CFD Markets News and Forecasts — 06-03-2022

• USD/CAD looks for a fresh upside move despite boiling oil prices.
• The DXY has strengthened on a fresh wave of risk-off impulse in the market.
• The US CPI will provide further guidance on monetary action from the Fed next week.

The USD/CAD pair has breached its oscillation range of 1.2713-1.2746 after attracting significant bids on a fresh wave of risk-off impulse in the market. The loonie has displayed weakness against the greenback despite boiling oil prices post the potential ban on Russian oil.

US President Joe Biden is in conversation with European allies to ban imports of oil from Russia. This has come on the escalation in the Russian invasion of Ukraine after the shelling of Zaporizhzhia nuclear power in Ukraine, which is also the largest nuclear power station in Europe.

Adding to that, the delay in the removal of sanctions on Iran’s nuclear deal has added optimism to the oil prices. Russia has demanded a U.S. guarantee that the sanctions it faces over the Ukraine conflict will not hurt its trade with Tehran.  This has postponed Iran's contribution to the global oil supply. Canada, being the largest exporter of oil to the US is set to receive higher inflows against the oil supply.

Meanwhile, the US dollar index (DXY) looks to reclaim 99.00 on upbeat US Nonfarm payrolls. The US employment data on Friday landed at 678k, outperforming the market estimates and previous print of 400k and 481k respectively. Apart from that, the odds advocating the Fed’s 0.50% rate hike in March remained firmer, recently 94% per the CME’s FedWatch Tool, which has further supported the greenback against the Canadian dollar.

A 25 basis points (bps) interest rate hike by the Federal Reserve is very much on the cards in March’s monetary policy meeting as per the comments from the Fed Chair Jerome Powell in his testimony at State of the Union (SOTU). However, the US Consumer Price Index (CPI) numbers from the Bureau of Labor Statistics will provide further guidance to the market participants to draw way forward, which are due on March 10.

US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, retreated from the highest levels since mid-November by the end of Friday’s North American session.

In doing so, the inflation gauge failed to justify an upbeat US jobs report, as well as hawkish comments from Chicago Fed President and FOMC member Charles Evans, while easing from 2.71% level marked the previous day to 2.67% at the latest.

That said, the US jobs report for February showed that the headline Nonfarm Payrolls (NFP) rose by 678K, well above the median forecast of a 400K figure and upwardly revised 484K prior. On the same line, the Unemployment Rate dropped to 3.8% versus 4.0% previous readings and 3.9% expected. It’s worth noting that the inflation-concerned Fed also had a reason to like the February employment report as the Average Hourly Earnings (AHE) rose 5.1% YoY versus market consensus of 5.8% and the revised down 5.5% figure for January.

On the other hand, Fed’s Evans said, per Reuters, “The U.S. central bank is on track to raising rates this year, though it may be ‘more than I think is essential’ to do so at every policy-setting meeting.”

It’s worth noting that the probabilities favoring the Fed’s 0.50% rate hike in March remained firmer, recently 94% per the CME’s FedWatch Tool, which in turn keeps the US dollar on the front foot, also backed by the recent risk-aversion wave due to the Russia-Ukraine crisis.

To sum up, the latest retreat in the US inflation expectations isn't a guide for the softer USD as traders await February's Consumer Price Index (CPI) details.

Read: The week ahead: ECB rate decision, US CPI, Balfour Beatty, Greggs and Rivian

• GBP/USD snaps two-day downtrend, picks up bids from multi-day low.
• Oversold RSI triggered corrective pullback but nearby resistance line, 10-DMA limits recovery moves.
• Multiple levels marked during late 2021 offer strong support to challenge bears.
• Bulls remain unconvinced below the 1.3415 horizontal resistance area.

GBP/USD consolidates the biggest weekly loss since November around 1.3235-40 during Monday’s Asian session.

The pair dropped to the lowest levels in 11 weeks by the end of Friday but oversold RSI triggered the cable pair’s corrective pullback.

However, a downward sloping trend line from February 23 and the 10-DMA, respectively around 1.3315 and 1.3355, test the rebound.

Even if the quote rises past 1.3355, a horizontal area comprising multiple levels since September 2021, around 1.3515, will be a tough nut to crack for the GBP/USD buyers.

Alternatively, the fresh downside will aim for the 1.3200 threshold before hitting a block near the 1.3160-70 zone that includes late 2021 levels.

In a case where GBP/USD drops below 1.3160, the 1.3100 round figure holds the key to the pair’s slump towards the 1.3000 psychological magnet.

Overall, GBP/USD is likely to consolidate some more losses before activating the further downside.

GBP/USD: Daily chart

Trend: Limited recovery expected

• EUR/USD has reached 1.0885, close to key 25 May 2020 lows.
• A correction to the prior lows meet with the 38.2% Fibo near 1.1020. 

EUR/USD was a head-turner on Friday as it dropped to afresh cycle lows following the Nonfarm Payrolls that sent the US dollar towards 99 the figure as per the DXY index. The following shows the space below the lows that are in focus for the week ahead. 

EUR/USD monthly chart

The price is on the verge of filling the imbalance left behind from the 2020 rally. In a hypothetical scenario, should the price run deeper for a test of the 1.07s, then a correction from there could target the 1.1100 figure that has a confluence of the 38.2% Fibonacci retracement level. 

EUR/USD daily chart

EUR/USD has reached 1.0885 with 15 pips to go until the low of 25 May lows of 1.0870 that led to the summer rally of 2020. The price, however, is in need of a correction and the prior lows meet with the 38.2% Fibo near 1.1020.