fed Chair Jerome Powell and his colleagues behind featuring a 25 (bps) interest rate hike in March.

• The uptrend remains in place as long as the EUR/JPY remains above 134.74.
• Tuesday’s price action formed a doji in a downtrend, meaning there’s indecision amongst EUR/JPY traders.
• EUR/JPY Price Forecast: Range-bound, but upside risks remain.

The EUR/JPY keeps extending its losses and giving away the 135.00 mark amidst a dismal market sentiment, courtesy of Ukraine-Russia jitters, central bank tightening, and Fed hawkish commentary, which dragged US equities down. At the time of writing, the EUR/JPY is trading at 134.83.

Since reaching a YTD high at 137.54 on March 28, the EUR/JPY has extended its losses to 300-pips. In the last six trading days, only on two, the cross-currency pair finished in the green, despite the ongoing Japanese yen weakness.

Overnight, the EUR/JPY witnessed a choppy trading session, followed by a dip under 134.50. However, the EUR/JPY reclaimed the former in the mid-European session and reached a daily high ner the 50-hour simple moving average (SMA) at 134.91, retreating afterward to current levels.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY remains upward biased, despite the ongoing correction. The daily moving averages (DMAs) reside below the exchange rate, further cementing the case for the uptrend. In fact, the 50-DMA, now at 131.00, crossed over the 200-DMA on March 28.

With that said, the EUR/JPY’s first resistance would be 135.00, which, once cleared, would pave the way for further gains. The next resistance would be April 4 daily high at 135.68, followed by 136.00 and 136.62, before the YTD high at 137.54.

On the flip side, the EUR/JPY first support would be 134.74. A decisive break would expose 134.00, followed by October 20 daily high at 133.48.

Technical levels to watch

• AUD/USD bulls are back below 0.76 but remain on firm territory. 
• Hawkish RBA lifted AUD to break weekly resistance. 

AUD/USD is starting out the day on Wednesday in bullish territory around 0.7580 but well below the post-Reserve Bank of Australia rally highs of 0.7661. The market’s perception that the RBA could be hiking rates in the not too distant future has underpinned the Aussie and raised prospects of higher grounds towards the 0.7800 area.

''In the wake of the policy statement, wires are reporting that economists are starting to focus on the June RBA meeting as a possible date for lift-off in rates. The pace of policy tightening will depend on economic data,'' analysts at Rabobank explained. 

The RBA has kept rates steady at 0.10% but it has tweaked its forward guidance. Analysts at Brown Brothers Harriman explained, ''the bank dropped its reference to remaining “patient” on policy and instead moved to being data-dependent.'' 

''This shift would seem to validate market expectations for liftoff coming sooner rather than later. As such, RBA tightening expectations continue to rise.''

Nevertheless, the US dollar and yields were taking the spotlight on Tuesday following comments from Federal Reserve Governor Lael Brainard. She spooked investors about potential aggressive actions by the Fed and in anticipation of hawkish minutes tomorrow. Brainard said the central bank could start reducing its balance sheet as soon as May and would be doing so at “a rapid pace.” She also indicated that interest rate hikes could come at a more aggressive pace than the typical increments of 0.25 percentage points.

US Treasury yields climbed to multi-year highs with yields taking off after her hawkish comments and U-turn. The DXY, an index that measures the greenback vs a basket of currencies, ran up to test 99.50 to print a fresh high for 2022 at 99.493. 

Meanwhile, the Fed officials began the process of policy normalization by lifting rates 25bp to 0.25%-0.50% at the March meeting and on Wednesday the minutes of that meeting will be released.

''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,'' analysts at TD Securities said. 

• Confluence of Gravestone Doji near the psychological resistance of 0.7000 indicates the strength of bears.
• Kiwi bulls have surrendered their establishment above 61.8% Fibo retracement.
• The momentum oscillator RSI (14) seems losing its momentum after dropping below 60.00.

The NZD/USD pair has displayed multiple failed attempts while practicing an establishment above 0.7000. The pair have witnessed an extreme responsive selling from the market participants on Tuesday, which has dragged the kiwi bulls below 0.6950. In the early Asian session, the asset is performing subdued and is expected to extend losses after slipping below Wednesday’s low at 0.6933.

On a daily scale, NZD/USD has formed a ‘Gravestone Doji’ candlestick pattern, which signals a failed attempt by the bulls on driving the asset to fresh highs. The pair has failed to breach its old recurring barricade of 0.7000, which has also been encountered consecutively in the last two weeks. Apart from that, the kiwi bulls have lost their establishment above 61.8% Fibonacci retracement (placed from 21 October 2021 high at 0.7219 to 28 January low at 0.6529) at 0.6956. However, 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 0.6906 and 0.6845 respectively are scaling higher, which signals more upside ahead.

However, the Relative Strength Index (RSI) (14) seems losing momentum as the oscillator has dropped below 60.00.

Should the asset drop below Wednesday’s low at 0.6933, it will trigger the formation of the Gravestone Doji candlestick pattern and activate the greenback bulls. Activation of the latter will drag the asset towards 50% Fibo retracement at 0.6875, followed by the 50-EMA at 0.6845.

On the flip side, kiwi bulls may regain strength if the asset overstep the psychological resistance of 0.7000, which will drive the asset higher towards the 19 November 2021 high at 0.7050, followed by the 22 October 2021 low at 0.7131.

NZD/USD daily chart

• Additional Fed officials aim to begin QT by the May meeting.
• Geopolitical jitters in Ukraine weigh on market sentiment and elevated prices.
• EUR/USD Price Forecast: To keep extending losses if the 1.0900 mark gives way to USD bulls.

The EUR/USD remains under selling pressure after falling below the 1.1000 mark, as hawkish Federal Reserve commentary and escalation of the Russia-Ukraine war turned sentiment sour on Tuesday. At press time, the EUR/USD is trading at 1.0905, as EUR bears prepare for a renewed test of 1.0806 YTD low.

Market sentiment remains downbeat, as portrayed by falling US equities. The greenback remains buoyant, extending its rally to four days, rising 0.50%, sitting at 99.485, after reaching a new YTD high at 99.524.

Tuesday’s Fed parade lifts US Treasury yields

On Tuesday, Fed policymakers crossed wires. Fed Governor Lael Brainard stated that the Fed “is prepared to take stronger action” if needed and added that the balance sheet reduction might begin in the May meeting. On those remarks, US equities slid, and the US Dollar Index reclaimed the 99.000 level.

Elsewhere, Kansas City Fed President Esther George (voter 2022) said that a 50 bps move would be an option, as conditions favor going faster than before. Later, San Francisco Fed President Mary Daly commented that the labor market is extremely tight and noted that the Fed is on a path to raising rates. Daly added that growth would slow but expected it to be a short-lived event.

Meanwhile, conditions around the Ukraine-Russia conflict continue to worsen. Germany and France expelled Russian diplomats from their embassies, responding to Russian troops’ war crimes committed in Bucha once the Russian soldiers moved east.

The US and the G7 are coordinating new sanctions on Russia, expanding to financial institutions, state-owned companies in Russia, and unspecified Russian officials and their family members.

Data-wise, the Eurozone economic docket featured March’s IHS Markit Services PMIs for countries in the EU, and the Eurozone, which rose firmly. Regarding the US economic docket, March’s US ISM-Non Manufacturing PMI rose to 58.3, higher than the 58.1 estimated and better than the 56.5 from the previous reading.

EUR/USD Price Forecast: Technical outlook

The EUR/USD remains in a downtrend, as depicted by the daily chart. On Monday, the EUR/USD was unable to trade above Pitchfork’s mid-line between the top/central parallel line, around 1.1054, exposing the pair to further selling pressure. Subsequently, the EUR/USD extended its fall, and a break below 1.0900 could pave the way for further losses.

That said, the EUR/USD first support would be 1.0900. Breach of the latter would expose Pitchfork’s central-parallel line around 1.0850-70 range, followed by the YTD low at 1.0806.

• West Texas Intermediate (WTI) crude oil is under pressure to test $100bbls. 
• Supply vs demand concerns is being weighed by traders.

West Texas Intermediate (WTI) crude oil was bleeding out on Tuesday as the European Union mulls new sanctions on Russia, mounting up the supply concerns in the oil market. 

However, the EU has yet to move against the oil and gas imports from the country that provide much of its energy. Spot WTI is lower by some 2.9% and had travelled between a high of $105.57 and a low of $99.92.  WTI crude for May delivery closed down US$1.32 to US$101.96 per barrel.

Reuters reported that ''the EU may move to ban imports of Russian coal following reports of large-scale civilian murders by Russian troops that occupied areas near Kyiv, while it and the United States are also weighing additional measures to lessen Russia's ability to wage war against its neighbor.''

Additionally, ''China's decision to extend a quarantine on Shanghai, one of the country's most important commercial centres, also raised demand concerns as the country reports rising Covid-19 infections,'' an article by Reuters read.

Staying with Chinese demand, analysts at TD Securities' tracking of Chinese mobility had indicated a 10% slump in road traffic, but the analysts explained they ''now see a sign of stabilization in Chinese mobility according to a weighted average of congestion indicators for the 15 largest cities by vehicle registrations. Notwithstanding, changes in Chinese demand pale in comparison to the persistent underproduction from OPEC+, and certainly to the continued impact on Russian oil exports from self-sanctioning highlighted by Urals trading at a record discount.''

• Geopolitical angst and hawkish Fed speak saw GBP/USD fall back from early highs to under 1.3100 on Tuesday.
• Cable continues to fail attempts to push above its 21DMA and continues to threaten a test of recent 1.3050 lows.

GBP/USD fell back below the 1.3100 level on Tuesday as hawkish commentary from Fed Vice Chair Lael Brainard sparked a rally in US yields that helped the US dollar gain ground across the board. That means that the pair has failed to hold above its 21-Day Moving Average now for a fifth successive session. A current levels near 1.3070, the pair trades lower by about 0.3% on the day, a near-100 pip pullback from earlier session highs in the 1.3160s.

The pound got some short-lived support during early European trade after much stronger than expected final UK March PMI survey from IHS Markit. But pessimism regarding Russo-Ukraine peace talks in wake of accusations that the Russian military has committed war crimes, plus worries as the EU announced a proposal for tougher sanctions on Russia limited the upside potential for European FX in early trade. GBP/USD bears will now be eyeing a test of last week’s lows at 1.3050, with focus shifting to Wednesday’s release of the minutes of the last Fed meeting.

Traders will recall that the last Fed meeting was very hawkish and this bias towards favouring a much faster pace of monetary tightening is likely to be evident in the meeting accounts. Whilst that shouldn’t come as a surprise, it could easily keep a bid underneath the buck and US yields on the front foot. Given the BoE’s softening rhetoric on the need to tighten monetary policy settings further as of late, which contrasts sharply with the Fed, there is plenty of downside risk for GBP/USD.

Thursday’s speech from BoE Chief Economist Huw Pill will be eyed in this context. Evidence of further Fed/BoE policy divergence could send GBP/USD back to test annual lows in the 1.3000 area sometime later this week. Many analysts are calling for a break lower into the upper 1.20s in the coming months.

What you need to take care of on Wednesday, April 6:

The American dollar is the overall winner on Tuesday, firmly up against all of its major rivals. Diminishing chances of a diplomatic solution to the Russia-Ukraine conflict and central banks’ aggressiveness were behind the market’s movements.

At the beginning of the day, the Reserve Bank of Australia abandoned its patient stance, providing an unexpected boost to the local currency. Governor Philip Lowe dropped the sentence “prepared to be patient” from its usual statement and hinted at an interest rate hike in June. The last time the RBA hiked was in 2010. Lowe also said that policymakers will now focus on inflation and labour costs data. The Australian Federal election will take place in May.

During the American afternoon, US Federal Reserve Governor Lael Brainard hinted at an aggressive reduction of the balance sheet and noted that combined with rate hikes would move monetary policy closer to neutral later this year. His words sent the yield on the 10-year Treasury note to 2.567%, now holding nearby.

Meanwhile, the EU is analyzing a ban on Russian coal imports as the US increases oil imports from Canada.  France's Europe Affairs Minister Beaune said that a new round of sanctions against Russia would most likely be imposed on Wednesday.

The EUR/USD pair plunged to 1.0900 while GBP/USD trades around 1.3076. The AUD/USD pair managed to retain some of its post-RBA gains but pulled down from a fresh 2022 high of 0.7660.  USD/CAD nears 1.2500 as crude oil prices edged sharply lower, with WTI currently hovering around $100.00 a barrel.

Gold traded as high as $1,944.56 a troy ounce, now struggling around $1,920, amid renewed demand for the greenback.

The US FOMC will publish the Minutes of its latest meeting on Wednesday.

Bitcoin price may not hit the $51,000 target amidst smart money influence

• AUD/JPY surged towards year-to-date highs on Tuesday post-the RBA’s hawkish announcement but fell short of breaching last week’s 94.32 peak.
• Profit-taking triggered by a mild bought of risk-off on Wall Street has seen the pair pullback to near 93.70.
• But the broader long-term fundamentals continue to look positive for the pair.

AUD/JPY surged towards year-to-date highs above the 94.00 level on Tuesday, the Aussie bulls spurred by a hawkish shift in the RBA’s rate guidance language at its latest policy announcement, though the pair has since pulled back somewhat. AUD/JPY was last trading in the 93.70 region, still up about 1.2% on the day and taking its rebound from last Thursday’s sub-91.00 lows to more than 3.0%, but about 40 pips below earlier session highs in at 94.166.

Risk appetite took a turn for the worse during US trading hours despite strong US ISM Services PMI data amid worries about tougher Western sanctions on Russia and following surprisingly hawkish remarks from Fed Vice Chair Lael Brainard. The drop in US equities contributed to a bought of profit-taking in the risk-sensitive Aussie, and it looks like the bulls hoping for fresh multi-year highs are going to have to wait.

But against the backdrop of an increasingly hawkish RBA, on balance resilient global equity markets, generally rising global yields and what economists have described as “structurally higher” commodity prices, AUD/JPY’s rally may yet have room to run. A break above last week’s highs at 94.32 may be imminent (this week?), in which case, the Q2 2015 highs in the 97.00s would come into play.

• Precious metals are being traded with the Fed in mind. 
• The US dollar prevails as US yields continue to move higher, weighing on silver prices.

The price of silver was under pressure in mid-afternoon US session trade following a rise in the US dollar. At the time of writing, XAG/USD is down some 0.9% after sliding from a high of $24.9485 to a low of $24.2976 so far.

The greenback is higher after comments from Federal Reserve Governor Lael Brainard spooked investors about potential aggressive actions by the Fed and in anticipation of hawkish minutes tomorrow. 

US Treasury yields rose to multi-year highs with yields taking off after Brainard's comments and the DXY, an index that measures the greenback vs a basket of currencies, ran up to test 99.50 to print a fresh high for 2022 at 99.493. 

The market right now is focused on the Fed's intentions for its balance sheet and Brainard said  the central bank could start reducing its balance sheet as soon as May and would be doing so at “a rapid pace.” She also indicated that interest rate hikes could come at a more aggressive pace than the typical increments of 0.25 percentage points.

Meanwhile, the Fed officials began the process of policy normalization by lifting rates 25bp to 0.25%-0.50% at the March meeting and on Wednesday the minutes of that meeting will be released.

''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,'' analysts at TD Securities said. 

• The USD/CHF was choppy in the Asian/European session, but Fed speaking remarks triggered a jump in the exchange rate.
• USD/CHD Price Forecast: Neutral, but slightly tilted upwards.

The USD/CHF grinds higher and breaks above an eleven-month-old downslope resistance trendline, near the 0.9260 area, a confluence with the 50-day moving average (DMA), and sets to reclaim the 0.9300 mark courtesy of a dampened market mood in the financial markets. At the time of writing, the USD/CHF is trading at 0.9296.

Overnight, the USD/CHF was in choppy trading around 0.9250-60 area, but jumped of late in the North American session, towards the 0.9290s region on hawkish remarks by the Federal Reserve Governor Lael Brainard.

Fed’s Brainard said that the Fed “is prepared to take stronger action if inflation and inflation expectations suggest the need to do so.” She added that the balance sheet might reduce its balance sheet in May.

USD/CHD Price Forecast: Technical outlook

The USD/CHF is neutral biased but reclaimed to trade above the 50 and the 200-day moving average (DMA), each at 0.9261 and 0.9210, respectively. It is worth noting that the Relative Strength Index (RSI) is back above the 50-mid line, at 52.07 in bullish territory, which opens the door for further upside.

That said, the USD/CHF first resistance would be 0.9300. A decisive break would expose January 31 daily high at 0.9343, followed by November 23 cycle high at 0.9373, and then 0.9400.

On the flip side, the USD/CHF first support would be the 50-DMA at 0.9261. Breach of the latter would send the pair sliding towards the 200-DMA at 0.9210, followed by March 31 swing low at 0.9194.

Technical levels to watch

• US equities reversed lower on Monday as traders weighed escalating sanctions and hawkish Fed speak.
• The S&P 500 was last down 0.8%, the Nasdaq 100 lost nearly 2.0% as US yields hit fresh multi-year highs.

US equities reversed lower on Monday, weighed initially by the prospect of tougher US/EU sanctions against Russia, but then with losses exaccerbated shortly after the US market open following hawkish remarks from Fed Vice Chair Lael Brainard. Brainard said that the Fed would begin reducing its balance sheet at a “rapid” pace as soon as May, implying the Fed might actively sell bonds, rather than just letting them roll off the balance sheet.

Traders have thus been upping their bets that the Fed tightens monetary policy conditions more aggressively and this sent yields across the US curve lurching to multi-year highs, delivering a blow to equity market valuations. The S&P 500 was last trading down about 0.8%, more than reversing Monday’s gains to fall back beneath the 4550 mark. Bears will be eyeing a test of last week’s lows just above 4500.

The yield-sensitive tech/growth stock-heavy Nasdaq 100 index fell closer to 2.0% and, in doing so, has also handed back all of Monday’s gains that saw the index close pretty much bang on its 200-Day Moving Average in the 15,150 area. The Nasdaq 100’s ongoing struggle to push and hold above its 200DMA is not a good sign for the bulls. In an environment where the Fed looks on the verge of accelerating its monetary tightening timeline quite aggressively, and one where yields are as a result trading with an upside bias, this shouldn’t be too surprising.

The Dow Jones Industrial Average, which is much more heavily weighted towards cyclical and value stocks that maintain a positive (or less strongly negative) correlation to yields, was last trading down a more modest 0.5%. Still, as is the case with the Nasdaq 100, the index also continues to struggle to break/hold back above its 200DMA, which currently resides pretty much bang on 35,000. The index was last trading near 34,750.

A solid ISM Services PMI survey release for March did little to lift the mood for equity markets, which are probably more inclined to take good news (regarding the economy) as bad news given Fed hawkishness. Indeed, Brainard mentioned on Tuesday that she is keeping an eye out for signs of economic slowdown, so signs of the opposite would surely embolden the Fed to go harder regarding monetary tightening.

Looking ahead, geopolitics will of course remain a key focus for the rest of the week but traders should also note Wednesday’s Fed meeting minutes. Given the way things have gone recently, few would be surprised to see US yields and the US dollar rallying on yet another hawkish surprise. That means, for the Nasdaq 100 and Dow, breaking back above 200DMAs may remain a challenge.

• GBP/JPY's rally is capped into a sideways consolidation near 161.80.
• The focus is on US yields, Ukraine and BoE outlook. 

At 161.79, GBP/JPY is nearly 0.5% at the time of writing, after travelling from a low of 160.49 to reach a high of 161.97.  The yen is under pressure as US yields and the dollar climb. Yields took off after US Federal Reserve Governor Lael Brainard put the focus back on the possibility of aggressive monetary policy tightening ahead of tomorrow's minutes of the prior Fed meeting. 

Brainard said she expects rapid reductions to the Fed's balance sheet alongside methodical increases to the benchmark rate. This has sprung life into the US dollar and the yen is bearing the brunt of it. GBP/USD is also under pressure which has left GBP/JPY trading sideways in the past few hours of late-morning US trade. 

Domestically, the pound net short GBP positions increased for a fourth week as concerns rise as to the cost of living crisis in the UK. Soaring global energy and food prices are a concern. On the heels of the Chancellor’s mini-budget in March the focus has switched to the cost of living crisis in the UK. This is questioning how many more rate hikes the BoE can announce this cycle.

''The Bank of England and market economists have warned that UK inflation could peak at 8% in the coming months and, due to the impact of the Russia/Ukraine conflict, both energy prices and headline inflation may remain elevated for longer, analysts at Rabobank said.  

Meanwhile, analysts at ING Bank argued that “adverse energy developments caused by new sanctions might take a toll on GBP this week, and cable could make a decisive move below 1.31 by the weekend,” analysts at ING Bank said. 

Over the weekend, BoE’s Deputy Governor Cunliffe said that ''while he recognizes the risk of second-round effects and that further tightening of monetary policy might be necessary, I am not at present convinced that we will inevitably have to lean heavily and constantly against an embedding of an inflationary psychology as we progress through this challenging period and as the impact.”

• The USD/JPY dropped 30-pips on BoJ’s Kuroda yen comments.
• A downbeat market mood lifts the prospects of the greenback, and the yen is pressured.
• Fed speaking lifts US yields and the US dollar.
• USD/JPY Price Forecast: Upward biased, but it could be subject to a mean reversion move, with the RSI at overbought conditions.

The USD/JPY advances for the third straight day, despite yen-related remarks by the Bank of Japan (BoJ) Governor Kuroda, who stated that “forex moves are somewhat rapid,” spurring a 30-pip drop in the pair, though recovered of late on broad US dollar strength. At the time of writing, the USD/JPY is trading at 123.58.

Also, a downbeat market sentiment keeps the greenback’s firm. European bourses closed mixed, while US equities fell, while the US yields and the greenback rose on Fed speaker remarks, hinting that the US central bank would hike rates and might begin reducing its balance sheet at the May meeting.

Additional to that, the Russian-Ukraine woes sum up investors’ dismal mood. Europe announced a new tranche of sanctions on Russia, led by German and France, who expelled Russian diplomats responding to Russian military atrocities in Bucha.

Meanwhile, the US and the G7 are coordinating new sanctions on Russia, expanding sanctions on financial institutions, state-owned companies in Russia, and unspecified Russian officials and their family members.

Fed policymakers dominate headlines

Earlier, Fed Governor Lael Brainard said that the Fed “is prepared to take stronger action if inflation and inflation expectations suggest the need to do so.” She added that the balance sheet might reduce its balance sheet in May.

On the same note, Kansas City Fed President Esther George (voter 2022) said that a 50 bps move would be an option, as conditions favor going faster than before. Later, San Francisco Fed President Mary Daly commented that the labor market is extremely tight and noted that the Fed is on a path to raising rates. Daly added that growth would slow but expected it to be a short-lived event.

USD/JPY Price Forecast: Technical outlook.

The USD/JPY keeps trending higher. However, it is worth noting that the Relative Strength Index (RSI) at 73.90 at overbought conditions reacted with less force to the upside on the rally towards current prices, meaning that the USD/JPY might be subject to a mean reversion move.

However, the uptrend remains intact unless the USD/JPY falls below 121.27. That said, the USD/JPY first resistance would be 124.00. A breach of the latte would expose solid supply zones, like 124.30, followed by the YTD high at 125.10.

San Francisco Fed President Mary explained that the labour market is extremely tight while the Fed is on a path to raising interest rates.

She added inflation is as harmful as not having a job while many of the imbalances we see are covid-related.

''I don't expect a big slowdown in the US economy due to high oil prices,'' she said, adding that the Fed projections do not show a lot of 'overshooting' on rates.

''We can start the balance sheet reduction as early as the May meeting.''

''The Fed will use balance sheet reductions in addition to rate hikes to reduce policy accommodation.''

There has been no market reaction to the comments while US Treasury yields already rose to multi-year highs as comments from US Federal Reserve Governor Lael Brainard put investor focus on the possibility of aggressive monetary policy tightening.

Yields rallied after Brainard said she expects rapid fire style of reductions to the Fed's balance sheet alongside methodical increases to the benchmark rate. The yield on 10-year Treasury notes ( was up 12.9 basis points to 2.541% while the 2-year note yield was up 9.2 basis points at 2.520%, leaving the 2-10 curve at 2 basis points after having been inverted for the most part since last week.

Wednesday brings the release of minutes from the Fed's last policy meeting. 

• The Loonie gains some ground and clings to Tuesday’s gains, as the USD/CAD falls 0.07%.
• Europe’s new tranche of sanctions on Russia affects peace talks as hopes of diplomatic exit wane.
• Positive data from Canada and the US is about to set the USD/CAD to finish flat Tuesday’s session.
• USD/CAD Price Forecast: Neutral biased, but Tuesday’s price action depicts solid buying pressure around the 1.2400 mark.

The USD/CAD have been seesawing in a volatile session on Tuesday amid the North American session, in a 90-pip range, with the US dollar of late, recovering some ground against the Loonie, but keeps trading in the red. At the time of writing, the USD/CAD slides and is trading at 1.2460.

Mixed market sentiment and Fed speaking lift the greenback

Fluctuating European and US equities reflect a mixed market mood. The prospects of a diplomatic exit to the Russo-Ukraine conflict wane. Europe’s response to Russian war crimes in Bucha, from Russian troops to civilians, escalated the conflict. Germany and France expelled Russian diplomatics while the EU explores a coal and oil embargo against Russia. However, there are still some discussions in the latter as the German Finance Minister Lindner said that a ban on Russian gas imports would be more harmful to Germany than Russia.

On Tuesday, Fed Governor Lael Brainard said that the US central bank “is prepared to take stronger action if inflation and inflation expectations suggest the need to do so.” She added that policy would be tightened “methodically” with a series of interest rates and would begin to lower the balance sheet as soon as the May meeting.

Later, Kansas City Fed President Esther George (voter 2022) said that a 50 bps move would be an option to consider, as conditions favor going faster than before. She emphasized the need for the US central bank to go above neutral to bring inflation down.

The Canadian economic docket featured February’s Balance of Trade which printed a surplus of C$2.66 billion against C$2.4 billion estimated, but trailed January’s reading, revised up to C$3.12 billion. The US docket unveiled March’s US ISM-Non Manufacturing PMI, which rose to 58.3, higher than the 58.1 estimated and better than the 56.5 from the previous reading.

USD/CAD Price Forecast: Technical outlook

The USD/CAD dipped to a fresh YTD low during the session at 1.2402, but the greenback recovered some ground and lifted towards 1.2450s, so Tuesday’s price action is forming a hammer, meaning that buying pressure overtook bears around the 1.2400 area, which would be a difficult support level to surpass. Nevertheless, to pose a threat to CAD bulls, USD ones would need to reclaim 1.2540, which then would expose the 200-day moving average (DMA) at 1.2615.

The USD/CAD is neutral biased, and upwards its first resistance would be 1.2493. Once cleared, the next resistance would be 1.2500, followed by 1.2540. On the flip side, the USD/CAD first support would be 1.2400. A decisive break would expose November 10 daily low at 1.2387, followed by October 21 daily low at 1.2288.

• Gold has pulled back from earlier highs and is back in the low $1920s as the US dollar/US yields rally.
• Fed Vice Chair Brainard was hawkish on balance sheet reduction, sparking the reversal lower.
• Focus now turns to Wednesday’s Fed minutes release as gold bears eye a test of recent sub-$1900 lows.

Spot gold (XAU/USD) prices have pulled back sharply from an earlier rally towards their 21-Day Moving Average in the $1940s and recently hit session lows beneath the $1920 mark. Technical selling ahead of last Thursday’s highs in the $1950 area and the 21DMA probably played a part but the pullback looks to have mostly been a result of hawkish commentary from Fed Vice Chairwoman Lael Brainard. She said that rapid balance sheet reduction was likely to begin as soon as May and her comments triggered a spike in US yields across the curve.

US 10-year yields hit their highest levels since April 2019 and now trade more than 15 bps higher on the day in the 2.56% area. US 2-year yields also hit their highest since April 2019 and were last up more than 9 bps on the session to the north of the 2.50% level. Higher US yields increase the “opportunity cost” of holding non-yielding assets such as gold and also helped to push the US Dollar Index towards its highs for the year near 99.50. A stronger US dollar makes USD-denominated gold more expensive for the holders of international currency.

Further Fed speak is expected in the coming hours (NY Fed President John Williams is up at 1900BST), keeping upside risks to US yields and the buck alive. That might mean that spot gold prices continue to languish in the low $1920s, as prices continue to probe the lows of the last five sessions. The main calendar event of the week is the release of the minutes of the Fed’s last (and very hawkish) meeting on Wednesday.

At this point, given all the hawkish rhetoric that has come from various Fed policymakers in recent days, the bar for a hawkish surprise from the minutes is high. But the direction of Fed policy remains clear, with the big question now how high the terminal rate will be. A slip back towards $1900 for XAU/USD certainly seems to be on the cards this week. But geopolitics and ongoing angst about the inflationary impact of the Russo-Ukraine conflict might be enough to keep gold supported above its 50DMA (currently at $1901.40), as was the case last week.

• US dollar gains momentum as US yields soar.
• EUR/USD extends weekly lows after breaking the 1.0950 support area.
• A test of 1.0900 (March 14 low) seems likely.

The EUR/USD broke below 1.0950 and tumbled to 1.0920, reaching the lowest level since March 14. The pair remains under pressure amid a stronger US dollar across the board.

Treasuries tumble, dollar gains

Equity prices are mixed on Tuesdays amid no improvement toward peace in Ukraine and following US economic data. The European Union is proposing new sanctions on Russia. Regarding data, the ISM Service sector index rose in March to 58.3 from 56.5.

Fed Vice Chairwoman, Lael Brainard said on Tuesday that the Fed is prepared to take stronger action if the inflation outlook and inflation expectations indicators suggest the need for such action. New York Fed President John William will deliver remarks in a few minutes.

Treasuries are falling, with the yield on the 10-year bond up 6.80% at 2.56%, the highest level since mid-2019. Yields strengthened the greenback during the American session. The DXY is up 0.35%, trading at 99.35 and could post the highest daily close in almost two years.

Short-term outlook

The break of 1.0950 left EUR/USD vulnerable to more losses. The next strong support area might be seen around 1.0900 (March 14 low), followed by 1.0880. The euro is likely to remain under pressure while under 1.0950. A recovery above would alleviate the negative tone, with the next resistance at 1.0980.

Technical levels

• AUD/USD is paring its impressive post-hawkish RBA gains and is back to trade near 0.7600.
• The buck has been picking up recently as US stocks fall/yields rally after hawkish Fed commentary.
• The pair earlier lept as high as the 0.7660s after the RBA dropped its reference to “patience”, signaling coming hikes.

Though the pair continues to trade with hefty post-hawkish RBA rate decision gains, AUD/USD has pared back from the multi-month highs it hit above 0.7650 earlier in the day and is now trading closer to 0.7600. The pullback comes as US equity markets take a knock and US bond yields rally in wake of hawkish commentary from Fed Vice Chair Lael Brainard, who indicated rapid balance sheet reduction could begin as soon as May. The knock to sentiment coupled with a boost to the buck has weighed on AUD/USD, as it has other major currency/USD pairs.

AUD/USD still stands to close out the session bout 1.0% higher, after marking what technicians will likely see as a significant breakout to the north of Q4 2021 highs in the 0.7550 area during Asia Pacific trade. The Aussie bulls took control after the RBA dropped its reference to being “patient” when it comes to rate hikes and, as a result, the market’s base case seems to be for a first 25 bps rate hike to come in June. How that AUD/USD has broken out to fresh annual highs, the bulls will be marking their next upside targets.

Those are likely to include the June 2021 highs in the 0.7775 area, the May 2021 ner 0.7900 and the February 2021 highs at 0.8000. Technicians note that AUD/USD also note that AUD/USD is very likely to soon be the beneficiary of a “golden cross”, where the 50-Day Moving Average moves above the 200DMA. This could help infuse further bullishness.

Given the pair’s massive more than 6.0% rebound from mid-March sub-0.7200 lows, a further 3-5% to challenge these highs in the coming months doesn’t seem too far-fetched. Against a backdrop of structurally elevated commodity prices thanks to the Russo-Ukraine war, stock markets that remain resilient and an RBA that is finally taking action to at least keep up with the majority of the rest of its already tightening fellow G10 central banks, further upside seems plausible from a fundamental standpoint.

• The GBP/USD gains for the second consecutive day, up some 0.04%.
• Eurozone sanctions on Russia weighed on market mood, and equities fell.
• In the FX space, the safe-haven status of the greenback lifts the DXY above 99.00.
• GBP/USD Price Forecast: The downward bias remains intact below 1.3275.

The British pound remains confined to the 1.3100-60 range for the fourth consecutive day, amid a risk-off market mood and a soft US Dollar, courtesy of Russo-Ukraine linked issues, Fed tightening looming, and Fed and Bank of England speaking. At the time of writing, the GBP/USD is trading at 1.3115.

The market sentiment is mixed, as illustrated by European and US equities. The escalation of European sanctions on Russia weighed on sentiment. Germany and France expelled Russian diplomats on Monday. Also, there is mounting pressure for an oil embargo against Russia, but German Finance Minister Lindner said that a ban on Russian gas imports would be more harmful to Germany than Russia.

Over the weekend, BoE’s Deputy Governor Cunliffe crossed the wires. He expressed that while he “recognizes the risk of second-round effects and that further tightening of monetary policy might be necessary, I am not at present convinced that we will inevitably have to lean heavily and constantly against an embedding of an inflationary psychology as we progress through this challenging period and as the impact.”

On the Fed speaking side, Fed Governor Lael Brainard said that the US central bank “is prepared to take stronger action if inflation and inflation expectations suggest the need to do so.” She added that policy would be tightened “methodically” with a series of interest rates and would begin to lower the balance sheet as soon as the May meeting.

The US Dollar Index, a gauge of the greenback's value against a basket of its rivals, advances 0.30%, sits at 99.280, underpinned by the rise of the US 10-year T-note yield sitting at 2.541%, which climbs twelve basis points.

The UK economic docket featured the UK S&P Global/CIPS UK Services PMI Final, which came at 62.6, higher than the 61 estimated. On the US front, the US ISM-Non Manufacturing PMI rose to 58.3, higher than the 58.1 estimated and better than the 56.5 from the previous reading.

GBP/USD Price Forecast: Technical outlook

Cable has been range-bound for the last four trading sessions, unable to break under/above the 1.3100-60 area. Nevertheless, the daily moving averages (DMAs) above the spot price cement a bearish bias unless GBP/USD bulls reclaim November 26 1.3275 daily low-turned-resistance.

With that said, the GBP/USD first support level is November 13, 2020, daily low at 1.3105. A decisive break would expose the March 29 swing low at 1.3050, followed by the confluence of the bottom-trendline of the descending channel and the YTD low at  1.2999.

• Oil prices have been choppy on Tuesday, with WTI swinging between $105.50 highs and $101.00 lows.
• Geopolitics has been in focus with the EU outlining new restrictions on Russian imports, including on coal.

Oil prices have been choppy on Tuesday, with front-month WTI future erasing earlier session gains that saw prices rise as high as $105.50 to drop as low as $101.00. Prices have now stabilised in the $103.00s. The EU announced new sanctions on Russia, including a ban on all coal imports, in response to alleged widespread war crimes committed by Russian forces against Ukrainian civilians. The EU did not announce new sanctions on Russia’s oil industry, rather indicating that they would come soon, thus removing one potential bullish catalyst for oil prices.

But as the pressure mounts on Western nations to inflict more damage on Russia’s economy, geopolitical risks are set to remain strongly supportive of the oil complex. Add to that the fact that newsflow regarding peace talks has been less optimistic this week than in previous weeks, with recent war crime allegations clearly darkening the mood. The prospect of an imminent peace deal looks slim.

As a result, despite the US’ recent historic oil reserve release announcement, a $100 or high WTI price continues to make good sense. After all, progress in US/Iran talks appears to have once again stalled and OPEC+ leading nations Saudi Arabia and the UAE seem anything but eager to open to taps. If the recent pullback from earlier highs near the 21-Day Moving Average in the $106.00s continues, it wouldn’t be surprising to see dip-buyers emerge around the $100 level.

Data released on Tuesday showed an increase above expectations in the ISM Service Sector index in March to 58.3. Inflation and supply chain issues have been among the top challenges for the service sector for months, and Russia's war on Ukraine has worsened both, explained analysts at Wells Fargo. They noted that despite headwinds, “orders and activity both ramped up a bit and businesses are finally netting some new hires.”

Key Quotes: 

“The ISM services index rose in March to 58.3, a welcome improvement, but short of expectations for a more stout increase. After two difficult years, this was supposed to be the beginning of better times for the service industry. The receding of the Omicron surge, a broadening of office workers returning to the office at least a few days a week, and some incipient improvement with supply chains might have put activity back into the swing of something reminiscent of normal. But Russia's invasion of Ukraine rained on the parade by making supply problems and inflation worse.”

“At least business remains strong. Overall business activity picked up, and new orders rose as did order backlogs. In the face of high inflation and supply shortages, the orders keep rolling in.”

“Recent labor market developments also point to an improvement in labor supply. The 5.5 point gain in the employment component was large enough to push the index back into expansionary territory after signaling a contraction in February hiring.”

Deputy chief of staff and adviser to Ukrainian president Ihor Zhovkva said on Tuesday that there will be no compromise from Ukraine on ceding territory to Russia, reported Bloomberg. Zhovkva continued that any meeting between Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskyy will be "difficult", before noting that talks must continue for peace. 

His remarks come after Russian troops pulled back from regions to the north of Ukraine and seemingly left evidence of widespread war crimes against Ukrainian civilians in their wake. Ukrainian President Zelenskyy is currently speaking at the UN security council and accused Russia of committing "the most terrible war crimes" since World War two.  

• USD/TRY adds to Monday’s gains near 14.70.
• The lira remains under pressure and looks to geopolitics.
• Turkey 10y bond yields rebound to the 26.00% region.

The Turkish lira depreciates further and lifts USD/TRY to new multi-day highs around 14.70 on Tuesday.

USD/TRY higher post-Turkey CPI, Ukraine

The lira extends the bearish note so far this week after inflation in Turkey ran at its fastest pace in the last 20 years, in March, as consumer prices rose 61.14% from a year earlier. The Core CPI rose 48.39 and Producer Prices increased nearly 115% vs. the same month of 2021.

Following the release of the March inflation figures, the real interest rates in Turkey now became the lowest in the world at just past 47%. It is worth mentioning that the CBRT’s easing cycle in 2021 coupled with negative effects of the coronavirus pandemic and lately by the war in Ukraine have all been factors impacting negatively on the Turkish currency.

What to look for around TRY

The lira keeps the range bound theme unchanged vs. the greenback, always in the area below the 15.00 neighbourhood for the time being. So far, price action in the Turkish currency is expected to gyrate around the performance of energy prices, the broad risk appetite trends, the Fed’s rate path and the developments from the war in Ukraine. Extra risks facing TRY also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent.

Key events in Turkey this week: End Year CPI Forecast (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Earlier Presidential/Parliamentary elections?.

USD/TRY key levels

So far, the pair is gaining 0.26% at 14.7155 and faces the next hurdle at 14.9889 (2022 high March 11) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a drop below 14.5136 (weekly low March 29) would expose 14.0419 (55-day SMA) and finally 13.7063 (low February 28).

Fed Vice Chairwoman Lael Brainard said on Tuesday that the Fed is prepared to take stronger action if the inflation outlook and inflation expectations indicators suggest the need for such action, reported Reuters. The combined impact of rate hikes and balance sheet reduction will bring monetary policy to a more neutral position later this year, she continued, noting that once monetary policy is more neutral, the extent of additional tightening will depend on the evolving outlook for inflation and employment. 

The Fed will tighten monetary policy "methodically" through a series of rate hikes, Brainard said, and will start reducing the size of the balance sheet at a rapid pace as soon as the May meeting. She said she expects the balance sheet to shrink at a considerably more rapid pace than during the previous recovery. 

On inflation, Brainard noted that it is much too high and subject to upside risks. Meanwhile, she noted that Russia's invasion of Ukraine and recent Covid-19 lockdowns in China are likely to extend supply chain bottlenecks and also pose downside risks to growth. 

Brainard said that she is watching the yield curve and other data for suggestions of increased downside risks to activity, before noting that longer-term inflation expectations remain within normal ranges. She added that she is monitoring the extend of the rotation from goods demand into services and whether the service sector can absorb this without inflationary pressures being sparked. 

Finally, Brainard acknowledged that the burden of inflation on lower-income households, those with more household members or older household heads is not necessarily captured in the official consumer price indices. 

Market Reaction

Brainard's remarks appear to have stoked a hawkish reaction in US markets, with traders citing her warning that rapid balance sheet reduction could begin in as soon as May. US 10-year bond yields have jumped a few bps in the last few minutes to  back above 2.50% and are eyeing a test of multi-year highs set back on 28 March at 2.557%. 2-year yields also jumped a few bps to just under 2.50%. Of course, that means the 2s/10s spread is no longer inverted and goes to show that Fed policy can fight yield curve inversion by sounding more hawkish on the QT front. 

Stocks haven't liked it. The S&P 500 was trading 0.2% higher in the 4590s prior to Brainard's remarks but is now down over 0.5% on the day and trading in the 4550s. 

The headline ISM Services PMI figure rose to 58.3 in March from 56.5 the month before, a tad lower than the expected rise to 58.4, according to the latest release from the Institute of Supply Management. 

Subindices:

• Business Activity rose slightly to 55.5 from 55.1 in February. 
• Prices Paid rose to 83.8 from 83.1. 
• New Orders rose to 60.1 from 56.1. 
• Employment rose to 54.0 from 48.5. 

Market Reaction

The fairly robust ISM Services PMI survey did not have much of an impact on market sentiment, which was already improving in wake of the US market open at 1430BST. 

• USD/JPY attracted some dip-buying on Tuesday, though the uptick lacked follow-through.
• The widening US-Japanese bond yield differential continued acting as a tailwind for the pair.
• The Ukraine crisis extended support to the safe-haven JPY and capped any meaningful gains.

The USD/JPY pair extended its sideways consolidative price move and remained confined in a range around the 122.80 region through the early North American session.

Following an intraday dip to the 122.35 area, the USD/JPY pair attracted some buying on Tuesday, though struggled to capitalize on the move or make it through the 123.00 round-figure mark. The widening of the US-Japanese government bond yield turned out to be a key factor that acted as a tailwind for spot prices. That said, the uncertainty over Ukraine drove some haven flows towards the Japanese yen and kept a lid on any meaningful gains for the major.

The Bank of Japan Governor Haruhiko Kuroda reiterated that the central bank will offer to buy an unlimited amount of 10-year JGBs if the rise in long-term interest rates is rapid. Conversely, expectations that the Fed will tighten its monetary policy at a faster pace remained supportive of elevated US Treasury bond yields. This, to a larger extent, helped offset a softer tone surrounding the US dollar and continued lending support to the USD/JPY pair.

The upside, however, remained capped amid fading hopes of diplomacy in Ukraine. Investors remain worried about the prospect of more Western sanctions on Russia over its alleged war crimes in Ukraine. This was evident from the prevalent cautious mood around the equity markets, which benefitted traditional safe-haven assets, including the JPY. Investors also seemed reluctant to place aggressive bets ahead of the FOMC minutes, due for release on Wednesday.

It is worth recalling that the markets expect the Fed to hike interest rates by 100 bps over the next two meetings to combat stubbornly high inflation. Hence, the minutes will be looked upon for fresh clues about the Fed's policy outlook, which will influence the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair. In the meantime, developments surrounding the Russia-Ukraine saga would allow traders to grab some short-term opportunities.

Technical levels to watch

• Gold has been advancing in recent trade and is now in the $1940s, up from earlier lows in the $1920s.
• Geopolitics is in focus after the EU announced new sanctions on Russia and Putin threatened restrictions on agricultural exports.
• Upcoming US data and Fed speak will also be important for gold traders to monitor.

Ahead of the release of key US ISM Services PMI data for March at 1500BST and public remarks from influential Fed policymakers Lael Brainard and John Williams later in the session, spot gold (XAU/USD) prices are trading higher. Over the course of the last hour, gold has reversed higher from the mid-$1920s to current levels above $1940, where spot prices now trade higher by about 0.5% on the day. The reversal higher from earlier lows could have something to do with the latest sanction announcement from the EU against Russia, which included new import restrictions, including on coal.

The EU also talked up the prospect of more sanctions on Russian oil imports, and Russian President Vladimir Putin announced in response that he might look at restricting agricultural exports to so-called “unfriendly” countries (like those in the EU). Lingering geopolitical tensions and the upside risks posed to global commodity prices as a result of de-globalisation between the West and Russia continue to remain a big reason why investors want to hold gold as both a safe-haven and inflation hedge.

XAU/USD bulls will now eye a test of last Thursday’s highs near $1950, which happen to also coincide quite well with the 21-Day Moving Average at $1948. A break above here would open the door, technically speaking, to a move higher towards late March highs in the $1960s. But the bulls shouldn’t get too overeager. US bond yields continue to trade with an upside bias across the curve and remain close to multi-year highs and the US dollar remains broadly buoyant, both a reflection of the Fed’s continued shift towards more hawkish rhetoric.

Most members have now indicated that they either support or are at least open to 50 bps rate hikes in the coming meeting, amid agreement that the Fed needs to get rates back to neutral as fast as possible to be in a better position to address high inflation and the hot labour market. Upcoming remarks from Fed Vice Chair Lael Brainard and NY Fed President John Williams will likely reinforce this hawkish stance.

A stronger dollar makes gold more expensive for the holders of non-USD currency, while higher yields increase the opportunity cost of holding non-yielding assets like precious metals. Gold bugs should thus keep an eye on the economic/central bank calendar, as it might scupper hopes for a push beyond $1950.

USD/JPY surged toward the 125.86 high of 2015. The pair is currently trading around the mid-122s but economists at TD Securities expect USD/JPY to retest 125 or more this quarter.

Yen is not your friend

“Unless the BoJ abandons YCC and embraces a hawkish footing, there is little that Japanese authorities can do to offset a rush to neutral by the Fed. We think there is a non-trivial risk that terminal rates are too low, especially in the US. If these two features remain in play, rate differentials will strategically support USD/JPY. This is a big reason we think 'yentervention' is a losing proposition and is unlikely to be deployed.” 

“We think the pair will remain elevated and biased to re-test 125 or more this quarter. Aiding this pressure is Japan's high commodity import bill, which situates the currency as the worst to deal with the terms of trade shock in the G10. The BoJ has embraced currency weakness (a long-desired goal).”

The GBP is recording a slight gain on the day, bouncing off the low-1.31s. Bank of England (BoE) rates pricing are still too optimistic, which should drag cable down to the 1.30 level, according to economists at Scotiabank.

Broader trends since last summer suggest weakness ahead

“We think markets could do with a decent amount of repricing of BoE hikes, as they still foresee the bank rate reaching 2% this year, which should weigh on the GBP towards a test of 1.30 soon.”

“Broader trends since last summer would suggest weakness ahead in the GBP but near-term price action remains restrained, providing little sense of direction.”

“Support is 1.3090/00 followed by ~1.3080 and 1.3050/60.” 

“Resistance is ~1.3150 followed by 1.3180.”

Biden administration officials are looking at ways to boost oil imports from Canada, the Wall Street Journal reported on Tuesday. The White House still opposes the Keystone pipeline and other options include shipping more oil by rail, or expanding pipeline capacity along existing routes. 

Market Reaction

The loonie saw immediate strength on the news, which would of course be bullish for CAD via improved terms of trade with the US. USD/CAD fell to its lowest level since 10 November and currently trades just above 1.2400. A break below this key psychological figure looks on the cards, which would open the door to a test of sub-1.2300 Q4 2021 lows. 

AUD/USD moved decisively above the important medium-term resistance at 0.7541/57 level, which should lead to further AUD strength. Therefore, economists at Credit Suisse expect aussie to advance nicely toward 0.7777/85 next, then 0.7892.

Close above 0.7599/7616 needed to confirm the medium-term higher

“Though a sustained close above the late June high at 0.7599/7616 is needed to confirm the medium-term turn higher, our bias is for this to be achieved. Thereafter, resistance would be seen at .7644/51 initially, then further above at the June high at 0.7777/85 and eventually at May 2020 high at 0.7883/92, which now serves as our first medium-term goal. “

“Medium-term momentum remains outright bullish, whilst medium-term moving averages are turning higher.”

“Near-term supports shift to 0.7534/33, next to 0.7504/02 and eventually to last week’s low at 0.7455/41. Below here would shift the short-term risk back lower again, though only below the late-March low at 0.7372/58 would warn of more sustained weakness. However, this is not our base case.”

EUR/USD remains under pressure as spot struggles to hold on to the upper 1.09s. Economists at Scotiabank expect the world's most popular currency pair to suffer further losses toward the 1.08 area.

Resistance seen at 1.0990/00 followed by the mid-1.10s

“The currency found a bottom around 1.0960 ahead of firmer support at 1.0950 – that is followed by ~1.1925 and the figure zone.” 

“The EUR’s push under 1.10 leaves it at risk of losses extending to a test of the 1.08 figure zone.” 

“Resistance is 1.0990/00 followed by the mid-1.10s.”

EUR/CHF has strongly turned back lower again, leading to a decisive break of the March lows at 1.0194/84 during Monday’s session. The pair should continue lower from here, in the opinion of analysts at Credit Suisse.

Break under the March lows at 1.0194/84 turns the short-term risk back lower

“EUR/CHF has broken below its recent lows at 1.0194/86, which should open up a further downside within the range. We, therefore, look for the recent weakness to extend from here, with supports seen at 1.0131 initially, ahead of the price low at 1.0112.” 

“Below 1.0112 would reinforce the decline further and potentially see the weakness extend to parity, where we would for a floor for a continuation of the recent ranging. It’s worth stressing that an eventual break below here though would open up our core medium-term objective at 0.9839/30.

“Immediate resistance is seen at 1.0210/21, next at 1.0234/44, and further above at the 55-day moving average at 1.0338. Above here would warn of a potential retest of the March high at 1.0400/0404, which we look to cap any recovery to maintain the range.”

US ISM Services PMI Overview

The Institute of Supply Management (ISM) will release the Non-Manufacturing Purchasing Managers' Index (PMI) - also known as the ISM Services PMI – at 14:00 GMT this Tuesday. The gauge is expected to rise to 58 in March from 56.5 in the previous month. Given that the Fed looks more at inflation than growth, investors will keep a close eye on the Prices Paid sub-component, which is expected to edge higher to 83.3 from 83.1 in February.

How Could it Affect EUR/USD?

Ahead of the key release, the US dollar was seen consolidating its gains recorded over the past three trading sessions. That said, elevated US Treasury bond yields, bolstered by speculations for a more aggressive policy tightening by the Fed, acted as a tailwind for the buck. Stronger-than-expected US macro data would reaffirm hawkish Fed expectations and push the US bond yields/USD higher. Conversely, a softer reading is more likely to be overshadowed by the prospect of more Western sanctions on Russia, which should continue to act as a headwind for the shared currency. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside. That said, any immediate market reaction is more likely to be short-lived as the focus remains glued to the FOMC meeting minutes, due for release on Wednesday.

Meanwhile, Eren Sengezer, Editor at FXStreet, offered a brief technical outlook for the pair: “EUR/USD registered a daily close below the key 1.1000 level, where the Fibonacci 38.2% retracement of the latest downtrend is located. During Monday's action, the 20-period SMA on the four-hour chart crossed below the 200-period and the 50-period SMAs. Additionally, the Relative Strength Index (RSI) indicator stays below 40, confirming the bearish tilt.”

Eren also outlined important technical levels to trade the major: “The pair needs to rise above 1.1000 and use that level as support in order to attract bulls and stage a recovery. 1.1020 (100-period SMA) and 1.1040 (Fibonacci 50% retracement, 50-period SMA) align as the next technical hurdles.”

“On the downside, supports are located at 1.0960 (static level), 1.0940 (Fibonacci 23.6% retracement) and 1.0900 (psychological level),” Eren added further.

Key Notes

  •  EUR/USD Forecast: Monday's close below 1.1000 an ominous sign for euro

  •  EUR/USD consolidates sub-1.1000 ahead of more US data/Fed speak as geopolitics continue to weigh

  •  EUR/USD to plummet towards 1.08 on a break below key support at 1.0950 – OCBC

About the US ISM Services PMI

The ISM Non-Manufacturing Index released by the Institute for Supply Management (ISM) shows business conditions in the US non-manufacturing sector. It is worth noting that services constitute the largest sector of the US economy and results above 50 should be seen as supportive for the USD.

• EUR/USD trades without clear direction around 1.0960.
• The loss of this area exposes a drop to 1.0944.

EUR/USD remains unable to gather convincing traction around 1.0960 on Tuesday.

Considering the ongoing price action, further decline remains in store for the pair in the short-term horizon. Against that, a break below the 1.0960 region carries the potential to spark a retracement to, initially, the weekly low at 1.0944 (March 28) prior to another weekly low at 1.0900 (March 14).

The medium-term negative outlook for EUR/USD is expected to remain unchanged while below the key 200-day SMA, today at 1.1474.

EUR/USD daily chart

Strategists at TD Securities turn their attention to gold flows to gauge the sustainability of interest in the yellow metal as real rates could be less useful as a barometer for measuring gold's relative price. Strong ETF inflows into gold leave XAU/USD at risk of falling in case safe-appetite subsides.

Gold's recent disconnect against real rates is consistent with historical precedents

“Gold's correlation to real rates is subject to regime shifts, such that expectations for fed funds help to explain the regime. In fact, the monthly correlation between gold prices and real rates tends to deteriorate during hiking cycles, which suggests that gold's recent disconnect against real rates is consistent with historical precedents.” 

“ETF flows have tended to be more highly correlated to changes in market expectations for Fed hiking, than to real rates, the yield curve or even price momentum. This still suggests that the strong ETF inflows have rather been associated with safe-haven appetite, which could still lead to downside risks as the negotiators continue to work towards a ceasefire and as the fear trade subsides.”

S&P 500 moved higher on Monday after holding above key moving average supports starting at 4514/4488. Analysts at Credit Suisse stay biased tactically higher, with next resistance at 4637. 

Key support at 4462/55 needs to hold to maintain the direct upward pressure

“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 remains at 4514/08, which includes the 23.6% retracement of the recent recovery and 13-day exponential moving average, which floored the market on Friday. Below here the next level is seen at the 200-day average at 4488, then the 63-day average and price lows at 4462/55.”

“Only a break below 4462/55 would turn the short-term risks back lower within the range.”

European Commission President Ursula von der Leyen on Tuesday said that the atrocities committed by the Russian military in Bucha and other areas from which they have recently withdrawn cannot and will not be left unanswered, reported Reuters. It is important to sustain the utmost pressure on Russian President Vladimir Putin and the Russian government at this critical point, she continued. 

The EU will thus impose an import ban on coal from Russia, worth roughly EUR 4B per year, von der Leyen announced, adding that the EU would also be imposing a full transition ban on four key Russian banks, including VTB Bank. She also announced that the EU will ban exports worth EUR 10B per year of advanced semi-conductors and would ban the imports of wood, cement, seafood and liquor, worth EUR 5.5B per year. 

The EU is working on additional sanctions, including on oil imports, she noted. 

The Reserve Bank of Australia (RBA) left monetary policy unchanged in its meeting this morning but hawkishly opened the door for an upcoming rate hike. AUD/USD has strengthened after the release and is trading above the 0.76 level. Subsequently, economists at Rabobank have raised their AUD/USD year-end forecast to 0.78.

Opening the door to rate hikes in the coming months

“The RBA has been making small steps towards becoming less dovish in the past couple of months and the tone of this morning’s policy statement has added to the market’s perception that the RBA could be hiking rates in the not too distant future.”

“AUD/USD has jumped higher overnight on the back of the RBA meeting and subsequently breached our 0.76 medium-term target for the currency pair. Consequently, we are pushing up our forecast to 0.78 by year-end.”

• DXY falters once again around the 99.00 region on Tuesday.
• Further gains are likely on a close above 99.00.

DXY navigates within a tight range near the 99.00 region so far on turnaround Tuesday.

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 2022 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 94.94.

DXY daily chart

According to the latest figures released on Tuesday by Statistics Canada, the Canadian Trade surplus fell slightly to C$2.6B in February from C$3.12B a month earlier, larger than the expected drop to C$2.9B. But that masked an increase in both imports and exports, with the former coming in at C$56.08B in February up from C$54B the month prior and the latter coming in at $58.75B from C$57.12B a month earlier. 

Market Reaction

The loonie did not react to the latest trade figures, though continues to trade with a bullish bias against the US dollar with USD/CAD recently pushing below 1.2450.  

• AUD/USD jumped to a fresh YTD peak in reaction to the RBA’s hawkish commentary on Tuesday.
• The Ukraine crisis underpinned commodities and further benefitted the resources-linked aussie.
• Technical buying above the 0.7600 mark also contributed to the strong intraday bullish move.

The AUD/USD pair maintained its strong bid tone through the mid-European session and now seems to have entered a bullish consolidation phase. The pair was last seen trading around the 0.7630 region, or the highest level since June 2021.

The pair added to the previous day's positive move and gained strong follow-through traction on Tuesday in reaction to a more hawkish commentary by the Reserve Bank of Australia (RBA). As was expected, the Australian central bank decided to hold the key rate at a record low but dropped its pledge to be patient on tightening policy.

In the accompanying policy statement, the RBA noted that the domestic economy remains resilient, and spending is picking up following the omicron setback. The markets were quick to react and started pricing in the first-rate hike in over a decade during the third quarter. This, in turn, provided strong lift to the Australian dollar.

Apart from this, the prospect of more Western sanctions on Russia continued acting as a tailwind for commodity prices, which was seen as another factor that benefitted the resources-linked aussie. In fact, French President Emmanuel Macron pressed for more severe sanctions on Russia following reports of atrocities in the Ukrainian town of Bucha.

The combination of supporting factors, along with subdued US dollar price action, pushed the AUD/USD pair to the fresh YTD peak, taking along some short-term trading stops near the 0.7600 mark. This, in turn, confirmed a near-term bullish breakout through an ascending channel extending from sub-0.7000 levels and supports prospects for additional gains.

That said, a slightly overbought RSI might hold back bulls from placing fresh bets amid expectations that the Fed tighten its monetary policy at a faster pace to combat high inflation. It is worth mentioning that the markets anticipate a 100 bps Fed rate hike move over the next two meetings, which was reinforced by elevated US Treasury bond yields.

Hence, the market focus will remain glued to the FOMC monetary policy meeting minutes, scheduled for release on Wednesday. Nevertheless, the near-term setup favours bullish traders, suggesting that any meaningful pullback might still be seen as a buying opportunity. Traders now look forward to the US ISM Services PMI for some short-term opportunities.

Technical levels to watch

According to the latest data from the Bureau of Economic Analysis and US Census Bureau, the US Goods and Services Trade deficit remained at $89.2B in February after posting the same number in January. That was above expectations for a slight decline to $88.5B. The Goods Trade deficit was $107.5B in February, up from $106.6B the month before, and the Services Trade surplus was $18.3B in February, up from $17.4B a month earlier. 

Market Reaction

There was no market reaction to the latest US trade data, with focus turning to ISM Services PMI data out at 1500BST and Fed speak thereafter. 

• EUR/USD is consolidating sub-1.1000 on Tuesday ahead of more US data and Fed speak.
• Geopolitical risk as the EU moves towards tougher restrictions on Russia energy imports plus hawkish Fed rhetoric has weighed recently.

Having slipped back below the 1.1000 level on Monday amid broad euro underperformance as expectations built for further Western sanctions against Russia, EUR/USD has stabilised above recent lows in the 1.0950 area. While geopolitics remains at the forefront of the market’s mind, there is also plenty of US data and Fed speak coming up, with US trade data out at 1330BST ahead of ISM Services PMI at 1500BST. Of particular importance will be remarks from Fed Vice Chairwoman Lael Brainard at 1605BST.

Strategists have noted that its not only geopolitical risks that have driven EUR/USD lower as of late (the pair is now nearly 2.0% lower versus last week’s highs in the upper 1.1100s), but also the ongoing hawkish shift in Fed tightening expectations. US yields largely remain elevated at/near multi-year highs and continue to carry an upside bias amid expectations the Fed will hike interest rates in 50bps intervals at its coming meetings as it seeks to get rates back to so-called “neutral” sooner rather than later.

Should the EU move towards stricter rules on Russian energy imports as seems very likely at this point and should Fed policymakers continue to amp up the hawkish rhetoric, a break lower towards 1.0900 looks to be very much on the cards. EUR/USD’s saving grace might be the recent hawkish shift in ECB tightening expectations, as policymakers talk up the prospect of ending the sub-zero interest rate experiment within a year to respond to rising Eurozone inflation.

• EUR/JPY resumes the upside following Monday’s pullback.
• The 134.40 region keeps supporting the downside.

EUR/JPY bounces off lows in the 134.40 zone on Tuesday.

The underlying upside momentum in the cross remains unchanged for the time being. However, EUR/JPY could enter a consolidative phase before resuming the rally. Against that, the next hurdle remains at the 2022 high at 137.54 (March 28) prior to a probable visit to the August 2015 peak at 138.99 (August 15) and ahead of the round level at 140.00.

In the meantime, while above the 200-day SMA at 130.12, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

Economist at UOB Group Enrico Tanuwidjaja comments on the latest inflation figures in Indonesia.

Key Takeaways

“Food, beverage and tobacco, clothing and footwear as well as personal care and other services prices drove inflation much higher in Mar.”

“Average headline inflation in 1Q22 stood at 2.3% y/y, significantly higher than 4Q21’s 1.8%, while core inflation rose from 1.4% y/y in 4Q21 to 2.1% in 1Q22, indicating some degree of recovery in domestic demand has taken place.”

“Going forward, we expect the headline inflation to reach an average of 3.3% in 2022, within Bank Indonesia’s inflation target range of 2.0%-4.0%, but above its mid-point.”

• GBP/JPY attracted some dip-buying on Tuesday and turned positive for the third straight day.
• A combination of factors undermined the JPY and remained supportive of the intraday uptick.
• Modest USD weakness, upbeat UK PMI benefitted the GBP and provided an additional boost.

The GBP/JPY cross held on to its modest intraday gains through the first half of the European session and was last seen trading just a few pips below the 161.50 area, or the one-week high. 

The cross attracted some dip-buying near mid-160.00s on Tuesday and moved into positive territory for the third successive day. A combination of factors undermined the Japanese yen and turned out to be a key factor that acted as a tailwind for the GBP/JPY cross amid modest pickup in demand for the British pound.

The Bank of Japan Governor Haruhiko Kuroda reiterated that the central bank will offer to buy an unlimited amount of 10-year JGBs if the rise in long-term interest rates is rapid. This, along with a generally positive tone around the equity markets, drove flows away from traditional safe-haven assets, including the JPY.

On the other hand, an upward revision of the UK Services PMI lifted sterling amid subdued US dollar price action and further acted as a tailwind for the GBP/JPY cross. That said, the fact that the Bank of England had softened its tone on the need for further rate hikes should further hold back the GBP bulls from placing fresh bets.

Moreover, the prospect of more Western sanctions on Russia over its alleged war crimes in Ukraine should keep a lid on any optimistic move in the markets. Hence, any subsequent move up is likely to confront stiff resistance and remain capped near the 162.00 mark, warranting caution before positioning for any further gains.

Technical levels to watch

Citing a source familiar with the matter, Reuters reported on Tuesday that the European Union was planning to ban all coal imports from Russia.

Additional takeaways

"EU to ban  export to Russia of semiconductors, high-tech machinery, LNG extraction tech, and other equipment."

"EU export ban represents a value of 10 billion euros a year."

"EU to ban import from Russia of wood, cement, rubber, chemicals, high-end foodstuff, incl caviar, and spirits including vodka for a total value estimated of 5 billion euros a year."

"EU to ban Russian trucks and Russian vessels from entering the EU."

"EU to block all transactions with VTB Bank and other three Russian banks already excluded from SWIFT messaging system."

Market reaction

This headline doesn't seem to be having a significant impact on the shared currency's performance against its rivals. As of writing, the EUR/USD pair was unchanged on the day at 1.0970.

• Silver gained some positive traction on Tuesday and snapped three days of the losing streak.
• The mixed technical setup warrants some caution before positioning for any further upside.
• Sustained move beyond the $25.00 mark is needed to support any near-term positive bias.

Silver built on the overnight bounce from the $24.30-$24.25 region and gained some positive traction on Tuesday, snapping three successive days of the losing streak to a four-day low. The white metal held on to its modest gains through the first half of the European session and was last seen trading around the $24.65-$24.70 zone.

From a technical perspective, the XAG/USD once again showed some resilience below the 50% Fibonacci retracement level of the $22.00-$26.95 move up. The subsequent move up supports prospects for some additional intraday gains, though neutral technical indicators on the daily chart warrants caution for aggressive bullish traders.

Hence, any further positive move might continue to confront stiff resistance and remain capped near the 38.2% Fibo. level, around the $25.00 psychological mark. A convincing breakthrough the said handle has the potential to lift the XAG/USD towards the $25.35-$25.40 intermediate hurdle, en-route the 23.6% Fibo., around the $25.75-$25.80 area.

On the flip side, weakness below the mid-$24.00 mark, or the 50% Fibo. level now seems to find some support near the overnight swing low, around the $24.30-$24.25 region. Some follow-through selling would make the XAG/USD vulnerable to accelerate the slide towards retesting sub-$24.00 levels, or the one-month low touched in March.

Silver daily chart

Technical levels to watch

Japan's Finance Minister constituted an advisory panel, which recommended on Tuesday to change the law for revoking Russia's most-favoured-nation trading status.

This comes in response to the Russian invasion of Ukraine and Moscow’s continued atrocities against the latter’s innocent civilians.

Market reaction

Risk sentiment is turning sour in the European session, as Ukrainian President Volodymyr Zelenskyy roiled any chances of an in-person meeting with his Russian counterpart Vladimir Putin.

The S&P 500 futures are down 0.20% on the day while USD/JPY is rebounding towards 123.00, reversing BOJ Governor Kuroda’s jawboning-led losses.

• NZD/USD gained traction for the second successive day and shot to a fresh YTD high on Tuesday.
• The uncertainty over Ukraine underpinned commodities and benefitted the resources-linked kiwi.
• Signs of stability in the equity markets undermined the safe-haven USD and remained supportive.

The NZD/USD pair climbed to a fresh YTD top during the early part of the European session and is now looking to extend the momentum beyond the 0.7000 psychological mark.

The pair build on the overnight goodish rebound from the very important 200-day SMA and gains strong follow-through traction for the second successive day on Tuesday. The prospect of more Western sanctions on Russia over its alleged war crimes in Ukraine continued acting as a tailwind for commodity prices. This, in turn, was seen as a key factor that benefitted resources-linked currencies, including the kiwi.

On the other hand, signs of stability in the equity markets dented demand for traditional safe-haven assets and failed to assist the US dollar to capitalize on its gains recorded over the past three days. This provided an additional boost to the NZD/USD pair and contributed to the ongoing momentum to the highest level since November 2021. That said, a combination of factors should limit the USD losses and cap the major.

The market sentiment remains fragile amid the prospect of more Western sanctions on Russia over its alleged war crimes in the Ukrainian town of Bucha. Apart from this, growing acceptance that the Fed would adopt a more aggressive policy stance to rein in inflationary pressures 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 next two meetings.

The hawkish Fed expectations remained supportive of elevated US Treasury bond yields, which supports prospects for the emergence of some USD dip-buying. The underlying bullish sentiment surrounding the buck, however, did little to hinder the NZD/USD pair momentum as traders look forward to the US ISM Services PMI for a fresh impetus. That said, the key focus will remain on the FOMC minutes, due for release on Wednesday.

Technical levels to watch

Gold price rapidly recouped its initial losses yesterday and climbed to over $1,930. XAU/USD is trading a few dollars lower this morning. Still, economists at Commerzbank see the yellow metal resilient amid increased real interest rates.

Gold price holding its ground

“The EU and the US are preparing further sanctions against Russia, which is apparantly making market participants more cautious.”

“The firm US dollar and higher real interest rates appear to be precluding any further rise in the gold price at present.”

“The market seems to believe that the Fed will succeed in regaining control of the current very high inflation by raising interest rates. This makes the yellow metal less attractive as an alternative investment. The fact that gold is holding its ground despite the increased real interest rates is a sign of strength.”

United States Trade Representative (USTR) Katherine Tai said in a Bloomberg TV interview on Tuesday, US is looking to realign its trade relationship with China rather than seek a divorce.

Key quotes

“The Biden administration’s policy was focused instead on “realignment in the global economy.”

“That includes addressing the lack of visibility, accountability and diversity in supply chains that has led to disruptions in recent years.”

“I would focus really on the kinds of changes that we’re trying to bring, which are really not about stopping trade or trade divorce.”

“They’re really about bringing reform and a more strategic approach to trade.”

Market reaction

AUD/USD was last seen trading at 0.7636, up 1.27% on the day.

• AUD/USD explodes to test 0.7650 on hawkish RBA, bull pennant

• AUD/USD holds the higher ground, rising over a big figure on RBA’s hawkish surprise.
• The US dollar eases amid a better market mood, supporting the aussie pair.
• Bull pennant breakout on the 1D chart on Monday justifies the explosion.

AUD/USD is sitting at the highest level since June 2021, eyeing a test of the 0.7650 barrier, as the buying interest around the aussie dollar remains unabated on the RBA’s hawkish pivot.

The RBA, at its April monetary policy meeting, kept the key rate unchanged at 0.10%, as widely expected. But what the trick for aussie bulls was the change in the central bank’s forward guidance, as it dropped its ‘patient’ pledge on the inflation developments, hinting at a potential rate hike in the upcoming meetings.

Further, the Russia-Ukraine crisis-driven surge in oil prices combined with holiday-thinned trading exaggerated the move higher in the major.

Meanwhile, the US dollar trades on the defensive amid a better market mood, despite looming risks of additional Western sanctions and penalties.

Next of relevance for the aussie remains the US ISM Services PMI and Fedspeak while the UN Security Council meeting will be also closely followed.

Technically, AUD/USD has extended the upside breakout from a bull pennant confirmed on Monday.

The pattern got validated after the pair closed Monday above the falling trendline resistance at 0.7519.

AUD/USD: Daily chart

AUD bulls remain poised for the further upside towards 0.7700, although the 14-day Relative Strength Index (RSI) is peeping into the overbought region, warranting caution.

Therefore, a minor pullback cannot be ruled before the major resumes the next uptrend.

Tuesday’s low of 0.7535 could emerge as powerful support, below which the 0.7500 level could be tested should the retracement gain momentum.

AUD/USD: Additional levels to consider

FX Strategists Quek Ser Leang and Lee Sue Ann at UOB Group noted USD/CNH should remain trading within the 6.350-6.3900 range in the next weeks.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘there is room for USD to edge higher to 6.3780 before easing off’. Our expectations did not materialize as USD traded between 6.3670 and 6.3763 before closing little changed at 6.3731 (+0.06%). The underlying tone has softened somewhat and the risk for today is tilted to the downside. That said, a break of the 6.3600 support is unlikely. Resistance is at 6.3765 followed by 6.3820.”

Next 1-3 weeks: “Our view from yesterday (04 Apr, spot at 6.3700) still stands. As highlighted, the recent build-up in downward momentum has fizzled out.  USD appears to have moved into a consolidation phase and is likely to trade sideways between 6.3450 and 6.3900.”

• EUR/USD alternates gains with losses around 1.0960.
• Germany final Services PMI came at 56.1 in March.
• US ISM Non-Manufacturing, Fedspeak next of note later.

EUR/USD remains unable to gather some serious upside traction and looks depressed around 1.0960 on Tuesday.

EUR/USD gives away initial gains, dollar rebounds

EUR/USD appears to have met some decent contention near 1.0960 so far this week amidst the intense bid bias in the greenback, although the price action in both currencies seems to be facing some rising cautiousness against the backdrop of increasing uncertainty in the geopolitical scenario.

On the latter, the EcoFin meeting is due today and is expected to focus on potential extra sanctions against Moscow as well as on the thorny energy sector.

Further out, the German debt market shows some recovery in the 10y bund yields, which manage to regain the 0.55% region amidst some fresh bond selling.

In the domestic calendar, final Services PMIs in Germany and the broader Euroland came at 56.1 and 55.6, respectively, for the month of March. In the NA session, the focus of attention will be on the ISM Non- Manufacturing and the final Services PMI during last month along with speeches by FOMC’s Brainard, Williams and Kashkari.

What to look for around EUR

EUR/USD remains under pressure and revisits the 1.0960 region so far this week. The recent negative performance of the pair came in response to the firmer pace of the greenback and renewed geopolitical concerns. As usual, pockets of strength in the single currency should appear reinforced by speculation the ECB could raise rates before the end of the year, 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: 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 0.02% at 1.0967 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 1.1236 (100-day SMA) and finally 1.1395 (weekly high February 16).

• GBP/USD gained some positive traction on Tuesday amid modest USD weakness.
• Signs of stability in the equity markets dented demand for the safe-haven buck.
• Hawkish Fed expectations to limit the USD losses and cap the upside for the pair.

The GBP/USD pair edged higher during the early part of the European session and inched back closer to mid-1.3100s, though the uptick lacked bullish conviction.

Following the previous day's two-way/directionless price moves, the GBP/USD pair attracted some buying on Tuesday and was supported by modest US dollar weakness. Signs of stability in the equity markets dented demand for traditional safe-haven assets and failed to assist the greenback to capitalize on its gains recorded over the past three days. That said, the uncertainty over Ukraine, along with hawkish Fed expectations, continued acting as a tailwind for the buck and capped the upside for the major.

The market sentiment remains fragile amid the prospect of more Western sanctions on Russia over its alleged war crimes in Ukraine. In fact, 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. The incoming geopolitical headlines dashed hopes for a diplomatic solution to end the war and should keep a lid on any optimistic move in the markets.

Moreover, investors seem convinced that the Fed would adopt a more aggressive policy stance and hike interest rates by 100 bps over the next two meetings to combat stubbornly high inflation. This was reinforced by elevated US Treasury bond yields, which should further lend support to the USD. Hence, the market focus will remain glued to the FOMC meeting minutes, scheduled for release on Wednesday. In the meantime, traders might refrain from placing aggressive bullish bets around the GBP/USD pair.

On the economic data front, the UK Services PMI was revised higher and finalized at 62.6 for March as against the 61 flash estimates, though did little to impress bulls. This, in turn, suggests that the path of least resistance for the GBP/USD pair is to the downside. Market participants now look forward to the release of the US ISM Services PMI. This, along with the US bond yields and fresh developments surrounding the Russia-Ukraine saga, might influence the USD price dynamics and provide some impetus to the major.

Technical levels to watch

While bond markets are signaling rising risks, equity markets have been more positive. As of 1 April, the S&P 500 was up 9% from its 2022 low on 8 March and stood just 5% below its all-time high. Economists at UBS expect the S&P 500 Index to move slightly higher by end-2022 toward 4,700.

Remain selective after equity rebound

“The Russia-Ukraine conflict continues to weigh on the outlook for growth and earnings. Given the recent uncertainty, we scaled back our outlook for global earnings growth to 8% (from 10%) for this year, and to 5% (from 7%) for 2023. We also continue to favor a selective approach to equities, rather than positioning for a broad rally.”

“Our base case is now for only modest upside for stocks, with our year-end forecast for the S&P 500 at 4,700, less than 4% higher than current levels. We also note that periods of heightened volatility and uncertainty often prove to be the best times to find long-term value in stocks.”

Further range bound in USD/JPY appears in the pipeline in the next weeks, likely between 121.00 and 124.00 according to FX Strategists Quek Ser Leang and Lee Sue Ann at UOB Group.

Key Quotes

24-hour view: “Our expectations for ‘the pullback in USD to extend to 121.90’ did not materialize as it traded sideways and in a relatively quiet manner between 122.25 and 122.94. Momentum indicators are mostly neutral and further sideway-trading would not be surprising. Expected range for today, 122.20/123.20.”

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.”

• A combination of factors dragged USD/CAD lower for the second successive day.
• The Ukraine crisis acted as a tailwind for the loonie and exerted some pressure
• Modest USD weakness further contributed to offered tone surrounding the pair.
• Hawkish Fed expectations should limit the USD downside and lend some support.

The USD/CAD pair added to its intraday losses and dropped to a four-day low, around mid-1.2400s during the early European session.

The pair struggled to capitalize on its early uptick, instead met with a fresh supply in the vicinity of the 1.2500 psychological mark and turned lower for the second straight day on Tuesday. The prospect of more Western sanctions on Russia over its alleged war crimes in Ukraine, along with stalled Iran nuclear deal fueled concerns about tighter global supply. This, in turn, continued acting as a tailwind for crude oil prices, which benefitted the commodity-linked loonie and exerted downward pressure on the USD/CAD pair.

On the other hand, signs of stability in the financial markets failed to assist the safe-haven US dollar to build on its gains recorded over the past three trading sessions. This was seen as another factor that dragged the USD/CAD pair back closer to the YTD low touched last week. That said, growing acceptance that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation should help limit losses for the buck. This, in turn, warrants some caution for aggressive bearish traders.

It is worth recalling that 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 monetary policy meeting minutes, due later during the US session. Ahead of the key release, the US ISM Services PMI would drive the USD demand and provide some impetus to the USD/CAD pair. Traders will further take cues from developments surrounding the Russia-Ukraine saga, which will influence oil price dynamics and produce some short-term opportunities.

Technical levels to watch

Curve flattening periods have usually led to the outperformance of precious metals. Economists at Citibank expect gold to surge above $2,100 over the coming months.

Macro backdrop favors investor inflows for gold

“The precious metals sector tends to outperform other commodity sectors during significant curve flattening episodes, based on rolling 6M annualized returns.”

“We believe there is a bit better than 50/50-probability that prices could post fresh nominal records in 2Q/3Q 2022 north of $2,100/t.” 

“Elevated geopolitical risks, COVID-19 concerns in China, and robust inflation data should all continue to tilt the macro backdrop to one that favors investor inflows for gold, at least in the short-term.”

The Japanese yen weakened sharply in March, temporarily reaching the 125 level. Economists at MUFG Bank expect the USD/JPY will meet strong upside resistance at the 125 level in the near-term despite changes in the external environment. 

Possibility of the yen weakening further against the dollar

“We think it will be difficult to break 125 level. The USD/JPY's move to 125 on 28 March was followed by government official scrambling to talk the yen up on the next day.”

“We do not think government action will be able to trigger a clear shift to a stronger yen in the absence of a change in the external environment. We do not expect the USD/JPY to quickly fall below 120. For the time being, we have revised up our forecast range assuming that the USD/JPY will remain around 120-125.”

“We see little prospect that the BoJ will adjust its policy settings, such as by tweaking YCC, at the next policy board meeting on 27-28 April. This is likely to remind the market of the gap between monetary policy in Japan and the US, raising the risk of another sharp bout of yen depreciation. In that case, we expect the USD/JPY would rise back to 125 and test the 5 June 2015 high of 125.86. If it breaks past this level, a move to the highest point since 2002 would come into view. If it passes the 13 June 2002 high of 125.91 we see no clear chart point until the 9 May 2002 high of 129.15, and would even have to consider the possibility of a rise to the 130 level.” 

USD/JPY has pushed to a recent 125.09 high before correcting lower. Technically, USD/JPY looks for pause, but the declines have yet to dent the bull run and are rather limited in scope, Benjamin Wong, Strategist at DBS Bank, reports.

USD/JPY is likely to pause and consolidate in the near-term

“Any USD/JPY drop would focus on the 23.6% Fibonacci retracement of the move higher from 102.59 at 119.78 (which approximates the daily Ichimoku’s Kijun support at 119.87).”

“USD is likely to pause and consolidate in the near term. But the ‘bigger’ bull has just gone into hibernation and lurks in the background – unless USD breaks lower on YCC being abandoned and through a sustained loss under the weekly Ichimoku’s 116.29 pivot.”

“A return of the USD bull should retest the 125.09 prior peak, onward for a 1.618% Fibonacci extension that targets 126.09. A break over the horizontal neckline that links 124.14 and 125.86 (June 2007 peak and June 2015 peak) at 127.30, would unleash a 61.8% Fibonacci projection of the distance between 75.35 and 125.86 (2011 lows and 2015 highs) transposed over 99.02 (2016 lows) yielding 130.23.”

Ukrainian President Volodymyr Zelenskyy said on Tuesday, it is possible that there might not be any meeting between himself and Russian President Vladimir Putin.

Additional quotes

“The question is not whether or not there will be negotiations.”

“The question is how strong you will be at the negotiating table.”

Market reaction

These comments had little to no market impact, as the S&P 500 futures continue fluctuating between gains and losses. The US dollar index is losing ground, suggesting the market’s optimism despite expectations of additional Western sanctions against Russia.

From the EUR/USD’s perspective, the optimism on the geopolitical front from last week has well and truly faded by now. A break under the 1.0950 mark would open up additional losses toward the 1.08 level, economists at OCBC Bank report.

Potential further sanctions on Russian coal and oil will be EUR-negative

“Potential further sanctions on Russian coal and oil will be EUR-negative, only because it hurts Europe as much as it does Russia.”

“1.0950 will be the key support to watch for, below which the 1.0800 may be a multi-session target.”

After losing some ground to the USD in the two weeks that followed the start of Russia's invasion of Ukraine, the Canadian dollar has more than recouped all its losses. Economists at the National Bank of Canada still see more strength in the months ahead for the loonie.

Economy is doing better than expected

“Real GDP expanded 0.2% in January. Importantly, Statistics Canada’s preliminary estimate showed GDP expanding 0.8% MoM in February, hoisting GDP 1% above its pre-pandemic level. The recovery is now well entrenched.”

Clear case for more aggressive near-term action by the BoC

“We expect the Bank of Canada to raise the overnight rate by 50 basis points at the April 13 interest rate setting meeting. This will help narrow the spread between Canadian and US interest rates in the months ahead. Our latest forecast calls for a closing of the spread between two-year Treasury yields by the third quarter of 2022. This should help the CAD appreciate against the greenback.”

Upcoming federal budget could be positive for CAD

“We will know on April 7 how aggressive Ottawa wants to be with tax incentives to deploy these technologies. It stands to reason that attracting long-term investment commitments to Canada's resource sector, at a time when prices are likely to remain high for the foreseeable future, would be a boon to the country's terms of trade and support an appreciation of the CAD.” 

• USD/JPY witnessed some selling on Tuesday, though the downtick lacked follow-through.
• The widening US-Japanese yield spread acted as a tailwind and helped limit deeper losses.
• Traders now eye the US ISM Services PMI for some impetus ahead of the FOMC minutes.

The USD/JPY pair recovered a few pips from the daily low and was seen trading just above mid-122.00s during the early European session, down over 0.20% for the day.

Having struggled to move back above the 123.00 round-figure mark, the USD/JPY pair edged lower on Tuesday amid speculation that officials would respond to the Japanese yen's recent weakness. In fact, the Bank of Japan Governor Haruhiko Kuroda mentioned the word ‘intervention’ during a speech earlier today, which, in turn, triggered a fall in the major.

Apart from this, the uncertainty over Ukraine continued weighing on investors' sentiment and drove some haven flows towards the JPY. That said, Kuroda reiterated that the central bank will offer to buy an unlimited amount of 10-year JGBs if the rise in long-term interest rates is rapid. This, in turn, assisted the USD/JPY pair to find support near the 122.35 area.

On the other hand, expectations that the Fed would tighten its monetary policy at a faster pace continued underpinning the US dollar. In fact, the markets have been pricing in a 100 bps Fed rate hike move over the next two meetings. This was reinforced by elevated US Treasury bond yields, which was seen as another factor that acted as a tailwind for the USD/JPY pair.

Hence, the market focus will remain glued to the FOMC monetary policy meeting minutes, scheduled for release on Wednesday. In the meantime, fresh developments surrounding the Russia-Ukraine saga could influence the USD/JPY pair. Apart from this, the US ISM Services PMI should produce some short-term trading opportunities later during the early North American session.

Technical levels to watch

EUR/USD is consolidating Monday’s steep losses around 1.0970.  Potential EU sanctions on the Russian gas imports may prevent the pair from recovering from yesterday's losses, economists at ING report. 

Nervously waiting for new sanctions

“At this stage, the euro’s performance is very strictly tied to the content of new sanctions the EU looks likely to impose on Russia; the bigger the implications for the energy market, the larger the impact on the euro.”

“Details of any new sanctions might not be released until tomorrow, and we expect the euro to remain unable to recover from yesterday’s moves unless the measures prove milder than expected.”

“EUR/USD could consolidate around 1.0900/1.1000 today.”

• DXY’s rebound failed to close above the 99.00 mark.
• US yields regain some composure on Tuesday.
• ISM Non-Manufacturing, Services PMI next on tap.

The greenback, in terms of the US Dollar Index (DXY), faces some downside pressure in the vicinity of the 99.00 neighbourhood on turnaround Tuesday.

US Dollar Index looks to geopolitics, Fed, data

After three consecutive daily advances, the upside momentum in the dollar seems to have run out of steam around the key 99.00 barrier on Tuesday.

In the meantime, US yields resume the upside albeit at a gradual pace amidst increasing cautiousness among investors following the recent inversion of the US yield curve.

The absence of fresh headlines from the war in Ukraine as well as non-existent progress from the ongoing peace talks between both parties look to limit the downside in the greenback for the time being, while persistent speculation of a more aggressive rate path by the Fed in the next months also collaborates with the broad-based constructive view in the buck.

In the US data space, February Trade Balance figures are due in the first turn seconded by the final Services PMI and the publication of the ISM Non-Manufacturing for the month of march.

Additionally, FOMC’s L.Brainard (permanent voter, dovish), Minneapolis Fed N.Kashkari (2023 voter, centrist) and NY Fed J.Williams (permanent voter, centrist) are all due to speak later in the NA session.

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: 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. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is down 0.09% 98 89 and faces the next support at 97.68 (weekly low March 30) seconded by 97.23 (55-day SMA) and then 96.69 (100-day SMA). On the other hand, 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).

The Japanese yen saw a significant depreciation on the back of central bank intervention as well as geopolitical stress. In the view of economists at the National Bank of Canada, the JPY could remain subdued for some time.

BoJ at war 

“Inflation in the island nation has started to creep up and could mark a challenge to the dovish stance of the central bank.”

“The 125 level is thought to be by the central bank a high-water mark in terms of potential damage for the Japanese economy.”

“Our vision for the Japanese currency is one that could remain subdued for some time. Especially in a context of yield-curve control and easy money while inflationary pressures are present and central banks globally are on tightening trajectories. The BoJ will need to strike a balance between protecting its 10y yield whilst managing a depreciating currency.”

GBP/USD is showing resilience above 1.31. However, economists at ING expect the pair to break under this level by the weekend.

Money markets embed five more hikes by end-2022, offering some support to GBP in the background

“For now, money markets are embedding five more hikes by the end of the year, which is likely offering some support to GBP in the background.”

“Adverse energy developments caused by new sanctions might take a toll on GBP this week, and cable could make a decisive move below 1.31 by the weekend.”

The euro remains much in a wait-and-see mode as it awaits the shedding of more light on the situation in Ukraine. In the view of economists at the National Bank of Canada, the economic and monetary landscape in Europe warrants little appreciation for the common currency at this time.

Uncertain path

“It should be said that the euro remains much in a ‘wait and see mode’ as it awaits the shedding of more light on the situation in Ukraine. Still, in the meantime, the prospects for the European economy are lackluster, to say the least.”

“The toolbox for a supply shock is sparse and demand is likely to be curbed in the coming months. That said, long yields such as 10y bunds have started to reflect the global tightening in monetary policy and are providing a form of unwanted tightening for the central bank.”

“Looking ahead, we remain cautious for the shared currency. Russia has threatened to cut off gas (and in some cases has) if payments are not made in rubles. This is unpalatable to policymakers in Brussels, and we could see renewed volatility as new sanction packages are rolled out in an effort to close loopholes in previous legislation.”

The Australian dollar is on an appreciating run bolstered by the RBA’s monetary policy statement. The Reserve Bank of Australia (RBA) dropped its "patience" reference, but market pricing appears too hawkish. Therefore, market disappointment is set to cap AUD gains, economists at ING report. 

RBA turning less patient

“The RBA clearly reiterated that it would wait for more indications that wage growth has significantly picked before moving to tighten policy. That puts the potential date for the first hike at the June meeting, as the May meeting is scheduled around two weeks before first quarter wage data is released in Australia.”

“While the notion of imminent RBA tightening can help form some short-term support around the 0.7600 level in AUD/USD, it appears that the market’s pricing on RBA tightening has gone too far (seven hikes by year-end), and we, therefore, expect some dovish disappointment along the way to curb AUD upside by year-end.”

Here is what you need to know on Tuesday, April 5:

Risk sentiment remains in a better spot heading into the European session, although a sense of caution prevails amid talks of more Western sanctions against the Russian atrocities on Ukrainian civilians.

Investors also weigh the hawkish Fed expectations, in the face of the two-year and 10-year US Treasury yield curve inversion. Meanwhile, traders also digest the hawkish pivot from the Reserve Bank of Australia (RBA) after the central bank dropped its ‘patient’ pledge on the inflation developments.

The Asian markets traded with moderate gains, reaching the highest in five weeks, despite the holiday in China and Hong Kong. The tech stock rally on Wall Street buoyed the sentiment around Asia. The US stock futures, however, traded on the defensive, reflecting the investors’ wariness on the Ukraine crisis and surging oil prices.

Among other developments, Reuters reported on Monday that the US stopped the Russian government from paying holders of its sovereign debt more than $600 million from reserves held at American banks.

The US Ambassador to Poland Mark Brzezinski is set to sign a deal with Polish Defense Minister Mariusz Blaszczak to buy 250 upgraded M1A2 tanks and ammunition, support and recovery vehicles, GPS receivers and other equipment.

Meanwhile, Ukrainian President Volodymyr Zelenskyy will speak Tuesday during a United Nations (UN) Security Council meeting on the conflict in his country.

EUR/USD is consolidating Monday’s steep losses around 1.0970 in early Europe. Euro area recession fears weigh on the euro amid potential EU sanctions on the Russian gas imports.

GBP/USD is showing resilience above 1.3100 amid a broadly steady US dollar and mild optimism. The renewed uptick in the US Treasury yields could limit cable’s upside.

USD/JPY is licking its wounds near mid-122s, as the Japanese yen holds the upper hand after BOJ Governor Haruhiko Kuroda’s verbal intervention. Kuroda said that the central bank “we will offer to buy an unlimited amount of 10-year JGBs if a rise in long-term interest rates is rapid.''

Gold price is revering the previous gains but remains in a narrow range around $1,930. The rebound in the Treasury yields could keep the upside attempts limited in the bright metal ahead of the US ISM and S&P Global Services PMIs. Fedspeak will be also closely followed ahead of Wednesday’s Fed minutes.         

USD/CAD is trading in daily lows around 1.2475, as the Canadian dollar benefits from surging oil prices, courtesy of the Ukraine crisis. The BOC Business Outlook Survey revealed that Canadian businesses expect average inflation to remain elevated over the next two years.

Bitcoin is struggling to recapture the $47,000 mark so far this Tuesday while Ethereum holds steady above just above $3,500. Ripple is on the backfoot near $0.8250.

Turkish inflation continues to record hefty, accelerating readings. Against this backdrop, economists at Commerzbank expect the lira to see another sell-off as an unchanged 14% interest rate will produce a deeply negative real interest rate

PPI inflation accelerates

“The latest sharp acceleration in PPI suggests that CPI inflation may accelerate substantially further over the coming months. Even if it were then to peak month-on-month, the observed year-on-year inflation rate will remain far higher than in recent years even over the medium-term.”

“The unchanging 14% benchmark interest rate will produce a deeply negative real interest rate – it is difficult to envisage a situation where this will not produce another lira sell-off at some point over the coming quarters.”

The war in Ukraine triggered a sharp fall in European equity market indices. But in the view of analysts at Natixis, as soon as there is good news about the war in Ukraine, the various factors supporting the European equity market will make European equity indices bounce back sharply.

The potential for a rebound in European stock market indices is significant

“The war in Ukraine has driven down European stock market indices for understandable reasons: Increased risk aversion; Loss of growth in the eurozone due to inflation and supply problems; Asset losses in Russia for some companies.”

“European stock market indices will be supported by: The significant fiscal support being rolled out; The fact that real long-term interest rates will be highly negative for a long time, due to the ECB’s weak response to inflation, which will speed up investors’ rotation from bonds to equities; The low indexation of wages to prices, which will protect corporate earnings; The fact that the financial situation of euro-zone companies before the war in Ukraine was solid, in particular, due to a fall in debt net of cash reserves.”

“We can expect European share prices to rapidly bounce back as soon as a sign of an end to the crisis appears.”

NZD/USD is expected to keep the 0.6870-0.7000 range unchanged in the short term, suggested FX Strategists Quek Ser Leang and Lee Sue Ann at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that ‘despite the decline, downward momentum has not improved by much and NZD is unlikely to weaken much further’ and we expected NZD to ‘trade sideways between 0.6890 and 0.6950’. Instead of trading sideways, NZD rose to a high of 0.6967. The advance appears to be running ahead of itself and NZD is unlikely to strengthen much further. For today, NZD is more likely to consolidate and trade within a range of 0.6920/0.6975.”

Next 1-3 weeks: “There is no change in our view from last Friday (01 Apr, spot at 0.6935). As highlighted, the recent build-up in momentum has fizzled out and NZD is likely to trade sideways within a range of 0.6870/0.7000.”

The euro was under renewed depreciation pressure yesterday. The question of which further sanctions the EU countries will impose on Russia and what the effects will be for the EU economy are likely to have put pressure on the single currency, economists at Commerzbank report.

Further sanctions to be expected

“While the risk of an import stop of individual energy commodities or even a complete energy embargo persists EUR is likely to struggle.”

“It is likely to be of little help that the ECB is expected to announce the end of its expansionary monetary policy for year-end. In these uncertain times who knows what else might happen until then. The risk of the ECB changing its mind at the last minute remains in place. And for that reason, it is difficult to imagine that EUR should recover on a sustainable basis short-term.”

The money market still appears aggressively priced for the Bank of England (BoE) hiking interest rates in the coming months. Consequently, economists at Rabobank expect the EUR/GBP to edge higher towards the 0.85 level over the next six months.

GBP vulnerable against both the USD and the EUR

“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.” 

“Some market commentators have started to speculate that the BoE may think twice about hiking interest rates beyond May. Our house view is that the tightening cycle could persist a little longer to ensure that inflation expectations remain well-anchored.”

“Assuming that gas continues to flow into the Eurozone this year and that stagflation is avoided on the other side of the Channel, we expect EUR/GBP to tick higher to 0.85 on a six-month view.”

Preliminary readings from CME Group for natural gas futures markets noted open interest extended the uptrend for yet another session on Monday, this time by around 20.6K contracts. On the other hand, volume shrank by around 83.6K contracts after three consecutive daily builds.

Natural Gas in 2022 highs

Prices of natural gas traded on the defensive on Monday amidst rising open interest, allowing for a potential decline in the very near term. This view is reinforced by the current overbought condition of the commodity. The moderate drop in volume, however, could still lend legs to the rally, which continues to target the ley $6.00 mark per MMBtu.

• The asset has surrendered its entire gains and has settled around 80.00.
• A death cross of 50- and 200-period EMAs indicates more weakness.
• The major has eased around 50% from its all-time highs at 155.00

The USD/RUB pair has witnessed a bloodbath in the asset prices after nosediving from the March highs at 155.00 to near 80.00, which are its pre-war levels with Ukraine. The pair has surrendered its entire gains, recorded on March 8 at 155.00, and is trading in a range of 83.10-86.62 this week.

On a four-hour scale, USD/RUB is forming a base around its support levels to near 80.0, which is the psychological ground for the asset. The pair is forming the base in a range of 80.00-90.00 and is indicating an inventory adjustment in which the institutional investors purchase assets from the retail participants.

A death cross has been observed from the 50- and 200-period Exponential Moving Averages (EMAs), which signals more pain ahead.

However, the Relative Strength Index (RSI) (14) has taken support near 40.00, which indicates a short-lived pullback, not a sheer reversal.

Bulls are now eyeing the 50-EMA at 89.83 as overstepping the same will send the pair towards the 200-EMA at 96.00, followed by the psychological resistance at 100.00.

If the asset drop below the lower boundary of base formation at 80.00, a fresh bearish trigger will get activated and the asset will be exposed to more downside near the February 16 low and the round level support at 74.88 and 70.00 respectively.

USD/RUB four-hour chart

In opinion of FX Strategists Quek Ser Leang and Lee Sue Ann at UOB Group, GBP/USD is seen navigating the 1.3050-1.3200 range in the next weeks.

Key Quotes

24-hour view: “We held the view yesterday that ‘the bias for GBP is on the downside’. However, GBP traded in a quiet manner between 1.3094 and 1.3136 before closing unchanged at 1.3115. Momentum indicators are mostly neutral and GBP is likely to trade sideways today, expected to be within a range of 1.3085/1.3145.”

Next 1-3 weeks: “We have held the same view since last Thursday (31 Mar, spot at 1.3140) where GBP ‘is likely to trade between 1.3050 and 1.3250 for now’. GBP traded sideways for the past couple of days and there is no change in our view. That said, the decreased volatility suggests GBP could stay within a narrower range of 1.3050/1.3200. Looking ahead, the downside appears to be more at risk even though GBP has to close below 1.3050 before a sustained decline is likely.”

Considering advanced prints from CME Group for crude oil futures markets, open interest reversed two consecutive daily drops and rose by around 12.4K contracts on Monday. Volume, instead, declined by nearly 133K contracts, adding to Friday’s retracement.

WTI: Next target emerges at $116.60

Monday’s moderate advance in crude oil prices was against the backdrop of rising open interest, paving the way for the continuation of the rebound in the very near term. Further up, the next barrier of note for WTI emerges at the weekly high at $116.60 (March 24).

Gold price remains choppy within a familiar range. XAU/USD lacks a clear directional bias, as focus shifts to Fed minutes, FXStreet’s Dhwani Mehta reports.

Fed minutes eyed for a fresh direction

“Attention now turns towards the US ISM and S&P Global Services PMIs, the UN Security Council meeting on Ukraine and the inverted Treasury yields curve for fresh impetus on gold price action. The Fed minutes, however, will be the key event risk, which will provide fresh insights on whether the world’s most powerful central bank will deliver a series of aggressive rate hikes to quell raging inflation.”

“Gold bulls continue to face stiff resistance at the mildly bearish 21-Daily Moving Average (DMA) at $1,948. Meanwhile, they have found comfort at ascending 50-DMA support of $1,901 so far.”

“On the upside, Friday’s high of $1,940 will offer an initial hurdle, above which the 21-DMA could limit the advances. Acceptance above the latter will expose the previous year’s high at $1,960, which will be the level to beat for bulls.”

“If the renewed weakness in XAU/USD extends, then sellers could attack the four-day lows near $1,915. The next safety bet is aligned at 50-DMA. The previous week’s low of $1,890 could offer some reprieve to gold buyers on persistent downside pressure.”

• Gold price attempts a bounce amid a mixed market mood, uptick in US Treasury yields.
• West to punish Russia while the DXY holds its recent advances ahead of ISM Services PMI.
• Gold price lacks a clear directional bias, as focus shifts to Fed minutes.

Gold price is attempting a bounce to recapture $1,930, having stalled its renewed downside amid a mixed market mood.

The Asian stocks trade firmer, tracking the tech stocks rally in Wall Street overnight. The S&P 500 futures, however, remain on the defensive on account of the rise in oil prices, which re-ignite inflation fears.

Meanwhile, investors fret talks of more Western sanctions on Russia, as the US and Europe plan to punish Moscow over civilian killings in Ukraine over the weekend.

The market’s cautiousness could keep the demand for the safe-haven dollar intact while adding to the weight on gold price. Further, the renewed uptick in the US Treasury yields also dulls gold’s appeal as a non-yielding asset.

Although the yield curve inversion, triggering recession risks, could likely keep the downside capped in gold price. Traders now look forward to the incoming updates from the Ukraine saga, US ISM Services PMI and the UN Security Council meeting for fresh cues on gold price action.  

The speeches from the Fed policymakers will also influence the bright metal, as they could offer fresh hints on the US central bank’s tightening plans.

Gold Price Chart: Daily 

Gold’s daily technical picture shows that the price is stuck in a tight range between the mildly bearish 21-Daily Moving Average (DMA) at $1,948 and the ascending 50-DMA support of $1,901.

On the upside, Friday’s high of $1,940 will offer an initial hurdle, above which the 21-DMA could limit the advances.

Alternatively, sellers could attack the four-day lows near $1,915. The next safety bet is aligned at 50-DMA.

The 14-day Relative Strength Index (RSI) trades listlessly at the midline, suggesting a lack of clear directional bias.

Gold Price: Additional levels to watch

• Bears await a death cross from the 50- and 200-period EMAs.
• The RSI (14) has tumbled into a 20.00-40.00 range, which indicates more pain ahead.
• Falling channel formation is advocating more weakness in the asset towards the lower boundary.

The USD/INR pair is likely to remain subdued as investors await the unfolding of the monetary policy from the Reserve Bank of India (RBI), which is due on Friday. The asset has remained in the negative territory prolonged after recording a multi-year high of 77.16 on March 8. The asset has recovered its intraday losses but is likely to find barricades near March 29 low at 75.54.

On a four-hour scale, USD/INR is auctioning in a falling channel formation whose upper end is placed from March 8 high at 77.16 and the lower boundary is marked from March 10 low at 76.08. A tap near the lower end of the falling channel might be considered a pullback by the market participants.

A death cross is on the cards as the 50- and 200-period Exponential Moving Averages (EMAs) are on the verge of a bearish crossover around 75.85.

Meanwhile, the Relative Strength Index (RSI) has established a 20.00-40.00 range, which adds to the downside filters.

A slippage below Tuesday’s low at 75.39 will bring offers for the asset, which will drag the major towards March lows at 75.22, followed by round level support at 75.00.

On the contrary, greenback bulls may regain strength if the asset oversteps Thursday’s low at 75.66. A breach of Thursday’s low will expose the major for further upside towards the 50-EMA and round level resistance at 75.87 and 76.00 respectively.

USD/INR four-hour chart

EUR/USD could slip back below the 1.0940 level in the near term, suggested FX Strategists Quek Ser Leang and Lee Sue Ann at UOB Group.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘there is room for EUR to dip to 1.1015 first before a rebound can be expected’. We added, ‘a break of the major support at 1.0990 still appears unlikely’. The subsequent weakness exceeded our expectations as EUR cracked 1.0990 and plummeted to 1.0959. While oversold, the rapid decline has yet to stabilize. From here, EUR could dip below the next major support at 1.0940 but a sustained decline below this level is unlikely (the next support at 1.0900 is not expected to come under threat). On the upside, a breach of 1.1020 (minor resistance is at 1.1000) would indicate that the current weakness has stabilized.”

Next 1-3 weeks: “Our latest narrative was from last Friday (01 Apr, spot at 1.1085) where EUR has moved into a consolidation phase and is likely to trade between 1.0990 and 1.1170. We did not expect the ease by which EUR cracked 1.0990 yesterday and the subsequent sharp decline to 1.0959. The rapid improvement in momentum suggests further EUR downside. A breach of 1.0940 would not be surprising but at this stage, the odds for a clear break of the next support at 1.0900 are not high. Overall, EUR is expected to trade on its backfoot unless it can move above 1.1060 (‘strong resistance’ level) within these few days.”

Open interest in gold futures markets shrank by almost 5K contracts at the beginning of the week, reaching the third consecutive daily pullback according to flash data from CME Group. In the same line, volume added to the previous daily drop and went down by around 25.3K contracts.

Gold: Upside remains capped by the $1960 region

Gold prices started the week on a positive mood, although the daily gains were amidst shrinking open interest and volume. In light of the ongoing price action, the yellow metal is expected to keep navigating within the current side-lined theme and with the upside so far limited by the $1960 area per ounce troy.

• AUD/JPY has overstepped 93.00 on a stable interest rate policy by the RBA.
• Stagnant wage growth in the labor market has restricted the RBA to elevate policy rates.
• Soaring commodity prices have been underpinning aussie against the Japanese yen.

The AUD/JPY pair has witnessed intense buying interest from the market participants, which has pushed the cross to near 93.20 as the Reserve Bank of Australia (RBA) has maintained the status quo by keeping the borrowing rates stable at 0.1%.

The decision of untouched interest rates came on a softer labor market in Australia. RBA’s policymakers stated earlier that wage growth has not been observed in a while and the central bank has not felt any price pressure that should bolster the requirement of an interest rate hike. However, the rising inflation in accordance with Russia’s invasion of Ukraine has pinned the expectation of a rate hike later this year. It is worth noting that many central banks have elevated their interest rates along with the mighty Federal Reserve (Fed), which brought a 25 basis point (bps) interest rate hike in March. However, the RBA has yet not followed its footprints and is tackling the mammoth inflation itself.

In comparison to the Japanese yen, aussie has been outperforming amid galloping prices of food products, energy, and base metals. While, Japan, being a major importer of all these commodities has faced the heat of higher outflows and its multiplier impact on its fiscal deficit. Last week, the Bank of Japan (BOJ) followed an unlimited bond-buying program to prevent yield inversion. The move brought minor support for yen but now its effect seems to fade away.

Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggested the upside momentum could push AUD/USD to the 0.7620 region.

Key Quotes

“… when AUD/USD was trading at 0.7375, we highlighted that ‘the overall risk appears to be tilted to the upside but any advance in AUD/USD is expected to face solid resistance at 0.7430 and 0.7500’. Two weeks ago, AUD/USD surged and cracked both resistance levels with ease. Yesterday (04 Apr 2022), AUD/USD rose slightly above last Oct’s top of 0.7555 and touched a 5-month high of 0.7557.”

“Shorter-term upward momentum has built-up rapidly and this coupled with the break of strong resistance levels suggests AUD/USD is likely to advance further. The next resistance level of note is near 0.7620, the 61.8% retracement of the decline from last Feb’s high of 0.8007 to the Jan’s low of 0.6990 (some minor resistance can be expected at 0.7600). Overall, the upside risk for AUD/USD remains intact. Key support is at the 55-week exponential moving average (currently at 0.7330). On a shorter-term note, 0.7400 is already quite a strong support level. Looking ahead, if AUD/USD closes above 0.7620 on a weekly basis, it would greatly increase the chance for a move to 0.7720.”

Following are the key headlines from the April RBA monetary policy statement, via Reuters, as presented by Governor Phillip Lowe.

• AUD/USD shoots to near 0.7580 as the RBA keeps interest rate at 0.1%

• AUD/USD drives to near 0.7580 on unchanged RBA’s monetary policy.
• The RBA was expected to maintain the status quo amid a soft labor market.
• Aussie has been a performer recently amid soaring commodity prices.

The AUD/USD pair has surged strongly near 0.7580 as the Reserve Bank of Australia (RBA) has kept the interest unchanged at 0.1%. In the early Asian session, the asset was consolidating in a narrow range of 0.7536-0.7548.

An unchanged monetary policy by the RBA was highly expected along with a less-dovish stance as inflation in the world economy is soaring faster while the growth rate is not advancing proportionally, thanks to the Ukraine crisis. In March’s monetary policy, RBA Chair Philip Lowe dictated that the market should brace for a 10 basis point (bps) interest rate hike this year at most to contain the roaring inflation. The RBA policymakers don’t see any price pressure that should compel the central bank to elevate interest rates. Also, the soft labor market is not allowing any requirement to gear up borrowing rates soon.

The antipodean has been performing strongly against the greenback in the past few trading sessions amid rising commodity prices. Australia, being a major exporter of food products, iron ore, energy, and other base metals has been a performer on higher inflows due to elevated commodity prices.

Meanwhile, the US dollar index (DXY) has overstepped the featured resistance figure of 99.00 amid the hangover of the upbeat labor market in the US. Investors shrugged off the lower US Nonfarm Payrolls and have underpinned the slippage in the Unemployment Rate. The US jobless rate landed at 3.6% lower than the market consensus of 3.7% and the prior figure of 3.8%, which has raised the chances of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed).

The Reserve Bank of Australia (RBA) board members decided to keep the official cash rate (OCR) steady at a record low of 0.10% during their April 5 monetary policy meeting.

The RBA monetary policy statement read that the Australian economy remains resilient and spending is picking up following the omicron setback.

 The central bank shifted towards a hawkish pivot as it dropped its ‘patient’ stance on the inflation developments.

AUD/USD reaction

The AUD/USD pair jumped nearly 40-pips in an immediate reaction to the RBA decision.

The spot was last seen trading at 0.7579, up 0.50% on the day.

About RBA rate decision

RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

“Latest Russia sovereign bond coupon payments have not received authorization by the US Treasury to be processed by correspondent bank JPMorgan,” Reuters cited an unnamed source familiar with the matter.

The US Treasury announced earlier on, “it will not allow any USD debt payments to be made from Russian accounts at US financial institutions.”

A Treasury spokesperson reportedly said, "what part of sanctions don't you understand?"

These comments come after the US stopped the Russian government on Monday from paying holders of its sovereign debt more than $600 million from reserves held at American banks, per Reuters.

Read: Ukraine Update: G7 foreign ministers due to meet in Brussels on Thursday, 7 April

• EUR/USD has slipped near 1.0970 amid de-escalation in Russia-Ukraine peace talks.
• Moscow may find more sanctions from the West on the death of civilians in Bucha, Ukraine.
• The DXY is scaling higher amid rising odds of a 50 bps interest rate hike by the Fed.

The EUR/USD pair has taken the bullet as the escalation in tensions between Russia and Ukraine has brought an intense sell-off in the shared currency, which has dragged the pair near 1.0970. The Russia-Ukraine peace talks were progressing as the officials from both nations were discussing the elements of the ceasefire special document. A verbal ceasefire was dictated but official confirmation was still the requirement.

Things were going fine, but cornering Russia for the death of civilians by Ukraine has raised hopes for more sanctions on Moscow by the Western leaders. Additional sanctions on the Kremlin may bring stagflation in Europe. Sanctions on Russia are likely to elevate their oil stockpiles, which will result in lower supply to Europe and henceforth escalation in inflation along with lower growth rate. Europe, which addresses around 25% of its oil consumption from Russia, will face the heat of tight supply.  This has underpinned the greenback against the shared currency.

Meanwhile, the US dollar index (DXY) is awaiting a trigger that could support it in establishing above 99.00. The DXY has witnessed a strong upside amid rising bets over a 50 basis point (bps) interest rate elevation by the Federal Reserve (Fed) in May’s monetary policy.

Going forward, investors will focus on the US ISM Services PMI which is on Tuesday. An outperformance is expected from the economic data as the market estimate has risen to 58 against the prior print of 56.6. Later this week, minutes from the Federal Open Market Committee (FOMC) will be the major trigger that investors will keep on the radar.

• The asset is juggling in a narrow range of 160.28-161.31 since the first trading session of April.
• The RSI (14) in a 40.00-60.00 range signals consolidation but will be followed by a volatility expansion.
• Pound bulls need to break above the ascending triangle formation to regain control.

The GBP/JPY pair is losing investors’ attention amid a lackluster movement. The cross is oscillating in a narrow range of 160.28-161.31 from the last three trading sessions. It is worth noting that the pair recorded a fresh 6-year high at 164.65 a week prior but failed to sustain at higher levels.

On an hourly scale, GBP/JPY is auctioning in an ascending triangle pattern whose horizontal resistance is placed at 161.32 adjoining the March 29 high and Monday’s high respectively while the advancing trendline has plotted from Wednesday’s low at 159.05. The 200-period Exponential Moving Average (EMA) at 160.23 has been a major support for the asset. However, the 50-period EMA is overlapping on the asset. The overlapping of a short-term EMA and asset prices indicates a volatility contraction.

The Relative Strength Index (RSI) (14) is prolonged oscillating in a 40.00-60.00 range, which signals a consolidation going forward.

A breakout of the ascending triangle above 161.32 will be followed by a strong upside move, which will send the asset towards the March 29 high at 162.62, followed by a 6-year high at 164.65.

On the flip side, yen bulls may strengthen if the asset slip below the symmetrical triangle formation by violating 200-EMA at 160.23, which will drag the major towards the March lows at 159.06. A breach of the March lows will expose the asset to February highs at 158.06.

GBP/JPY hourly chart

The statement on the outcome of the RBA Board meeting is released at 04.30 GMT today, Tuesday, May 5. It is universally expected that the cash rate will be held at a record low of 0.1%.

Analysts at Westpac explained that the focus will be on any shift in language in the decision statement, especially the final sentence of the March statement declaring that "Board is prepared to be patient."

''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,'' the analysts explained.

''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.''

How will AUD react?

Positive global risk sentiment underpinned AUD which made a new yearly high overnight, running deeper into weekly resistance. The question is, will it continue beyond here?

''The most crucial aspect of the post-meeting statement is whether it repeats the longstanding reference to the Board being 'patient as it monitors how the various factors affecting inflation in Australia evolve,''' analysts at ANZ Bank said. 

''We would interpret the removal of any reference to patience as a hawkish development that points to the May Board meeting as being live,'' they argued. This would then be expected to drive the Aussie forward.

AUD/USD H1 chart

Support is found at the 38.2% Fibonacci level near 0.7535. A break here will open the risk of a quick move into the prior resistance near 0.7525 that meets the 61.8% Fibonacci retracement area. Conversely, a hawkish outcome will send the pair up to test weekly resistance around 0.7560 and far beyond with 0.7650 eyed. 

• WTI move sin on the $105 area as supply concerns persist in Asian markets. 
• A pause in Vienna on talks to revive the Iran nuclear deal is impacting also. 

West Texas Intermediate (WTI) crude oil was higher on Monday and extended the gains on Tuesday in Asia. The persisting supply concerns as Russian energy sanctions are very much on the table following the Russian forces' civilian killings in north Ukraine is keeping the bulls in play. 

A fresh high of $105.57 has been scored in Tokyo as a result with the WTI spot up by some 1.38%. 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.'' 

Additionally, a pause in Vienna on talks to revive the Iran nuclear deal, which could put more Iranian barrels into the market is being priced in. Iran blamed the United States for halting the talks. The news helped oil futures higher on Tuesday with Brent crude futures up $1.58, or 1.5%, to $109.11 a barrel, while US West Texas Intermediate futures were up $1.61, or 1.6%, to $104.89 a barrel at 0028 GMT. The contracts rallied $2 a barrel in earlier trade after Japanese industry minister Koichi Hagiuda said the International Energy Agency (IEA) was still working out details for a planned second round of a coordinated oil releases.

Meanwhile, analysts at TD Securities addressed the Biden administration's preparation to release up to 1 million barrels of oil a day from the US Strategic Petroleum Reserve. 

''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,'' the analysts 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.''

“It’s too early to discuss exit strategy at present,” Bank of Japan (BOJ) Governor Haruhiko Kuroda said during an appearance on Tuesday.

Additional quotes

Meanwhile, Japan’s Vice Finance Minister Okamoto said, “no comment on fx intervention,” adding that they are “closely watching fx moves with a sense of urgency.”

Related reads

• USD/JPY has lost its footing, sharply down in Tokyo
• BoJ Kuroda: Will offer to buy unlimited amount of 10-year jgbs if rise in long-term interest rates is rapid

In its latest report published on Tuesday, the World Bank slashes its 2022 GDP growth forecasts for East Asia and the Pacific, discounting the economic impact of Russia's invasion of Ukraine.

Key takeaways

“East Asia and Pacific region forecast to grow 5.0% in 2022, lower than its 5.4% forecast in October.”

“China's economy projected to expand by 5.0% in 2022.”

“Ukraine war is "most serious risk" to the region.”

“Thailand's economy is expected to grow 2.9% this year, down from a prediction of 3.9% seen in December.”

Amid intensifying Russia-Ukraine crisis, the West is considering tougher sanctions and penalties against Russia following the latter’s increased atrocities on Ukrainian civilians.

In response to that, Group of Seven (G7) foreign ministers will meet on April 7, Thursday, per Reuters.

In the last hour, it was reported that the US Ambassador to Poland Mark Brzezinski is set to sign a deal tomorrow with Polish Defense Minister Mariusz Blaszczak to buy 250 upgraded M1A2 tanks and ammunition, support and recovery vehicles, GPS receivers and other equipment.

Meanwhile, Ukrainian President Volodymyr Zelenskyy will speak Tuesday during a United Nations (UN) Security Council meeting on the conflict in his country.

Market reaction

The market mood remains mixed, as investors weigh in the chances of a faster Fed’s tightening against global economic growth concerns and the worsening Ukraine crisis.

The S&P 500 futures are down 0.07% on the day while the Asian markets trade rangebound to higher, with China and Hongkong observing a national holiday.

• USD/JPY is under pressure in Tokyo as the dollar loses its grip. 
• BoJ commentary is eyed while traders await the FOMC minutes.

In the Tokyo opening hour, USD/JPY fell from a high of 122.85 to print a session low of 122.37. The Bank of Japan's governor is speaking to Parliament which is potentially causing some volatility in the yen. 

Bank of Japan's governor Haruhiko Kuroda has said that, although it may not necessarily be the last resort, ''we will offer to buy an unlimited amount of 10-year JGBs if the rise in long-term interest rates is rapid.'' He also said yield will rise if trust in fiscal policy is lost. 

He added that an expected acceleration of inflation could hurt Japan's economy by weighing on household income and corporate profit, Bank of Japan Governor Haruhiko Kuroda said on Tuesday.

"We will patiently maintain powerful monetary easing to support an economy still in the midst of recovering from the COVID-19 pandemic's impact," he told parliament in a semi-annual testimony.

USD/JPY was sharply lower despite the 10-year JGB falling heavily but has since started to recover from a 122.37 low to 122.63 at the time of writing. 

Meanwhile, the US dollar was mixed against the G10, losing ground versus commodity-linked currencies but up against several others. US bond yields were also mixed on Tuesday, and the curve slightly steepened as the market consolidated on the back of a light news day. The 2-year yields fell from 2.47% to 2.40% while the 10-year government bond yields ranged but ended slightly higher at 2.40%.

Markets are waiting in anticipation for the minutes of the FOMC meeting are due this week. 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,'' analysts at TD Securities explained. 

• The DXY has observed decent buying interest towards 99.00 on the upbeat US Unemployment Rate.
• US jobless rate has reached near its pre-Covid-19 levels.
• Ukraine has accused Russia of brutal killings of civilians in Bucha, Ukraine.

The US dollar index (DXY) has witnessed a juggernaut rally after encountering February’s high at 97.73. The DXY has strengthened on the higher probability of an interest rate hike by 50 basis points (bps) from the Federal Reserve (Fed) in May’s monetary policy. The odds of a jumbo rate hike have triggered after the US Unemployment Rate landed at 3.6%.

US Unemployment Rate near pre-Covid-19 levels

The US Unemployment Rate at 3.6% is a record low since February 2020. Therefore, it would be justified to claim that the payrolls are reaching their pre-Covid-19 levels. It is worth noting that the US Bureau of Labor Statistics is reporting the jobless rate below 4% since December and consistency below the Fed’s benchmark rate of full employment is compelling for an interest rate hike. Adding to that, market participants are already familiar with galloping inflation. And, higher inflation and a strong labor market are a deadly duo for featuring an oversize interest rate.

De-escalation in the Russia-Ukraine Peace Talks

Things were forwarding fine when negotiators from Russia and Ukraine were discussing the elements printed in the special document of a ceasefire. However, Ukraine has cornered Russia on the death of civilians in Bucha, Ukraine. This will bring more sanctions on Russia from the Western leaders and a risk-off impulse in the market.

Although minutes from the Federal Open Market Committee (FOMC) will be the major trigger, investors will also focus on US Services PMI, which is due on Tuesday. A preliminary estimate at 58 indicates an outperformance from the US economy as the prior figure was 56.6

Key events this week: ISM Services PMI, ISM Services New Orders Index, ISM Services Employment Index, and Initial Jobless Claims.

Eminent issues on the back boiler: Russia-Ukraine Peace Talks, FOMC Minutes, Reserve Bank of Australia (RBA) monetary policy.

Bank of Japan's governor Haruhiko Kuroda is speaking in parliament and previously said that Japan's economy is likely to recover adding that inflation will clearly accelerate due to a sharp rise in energy prices and the dissipating effect of cellphone fee cuts. 

However, in more recent trade, Kuroda has said that, although it may not necessarily be the last resort, ''we will offer to buy an unlimited amount of 10-year JGBs if rise in long-term interest rates is rapid.''

USD/JPY was sharply lower despite the 10-year JGB falling heavily but has since started to recover from a 122.37 low to 122.56 at the time of writing. 

• 0.7525 is eyed for the RBA meeting that meets the 61.8% Fibonacci retracement area. 
• On the upside, weekly resistance is critical and a hawkish outcome could seal the deal for a daily upside breakout. 

AUD/USD is turning a little soft as the countdown to the Reserve Bank of Australia's interest rate decision takes the spotlight. The following illustrates the market structure from both a longer-term and shorter-term outlook into the meeting. 

AUD/USD daily chart

The M-formation is a reversion pattern that would be expected to result in the price reverting to the neckline of the formation, in this case, 0.7510. 

AUD/USD weekly chart

This would coincide with the weekly resistance as follows:

The price is meeting a wall of resistance on the weekly chart and should this hold up, then a revisit to the start of March highs could be in order where the open met with the current 50% mean reversion level near 0.7355. 

AUD/USD H1 chart

The hourly chart shows that the price has already met a 38.2% Fibonacci level from where repeated failures are tipping the balance into the hands of the bulls, at least from a short term perspective. However, a break here will open the risk of a quick move into the prior resistance near 0.7525 that meets the 61.8% Fibonacci retracement area. 

• Failing to sustain above 50% Fibo retracement at 1.1150 has brought offers for the asset.
• The slippage of the RSI (14) below 40.00 has confirmed the bearish bias.
• The 50- and 200-period EMAs are scaling lower, which adds to the downside filters.

The EUR/USD pair has witnessed a bloodbath after breaking below the previous consolidation, which placed in a range of 1.1028-1.1054 on Friday. The asset is expected to extend weakness after slipping below Monday’s low at 1.0970.

On a four-hour scale, the asset has sensed an intensified selling pressure after failing to sustain above the 50% Fibonacci retracement (placed from February 10 high at 1.1495 to March 7 low at 1.0806) at 1.1150. The asset is trading around the demand zone which is placed in a narrow range of 1.0945-1.0966.

The 50- and 200-period Exponential Moving Averages (EMAs) at 1.1040 and 1.1087 respectively are scaling lower, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has tumbled below 40.00, which signals more pain ahead.

Further slippage below the demand zone at 1.0945-1.0966 will bring offers for the asset, which will drag the major towards the March 14 lows and March lows at 1.0900 and 1.0806 respectively.

However, violation of the 50-EMA at 1.1040 will send the asset towards the 200-EMA at 1.1087. A breach of the latter will drive the shared currency towards a 50% Fibo retracement at 1.1150.

EUR/USD four-hour chart

Bank of Japan's governor Haruhiko Kuroda is speaking in parliament and says that Japan's economy is likely to recover adding that inflation will clearly accelerate due to a sharp rise in energy prices and the dissipating effect of cellphone fee cuts.

However, he added that an expected acceleration of inflation could hurt Japan's economy by weighing on household income and corporate profit, Bank of Japan Governor Haruhiko Kuroda said on Tuesday.

"We will patiently maintain powerful monetary easing to support an economy still in the midst of recovering from the COVID-19 pandemic's impact," he told parliament in a semi-annual testimony.

Key quotes

Impact of the Ukraine crisis on Japan's economy extremely uncertain.

The expected rise in inflation is driven by an increase in import costs, which could hurt Japan's economy via a decline in household income, and corporate profits.

BoJ will maintain powerful monetary easing to support the economy still in the midst of recovering from the pandemic hit.

BoJ will strive to ensure market stability through ample liquidity provision.

Senior BoJ official: Japan's consumer inflation is likely to hover around 2% for some time from April onward.

Senior BoJ official: Price rise must be accompanied by increases in corporate profits, wages for inflation to sustainably achieve 2%.

• USD/CAD is holding in a range on Tuesday as markets await FOMC minutes this week.
• Oil prices are firm despite prospects of supply from US reserves.

USD/CAD is flat in Asia following a relatively stable session overnight where the price moved in a round turn of around 35 pips with a brief time above 1.25 the figure. The US dollar was firm at the start of the week, keeping a lid on commodity FX tried to keep up with the US stock markets.

Oil, on the other hand, managed to take off 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 move higher in oil helped to support the CAD and rallies have been faded in USD/CAD. WTI spot was up by some 4.5% overnight as White House's National Security Advisor, Jake Sullivan, announced that the US is working with European allies to coordinate further sanctions on Russia.

Meanwhile, US 10-year yields were firmer due to the narrative surrounding the Federal Reserve. and the curve slightly steepened as the market consolidated on the back of a light news day. 10-year government bond yields range traded and finished slightly higher at 2.40%. In turn, the US dollar climbed in tandem with the yield.

Looking ahead to the week, the minutes of the FOMC meeting are due. 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,'' analysts at TD Securities explained. 

• Pound bulls seek a breakout of the symmetrical triangle at 1.3140 for a fresh impulsive wave.
• The asset has faced barricades near 200-EMA at 1.3135.
• The RSI (14) in a 40.00-60.00 range signals indecisiveness.

The GBP/USD pair is oscillating in a tight range of 1.3086-1.3146 amid a contraction in the volatility. The cable is unable to attract volumes in the absence of a potential trigger that could dictate the prices.

On an hourly scale, the cable is auctioning in a prolonged symmetrical triangle formation. The latter signals a squeeze in the volatility, volumes, and size of the ticks. Breakout of the same results in an expansion of volumes and larger-sized ticks. The upper boundary of the symmetrical triangle is placed from March 25 high at 1.3225 while the lower boundary is plotted from the March 15 low at 1.3001.

The asset has faced barricades around 200-period Exponential Moving Average (EMA) twice in Friday’s and Monday’s trading sessions. However, the 20-period EMA at 1.3115 is overlapping with the major.

Adding to that, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00 range, which signals indecisiveness for the asset.

Should the asset overstep the monthly highs at 1.3146, a bullish trigger will send the cable towards the March 30 high at 1.3183, followed by the March 25 high at 1.3225.

Breaking of the symmetrical triangle below the March 29 low at 1.3050 will drag the asset towards the March lows and 26 October 2020 high at 1.3000 and 1.2880 respectively.

GBP/USD hourly chart