CFD Markets News and Forecasts — 06-04-2022

• XAU/USD is oscillating in a range of $1,915.22-1,949.86 despite the hawkish FOMC minutes.
• Fresh sanctions imposed on Russia by the US will escalate the financial shock on Moscow.
• FOMC minutes advocate one or more 50 bps interest rate hikes this year.

Gold (XAU/USD) has been witnessing a lackluster performance over the last six trading sessions. The precious metal is displaying back and forth moves in a range of $1,915.22-1,949.86. It is worth noting that the release of the Federal Open Market Committee (FOMC) minutes and speeches from various Federal Reserve (Fed) policymakers this week have failed to put any substantial impact on gold prices.

The minutes that have received much attention from the FOMC in March is the expectation of one more interest rate hike by 50 basis points (bps) this year. Apart from that, the rapid pace at which the Fed will augment the balance sheet reduction is one of the major highlights. Fed policymakers are majorly agreed on monthly caps of about $60B for Treasury securities, and $35B for mortgage-backed securities (MBs). 

Meanwhile, Philadelphia Fed President and FOMC member Patrick Harker in his speech on Wednesday has indicated that restoration in the interest rates is likely that will bring the lending rate back to neutral at 2.5%.

The mighty US dollar index (DXY) is aiming to tap the psychological resistance of 100.00 amid fresh sanctions on Russia by the US administration, which has triggered the negative market sentiment. The US has imposed full blocking sanctions on Russia's Sberbank and Alfa Bank, which will dramatically escalate the financial shock on Moscow as these giants of the latter holds more than one-third assets of Russia

Gold Technical Analysis

On an hourly scale, XAU/USD is juggling in a range of $1,915.22-1,949.86 over the past few trading sessions. The precious metal has established below 200-period Exponential Moving Average (EMA) at $1,930.00, which adds to the downside filters. Meanwhile, the Relative Strength Index (RSI) is oscillating in a 40.00-60.00 range, which advocates a consolidation ahead.

Gold hourly chart

An IMF report states that the Bank of Japan must maintain an ultra-easy policy for a prolonged period despite higher commodity prices, and a rebound in consumption.

Key notes

• BoJ 'expressed concern' over IMF's recommendation to target shorter yields under yield curve control.
• IMF's article 4 staff report: escalation of Ukraine conflict poses significant downside risks to japan's economy.
• Cuts Japan's 2022 economic growth forecast to 2.4%, down from 3.3% projected in January.

Meanwhile, the  Bank of Japan (BOJ) Governor Haruhiko Kuroda said earlier this week that the yen's recent moves were "somewhat rapid", joining a chorus of policymakers who have warned that sharp falls in the currency could hurt the country's import-reliant economy.

USD/JPY is moving in on the highest levels since 2015 and last months highs of 114.64.

• The EUR/JPY pair consolidates in the 134.20-135.50 range on downbeat sentiment.
• EUR/JPY Price Forecast: Trapped within the 134.50-135.45 range amidst the lack of a catalyst.

EUR/JPY is subdued as the Asian Pacific session begins, within Wednesday’s 134.70/135.45 range, amidst a dismal sentiment, courtesy of continuing Ukraine-Russia hostilities and global central bank tightening. At the time of writing, the EUR/JPY is trading at 134.99.

On Wednesday, the EUR/JPY opened near the day’s lows and seesawed near the 50-hour simple moving average (SMA) around 134.80s. EUR/JPY bulls entered the market in the European session and lifted the pair above the 135.00 mark, but the Fed’s March minutes increased risk-aversion, dragging the cross-currency down towards current levels.

EUR/JPY Price Forecast: Technical outlook

After reaching a YTD high at 137.54, the EUR/JPY slid almost 300 pips in three consecutive days. Since then, the EUR/JPY has been range-bound in the 134.50-135.45 range, unable to break upwards/downwards of its boundaries. Nevertheless, the Relative Strength Index (RSI) at 60.98 exited overbought conditions on March 30, when the pair fell from 136.84 to 134.60 and has enough room to spare in the case that EUR bulls aim to push prices higher.

Upwards, the EUR/JPY’s first resistance would be 135.00. A decisive break would expose 135.45, followed by the 136.00 mark. On the flip side, the EUR/JPY first support would be 134.50. Breach of the latter would expose April 5 daily low at 134.29, followed by the psychological 134.00 level.

Technical levels to watch

• The DXY is marching towards 100.00 as the hawkish stance of the FOMC minutes has improved safe-haven appeal.
• Balance sheet reduction is likely to remain at an elevated pace.
• US administration has imposed full blocking sanctions on Russia’s giant banks.

The US dollar index (DXY) is heading towards the psychological figure of 100.00 on tailwinds of negative market sentiment as the Federal Open Market Committee (FOMC) minutes have heightened the odds of an aggressive tightening monetary policy by the Federal Reserve (Fed) in May. The dictation of the FOMC minutes clears that the market participants should start bracing one or more 50 basis points (bps) interest rate hikes announcement by the Fed this year. Also, the size reduction of the balance sheet will be done at a rapid pace to contain inflation. Considering the extent of reduction in the balance sheet, Fed policymakers majorly agreed on monthly caps of about $60B for Treasury securities, and $35B for mortgage-backed securities (MBS).  

US Treasury Yields

The 10-year benchmark US Treasury yields retreated from the highs of 2.66%, which indicates that investors have already discounted the hawkish stance of the FOMC minutes. While the 2-year US Treasury yields that are more sensitive to the interest rates have faced more heat. There is no denying the fact that the rising expectations of a jumbo rate elevation by the Fed in May have underpinned the risk-off impulse.

The US escalates financial shock on Russia

The US administration on Wednesday announced that it is dramatically elevating the financial shock for Russia. The former has imposed full blocking sanctions on Russia's Sberbank and Alfa Bank, which holds more than one-third of Russia's total banking assets.

DXY Technical Analysis

On the daily scale, the DXY has exploded from its previous consolidation, which remained in a range of 97.73-99.42 in March. The 20- and 50-period Exponential Moving Averages (EMAs) at 98.70 and 97.83 respectively are scaling higher, which adds to the upside filters. Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a bullish range of 60.00-80.00.

DXY daily chart

• The AUD/JPY failure at 94.00 left the pair adrift to solid selling pressure.
• In March, China’s PMIs dropped below the 50-mark, indicating that its economy is slowing.
• AUD/JPY Price Forecast: A double-top and negative divergence between price action-RSI threaten to push the pair towards 87.00.

The Australian dollar gave back Tuesday’s gains amidst a risk-aversion environment in the financial markets as global equities fell while safe-haven peers rebounded. Also, the drop in China’s PMIs under the 50-expansion/contraction line signals that the second-largest economy is slowing as it goes through another Covid-19 outbreak. At the time of writing, the AUD/JPY is trading at 93.13.

Risk-aversion and weak China data threaten to slow the global economy

US equities closed in the red as the Federal Reserve hinted in its March minutes that Quantitative Tightening (QT) would start by May and reduce its balance sheet by $95 billion a month. Furthermore, the FOMC minutes signaled that most participants were looking for a 50 bps rate hike to the Federal Funds Rate, but the Russian invasion of Ukraine kept them from doing it so.

On Wednesday’s Asian session,  China’s Caixin Services PMI for March came at 42.0, lower than the 53 estimated, and trailed February’s 50.2 reading. The services sector contracted on the recent Covid-19 outbreak, which spurred lockdown measures, falling at the quickest rate since February 2020.

The Australian economic docket would reveal February’s Balance of Trade, expected to rose by a A$12 B surplus. Also, Building Permits for February, estimated at 43.5%, would offer some impetus to AUD/JPY traders. Coincident Index and Leading Economic Index for February will be featured on the Japanese economic docket.

AUD/JPY Price Forecast: Technical outlook

The AUD/JPY is upward biased, but failure at 94.00 exposed the pair to selling pressure. Additionally, momentum indicators like the Relative Strength Index (RSI) at 72.05 made a successive series of lower highs, contrarily to AUD/JPY price action, with subsequent series of “quasi” same highs, forming a “double-top” chart pattern. Moreover, a negative divergence between price action and RSI would send the pair lower.

The AUD/JPY first support would be 92.26. A decisive break would expose the 91.00 mark, followed by the “double-top” neckline at 90.76.

• USD/CHF is juggling in a range of 0.9304-0.9344 after a firmer upside move on the release of the FOMC minutes.
• FOMC indicates one or more 50 bps interest rate hikes by the Fed.
• Swiss Unemployment Rate is seen at 2.2%, identical to its previous figure.

The USD/CHF pair is oscillating in a narrow range of 0.9304-0.9344 after a strong upside move from the March 31 low to near 0.9200. The pair have remained in positive territory amid rising expectations of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed).

Fed policymakers are continuously hinting that investors should brace for higher interest rates as the Fed has left with no other quantitative measure that could contain the soaring inflation. Adding to that, the tight labor market amid a lower jobless rate since February 2020 at 3.6% is compelling an interest rate hike to contain the inflation mess.

Meanwhile, the release of the Federal Open Market Committee (FOMC) minutes on Wednesday has raised uncertainty in the market. The minutes of March’s monetary policy meeting by the Fed dictate that the balance sheet reduction should be done at a more rapid pace than the pace adopted in the 2017-19 episode. Also, one or more 50 bps interest rate hike by the Fed is appropriate to ease off the elevated inflation pressure.

On the Swiss docket, investors are waiting for the release of the Unemployment Rate, which will guide them about the likely monetary policy stance to be adopted by the Swiss National Bank (SNB) going forward. As per the market estimates, the Swiss State Secretariat for Economic Affairs (SOEC) will display the Unemployment Rate at 2.2%, similar to its prior print.

Liz Truss has written in the Telegraph that the war in Ukraine is not the one Vladimir Putin planned.

''He has badly over-reached and is now suffering the consequences. But this is not the time for complacency. Russia is not retreating, but regrouping. Putin has changed his tactics, not his strategy. His forces are leaving the area around Kyiv only to push harder in the East and the South.''

''The world has seen the appalling atrocities his forces have committed in Irpin and Bucha. Civilians have been targeted – there is evidence of butchery, rape and torture. We must do all we can to ensure Putin fails. That is why the UK is stepping up under the Prime Minister’s six-point plan of action,'' she stated. 

. To be precise the six-point plan of action includes:

• Mobilizing international humanitarian coalition for Ukraine
• Supporting Ukraine in its efforts for self-defence
• Maximising economic pressure on Russia
• Preventing the "creeping normalisation" of Ukraine by Russia
• Pursuing diplomatic paths for de-escalation
• Beginning a rapid campaign for strengthening security and resilience across the Euro-Atlantic area. 

Within the plan, Truss said they are working to agree on a clear timetable to eliminate imports of Russian coal and gas and with G7 partners, they air to further crack down on more Russian banks.

Meanwhile, Ukraine's Zelenskyy said that the democratic world must reject Russian oil; says a hesitation to agree on an oil embargo is costing Ukrainian lives.

• WTI has settled below 50-EMA for the first time in 2022.
• Bulls have lost momentum as the RSI (14) has dropped below the bullish range of 60.00-80.00.
• A mean reversion towards the trendline will bring offers to the counter.

West Texas Intermediate (WTI), futures on NYMEX, have been vulnerable in the past few trading sessions. The black gold has witnessed a steep fall after recording a multi-year high at $126.51. For the first time in 2022, the asset has closed below the 50-period Exponential Moving Average (EMA), trading at $98.36.

On the daily scale, the asset is hovering around 50% Fibonacci retracement (placed from 2 December 2021 low at 62.34 to March 8 high at $126.51) at $94.55. It is worth noting that the asset has violated the trendline placed from 20 December 2021 low at $66.10. The oil prices have comfortably established below the 20-EMA, which is trading near $102.00.

The Relative Strength Index (RSI) (14) has shifted into a 40.00-60.00 range from the bullish range of 60.00-80.00, which signals a consolidation ahead.

Should the WTI prices encounter a mean reversion to the trendline placed from 20 December 2021, the psychological figure of $100.00, bears will drag the asset towards the 50% Fibo retracement at $94.55, followed by 61.8% Fibo retracement at $86.91.

On the flip side, bulls may regain strength if the asset oversteps Tuesday’s high at $104.60, which will send the asset towards the round level resistance at $110.00. Surpassing the latter will drive the oil prices towards the March 24 high at $115.87.

WTI daily chart

• EUR/USD bears are attacking the daily support area.
• Bulls are stepping in and correction could be on the cards. 

EUR/USD is hardening on the support area following today's minutes from the Federal Open Market Committee meeting. The US dollar surged higher to fresh 2022 highs but the euro remains within familiar ranges, albeit eyeing a run to test the 2022 lows. However, the pair could be in for a significant correction according to the following daily chart's analysis:

EUR/USD daily chart 

The price would be expected to revisit the prior structure near a 38.2% Fibonacci retracement in the coming days. Currently, based on the recent lows, that level comes in near 1.10 the figure. 

• GBP/JPY was set to gain for a fourth successive session on Wednesday despite risk-off, but failed to hold above 162.00.
• Rising global yields continues to undermine the yen, but dovish BoE vibes may cap GBP/JPY’s further upside potential.

GBP/JPY was set to climb for a fourth successive session on Wednesday, as the uptrend in global yields continued, preventing the yen from benefitting from safe-haven inflows as US equity markets tumbled amid concerns about the hawkish Fed. The pair at one point rallied as high as the 162.20s but has since slipped back to the 161.80s, with on-the-day gains now eroded to about 0.2%.

That leaves GBP/JPY trading 0.7% higher on the week, with the pair having found decent buying interest when it broke below the 160.00 mark briefly at the end of last week. While the general trend towards higher yields globally is likely to keep the pair supported, FX strategists are unconvinced as to how much higher GBP/JPY can push given the increasingly dovish sounding BoE.

Indeed, the bank’s Deputy Governor Jon Cunliffe was on the wires earlier in the week and played down expectations for persistently high inflation whilst also upping his warnings about UK economic weakness. GBP/JPY ground higher despite these dovish comments, probably because they weren't a surprise given Cunliffe had been the lone dissenter against a rate hike at the BoE’s last meeting.

A speech from the BoE’s chief economist Huw Pill on Thursday (at 1315BST), who has in the past been one of the bank’s more hawkish-leaning members, will be a closely watched event. The BoE softened its tone on the need for further monetary tightening at its last meeting and Pill is likely to reflect this more cautious viewpoint. That could dampen the prospects for GBP/JPY to muster a lasting push above 162.00, a task that will be made even more difficult if equities continue their current tumble.

• The shared currency held its ground vs. sterling, around the 0.8300 mark, amid a dismal market mood.
• Global central bank tightening, keeps stocks down, weighing on sentiment.
• EUR/GBP Price Forecast: Forming a doji suggesting consolidation lies ahead.

The EUR/GBP is barely flat in the North American session, amid a gloomy market sentiment, spurred by a negative sentiment courtesy of continuing fighting between Russia-Ukraine, and continuing sanctions imposed on Russia. At the time of writing, the EUR/GBP is trading at 0.8338.

Risk appetite decreased on Wednesday as US equities remain trading in the red. The Federal Reserve revealed its minutes and said that it is ready to begin the Quantitative Tightening at the end of May. The amount to be reduced each month would be $95 billion, split into $80 billion of US Treasuries and $15  billion consisting of mortgage-backed-securities (MBS).

Aside from this, the EUR/GBP is subdued in a 30-pip range on Wednesday. In the European session dipped towards the S1 daily pivot around 0.8320 but jumped off the lows and reclaimed the daily pivot, lying at 0.8347. Nevertheless, of late, the EUR/GBP retreated towards the 0.8330s, where it meanders at press time.

EUR/GBP Price Analysis: Technical forecast

The EUR/GBP remains downward biased, but March 4 dip towards 0.8200 pierced the 200-month simple moving average (SMA), a significant support area, as shown by the candlestick formed -a hammer on a downtrend-, meaning that the downward move was finished. As a matter of fact, the cross-currency pair bounced off those levels and rallied towards 0.8450, but Russo-Ukraine woes weighed on the common currency.

Upwards, the EUR/GBP's first resistance would be the 50-day moving average (DMA) at 0.8366. A decisive break would expose the 100-DMA at 0.8396, followed by the 200-DMA at 0.8461. On the flipt side, the EUR/GBP first support would be 0.8327. A breach of the latter would expose March 24 swing low at 0.8264, followed by the YTD lows at 0.8202.

Technical levels to watch

What you need to take care of on Thursday, April 7:

The American dollar retained its strength on Wednesday, as the focus remained on geopolitical tensions and aggressive central banks.

US President Joe Biden announced an executive order which will ban new investments in Russia. European leaders, on the other hand, were unable to reach an agreement on banning Russian coal, although they said it was due to a technical issue and that they will discuss it again on Thursday. Meanwhile, European Commission President Ursula von der Leyen said that new sanctions against the Kremlin would not be the last. 

The US Federal Reserve unveiled the Minutes of its latest meeting, which reminded market players of the aggressive stance of the central bank. Policymakers are determined to move the monetary policy to neutral “expeditiously.” Additionally, the statement reads: “participants also noted that depending on economic and financial developments, a move to a tighter policy stance could be warranted.”

The EUR/USD pair trades below 1.0900, while GBP/USD hovers around 1.3070. Commodity-linked currencies are under strong selling pressure, with AUD/USD changing hands at 0.7510 and USD/CAD trading at 1.2530.

Crude oil prices were sharply down, undermined by the soft tone of Wall Street, now at around $97.00 a barrel. Global indexes closed in the red, with US ones further weighed by FOMC Meeting Minutes.

Gold price held within familiar levels, now trading at around $1,924 a troy ounce.

Solana price could double after entering buy zone

• USD/CAD rallies but runs into a wall of resistance despite hawkish FOMC.
• WTI has dropped heavily mid-week, down some 4% WTI spot. 

The commodity currencies were the hardest hit immediately after the release of the Federal Open Market Committee minutes. USD/CAD rallied after a knee-jerk blip to the downside and reached a high of 1.25558. Simultaneously, in another blow to CAD, WTI futures settled a the lowest level in around a month. 

DXY, an index that measures the greenback vs a basket of six rival currencies, has run to the highest level for 2022 at 99.769 following the minutes that showed that the Federal Reserve officials expressed anxiety about inflation.

The members of the FOMC have finalized plans to shrink bond holdings in an aggressive effort to curb rising prices. The Fed is preparing to shrink the $9tn balance sheet at a pace of roughly $95bn a month.

The US dollar quickly reversed course to the said highs, but despite that the FOMC won't hesitate to deliver one or more half-point rate hikes, the dollar is back under pressure again, resting in the 99.60s at the time of writing. 

The commodity currencies are overall bearing the brunt of the US dollar move, with high beta to the equities that are also suffering.

All options reviewed by policymakers featured a more rapid pace of balance sheet runoff than in the 2017–19 episode," the minutes said. 

Many officials say one or more 50bps rate hikes may be warranted and many members sought a 50bps March hike if there was not a Ukraine war.

• Breaking: FOMC minutes say participants judged it appropriate to move policy towards neutral expeditiously

"Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified," the minutes said.

As for oil, inventories of commercial crude unexpectedly rose last week following a decrease last week, government data showed Wednesday, driving down oil prices in recent trading.

''Oil stockpiles grew 2.4 million barrels to 412.4 million barrels in the week ended April 1, the Energy Information Administration said. Supplies were about 14% lower than the five-year average for this time of year. Analysts had expected a decrease of 2.1 million barrels, according to Investing.com. A week earlier, the inventories fell by 3.4 million barrels,'' Reuters reported. 

West Texas Intermediate crude futures slid 3.1% to about $98.83 a barrel, while Brent fell 2.7% to $103.79 in recent trading. Spot WTI is down some 4% at the time of writing. 

Meanwhile, the Bank of Canada's tightening expectations are running hot after it started the cycle with a 25 bp hike to 0.5% earlier this month. ''WIRP suggests nearly 85% odds for a 50 bp hike at the April 13 meeting.  Looking ahead, swaps market sees the policy rate at 3.0% over the next 24 months,'' analysts at Brown Brothers Harriman explained. 

• NZD/USD fell to test key support around 0.6900 in recent trade as the US dollar picked up post-Fed minutes.
• The pair was also weighed on Wednesday as global equity and commodity prices fell.

A sharp decline in global equity and commodity prices plus a pick up in the strength of the US dollar in wake of a hawkish Fed minutes release saw NZD/USD fall back to test the 0.6900 level on Wednesday. For now, support at the big figure in the form of last Friday’s lows, the 21-Day Moving Average at 0.6897 and the 200-Day Moving Average at 0.6906 is holding up and the pair has rebounded into the 0.6910s.

But it nonetheless still trades with losses of about 0.4% on the day, with the kiwi also facing headwinds in the form of a significant weakness in its antipodean counterpart the Aussie. At current levels, NZD/USD now trades more than 1.5% lower versus earlier weekly highs in the 0.7030s.

The kiwi’s recent depreciation versus the US dollar is in fitting with that seen across G10 markets, as deteriorating risk appetite spurs safe-haven FX flows and markets bet on an ever more aggressive approach from the Fed to monetary tightening in the coming year.

With NZD/USD for now holding up well above key support in the 0.6900 area, many kiwi bulls will remain confident. Even in the face of rocky risk appetite conditions and hawkish repricing of Fed expectations, the kiwi has shown in recent weeks that it can perform well.

Recent strong performance since Russia’s invasion of Ukraine (NZD/USD still trades over 4.0% higher versus 24 February lows) has its roots in the rise in global commodity prices. As long as commodities continue to trade at elevated levels versus prior to the start of the war (some commodity strategists have argued the war means “structurally higher” commodity prices), NZD/USD retains a strong chance of rallying back above 0.70.

• The USD/JPY remained positive in the week, up 1.11%, amidst a risk-off sentiment and underpinned by the US 10-year yield.
• USD/JPY Price Forecast: The bias is upwards, but the RSI within the overbought area might suggest caution is warranted.

The USD/JPY advances in the North American session amid a risk-off market mood, courtesy of Fed speaking, the continuation of the Russian-Ukraine war, and China’s economy about to slow, as reported by Manufacturing and Services PMIs, which fell below the expansion levels. At the time of writing, the USD/JPY is trading at 123.87.

US equities remain trading in the red, with losses between 0.89% and 2.66%. Meanwhile, the greenback remains buoyant, as shown by the US Dollar Index, a measure of the buck’s value vs. its peers, up 0.25%, sitting at 99.742, underpinned by the 10-year US Treasury yield up to six basis points, currently at 2.622%.

Overnight, the USD/JPY seesawed around the 123.50-124.00 range ahead of the release of the FOMC March meeting. Once unveiled, the USD/JPY dipped towards the daily lows at 123.46 but recovered some ground and is aiming towards the 124.00 mark.

Breaking: FOMC minutes say participants judged it appropriate to move policy towards neutral expeditiously

USD/JPY Price Forecast: Technical outlook

The USD/JPY is upward biased. The daily moving averages (DMAs) reside well below the spot price and confirm the bias. However, the Relative Strength Index (RSI) at 74.65 is well within the overbought area, suggesting that caution is warranted.

That said, the USD/JPY first resistance level would be 124.00. A breach of the latter would expose the YTD high at 125.10, followed by June 2015 swing high at 125.85, followed by April 2001 daily high at 126.85, and then February 2002 pivot high at 135.02.

On the flip side, the USD/JPY first support would be 123.00. A decisive break would open the door towards 121.27, but it would find some hurdles on its way south. Once 123.00 gives way, the next support would be 122.41, followed by 122.00 and then March’s 31 daily low at 121.27.

• AUD/USD has dropped back to near the 0.7500 level as the US dollar strengthens after the Fed minutes release.
• That means the pair has now dropped over 1.0% on the day, with lower equity and commodity prices also weighing.

The US dollar is ramping up in wake of the release of the latest Fed meeting minutes and this has pushed AUD/USD to fresh session lows back below the 0.7500 level. That means the pair is now trading lower by more than 1.0% on the day, having already been under pressure prior to the release of the Fed minutes, likely as a result of the sharp pullback being seen across global equity and commodity markets. The Aussie has a strong correlation to both risk appetite and the prices of commodities such as oil, copper and other energy and metal prices.

With the Aussie now trading back in the 0.7500 area, it has more than unwound Tuesday’s post-hawkish RBA meeting gains that saw it at one point rally as highs as the 0.7660s on Tuesday. That's a roughly 2.0% drop from weekly peaks. Now that AUD/USD is trading back within last week’s ranges (when it spent practically the entire week within a 40 pips of the 0.7500 level), longer-term Aussie bulls will be questioning whether they want to buy into the dip.

Though still substantially higher versus mid-March lows, the pullback in the last two days in US and global equity markets doesn’t look healthy. If global yields continue to rally on expectations of central bank tightening, that doesn’t bode well for a recovery back to last week’s peaks. That would bode poorly for the highly risk-sensitive Aussie, and well for the safe-haven US dollar. Much will depend on whether commodity traders buy the dip, with oil now approaching key support.

• GBP/USD is on the back foot as the US dollar rallies on hawkish FOMC.
• The FOMC minutes showed that the Federal Reserve officials expressed anxiety about inflation.

GBP was the strongest currency immediately after the release of the Federal Open Market Committee minutes, popping to 1.3107 before dropping to post minutes lows of 1.3056 when the US dollar finally broke to the upside. 

DXY, an index that measures the greenback vs a basket of six rival currencies, has run to the highest level for 2022 at 99.769 following the minutes that showed that the Federal Reserve officials expressed anxiety about inflation. The members have finalized plans to shrink bond holdings in an aggressive effort to curb rising prices. The Fed is preparing to shrink the $9tn balance sheet at a pace of roughly $95bn a month.

"All options reviewed by policymakers featured a more rapid pace of balance sheet runoff than in the 2017–19 episode," the minutes said. 

Many officials say one or more 50bps rate hikes may be warranted and many members sought a 50bps March hike if there was not a Ukraine war.

• Breaking: FOMC minutes say participants judged it appropriate to move policy towards neutral expeditiously

Meanwhile, some market commentators have started to speculate that the BoE may think twice about hiking interest rates beyond May. ''The BoE is expecting some labour market slack to open up going forward.  If this starts to happen it can be assumed that wage inflation will be repressed and that higher prices for food and energy will slow demand for goods with elastic demand. This will lessen the need for further rate rises,'' analysts at Rabobank argued. 

According to the minutes of the March FOMC meeting, participants judged that it would be appropriate to move the stance of monetary policy towards a neutral posture expeditiously, reported Reuters. 

Additional Takeaways as summarised by Reuters:

On policy...

"Participants also noted that, depending on economic and financial developments, a move to a tighter policy stance could be warranted."

"All participants judged risk management would be important in deciding the appropriate stance of monetary policy, and that policy also would need to be nimble in responding to incoming data and the evolving outlook."

On balance sheet reduction...

"On balance sheet reduction, participants generally agreed monthly caps of about $60B for Treasury securities, $35B for mortgage-backed securities would likely be appropriate."

"Participants generally agreed that caps could be phased in over a period of three months or modestly longer if market conditions warrant."

"All options reviewed by policymakers featured a more rapid pace of balance sheet runoff than in the 2017–19 episode."

"Participants generally agreed that after balance sheet runoff had gotten well underway, would be appropriate to consider sales of mortgage-backed securities." 

"Most participants judged it appropriate to redeem treasury coupon securities each month up to the cap amount and to redeem treasury bills when coupon principal payments were below the cap."

"Participants agreed the Fed was 'well placed' to begin balance sheet reduction as early as after the end of the Fed's May meeting."

"Several participants remarked that reducing T-bill holdings over time would be appropriate because they are highly valued as safe and liquid assets."

"Participants agreed reducing the balance sheet would play important role in firming the stance of monetary policy and expected it would be appropriate to begin this process at a coming meeting, possibly as soon as in May. 

"Participants generally noted that maintaining large holdings of T-bills is not necessary under an ample-reserves operating framework."

On interest rates...

"Many participants noted that they would have preferred a 50 basis point increase in the target range for the federal funds rate at this meeting."

"Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified."

On the economy and inflation...

"All participants underscored the need to remain attentive to the risks of further upward pressure on inflation and longer-run inflation expectations."

"Participants agreed uncertainty regarding the path of inflation was elevated and that risks to inflation were weighted to the upside."

"Various participants also noted downside risks to the outlook, including risks from the Russian invasion of Ukraine, a broad tightening in global financial conditions, and a prolonged rise in energy prices."

"Several participants judged the upside risk to inflation associated with Ukraine war appeared more significant than the downside risk to growth."

• The shared currency remains subdued in the North American session but holds to the 1.0900 level amidst a risk-off mood.
• Contraction in China’s Caixin Manufacturing and Services PMIs looms as a signal of global economic deceleration.
• EUR/USD Price Forecast: A break below 1.0900 would exacerbate a downward move towards 1.0806.

The EUR/USD remains in choppy trading as market players prepare for the release of the FOMC March’s meeting minutes, but earlier gave way for USD bulls, as it broke below the 1.0900 mark during the European session, but reclaimed the latter in the North American session. At the time of writing, the EUR/USD is trading at 1.0905, barely flat.

Downbeat market mood and Fedspeaking boosts the greenback

The market sentiment is downbeat, as European equities finished with losses, while across the pond, the history is the same. In the Asian session, news that China’s Caixin Services for March fell below the 50 levels, in the same tenure as Monday’s Manufacturing reading, concerns market players. The recent China Covid-19 outbreak threatens to push the brakes on the global economic recovery.

Elsewhere, the hawkish Fed speaking in the week dragged global equities down while bond yields rose. On Wednesday, Fed’s Governor Lael Brainard spooked the markets, commenting that the balance sheet reduction might begin in the May meeting, something unexpected by traders as they were looking to QT to start in the July meeting. Meanwhile, Kansas City Fed Esther George said that a 50 bps move would be an option we must consider and emphasized that conditions favor going faster than before.

Money market futures portrays market players’ response to Brainard’s remarks -one of the doves of the FOMC. The CME FedWatch Tool shows that investors have priced a 75.5% chance of a 50 bps rate hike in the May meeting, which will lift the Federal Funds Rate (FFR) to 1%.

Meanwhile, the US Dollar Index, a gauge of the greenback’s measure against a basket of its rivals, retreats from YTD highs, down 0.05%, sitting at 99.443. Contrarily, the US Treasury yields are rising.

The 10-year benchmark note sits at 2.586%, up one basis point but short of the YTD high at 2.66%, as market players expect the release of March’s monetary policy minutes.

On the Geopolitical front, the fighting continues in Eastern Europe. Moscow said that work is ongoing when the next round of discussions with Ukraine occurs.

EUR/USD Price Forecast: Technical outlook

The EUR/USD downtrend remains intact and is accelerating towards a retest of the YTD low at 1.0806, as shown by the 300-pip fall in the last five trading days. Furthermore, the Relative Strength Index (RSI) at 38.94 below the 50-midline is in bearish territory, with enough room to spare before RSI reaches oversold conditions if the event of the EUR/USD aiming lower.

That said, the EUR/USD first support level would be 1.0900. A clear break would expose the YTD low at 1.0806, followed by April 2020 cycle lows at 1.0727 and then the Covid-19 pandemic outbreak lows in March 2020 at 1.0636.

• The gold price is holding within familiar ranges into the FOMC minutes. 
• The Ukraine crisis is supporting safe-haven flows into the precious metals. 
• XAU/USD to remain bearish amid rising US yields

The gold price is under pressure on Wednesday but contained within a familiar range as it continues to trade sideways on the daily chart. At the time of writing, at $1,922.10, XAU/USD is down 0.06% and has travelled between a high of $1,933.58 and a low of $1,915.08. 

The US dollar was flat to slightly higher on Wednesday, as measured by the DXY index and vs a basket of currencies. In early-morning trading, the dollar index eased to 99.313, but has since climbed back to 99.54 to trade slightly in the green in the count down to the Federal Open Market Committee minutes. On Tuesday, the index touched its highest since May 2020 at 99.759.

The sharp gains were made the previous session following hawkish comments from one of the Federal Reserve's top officials. On Tuesday Fed's Lael Brainard, usually a more dovish policymaker, said she expected a combination of rate increases and a rapid balance sheet runoff to bring US monetary policy to a "more neutral position" later this year. Her comments sent both US yields and the dollar on a tear, slightly weighing on the price of gold that remains supported above the psychological $1,900 round number in sideways consolidation. 

At the Fed's last meeting, it raised rates for the first time since 2018 and pivoted from an easy monetary policy to battle the effects of the coronavirus pandemic to a more aggressive stance on fighting inflation. Meanwhile, the minutes of the FOMC's March meeting is expected to provide fresh details on its plans to reduce its bond holdings. 

For that, US Treasury yields rose and stock indexes fell sharply today ahead of the release of the minutes. 30 minutes before the release of the minutes, the yield on 10-year Treasury notes was up  1.84% at 2.60%. The Dow Jones Industrial Average fell 0.6%, the  S&P 500 lost 1.17% and the Nasdaq Composite dropped 2.38%.

Russian & Ukraine peace talks, slow progress

Meanwhile, the Kremlin said on Wednesday that peace talks between Moscow and Kyiv were not progressing as rapidly or energetically as it would like.

Reuters reported that ''Russia has accused the West trying to derail peace talks with Ukraine by fuelling "hysteria" over allegations of war crimes by Moscow's forces following their retreat from the Kyiv region.''

''Kyiv and the West say there is evidence, including images and witness testimony gathered by Reuters and other media organisations, that Russia committed war crimes in the Ukrainian town of Bucha. Moscow denies the charge and has called the allegations a 'monstrous forgery.'''

"The only thing I can say is that work (on the talks) is continuing," Kremlin spokesman Dmitry Peskov told reporters on a conference call when asked about the prospect of another round of negotiations between Moscow and Kyiv.

"There is still a long road ahead. The work process is ongoing but it is dragging along the way more than we would like."

Russian sanctions, supportive of USD

The news at the start of this week of further sanctions from the US and the EU on Russia which will not be cost-free, particularly for the Eurozone economy, is another factor to consider which can help to support gold prices.  While these have serious implications for EUR, which will likely see the US dollar supported, risk-off flows into gold could offset the gains in the greenback.

However, default risk has risen for Russia. Today, Russia said foreign banks declined to process $649.2 mln of coupon payments after the Treasury Department banned Russia from making any debt payments through US banks. The ramifications of such a shortfall of liquidity in the money markets would be expected to drive up further real demand for the US dollar.

Gold technical analysis

The price has been making a base for itself on the daily time frame at a prior structure as marked up on the chart above. The weekly 61.8% ratio has held as support and the price has been accumulating above there and in the low $1,900s ever since. A catalyst will be needed to see the price breakout of its sideways range with a bias to the upside while holding above the weekly 61.8% ratio.

• The USD/CHF keeps trimming last week’s losses, up 0.81% in the week.
• The break of a bullish flag on an H4 chart opened the door for further gains.
• USD/CHF Price Forecast: The pair is upward biased, as depicted by the daily chart.

The USD/CHF climbs for four consecutive days amid a gloomy market mood North American session, blamed on hawkish Fed expectations, high US Treasury yields, and the release of the Fed’s March meeting minutes. At the time of writing, the USD/CHF is trading at 0.9324.

European and US equities reflect the aforementioned dismal sentiment. At the same time, the US Dollar Index, a gauge of the greenback’s value against a basket of peers, rises 0.01% and sits at 99.491. The 10-year US Treasury yield is rising four basis points, up at 2.596%, normalizing the yield curve that had inverted over the last few days.

Overnight the USD/CHF braced to February 10 daily high at 0.9296, and once cleared, the USD/CHF rallied and reached a fresh weekly high at 0.9349 but retreated to current levels as market players waited for the release of the FOMC March meeting minutes.

USD/CHF Price Forecast: Technical outlook

The USD/CHF uptrend remains intact. The daily moving averages (DMAs) reside well below the spot price, though almost horizontally, but sitting beneath the 0.9263 50-DMA.

The 4-hour chart shows that a bullish flag , drawn since March 14 highs around 0.9460, was broken, meaning that the USD/CHF could aim higher, but as the release of the Fed’s minutes loom, the pair remains subdued.

That said, the USD/CHF first resistance would be 0.9349. Breach of the latter would expose March 27 and 29 highs area around the 0.9370-80 region, which would expose the 0.9400 mark once broken.

Technical levels to watch

• Silver has rebounded from one-week lows at $24.12 to near $24.50 as markets await the Fed meeting minutes release.
• Rising US yields and USD strength have weighed recently, though geopolitics remains a source of support.
• Dips towards $24.00 may thus be subject to being bought into.

Spot silver (XAG/USD), whilst continuing to trend gradually to the downside as US yields and the US dollar continues to advance ahead of the release of the minutes of the last Fed meeting, has rebounded in recent trade. Spot prices hit fresh one-week lows at $24.12 per troy ounce earlier in the session but have since rebounded back towards $24.50 where they now trade with gains of about 0.6% on the day. That means XAG/USD has recovered back above its 50-Day Moving Average in the $24.30s, a level that has been offering support over the past three sessions.

But against the backdrop of further hawkishness from Fed policymakers in recent days ahead of what is likely to be very hawkish-sounding Fed minutes release at 1900BST, the risks remain tilted towards higher US yields and a stronger US dollar. Given silver’s negative correlation to both of these, that suggests a continued steady grind lower towards $24.00 is more likely than not. Silver bears will thus be eyeing a test of recent lows just under $24.00, which also happen to coincide with the 200DMA.

Was it not for the high level of geopolitical risk premia priced into precious metals markets, plus ongoing demand for inflation protection and investors mull the inflationary impact of the Russo-Ukraine war, XAG/USD would likely be significantly lower. Whilst Fed hawkishness, rising yields and the risk of a stronger US dollar are all negative for silver, it would be brave to call for silver to drop all the way back to annual lows in the $22.00 area.

The US and UK both toughened financial sanctions on Russia on Wednesday, while the EU is in the process of passing sanctions on imports of Russian commodities, including coal and oil. Meanwhile, there have not been any fresh indications recently that a Russo-Ukraine peace deal might be near, and Russia shows no signs of wanting to end its invasion of Ukraine. As a result, dips towards $24.00 may be bought into in the short term.

• China’s March Caixin Manufacturing and Services PMIs fell below 50 for the first time since 2020, signaling its economy is slowing.
• A hawkish Fed speaking weighs on market sentiment, alongside Russo-Ukraine tussles.
• USD/RUB Price Forecast: The uptrend remains intact, but a daily close under 80.3254 might open the door towards the 200-DMA around 77.20s.

The USD/RUB slumps in the North American session amid a downbeat market mood courtesy of a worse than expected China’s Caixin Services PMI, which added to the Manufacturing PMI released last Friday, showed that both readings fell. Also, a hawkish Federal Reserve and extension of hostilities between Ukraine-Russia added a pinch of salt to the dismal sentiment. However, despite the aforementioned, the USD/RUB is trading at 80.0060.

Meanwhile, the US Dollar Index, a gauge of the greenback’s measure against a basket of its rivals, retreats from YTD highs, down 0.05%, sitting at 99.443. Contrarily, the US Treasury yields are rising.

The 10-year benchmark note sits at 2.62%, up seven basis points, as market players expect the release of March’s monetary policy minutes.

On Wednesday, Federal Reserve policymakers reiterated the need to normalize the economy. Fed’s Governor Lael Brainard spooked the markets, saying that the balance sheet reduction might begin in the May meeting, something unexpected by traders as they were looking to the July meeting. In the same tenor, Kansas City Fed Esther George said that a 50 bps move would be an option we must consider and emphasized that conditions favor going faster than before.

On the Geopolitical front, the fighting continues in Eastern Europe. Moscow said that work is ongoing when the next round of discussions with Ukraine occurs.

However, the USD/RUB held onto losses, breaking below the 82.7000 support area, unsuccessfully tested six times but gave way during Wednesday’s Asian Pacific session.

USD/RUB Price Forecast: Technical outlook

The USD/RUB upward bias remains intact, despite the strength of the fall. However, a daily close under the 80.3254 level would further extend losses, and the USD/RUB could aim toward the 200-day moving average (DMA) at 77.2027.

Upwards, the USD/RUB first resistance would be 82.7882. Breach of the latter would expose essential resistance levels. The next supply zone would be 85.00, followed by the 50-DMA at 88.7789. On the flip side, the USD/RUB first support would be 80.00. A decisive break would expose 78.0683, followed by the 200-DMA at 77.2027.

• Major US equity indices were lower on Wednesday as higher yields put large-cap tech stocks under selling pressure.
• Recent hawkish Fed communications are behind the move higher in yields, with focus now on Fed minutes at 1900BST.
• The S&P 500 fell more than 1.0% to the 4460s from Tuesday’s close at 4525.

Major US equity indices slumped on Wednesday in the hours prior to the release of the minutes of the Fed’s March meeting, with large-cap tech stocks leading the rout amid a continued surge in US bond yields. Hawkish remarks on Tuesday from Fed Vice Chairwoman Lael Brainard was the catalyst for a spike in yields across the US curve. Brainard is typically one of the central bank’s more dovish members but hinted to a more aggressive approach towards QT than markets had been expecting.

All other Fed speakers who have hit the wires over the last few days have all also sounded hawkish and in agreement on the need to 1) get rates quickly back to neutral, 2) begin swift balance sheet reduction. This is very much the expected tone of the upcoming minutes release, scheduled for 1900BST and this could keep maintain upward pressure on US yields. That suggests the major US indices remain at risk of incurring further losses.

The S&P 500 was last trading down 1.3% in the 4460s, having tumbled from Tuesday’s closing levels in the 4520s and, in doing so, fallen back below its 200-Day Moving Average. The main drag on the index is its mega-cap tech stocks including Microsoft (-2.9%), Apple (-2.2%), Nvidia (-5.3%), Facebook (-3.2%), Amazon (-3.2%), Tesla (-4.2%) and Alphabet (-2.0%). Underperformance in these names, as well as in the tech sector more broadly, saw the Nasdaq 100 index drop closer to 2.5%, taking its reversal back from weekly highs to close to 5.0%.

The Dow, meanwhile, was last down a more moderate 0.8%, given its greater weighting towards equity sectors that perform better in an environment of risk-off/higher yields. In terms of the S&P 500 GICS sectors, despite slightly lower oil prices on the day, energy is up over 1.5%, while defense utilities and consumer staples sectors gained 1.0% and 0.5% respectively. Despite the rising yields and growing evidence of a housing market slowdown, real estate was last up 0.4%. The big underperformers were consumer discretionary (-3.0%), information technology (-2.8%) and communication services (-2.0%).

In coordination with the US, the UK just announced new sanctions against Russia, imposing an outright ban on all new outward investment into the country, reported Reuters. The UK also imposed an asset freeze against Sberbank and Credit Bank of Moscow, steps which were taken in coordination with the US. The UK also added nine more listings to its Russian sanctions list, including three oligarchs.

For reference, the US earlier announced that it is "dramatically escalating" the financial shock on Russia by cutting off the country's largest banks

Philadelphia Fed President and FOMC member Patrick Harker on Wednesday said that he is committed to methodically raising interest rates back to neutral, which he sees at around 2.5%, reported Reuters. Reducing the balance sheet will also remove financial accommodation, he added, noting that we want to slow the economy in a way that is not so aggressive that we risk tilting it back into a recession. 

Regarding inflation, Barkin said he is focused on its breadth across numbers of goods as an indicator as to whether conditions are improving. He is also focusing on demand and whether it will show signs of weakening as the Fed raises rates, he added, noting that retailers are saying there doesn't seem to be much "trade down" among consumer to cheaper goods, despite price increases.  

The United States is open to all tools if China invades Taiwan, US Treasury Secretary Janet Yellen said on Wednesday, reported Bloomberg. The US is monitoring attempts to use crypto to evade sanctions, she added, referring to sanctions on Russia. 

A senior Biden administration official just announced that the US is "dramatically escalating" the financial shock on Russia by cutting off the country's largest banks. The US is to impose full blocking sanctions on Russia's Sberbank and Alfa Bank, the official added, while US President Joe Biden is also set to sign a new executive order banning all new investment in Russia.  

The US is "dramatically escalating" the financial shock on Russia, a senior Biden administration official said on Wednesday, by cutting off the country's largest banks, reported Reuters. The US is to impose full blocking sanctions on Russia's Sberbank and Alfa Bank, the official added, while US President Joe Biden is also set to sign a new executive order banning all new investment in Russia. 

The official explained that Sberbank is critical to Russia's financial system and holds one-third of Russia's total banking assets and added that Biden's new executive order will ensure that the recent private-sector exodus from Russia continues. More than 600 multinational corporations have already left the country, the official said. 

Russia will have to find new sources of dollars from outside the US and a new payment brought other than US banks to avoid falling into default, the official continued, adding that more actions will come from the EU that degrade Russia's status as a leading energy supplier.

The US remains hopeful that there is alignment with India regarding actions against Russia, and has been clear to China about the consequences of any effort to circumvent sanctions on the country, the official said. China is not openly indicating any intention to circumvent sanctions, but it is something the US is watching closely, the official warned. 

Finally, the official noted that if Russian President Vladimir Putin was to change course in Ukraine, then sanctions could be slowed and possibly reversed. 

Philadelphia Fed President and FOMC member Patrick Harker said on Wednesday that he doesn't see high inflation going away any time soon and that high gasoline prices will be here for some time, reported Reuters. Harker said he doesn't expect food prices to come down any time soon. 

Harker said that some cooling in the housing market can now be seen as the Fed raises interest rates, and noted that more people will soon be observed joining the labour force. 

Harker added that the Fed "has some time" to get to a neutral position, given the continued impact of the pandemic on jobs and inflation and added that, while the Fed "could move faster", it is already having an impact, as seen in higher bond yields. 

• Gold is in wait-and-see mode pre-the release of Fed minutes near $1930, leaving it well within recent ranges.
• Equities are sharply down, but yields are sharply up, sending mixed signals for precious metals markets.
• A hawkish Fed surprise could see XAU/USD retest $1900, but amid ongoing geopolitical nerves, dips may be bought into.

Spot gold (XAU/USD) markets are in wait-and-see mode ahead of the release of Fed minutes at 1900BST later on Wednesday, with prices for now stuck within recent $1915-$1940ish ranges. At current levels around $1930, XAU/USD trades about 0.3% higher on the session, after rebounding from one-week lows printed earlier in the session in the mid-$1910s, with market participants lacking the conviction to push a bearish breakout ahead of upcoming risk events.

A sharp drop in US and European equities is for now offering gold enough safe-haven support to shield it from the negative impact of higher US yields, while the US dollar is flat amid broadly subdued FX markets pre-Fed minutes. Fed speakers in recent days (mostly the comments from Fed Vice Chair Lael Brainard on Tuesday) have pumped the US dollar and US yields higher, adding downside risks to gold, which has a negative correlation to both.

But the increasingly hawkish tone to rhetoric from Fed policymakers as of late sets the bar high for a hawkish surprise out of the upcoming minutes. Whilst a kneejerk move lower to test the 50-Day Moving Average just above the $1900 level, and recent lows in the $1890s just below it, does seem plausible, the tense geopolitical backdrop continues to stimulate safe-haven demand.

Western nations continue to toughen sanctions against Russia as punishment for its invasion of Ukraine, and with evidence of Russia war crimes against Ukrainian civilians piling up, pressure is piling up for more to be done. The EU has taken its first steps to sanction Russian energy imports, on which it is heavily reliant, announcing a ban on coal and signaling it is looking at sanctioning oil.

From the perspective of a gold trader, disruptions to the global supply of key energy resources look set to worsen in the near term rather than improve, increasing risks of stagflation and underpinning demand for assets deemed as providing inflation protection. As a result, traders may continue to view dips back towards $1900 as attractive for the time being.

• AUD/USD witnessed some selling on Wednesday and moved further away from the YTD peak.
• The overnight pullback could be seen as a false breakout through an ascending trend channel.
• Dips towards the 0.7535-0.7530 area could be seen as a buying opportunity and remain limited.

The AUD/USD pair edged lower on Wednesday and retreated further from the highest level since June 2021, around the 0.7660 region touched the previous day. The pair remained on the defensive through the early North American session and was last seen flirting with the daily low, just above mid-0.7500s.

The risk-off impulse - as depicted by a sharp all across the global equity markets - acted as a headwind for the perceived riskier aussie. On the other hand, the blowout rally in the US Treasury bond yields underpinned the US dollar. This, in turn, exerted some downward pressure on the AUD/USD pair.

That said, the prospect for more Western sanctions on Ukraine continued lending support to commodity prices, which should help limit any deeper losses for the resources-linked Australian dollar. Apart from this, a hawkish RBA commentary on Tuesday warrants some caution for aggressive bearish traders.

From a technical perspective, the overnight sharp pullback could be seen as a false breakout through an upward sloping trend channel extending from the YTD low. That said, it will still be prudent to wait for some follow-through selling before confirming that the AUD/USD pair has formed a near-term top.

Moreover, technical indicators on the daily chart maintained their bullish bias and are still far from being in the overbought territory. Hence, any subsequent decline could attract some buying near the 0.7535-0.7530 area. This, in turn, should help limit the downside near the 0.7500 psychological mark.

On the flip side, the top end of the aforementioned channel, currently around the 0.7590 region, now seems to act as an immediate hurdle. Sustained strength beyond should allow bulls to aim back to reclaim the 0.7600 mark and push the AUD/USD pair back towards the YTD peak, around the 0.7660 area.

AUD/USD daily chart

Key levels to watch

As strategists at TD Securities note, it is striking how traders short in gold have plunged considering that markets are pricing a hawkish Federal Reserve. However, this environment poses some risks for the yellow metal.

Where did all the shorts go? 

“Our dry-powder analysis highlights that the breadth of traders short in gold has shrunk towards its lowest levels on record. This is a striking change from just a few months ago, when sentiment in the precious metals complex was pervasively negative, with short positioning bloated at lower prices.” 

“Gold bugs appear to be ignoring a hawkish Fed and embracing a safe-haven asset for protection against the fog of war.”

“Strong physical demand is also likely both directly and indirectly associated with the war and its inflationary impact.”

“This set-up also leaves gold vulnerable to a de-escalation in the war or a change in the market's focus as the fear trade subsides, especially given that there are no shorts in sight.”

Philadelphia Fed President and FOMC member Patrick Harker reiterated on Wednesday that inflation is far too high in the US and said that he is worried that inflation expectation could become unmoored, reported the Wall Street Journal. The Fed will soon start cutting the size of its balance sheet, he noted, a nod in favour of recent comments from the likes of Fed Vice Chair Lael Brainard and NY Fed President John Williams that balance sheet reduction could begin in May. 

GBP/USD is choppy in range above 1.30 but remains prone to weakness. Further weakening of below 1.30 is likely as rate hike bets for the Bank of England (BoE) are set to be trimmed.

There is room to go in the GBP’s leg lower

“Widening gilts-UST yield differentials have begun to weigh more clearly on the pound in recent trading, but we think there’s room to go in the GBP’s leg lower with the 5-yr spread currently sitting at its most negative level since October 2019.”

“We think it may only be a matter of time before markets begin to chip away at extended BoE pricing and the gap between year-end hike expectations widens further to drag sterling to re-test 1.30 and possibly head toward the 1.26/27 zone.”

Members of the International Energy Agency (IEA) will release 120M barrels of crude oil in a bid to cool markets, reported Bloomberg on Wednesday. The US will provide 60M of these barrels and this will be included as part of the already announced 180M barrel release that US authorities announced last week. 60M barrels will come from other nations.

The total amount of crude oil now set to be released by IEA members in the coming months now stands at 240M barrels, which is nearly equal to about two and a half days worth of global demand. 

While the EUR/USD bounced back above the 1.09 level a few hours ago, economists at Scotiabank see the pair at risk of falling below 1.08 towards the 1.06 mark.

Recent price action points to another decline under 1.09

“Recent price action points to another decline under 1.09 that then leaves the overnight low of 1.0875 (a five-week low) as support followed by the mid-1.08s and then a fairly unobstructed drop to key support of 1.08.”

“Resistance after the overnight high of ~1.0925 is followed by the mid-figure zone that marked the currency’s range bottom last week.”

“We see the EUR heading for a re-test of 1.08 shortly with continued negative sentiment perhaps pulling it toward the 1.06 mark.”

• USD/JPY prolonged its positive move for the fourth straight day and climbed to a one-week high.
• The formation of a short-term ascending trend channel supports prospects for additional gains.
• Slightly overbought RSI (14) held back bulls from placing fresh bets ahead of the FOMC minutes.

The USD/JPY gained positive traction for the fourth successive day on Wednesday and shot over a one-week high, though struggled to capitalize on the move beyond the 124.00 mark.

Expectations for a more aggressive policy tightening by the Fed, along with inflation fears, pushed the US Treasury bond yields to a fresh multi-year peak. This resulted in a further widening of the US-Japanese government bond yield differential and acted as a tailwind for the USD/JPY pair.

That said, the risk-off impulse drove some haven flow towards the Japanese yen and kept a lid on any further gains for the USD/JPY pair amid modest US dollar pullback from a nearly two-year high. The technical set-up, however, supports prospects for a further near-term appreciating move.

The recent move up witnessed over the past four days or so has been along an upward sloping channel and points to a well-established short-term bullish trend. That said, investors preferred to wait on the sidelines amid slightly overbought RSI (14) on the daily chart and ahead of the FOMC minutes.

Nevertheless, the bias still seems tilted in favour of bulls and a possible move back towards the 125.00 psychological mark, or the multi-year high touched in March. That said, it will be prudent to wait for a convincing break through the channel resistance before positioning for further gains.  

On the flip side, any meaningful pullback is likely to attract fresh buying and remain limited near the 123.00 round figure. The said handle coincides with the lower end of the ascending channel, which if broken would negate the constructive outlook and prompt aggressive long-unwinding trade.

USD/JPY 1-hour chart

Key levels to watch

GBP/USD is rolling over and coming under short-term pressure. Economists at Credit Suisse look for an imminent break below 1.30 and a move to next support at 1.2855/29.

Resistance at 1.3287/99 to cap for an eventual fall to 1.2855/29

“We look for a break below the 1.3051/43 support to open up a fall back to the recent low at 1.3000. Beneath here should reassert the downtrend, especially if daily MACD also starts to roll over. Support is then seen next at the lower end of the nine-month channel at 1.2930/11 and eventually the 50% retracement of the uptrend from 2020 and November 2020 low at 1.2855/29. We would look for a fresh floor here.” 

“Resistance is seen at 1.3177/84 initially, a close above which can see a move back to 1.3223/26 and potentially a retest of 1.3287/99. A close above here would suggest that the recovery can extend further, with resistance seen next at the 55-day average at 1.3342, where we would look for a solid cap if reached.”

• EUR/USD bounces off multi-week lows near 1.0870 .
• A visit to the YTD low in the 1.0800 zone looks likely.

EUR/USD regains the 1.0900 barrier and beyond after bottoming out in the 1.0870 region on Wednesday.

Considering the ongoing price action, further decline remains in store for the pair in the short-term horizon. Against that, a drop below the so far weekly low at 1.0875 (April 6) should put a visit to the 2022 low back on the radar in the relatively short-term horizon.

The medium-term negative outlook for EUR/USD is expected to remain unchanged while below the key 200-day SMA, today at 1.1469

EUR/USD daily chart

• WTI continues to trade choppy and within recent ranges above $100 as traders weigh geopolitics and oil reserve releases.
• WTI’s 50DMA near $100 and 21DMA above $105 are for now containing the price action.

Global oil markets continued to trade in choppy fashion on Wednesday, with front-month WTI futures swinging between lows just above $100 per barrel to highs at $104, meaning the price action has remained contained within this week’s levels. At current levels in the $103.00 area, WTI is higher by just under $2.0 on the day. Technicals are playing an important role at present, with the 50-Day Moving Average just below $100 offer strong support at the same time as the 21DMA just above $105 offers decent resistance.

For now, it seems as though market participants are not yet willing to let WTI fall below $100, despite the announcement by US authorities of a historic crude oil reserve release last week and concerns about lockdown extensions in China. That’s probably because the geopolitical backdrop remains supportive, with Western nations readying fresh sanctions against Russia, whose military stands accused of committing widespread war crimes in Ukraine.

The European Commission on Tuesday proposed a ban on imports of Russian coal and other raw materials and said it was working on additional sanctions, including on Russian oil imports. Looking ahead, official weekly US crude oil inventory data is released at 1530GMT and comes after private weekly API inventory data on Tuesday showed a surprise build.

But that failed to dent crude oil prices at the time. Otherwise, traders await further updates regarding Western sanctions against Russia, on the state of Russo-Ukraine peace talks, and regarding other matters such as how much oil member nations of the International Energy Agency (IEA) will release from alongside the US. Sources told Reuters on Wednesday that IEA nations haven’t yet decided how much oil to release to cool markets. For now, WTI sticking within $100-$105 ranges probably makes sense.

Economist at UOB Group Ho Woei Chen, CFA, comments on the recently published inflation figures in South Korea.

Key Takeaways

“South Korea’s headline and core inflation accelerated in Mar with the former above 4% for the first time since Dec 2011. The trajectory of the domestic inflation suggests that the headline inflation rate will stay at around 4% until 3Q22 and full-year inflation will thus far exceed our forecast of 3.3% for 2022 (2021: 2.5%).”

“As BOK Governor-nominee Rhee Chang-yong may not be confirmed by the upcoming rate meeting on 14 Apr, there is likelihood that the BOK will resume its rate hike in May instead. We maintain our call for another 50 bps rate hike this year, 25 bps hike each in 2Q and 3Q to bring the base rate to 1.75% by 3Q. The higher inflation risk may warrant a further 25 bps increase in 4Q (not in our base case yet).”

“Energy imports including coal, crude oil, petroleum and LNG have increased sharply since 2021 to account for around 25% of South Korea’s total import costs. With its net energy imports up sharply due to costlier oil, this has placed South Korea’s external balances under pressure.”

“The positive domestic outlook remains largely intact for now, underpinned by easing COVID-19 measures as well as the government’s temporary job creation that lifted employment in public services, health care and social services. South Korea is planning an extra budget after President elect Yoon Suk-yeol takes office in May. This would support further growth recovery in the country and we are maintaining our GDP growth forecast for South Korea at 3.0% this year (2021: 4.0%).”

• USD/CAD struggled to preserve its intraday gains and was weighed down by a combination of factors.
• Rebounding oil prices underpinned the loonie and acted as a headwind amid modest USD weakness.
• Bulls need to wait for a convincing breakthrough a descending trend-line extending from late March.

The USD/CAD pair built on the previous day's solid rebound from the 1.2400 neighbourhood, or the YTD low and gained some positive traction during the first half of the trading on Wednesday. The momentum lifted spot prices back above the 1.2500 psychological mark, though bulls struggled to capitalize on the move or find acceptance above the 200-hour SMA.

An uptick in crude oil prices underpinned the commodity-linked loonie. This, along with modest US dollar pullback from a nearly two-year high, kept a lid on any further gains for the USD/CAD pair. That said, the continuous surge in the US Treasury bond yields favours the USD bulls and should help limit any meaningful downside for the major, at least for the time being.

From a technical perspective, the intraday uptick faltered near a descending trend-line extending from the high touched on March 28, which should now act as a key pivotal point for traders. Meanwhile, technical indicators on the daily chart are still holding deep in the bearish territory and warrant caution before confirming that the USD/CAD pair has bottomed out.

The technical setup makes it prudent to wait for a convincing break through the aforementioned trend-line resistance to support prospects for any meaningful upside. The USD/CAD pair might then accelerate the recovery move towards an intermediate hurdle near the 1.2540 region. Some follow-through buying should allow bulls to make a fresh attempt to conquer the 1.2600 mark.

On the flip side, sustained weakness back below the 1.2470-1.2460 region will suggest that the overnight short-covering move has run its course and prompt fresh selling. This, in turn, would set the stage for a slide back towards challenging the 1.2400 round figure, or the lowest level since November 2021, which if broken would be seen as a fresh trigger for bearish traders.

USD/CAD 1-hour chart

Key levels to watch

• DXY comes under pressure following new cycle tops.
• Extra advance could see he 100.00. mark revisited near term.

DXY comes under some corrective downside pressure after hitting new cycle peaks around 99.75 earlier on Wednesday.

The rally in DXY remains well and sound despite the ongoing knee-jerk and the dollar remains well positioned to attempt an assault to the psychological 100.00 mark ahead of the May 2020 peak at 100.55.

The current bullish stance in the index remains supported by the 6-month line near 96.30, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 94.98.

DXY daily chart

EUR/USD has confirmed a short-term bearish “wedge” continuation pattern following the break below 1.0944. Analysts at Credit Suisse look for a quick move lower.

Bear “wedge” continuation pattern suggests a quick move lower is likely

“EUR/USD has completed a relatively clear bearish ‘wedge’ continuation pattern following the break below 1.0944. These patterns typically lead to quick moves lower once confirmed and with this in mind, we look for a quick fall to crucial medium-term support at 1.0825/0806, which is the confirmed uptrend from the January 2017 low.” 

“A break below 1.0825/0806 would open up a move to the 2018 low at 1.0635, with the potential ‘measured wedge objective’ just above here at 1.0675/74.”

“Resistances at 1.0944 and 1.0989/1008 ideally cap to maintain the bearish ‘wedge’.”

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the latest release of inflation figures in Philippines.

Key Takeaways

“Headline inflation accelerated at a faster pace of 4.0% y/y in Mar (from +3.0% in Feb), surpassing our estimate (3.6%) and Bloomberg consensus (3.7%). It was primarily driven by surging fuel and food prices amid upward adjustments in electricity rates and a weaker Peso against USD.”

“We have raised our 2022 full-year inflation target to 4.5% (from 3.5% previously; BSP est: 4.3%; 2021: 3.9%), after taking into consideration a higher-than-expected inflation outturn and broad-based price increases in Mar. Our revision also rests on the continued upward pressure on commodity prices and supply chain snags brought by the prolonged Russia-Ukraine conflict as well as the recovery momentum in domestic demand following easing of COVID-19 containment measures and border reopening since Feb. The ongoing petitions for a hike in minimum wage and public transport fare will add further upside risks to the nation’s inflation outlook.”

• GBP/USD has stabilised around 1.3075 and trades flat ahead of the release of Fed meeting minutes.
• The pair fell under 1.3100 on Tuesday following hawkish Fed commentary, highlighting the growing divergence in tone with the BoE.
• Some analysts are calling for a break below 1.3000 as this divergence between the banks further grows.

GBP/USD has stabilised around 1.3075, where it trades flat on Wednesday amid a subdued tone to broader FX market trade, with market participants opting to take a wait-and-see approach ahead of the release of Fed meeting minutes. Global equities have picked up where they left off with things on Tuesday and continue to press lower in wake of recent hawkish Fed speak from Vice Chairwoman Lael Brainard, and this is likely to weigh on risk-sensitive cable.

Market commentators have noted that the most recent hawkish remarks from Brainard, who is usually one of the Fed’s more dovish policymakers, highlighted the increasing divergence in tone between the Fed and BoE. Earlier in the week, BoE dove Jon Cunliffe (who was the lone voter against a rate hike at the bank’s last meeting) downplayed inflation risks and warned about economic weakness.

The upcoming Fed meeting minutes may well put this divergence in tone back in the spotlight, with some GBP/USD bears calling for a break below last week’s 1.3050 lows and a push towards annual lows at 1.3000. The pair actually already dipped underneath last week’s low earlier this session to hit 1.3045, but the move was short-lived with traders unwilling to overcommit pre-minutes.

Recent technical price action will embolden the bears; GBP/USD has in recent weeks been unable to sustain a move above its 21-Day Moving Average (now at 1.3125), sending a signal that the pair isn’t ready to break higher. Some FX strategists have called UK money market expectations for a further 140B bps in tightening from the BoE this year as overly aggressive and if this does start to get pulled back, the resultant downside in UK yields (at a time when US yields are rising), could be enough to send GBP/USD into the upper 1.20s.

• EUR/JPY adds to Tuesday’s advance above 135.00.
• Immediately to the upside comes the YTD high at 137.54.

EUR/JPY extends the rebound from weekly lows in the 134.30 zone and retakes the 135.00 mark and above.

The underlying upside momentum in the cross remains unchanged for the time being. However, EUR/JPY could attempt to consolidate before resuming the uptrend. That said, 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 130.14, the outlook for the cross is expected to remain constructive.

EUR/JPY daily charts

• Silver edged lower for the fifth straight day and dropped to a one-and-half-week low.
• The setup supports prospects for a fall to retest sub-$24.00 levels, or the March bottom.
• Sustained strength beyond the $25.00 mark is needed to negate the bearish outlook.

Silver extended the previous day's rejection slide from the vicinity of the $25.00 psychological mark and witnessed some follow-through selling on Wednesday. This marked the fifth successive day of a negative move and dragged spot prices to a one-and-half-week low, around the $24.15 region during the mid-European session.

From a technical perspective, the emergence of fresh selling at higher levels and the subsequent decline favours bearish traders. With technical indicators on the daily chart holding in the bearish territory and still far from being in the oversold zone, the XAG/USD seems vulnerable to retesting sub-$24.00 levels, or the March swing low.

The latter coincides with the very important 200-day SMA and should act as a pivotal point for short-term traders. A convincing break below would set the stage for a fall to the next relevant support near the $23.60 region. The XAG/USD could then extend the downward trajectory and eventually drop to the $23.20-$23.15 support zone.

On the flip side, the $24.50 region now seems to act as immediate resistance. Any subsequent move up might continue to attract some selling and remain capped near the $25.00 mark. Some follow-through buying will negate the bearish bias and lift the XAG/USD to the $25.35-$25.40 intermediate hurdle en-route the $25.75-$25.80 area.

Silver 4-hour chart

Key Levels to watch

According to Chinese state media, the Chinese Cabinet on Wednesday noted that pressures on the economy are increasing and, as a result, authorities will roll out policies to stabilise market expectations in a timely way. Moreover, the Chinese cabinet said that authorities will use various monetary policy tools in a timely and flexible way and will set up relending facilities for tech innovation and elderly care. 

The announcement from the Cabinet comes as authorities widen lockdown conditions in financial hub Shanghai after a fresh surge in Covid-19 infections there. 

European Central Bank Chief Economist Philip Lane on Wednesday said that it is important to to overreact to the surge in inflation and that the ECB can't respond to the current high inflation as its orientation is towards the medium-term, reported Reuters. We will do whatever it takes to meet out 2.0% inflation target, Lane added. 

Economist at UOB Group Lee Sue Ann reviews the latest RBA monetary policy meeting (March 5).

Key Takeaways

“The Reserve Bank of Australia (RBA), at its meeting today, decided to maintain the cash rate target at 0.10% and the interest rate on Exchange Settlement balances at 0%. However, the RBA removed its usual reference that the Board is willing to be “patient’.”

“The mention of additional evidence refers specifically to 1Q22 and 2Q22 CPI data on 27 Apr and 27 Jul, respectively, as well as 1Q22 wages data on 18 May. An election in May lies in between now and then, reinforcing the view that a pre-election rate rise is unlikely.”

“We had already brought forward our rate hike call, looking for the cash rate target to be lifted by 15bps in Aug and then by 25bps in Nov. We are maintaining that view, for now, though bearing in mind that a much higher-than-expected core CPI could increase the risks of a rate hike sooner than Aug. The next RBA meeting is on 5 Apr.”

• Sustained USD buying, the risk-off impulse acted as a headwind for the perceived riskier aussie.
• The Fed’s hawkish outlook and surging US bond yields pushed the USD to a nearly two-year high.
• The Ukraine crisis lifted commodity prices and RBA’s upbeat commentary extended some support.

The AUD/USD pair remained on the defensive through the mid-European session, albeit has managed to hold its neck above the mid-0.7500s.

Following the previous day's sharp pullback from the 0.7660 area or the highest level since June 2021, the AUD/USD pair edged lower on Wednesday and was weighed down by a combination of factors. The market sentiment remains fragile amid fading hopes for a diplomatic solution to end the war in Ukraine. Apart from this, expectations for a faster policy tightening by the Fed took its toll on the global risk sentiment, which was evident from the risk-off impulse in the equity markets. This, in turn, lifted the safe-haven buck to a nearly two-year high and acted as a headwind for the major.

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. Moreover, Fed Governor Lael Brainard said on Tuesday that the US central bank could start reducing its balance sheet at a rapid pace as soon as the May meeting. This, along with worries that more Western sanctions on Russia would further stoke inflation, pushed the US Treasury bond yields to a fresh multi-year peak. This continued underpinning the buck and exerted downward pressure on the AUD/USD pair, though the downside remains cushioned.

The uncertainty over Ukraine drove commodity prices higher, which, along with a more hawkish commentary by the Reserve Bank of Australia (RBA), extended some support to the resources-linked aussie. It is worth recalling that the RBA on Tuesday dropped its pledge to be patient on tightening policy and noted that the domestic economy remains resilient, and spending is picking up following the omicron setback. The markets quickly reacted and started pricing in the first-rate hike during the third quarter. This held back traders from placing bearish bets around the AUD/USD pair.

Investors also seemed reluctant and preferred to wait on the sidelines ahead of the FOMC monetary policy meeting minutes, due for release later during the US session. Investors will look for fresh clues about the Fed's policy outlook, which will drive the US bond yields and the USD price dynamics. Apart from this, traders will take cues from the incoming geopolitical headlines to grab some short-term opportunities around the AUD/USD pair.

Technical levels to watch

Senior Economist at UOB Group Alvin Liew reviews the latest NFP figures released last Friday.

Key Takeaways

“The Mar US employment report showed a gain of 431,000 (above 400,00 for the 11th month in a row) jobs and the unemployment rate easing to 3.8%, nearly returning to pre-pandemic level of 3.5%.”

“Wage growth picked up pace at 0.4% m/m, 5.6% y/y in Mar in the face of growing demand and persistent worker shortages.”

“US employment gains in 2022 to date continues to fuel labor market optimism, while the resumption of stronger wage increases will still put the threat of wage-price spiral in focus amidst on-going inflation worries due to the Russia-Ukraine crisis.”

Russia has all the necessary resources to service its debts, a Kremlin spokesperson said on Wednesday, as reported by Reuters.

"A default situation is theoretically possible but it would be an artificial situation," the spokesperson added. "There are no grounds for Russia to really default."

Market reaction

Safe-haven flows continue to dominate the financial markets on Wednesday. As of writing, the Euro Stoxx 600 Index was down nearly 1% on a daily basis. In the meantime, the US Dollar Index is posting modest daily gains above 99.50.

• USD/JPY is attempting a bounce, finding support from firmer US Treasury yields.
• The pair failed to resist above 124.00 amid a pullback in the US dollar.
• All eyes remain on the Fed minutes, which may highlight the Fed/BOJ divergence.

USD/JPY is rebounding towards 124.00, as the ongoing rallying in the US Treasury yields helps find a floor near 123.60.

Over the last hours, the US dollar saw a sharp pullback from multi-month highs of 99.75 when compared with its major rivals. This could be attributed to a profit-taking slide ahead of the critical FOMC March meeting’s minutes.

However, the US Treasury yields keep rallying, as the Fed officials stepped up the hawkish rhetoric recently, calling for a bigger rate hike, as well as, the balance sheet run-off in the May meeting.

Meanwhile, the new Western sanctions against alleged Russian war crimes in Ukraine and the hawkish Fed’s expectations are weighing down on the market mood, keeping the pullback in the dollar short-lived.

On the other side, the Bank of Japan (BOJ) remains stuck with its ultra-loose monetary policy stance while desperately defending its yield curve target at 0.25%. This action by the BOJ has widened the monetary policy divergence between the Fed and the Japanese central bank, leaving the yen in the hands of the bears.

USD/JPY: Technical levels to consider

Lee Sue Ann, Economist at UOB Group, suggests the RBI could raise the policy rate by 25 bps at its meeting on April 8.

Key Quotes

“The looming inflation risks in FY2022/23 will be a persuasive factor for RBI to finally jump on the hike wagon and introduce its first rate hike in 2Q22 to 4.25%.”

“We also pencil in further hikes of 25 bps for both 3Q22 and 4Q22 to finally bring the repo rate to 4.75% at the end of 2022.”

• EUR/USD rebounds from 4-week lows near 1.0870.
• The dollar recedes from new cycle peaks around 99.75.
• The FOMC Minutes will grab all the attention later in the session.

The European currency regains some composure and manages to lift EUR/USD back to the positive territory beyond the 1.0900 barrier on Wednesday.

EUR/USD now looks to FOMC

After four consecutive daily pullbacks, EUR/USD finally regains the smile, although not before hitting fresh lows in the 1.0875/70 band during early trade on Wednesday.

Indeed, the greenback seems to be giving away part of the recent strong advance and sponsors at the same time the rebound in spot back above the 1.0900 hurdle against the backdrop of rising US and German yields.

In the domestic calendar, Germany Factory Orders contracted at a monthly 2.2% in February and the Construction PMI eased to 50.9 in March. In the broader Euroland, Producer Prices rose less than forecast 1.1% MoM in February and 31.4% over the last twelve months.

In the NA session, Mortgage Applications tracked by MBA are due next seconded by Philly Fed P.Harker’s speech and the release of the FOMC Minutes of the March meeting.

What to look for around EUR

EUR/USD remains under pressure, although it manages to bounce off the 1.0870 region so. 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 Factory Orders, Construction PMI, EMU Producer Prices (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 up 0.03% at 1.0907 and the next up barrier emerges at 1.1164 (55-day SMA) followed by 1.1184 (weekly high March 31) and finally 1.1231 (100-day SMA). On the flip side, a breakdown of 1.0874 (monthly low April 6) would target 1.0805 (2022 low March 7) en route to 1.0766 (monthly low May 7 2020).

Riksbank Deputy Governor Martin Floden said on Wednesday that he believes it's “better if interest rates could be raised gradually.”

“The policy rate is the primary tool for tightening policy,” Floden added.

During his speech on Tuesday, Floden said "inflation has been significantly higher than in our latest forecast, “adding that the Riksbank would need to conduct a re-evaluation of the monetary policy at the next meeting.

The Swedish central bank announces it's next policy decision on April 28.

European Central Bank (ECB) executive board member Fabio Panetta warned that asking the central bank to bring down high inflation in the near term would be "extremely costly.”

Additional comments

Market reaction

The shared currency faced a minor blow on these comments, as EUR/USD eased slightly from daily highs of 1.0926.

The spot is currently trading at 1.0911, still up 0.08% on the day.

• GBP/JPY continued scaling higher for the fourth successive day on Wednesday.
• The BoJ’s dovish stance continued weighing on the JPY and remained supportive.
• Modest USD pullback benefitted the GBP and contributed to the intraday move up. 

The GBP/JPY cross added to its intraday gains and shot to over a one-week high, beyond the 162.00 mark during the first half of the European session.

The cross prolonged last week's late recovery move from the 159.00 mark and gained some follow-through traction for the fourth successive day on Wednesday. The Bank of Japan Governor Haruhiko Kuroda reiterated on Tuesday that the central bank would offer to buy an unlimited amount of 10-year JGBs if the rise in long-term interest rates is rapid. This, in turn, continued weighing on the Japanese yen and acted as a tailwind for the GBP/JPY cross.

On the other hand, the British pound staged a goodish recovery from the multi-week low amid modest US dollar pullback from a nearly two-year high. This was seen as another factor that contributed to the bid tone surrounding the GBP/JPY cross. That said, the prevalent cautious mood should drive some haven flows towards the JPY. This, in turn, warrants some caution for aggressive bullish trades and should keep a lid on any meaningful gains for the cross.

The market sentiment remains fragile amid fading hopes for a diplomatic solution to end the war in Ukraine and the prospect of more Western sanctions on Russia over its alleged war crimes. Hence, the market focus will remain glued to fresh developments surrounding the Russia-Ukraine saga. The incoming geopolitical headlines will influence the risk sentiment, which will drive demand for the safe-haven JPY and provide some impetus to the GBP/JPY cross.

From a technical perspective, sustained move back above the 162.00 mark could be seen as a fresh trigger for bullish traders. This, in turn, supports prospects for a move to test the next relevant resistance near the 162.70 region. Some follow-through buying beyond the 163.00 mark has the potential to lift the GBP/JPY cross towards the 164.00 round figure.

Technical levels to watch

French election is starting to get some attention as recent polling has very much indicated positive momentum for Marine Le Pen who has clearly closed the gap to Macron. A good result for Le Pen is set to weigh on euro sentiment, economists at MUFG Bank report.

Le Pen closing the gap to Macron

“Polling from Politico indicates a clear narrowing of the gap with Macron’s support dropping 3ppts to 27% while Le Pen’s support over the same period has picked up 3ppts to 21%. Other polls have shown a bigger improvement for Le Pen.”

“Over 60% of the electorate now do not view far-right candidates as a threat to French democracy. But a Le Pen victory would still be bad news for Europe and would still be classed as anti-Europe although those policies have also been softened.”

“A Macron victory remains probable but a margin of defeat for Le Pen on Sunday of less than 3ppts would create higher uncertainty through to the second round election on 24th April and weigh further on an already weak euro.” 

The Australian dollar outperformed on the Reserve Bank of Australia (RBA) decision but gains in the AUD/USD were eventually pared to sub-0.76 levels. Economists at OCBC Bank expect the pair to consolidate around the 0.76 handle.

Hawkish tilt seen in the RBA's forward guidance

“The RBA did not signal that a rate hike is imminent, but rhetorical changes in the statement was sufficient for the market to believe that the RBA has finally succumbed to the hawkish expectations.”

“Look for consolidation around the 0.76 handle for now.” 

“Ability to hold above 0.76 could pave the way toward 0.77 and 0.78 in the multi-week horizon.”

A convincing breakout of 6.3900 could spark further gains in USD/CNH in the near term, comment FX Strategists at UOB Group Quek Ser Leang and Peter Chia.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘the risk is tilted to the downside but any USD weakness is unlikely to break 6.3600’. USD subsequently dipped to 6.3630 before staging a surprisingly robust rebound. The rebound has scope to extend but a clear break of 6.3900 appears unlikely (minor resistance is at 6.3860). Support is at 6.3750 followed by 6.3700.”

Next 1-3 weeks: “Our latest narrative was from Monday (04 Apr, spot at 6.3700) where USD is likely to trade sideways between 6.3450 and 6.3900. Shorter term upward momentum is beginning to improve and the risk of a break of 6.3900 has increased. A clear break of 6.3900 suggests USD could advance to 6.4000. On the downside, a breach of 6.3630 (‘strong support’ level) would indicate that the build-up in momentum has eased.”

• USD/CHF gained strong follow-through traction for the fourth successive day on Wednesday.
• The Fed’s hawkish outlook lifted the USD to a near two-year high and remained supportive.
• A softer risk tone underpinned the safe-haven CHF and capped ahead of the FOMC minutes.

The USD/CHF pair maintained its strong bid tone through the first half of the European session and was last seen trading just a few pips below mid-0.9300s, or over a one-week high.

The pair built on its recent bounce from sub-0.9200 levels and gained some follow-through traction for the fourth successive day on Wednesday amid sustained US dollar buying interest. Expectations that the Fed would adopt a more aggressive policy stance to combat stubbornly high inflation pushed the USD to a nearly two-year high, which, in turn, acted as a tailwind for the USD/CHF pair.

The markets have been pricing in a 100 bps Fed rate hike move over the next two policy meetings. Adding to this, Fed Governor Lael Brainard said on Tuesday that the US central bank could start reducing its balance sheet at a rapid pace as soon as the May meeting. This, in turn, lifted the US Treasury bond yields to a multi-year peak and continued lending support to the greenback.

That said, the cautious mood - as depicted by a softer tone around the equity markets - benefitted the safe-haven Swiss franc and held back bulls from placing fresh bets around the USD/CHF pair. The market sentiment remains fragile amid fading hopes for a diplomatic solution to end the war in Ukraine and the prospect of more Western sanctions on Russia over its alleged war crimes.

Nevertheless, the near-term bias seems tilted in favour of bullish traders and supports prospects for additional gains. Traders, however, might prefer to wait on the sidelines ahead of the FOMC monetary policy meeting minutes, due for release later during the US session. In the meantime, the US bond yields will influence the USD and provide some impetus to the USD/CHF pair.

Technical levels to watch

European Commission President Ursula von der Leyen said on Wednesday, “new sanctions against Russia will not be the last.”

Meanwhile, European Council Chairman Charles Michel said that the “measures on Russian oil and gas will be needed sooner than later.”

These comments come after the European Union (EU) proposed on Tuesday to ban coal imports from Russia in a direct response to reports that Russia committed war crimes in Ukraine by killing innocent civilians.

von der Leyen said the ban on coal imports would amount to EUR4 billion ($4.4 billion) a year, sources said.

more to come ...

• DXY extends the rally further and clinches fresh tops around 99.75.
• US yields accelerate the upside after Brainard’s comments on Tuesday.
• MBA Mortgage Applications, Fed’s Harker. FOMC Minutes next on tap.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rival currencies, extend the upside momentum to fresh cycle tops around 99.75 on Wednesday.

US Dollar Index stronger on Fed speculation, looks to 100.00

The index advances for the fifth consecutive session and navigates in levels last seen nearly three years ago in the 99.70 region as market participants continue to digest the recent (and surprising) hawkish comments from FOMC’s L.Brainard on Wednesday, when she advocated for a faster reduction of the Fed’s balance sheet as well as a tighter rate path.

Brainard’s comments lifted US yields to levels last seen in Q1 2019 in the short end and the belly of the curve, while the long end climbed to new 33-month highs.

Extra wings to the buck come in the form of the prevailing uncertainty in the geopolitical landscape and the utter absence of progress in the Russia-Ukraine peace talks as well as the US-EU plans to impose extra sanctions against Moscow.

Later in the NA session, the usual weekly MBA Mortgage Applications are due seconded by the speech by Philly Fed P.Harker (2023 voter, hawkish), while the publication of the FOMC Minutes will close the daily calendar.

What to look for around USD

The dollar remains bid and gradually approaches the psychological 100.00 barrier. So far, the near-term price action in the greenback continues to be dictated by geopolitics, while the case for a stronger dollar 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: 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 gaining 0.10% 99 57 and a break above 99.75 (2022 high April 6) would open the door to 100.00 (psychological level) and finally 100.55 (monthly high May 14 2020). On the other hand, the next support comes at 97.68 (weekly low March 30) seconded by 97.31 (55-day SMA) and then 96.74 (100-day SMA).

In opinion of FX Strategists at UOB Group Quek Ser Leang and Peter Chia, the continuation of the buying pressure could motivate USD/JPY to retest the 124.30 region in the next weeks.

Key Quotes

24-hour view: “Our expectations for USD to ‘trade sideways’ were incorrect as it soared to 123.66 before extending its gains during early Asian hours. The rapid build-up in momentum is likely to lead to further USD strength to 124.30. The next resistance at 124.60 is not expected to come into the picture. Support is at 123.55 followed by 123.15.”

Next 1-3 weeks: “We have expected USD to consolidate and trade within a range of 121.00/124.00 since late last week. After trading in relatively quiet manner for a few days, USD soared to a high of 123.66 yesterday before extending its gains during Asian hours. Upward momentum is building and USD is likely to trade with an upward bias towards 124.30, possibly 124.60. Looking ahead, USD has to close above 124.60 before a move to last month’s high at 125.10 can be expected. On the downside, a breach of 121.00 (‘strong support’ level) would indicate that the build-up in momentum has fizzled out.”

• GBP/USD witnessed some follow-through selling on Wednesday amid broad-based USD strength.
• The Fed’s hawkish outlook, elevated US bond yields, the Ukraine crisis benefitted the greenback.
• The technical setup supports prospects for a slide towards the YTD low, around the 1.3000 mark.

The GBP/USD pair remained on the defensive through the early European session and was last seen trading just a few pips above the three-week low, around the 1.3055 region.

The pair witnessed some selling during the first half of the trading on Wednesday and dropped to the lowest level since March 16, though showed resilience below the mid-1.3000s. The US dollar gained traction for the fifth successive day and shot to a nearly two-year peak, which, in turn, exerted some downward pressure on the GBP/USD pair.

The markets seem convinced that the Fed would hike interest rates by 100 bps over the next two meetings to combat stubbornly high inflation. Moreover, Fed Governor Lael Brainard said on Tuesday that the US central bank could start reducing its balance sheet at a rapid pace as soon as the May meeting and provided a goodish lift to the buck.

Expectations for a more aggressive Fed pushed the yield on the 2-year US government bond, which is highly sensitive to rate hike expectations, to its highest level since January 2019. Moreover, the yields on the 5-year and the benchmark 10-year bonds jumped to their highest since December 2018 and April 2019, respectively.

Hence, the market focus will remain glued to the FOMC monetary policy meeting minutes, due for release later during the US session. In the meantime, fading hopes for a diplomatic solution to end the war in Ukraine and concerns about more Western sanctions on Russia over its alleged war crimes should benefit the safe-haven greenback.

The fundamental backdrop seems tilted in favour of bearish traders and supports prospects for a further near-term depreciating move for the GBP/USD pair. With technical indicators still far from being in the oversold zone, spot prices seem vulnerable to sliding back to challenge the YTD low, around the 1.3000 psychological mark.

Technical levels to watch

XAU/USD is trading in a relatively tight range near $1,920. In the view of strategists at ANZ Bank, the impact of a stronger dollar is set to be muted as geopolitics dominate the market. Subsequently, gold price is expected to stay above the $1,900 level throughout the year.

Investors are building fresh long position in gold

“Geopolitical risk continues to remain the key price driver, which would see strong appetite for safe-haven demand.”

“Record low real-yield and emerging risk of slowing economic growth should encourage investors to invest in gold as a risk diversifier.”

“Aggressive rate hikes and weaker physical demand are key drags for gold.” 

“We expect gold prices to remain above $1,900/oz this year.”

Riksbank’s rate expectations are too high in the view of economists at ING. Subsequently, the Swedish krona is set to weaken against both the dollar and the euro as the impact of the Russia-Ukraine conflict also starts to unravel.

Downside risks prevail

“We think that the market’s pricing for 2023-24 (rates to rise to 2.0%+) is overly hawkish, as the tightening cycle in Sweden may peak only at around 0.75-1.0%.”

“The prospect of a Riksbank tightening in 2022 is offering some support to SEK, however, it seems to be embedding too little geopolitical risk and we could see a return to the 9.50/9.70 region in USD/SEK over the coming days as new sanctions against Russia are announced.” 

“Some EUR idiosyncratic weakness means a bit less upside risk in EUR/SEK, but a return to the 10.40 mark is possible.”

Christopher Kent, the Assistant Governor (Financial Markets) at the Reserve Bank of Australia (RBA), made some comments on the inflation outlook on Wednesday.

Key quotes

Meanwhile, RBA Deputy Governor Michelle Bullock said, they “have very tight labor markets,” adding that they are “seeing some response in wages with unemployment at 4%.”

Bullock said she “expects some revision upward in our inflation forecasts.”

Market reaction

AUD/USD Is keeping its minor recovery mode intact, as it is adding 0.15% on the day to trade at 0.7590, as of writing.

EUR/USD has broken below 1.09. French Eurosceptic candidate Le Pen seems to be closing in on President Macron in the polls. This adds another threat to the euro, which will have to deal with the announcement of fresh sanctions against Russia today, economists at ING report.

Double threat to the euro

“A new round of sanctions against Russia are expected to be announced today by the US and the EU, with any implications for energy exports likely to keep the euro under pressure.”

“We suspect there is more room for France-related political risk premium to be priced into the EUR/USD as we head to this weekend’s first round. And indications from the first round votes that Le Pen might have the numbers to win in the second round would likely increase pressure on the euro next week.”

“When adding the potential negative spill-over from new sanctions against Russia, we see the risks to EUR/USD skewed towards the 1.0750/1.0800 area into the weekend. Any break below the 1.0817 early-March low may add fuel to the bearish run.”

The kiwi bounced strongly following yesterday’s hawkish RBA tilt. Economists at Westpac expect the NZD/USD pair to retest the 0.7035 mark in the next few days.

Expecting a big RBNZ hike next week

“Expecting a retest of 0.7035 during the next day or two.”

“We see potential for the rally to extend to 0.7200 by June.”

“NZD followed AUD after yesterday’s hawkish RBA surprise, and thoughts will now turn to potential for a hawkish surprise from the RBNZ on 13 April (i.e. a 50bp hike).”

European Central Bank (ECB) Vice President Luis de Guindos said in his speech on Wednesday, “for the euro area, the financial stability impact of the war has so far been relatively contained.”

“Speeding up the green transition is a key priority,” he added.

Market reaction

EUR/USD Is attempting a rebound to test 1.0900, although still loses 0.07% on the day. The above comments have little to no impact on the shared currency, thus far.

• EUR/USD to dip towards the 1.0750/1.0800 area into the weekend – ING

At current levels around 33.50, USD/THB is already near the highs seen since the onset of the pandemic. However, analysts at Credit Suisse think further USD/THB upside is limited, and think the pair will trade in a range of 33.40-33.80 in Q2.

The bad news is priced

“We think the bad news is priced and that further upside in USDTHB is limited.”

“In Q2 we expect USD/THB to trade in a narrow range of 33.40-33.80, with the BoT likely intervening to limit weakness at 34.00.”

The Chinese economy will face another big hit as the country sticks to its zero-Covid strategy. Subsequently, the yuan faces notable downsides risks over the coming weeks, economists at Commerzbank report.

The lockdown pains

“There is little sign that the virus could be contained any time soon as the new local cases are still on the rapid rise, particularly in Shanghai. Hence, the Chinese authorities are facing a struggling balance between virus containment and economic pains.” 

“As Shanghai plays an important role in the entire Chinese economy, it makes sense to hold a very cautious view on economic prospects. Obviously, this implies a visible downside risk for the Chinese currency over the foreseeable future.”

In light of advanced prints from CME Group for natural gas futures markets, open interest extended the uptrend for the sixth session in a row on Tuesday, now by more than 10K contracts. Volume followed suit and went up by around 21.6K contracts, partially reversing the previous daily drop.

Natural Gas finally surpasses the $6.00 mark

Prices of natural gas recorded fresh 2022 highs past the key $6.00 barrier on Tuesday. The move was accompanied by rising open interest and volume, which opens the door to extra gains in the very near term and with the next target at the $6.281 level (high October 27 2021).

• USD/CAD gained some positive traction on Wednesday and recovered further from the YTD low.
• The Fed’s hawkish outlook pushed the USD to a two-year high and extended support to the pair.
• The Ukraine crisis acted as a tailwind for oil prices, which might underpin the loonie and cap gains.

The USD/CAD pair climbed to a two-day high during the early European session and is now looking to extend the momentum further beyond the 1.2500 psychological mark.

The pair built on the previous day's solid bounce of nearly 100 pips from the vicinity of the 1.2400 mark, or the lowest level since November 2021 and gained some follow-through traction on Wednesday. The US dollar scaled higher for the fifth successive day and shot to a nearly two year high amid expectations for a more aggressive policy tightening by the Fed. This, in turn, was seen as a key factor that acted as a tailwind for the USD/CAD pair.

It is worth mentioning that the markets anticipate that the Fed would hike interest rates by 100 bps over the next two meetings to combat stubbornly high inflation. Adding to this, Fed Governor Lael Brainard said on Tuesday that the US central bank could start reducing its balance sheet at a rapid pace as soon as the May meeting. This, in turn, pushed the US Treasury bond yields to a multi-year peak, which, along with the cautious mood, underpinned the safe-haven greenback.

The market sentiment remains fragile amid fading hopes for a diplomatic solution to end the war in Ukraine and the prospect of more Western sanctions on Russia over its alleged war crimes. The incoming geopolitical headlines continued fueling supply concerns, which extended some support to crude oil prices. This could benefit the commodity-linked loonie and keep a lid on any meaningful gains for the USD/CAD pair, warranting caution for bullish traders.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the USD/CAD pair has bottomed out and positioning for a further appreciating move. Market participants now look forward to the Canadian Ivey PMI for some impetus. The focus, however, will remain on the FOMC minutes, due later during the US session, which will influence the USD. Traders will further take cues from oil price dynamics for some short-term opportunities.

Technical levels to watch

Here is what you need to know on Wednesday, April 6:

Fueled by hawkish Fed commentary and upbeat data releases, the US Dollar Index has advanced to its highest level in nearly two years early Wednesday. The FOMC will release the minutes of its March policy meeting later in the day. Investors will keep a close eye on headlines surrounding the Russia-Ukraine conflict and the European Central Bank (ECB) officials' speeches as well.

European Commission President Ursula von der Leyen announced on Tuesday that the European Union will impose a ban on Russian coal imports, roughly worth around €4 billion a year. The EU will also block all transitions with four major Russian banks. Later in the day, the United States is expected to unveil a new sanction package, which will reportedly include a ban on all new investments in Russia.

Fed Vice Chairwoman Lael Brainard said on Tuesday that the Fed was prepared to take "stronger action" if inflation and inflation expectations were to require it. Brainard further noted that they will move the policy to a more neutral position later this year via a combination of balance sheet reduction and rate hikes. Similarly, San Francisco Fed President Mary Daly reiterated that they could start the balance sheet reduction as early as May.

The data from the US showed that the economic activity in the service sector continued to expand at an impressive pace in March.

Meanwhile, Caixin Services PMI in China plunged to 42 in March from 50.2 in February, missing the market expectation of 53 by a wide margin. China will keep the city of Shanghai under full lockdown until they see the results of the next round of mass testing, which is scheduled to start on April 6.

EUR/USD fell below 1.0900 and touched its lowest level in more than a month. Investors grow increasingly concerned over the eurozone economy falling into recession amid a prolonged Russia-Ukraine conflict.

GBP/USD rose above 1.3150 on Tuesday but made a sharp U-turn in the second half of the day on renewed dollar strength. The pair was last seen posting small daily losses slightly above 1.3050.

Pressured by surging US Treasury bond yields, gold closed in negative territory on Tuesday. Early Wednesday, XAU/USD is trading in a relatively tight range near $1,920.

USD/JPY gained nearly 100 pips on Tuesday and stretched higher toward 124.00 early Wednesday. The benchmark 10-year US Treasury bond yield is up 2% at 2.6% heading into the European session.

AUD/USD advanced to its strongest level since June 2021 on the hawkish tilt seen in the Reserve Bank of Australia's forward guidance. The pair, however, erased the majority of its gains and went into a consolidation phase below 0.7600.

Bitcoin lost more than 2% on Tuesday and dropped toward $44,000 early Wednesday before staging a rebound. As of writing, BTC/USD was little changed on the day at $45,400. Ethereum is down nearly 5% from the three-month top it set at $3,580 earlier in the week and trades below $3,400.

As the People’s Bank of China (PBoC) easing is brought forward to offset the impact of lockdowns, analysts at Credit Suisse expect USD/CNH to rise gradually in a 6.35-6.55 range in Q2.

PBoC easing is brought forward to offset the impact of lockdowns

“The continuation of President Xi’s strict ‘zero-COVID’ approach point to weaker manufacturing activity and an uneven recovery in consumption. The ongoing lockdowns point to weak March data, and make a 5-10 bps rate cut in mid-April more likely.”

“Further PBoC rate cuts are marginally positive for USD/CNH, though we think outflows from China will be moderate, given capital controls remain in place.” 

“Weaker euro and yen amid Fed tightening and the prospect of new sanctions on Russia also point to higher USD/CNH.” 

“We expect USD/CNH to rise gradually in a 6.35-6.55 range in Q2.”

USD/INR has recently revisited 2020 highs following Russia’s invasion of Ukraine. Economists at Credit Suisse still think that the central bank will pursue a “weak rupee” policy. Accordingly, they revise their Q2 USD/INR forecast range to 75-78.

RBI’s “new” intervention line will be held at the 75.00 level

“We remain optimistic on the outlook for Indian GDP, but that optimism (and associated high investment and consumption) amid re-opening is actually negative for India’s trade balance and INR. We think the RBI will likely allow consumption and imports to ‘run hot,’ putting weakening pressure on the rupee.” 

“Over time the RBI’s ‘permitted’ USD/INR trading range (which we currently think is 75-78) will shift higher; rising inflation points to a weaker rupee to offset lost competitiveness from higher wages. As such, we think the RBI will continue accumulating FX reserves, and will likely limit INR strength. We suspect that the RBI’s ‘new’ intervention line will be held at the 75.00 level.” 

AUD/USD faces a potential period of consolidation ahead of a probable move to 0.7660, noted FX Strategists at UOB Group Quek Ser Leang and Peter Chia.

Key Quotes

24-hour view: “While we expected AUD to ‘strengthen further’ yesterday, we did not expect the explosive volatility as AUD rocketed to 0.7661 before dropping sharply to end the day at 0.7575 (+0.42%). AUD is unlikely to continue to trade in a volatile manner. For today, AUD is more likely to consolidate its gains and trade between 0.7530 and 0.7630.”

Next 1-3 weeks: “We highlighted yesterday (05 Apr, spot at 0.7545) that rapid improvement in momentum suggests AUD could advance to 0.7575, possibly 0.7600. We did not expect the manner by which AUD rocketed to 0.7661 and the subsequent rapid drop from the high. The sharp and swift rally appears to be running too fast, too soon. While further AUD strength still appears likely, AUD could consolidate for a few days first before making a push above 0.7660 (next resistance is at 0.7720). On the downside, a breach of 0.7510 (‘strong support’ level was at 0.7490 yesterday) would indicate that AUD is not ready to move above 0.7660.”

• WTI price is rebounding as Russian sanctions offset China covid risks.
• Stronger US dollar on aggressive Fed’s tightening could limit the upside.
• WTI price needs to break the range between the 21 and 50-DMAs.

WTI (NYMEX futures) is rebounding above $101.00, having found strong bids once again on the 99.00 level.

The black gold is back in the green zone, despite the risk-off market profile, as the new Western sanctions against Russia over its civilian atrocities in Ukraine are overshadowing the concerns from China’s covid lockdowns.

The city of Shanghai is under extended lockdowns amid the relentless rise in covid cases over the last few weeks. This has fuelled demand concerns for oil and its products from the world’s second-biggest oil consumer, China.

Amidst the escalation of the Ukraine conflict, investors are flocking to the safe-haven US dollar, which may limit the renewed upside in US oil. Also, the dollar is benefiting from the hawkish Fed’s expectations heading into Wednesday’s FOMC minutes.

From a near-term technical perspective, WTI bulls remain hopeful so long as they hold above the upward-sloping 50-Daily Moving Average (SMA) at $98.60.

If the recovery momentum sustains, then the WTI price could look to retest the bearish 21-DMA, now at $104.00.

The next challenge for bulls will be to scale the previous day’s peak of $104.60 convincingly.

The Relative Strength Index (RSI), however, holds below the midline, currently at 48.77. This suggests that the rebound could likely be a temporary one.

If bears take out the critical 50-DMA support, then a sharp sell-off towards the $95.00 level cannot be ruled out.

Further south, the mid-March lows of $92.36 will be on the sellers’ radars.

WTI: Daily chart

WTI: Additional levels to watch

The market is increasingly banking on the Bank of Canada (BoC) hiking its key rate by 50bp at the next meeting. The rate hike expectations are likely to have been fuelled by Monday’s publication of the BoC’s Business Outlook Survey. Although the loonie is set to get some support in the near-term, there is little room to see additional gains, economists at Commerzbank report.

Fuelling rate hike expectations on the market

“The BOS indicator signalled a further rise in capacity restrictions and continued supply chain issues, rising wage and price pressure and a rise in inflation expectations, in particular in the short term. Also, as a result of the war in Ukraine, businesses are expecting significant price rises so the majority now expect that it will take longer, that is closer to three years, until inflation returns to the 2% target.”

“Additional defence spending as a result of the Ukraine war, higher spending on climate action and the creation of affordable housing are only some of the challenges faced. With a view to the already challenging economic situation an expansionary fiscal policy would further intensify inflation pressures.”

“A high-spending budget with rising deficits might further fuel rate hike expectations, thus providing at least temporary support to the loonie.”

“From our point of view, further CAD appreciation potential is limited though as a lot seems to have been priced in already.”

The Reserve Bank of Australia (RBA) appears to have finally signalled a shift away from its very dovish policy stance. But for now, analysts at Credit Suisse do not change their 0.7620 AUD/USD target, as they see higher risk of data disappointment and a less supportive positioning picture ahead. 

Buying dips below 0.75

“Our preference is to maintain our AUD/USD target unchanged at 0.7620 for now and to instead look to buy dips below 0.75.”

“A break above 0.7620 in Q2 remains well within the realm of possible outcomes, but we suspect that a stronger case from local data is needed for that to realize. And given the backdrop of already fairly sanguine policy expectations, the risk of data disappointment is likely to be more significant in the coming weeks.”

The EU is planning to tighten the thumbscrews on the Russian economy. As the war in Ukraine prolongs, the euro is set to move downward, economists at Commerzbank report.

The pressure on the ECB is mounting with every day of the war

“With every day and every deed (in Ukraine) the risk rises that the EU representatives decide in favour of the ultimate step. That means that inflation and economic risks in Europe, as in the rest of the world, rise with every day as energy prices worldwide would rise in that case.”

“The pressure on the ECB is mounting with every day of the war. The market cannot be as certain with the ECB as it is with the Fed, as the eurozone would suffer much worse consequences, probably in the shape of a painful recession in case of an oil and gas embargo which in turn might cause the ECB to hesitate when it comes to tightening its key rate.”

“With every day the risk of a recession rises on this side of the Atlantic due to an energy crisis and on the other side of the Atlantic due to an (overly) decisive Fed. As the risks for the eurozone refer to the near future, they are likely to be much more real for the market and therefore weigh more heavily, which means that at present the euro does not stand a chance against the dollar.”

The market is a long way from pricing in a serious risk of a Le Pen victory. The EUR/USD pair could nosedive to 1.05 on a Le Pen win, economists at Credit Suisse report.

EUR/GBP to test 0.80 on a Le Pen victory

“The market is a long way from pricing in a serious risk of a Le Pen victory and EUR could see a lot more damage if one were to come about. That outcome would risk fracturing political and economic consensus in the euro area and EU more generally.”

“Our current expected Q2 range low at EUR/USD 1.0750 does not incorporate a Le Pen win; were that outcome to happen, we suspect a test of EUR/USD 1.05 would follow relatively quickly.

“As for EUR/GBP, we have argued in favour of selling above 0.85 to target 0.8275, but looking to take profits between that level and 0.82. A Le Pen win on the other hand would likely lead to a test of 0.80 not long after.”

• XAU/USD is auctioning in a narrow range of $1,916.00-1,925.28 amid uncertainty over the FOMC minutes release.
• Gold prices are forming a diamond pattern that signals a bullish reversal after a prolonged consolidation.
• The DXY is approaching 100.00 amid a souring market mood.

Gold (XAU/USD) is displaying a subdued performance on Wednesday after witnessing a steep fall from around $1,945 in the New York session on Tuesday. The precious metal is oscillating in a narrow range of $1,916.00-1,925.28 as investors are waiting for the release of the Federal Open Market Committee (FOMC) minutes, which are due on Wednesday.

The FOMC minutes will unfold the mathematics behind the stance of the Federal Reserve (Fed) Chair Jerome Powell and his colleagues, which was taken for the monetary policy announced in March. This will also provide the status of the US economy. It is worth noting that the Fed increased the interest rate by 25 basis points (bps) in its last monetary policy meet.

On Tuesday, a sheer intraday bearish move in the precious metal was the reflection of the hawkish stance dictated by the Fed policymakers. Fed Governor Lael Brainard cited that the Fed is ready for aggressive action if the indicators of inflation and inflation expectations get worsen. Also, the balance sheet reduction program will pick up soon, which will de-escalate the helicopter money from the economy.

Meanwhile, the US dollar index (DXY) is aiming to kiss the psychological figure of 100.00 amid souring market sentiments on hawkish stances from the Fed officials. Also, the 10-year US Treasury yields have printed a fresh three-year high at 2.62%.

Gold Technical Analysis

On an hourly scale, XAU/USD is auctioning in a diamond pattern that signals a bullish reversal after a prolonged consolidation. The formation indicates inventory adjustment in which the inventory is shifted from retail participants to institutional investors. The chart pattern is plotted in a wider range of $1,890.21-1,965.79. The Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which signals a consolidation ahead.

Gold hourly chart

CME Group’s flash data for crude oil futures markets saw traders add around 20.1K contracts to their open interest positions on Tuesday. Volume, instead, shrank for the third session in a row, this time by around 73.5K contracts.

WTI faces support around $95.00

Prices of the barrel of the WTI charted a negative session on Tuesday. The daily drop came amidst rising open interest, which is supportive of further decline in the very near term. That said, the commodity still faces decent contention around the $95.00 mark per barrel.

• German Factory Orders dropped by 2.2% MoM in February.
• German Retail Sales arrived at 2.9% YoY in Feb vs. 7.3% previous.
• EUR/USD remains pressured below 1.0900 amid dismal German data.

The German Factory Orders declined more than expected in February, suggesting that the recovery in the manufacturing sector of Europe’s economic powerhouse is in the doldrums.

Contracts for goods ‘Made in Germany’ dropped by 2.2% on the month vs. -0.2% expected and 1.8% last, the latest data published by the Federal Statistics Office showed on Wednesday.

On an annualized basis, Germany’s Industrial Orders rose by 2.9% in the reported month vs. 7.3% previous.

FX implications

The shared currency remains weighed by the notable US dollar demand amid the Ukraine crisis-driven risk-off mood and hawkish Fed’s expectations.

 At the time of writing, EUR/USD is down 0.20% on the day, trading at 1.0880.

The door remains open for GBP/USD to extend the downside to the 1.3050 region, suggested FX Strategists at UOB Group Quek Ser Leang and Peter Chia.

Key Quotes

24-hour view: “Our expectations for GBP to ‘trade sideways within a range of 1.3085/1.3145’ were incorrect as it popped to 1.3167 before plummeting to a low of 1.3068 during NY session. Downward momentum is beginning to build and GBP could drop below 1.3050. For today, the major support at 1.3000 is likely out reach. Resistance is at 1.3090 followed by 1.3110.”

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’. After trading sideways for a few days, GBP dropped to 1.3068 during NY session and shorter-term downward momentum is beginning to build. A breach of 1.3050 would not be surprising but it is left to be seen if GBP could crack the major support at 1.3000. Overall, GBP is likely to trade with a downward bias towards 1.3000. On the upside, a breach of 1.3135 (‘strong resistance’ level) would indicate that GBP is not ready to head lower.”

Gold price is looking to extend the previous sell-off on Wednesday. As FXStreet’s Dhwani Mehta notes, $1,903 appears at risk for XAU/USD.

Fed minutes take center stage

“Fed’s policy expectations take center stage heading into the release of the March meeting’s minutes. All eyes will remain on the Fed officials’ debate about the prospects of aggressive tightening in the coming months while any hints on the balance sheet reduction will be also closely eyed.”

“Gold’s daily chart shows that the price is challenging the lower boundary of the recent trading range near the $1,915 region. A sustained break below the latter will call for a test of the ascending 50-Daily Moving Average (DMA) at $1,903. The next critical support is seen at the March 29 low of $1,890.”

“On the upside, the 21-DMA at $1,941 will be the first test for gold bulls on the road to recovery, above which the previous day’s high of $1,945 will be challenged. Acceptance above the latter will expose the previous year’s high at $1,960, which will emerge as a tough nut to crack for gold buyers.”

FX option expiries for April 6 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0900 1.3b
• 1.0935 1.8b
• 1.0955 414m
• 1.1000 1.3b
• 1.1040 431m

- USD/JPY: USD amounts                     

• 121.10 670m
• 121.80 7525m

- USD/CHF: USD amounts        

• 0.9300 290m
• 0.9330 300m

- AUD/USD: AUD amounts

• 0.7475 297m

- USD/CAD: USD amounts       

• 1.2400 385m
• 1.2450 300m
• 1.2480 306m
• 1.2500 799m
• 1.2560 520m

- EUR/GBP: EUR amounts

• 0.8400 580m

Open interest in gold futures markets sharbk for the fourth consecutive session so far on Tuesday, this time by just 116 contracts considering preliminary readings from CME Group. On the other hand, volume increased by almost 40K contracts after two daily builds in a row.

Gold remains supported by $1890

Tuesday’s downtick in prices of gold was amidst a small drop in open interest, hinting at the idea that a deeper retracement would not be favoured in the very near term. That said, recent lows in the $1890 region appear as quite a decent contention for the time being.

• The 50-EMA has acted as a barrier for the greenback bulls.
• Support taken at 40.00 by the RSI (14) indicates a consolidation ahead.
• Breakout of the flat channel is demanding a re-test for a fresh rally.

The AUD/USD pair has witnessed a bearish open test-drive session on Wednesday. The pair opened at 0.7585 and made a high at 0.7594. Later, it witnessed an intense sell-off, which dragged the asset to a low of 0.7561. Aussie bulls get cushioned after encountering the 50-period Exponential Moving Average (EMA), which is currently trading at 0.7569.

On an hourly scale, AUD/USD has recorded a strong upside after exploding the flat channel placed in a range of 0.7455-0.7546. Usually, a breakout of a consolidation pattern is followed by a re-test of the upper boundary of the chart pattern. The asset is experiencing a correction and is dropping to near the upper boundary of the flat channel at 0.7455.

The Relative Strength Index (RSI) has sensed support near 40.00, which indicates that the greenback bulls are losing momentum. Meanwhile, the 20- and 50-period Exponential Moving Averages (EMAs) at 0.7583 and 0.7569 respectively have turned flat, which signals a consolidation ahead.

A re-test of the flat channel at 0.7541 will trigger a bargain buy opportunity for the market participants, which will drive the asset towards Wednesday’s high at 0.7662. Breach of the latter will send the major towards the 11 June 2021 high at 0.7776.

On the flip side, aussie bulls may lose strength if the asset drop below March 29 low at 0.7455, which will drag the asset towards March 10 high at 0.7369, followed by the round level support at 0.7300.

AUD/USD hourly chart

 In its latest Asian Development Outlook report on Wednesday, the Asian Development Bank (ADB) revised down its 2022 GDP growth forecasts for the South East Asian economies, underscoring the risks from the Chinese Omicron outbreaks.

Key takeaways

Full-year gross domestic product (GDP) forecast now seen at 4.9% vs. 5.1% previous.

Growth is expected to pick up to 5.2%  in 2023, as the recovery is gaining momentum "in most of the sub-region's economies as Covid-19 vaccination coverage increases and mobility restrictions are eased."

"While the baseline forecasts are relatively good, several downside risks cloud the horizon", such as sharper-than-expected rate hikes from the US Federal Reserve, which could shave 0.2 percentage point off developing Asia's growth in 2022 and 0.1 point in 2023, compared with the base case.”

‘ADB cuts its China 2022 GDP forecast to 5.0% from 5.3% previously.”

Excluding the advanced economies of Hong Kong, Taiwan, South Korea and Singapore, growth is expected to come in at 5.4% in 2022 and 5.5% in 2023.

• World Bank: China's economy projected to expand by 5.0% in 2022

According to FX Strategists at UOB Group Quek Ser Leang and Peter Chia, the outlook for EUR/USD remains negative and the pair could slip back to the 1.0855 region in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday that EUR ‘could dip below 1.0940 but a sustained decline below this level appears unlikely’. We added, ‘the next support at 1.0900 is not expected to come under threat’. EUR did not breach 1.0940 until NY session where it plunged to a low of 1.0898. Strong downward momentum suggests EUR could weaken further. However, in view of the oversold conditions, the next support at 1.0855 is likely out of reach (there is another support at 1.0880). Resistance is at 1.0930 followed by 1.0960.”

Next 1-3 weeks: “We turned negative on EUR yesterday (05 Apr, spot at 1.0975). We indicated that EUR could drop below 1.0940 but odds for a break of the next support at 1.0900 are not high. We did not anticipate the subsequent sharp drop to 1.0898. Downward momentum has improved and the outlook for EUR is still negative. The next level to focus on is at 1.0855. A breach of 1.0855 would expose a major support level at 1.0820. The downside risk is intact as long as EUR does not move above 1.1000 (‘strong resistance’ level was at 1.1060 yesterday).”

• USD/RUB has surrendered its entire gains, recorded since the initial military activity in Ukraine.
• EU has proposed numerous sanctions on Russia, enough to isolate a country completely.
• The US will impose additional sanctions on the massacre in Bucha, Ukraine.

The USD/RUB pair has been displaying back and forth moves in a wider range of 80.45-89.00 over the past few trading sessions. The pair has surrendered its entire gains which were recorded when the Western leaders imposed sanctions on Russia. It is worth noting that the asset has eased almost 45% from its recent high of 155.00 recorded on March 7.

Following the allegations of war crimes against Moscow by Ukraine’s President Volodymyr Zelenskyy, the European Commission (EC) an operative arm of the European Union (EU) has imposed numerous sanctions on Russia on Tuesday. Right from accessing the Russian roadways to shipping good carriers from seaways in the EU bloc, the EC is isolating Putin’s area. The EC officials have also made an embargo on Russian coal imports and have blocked some machinery exports into Russia. It seems that due to the higher dependency of Europe on Russian oil, the EU has preferred to avoid this subject for now. The aggression from the EU was highly expected after Ukraine cornered Russia on the death of civilians in Bucha, Ukraine.

Going forward, US President Joe Biden will impose fresh sanctions on Russia considering the massacre in the largest part of Kyiv. Earlier, the US administration prohibited Russian oil imports, banned IT exports to Moscow, and collapsed their International SWIFT banking system.

• USD/INR looks to remain positive amid broader strength in the greenback on hawkish Fed officials.
• The monetary policy from the RBI will keep the Indian rupee on the sidelines.
• Investors are eyeing the FOMC minutes, which are due on Wednesday.

The USD/INR pair is ascending gradually after hitting a low of 75.24 on Tuesday. The pair is expected to remain in the bullish trajectory as investors are likely to underpin the greenback against the Indian rupee amid the uncertainty over the release of Federal Open Market Committee (FOMC) minutes from the Federal Reserve (Fed) on Wednesday.

The minutes from the FOMC will dictate detailed insights regarding the stance of the Fed policymakers on the monetary policy announced in March. Meanwhile, the hawkish stances of the Fed officials have strengthened the greenback. Fed Governor Lael Brainard has mentioned ‘loud and clear' that the Fed is prepared to take strong action if the inflation parameters advocate. This has also brought a corrective wave in the risk-sensitive assets.  It is worth noting that the hawkish stance from the Fed members has fueled the US Treasury yields. The 10-year US Treasury yields have inked a fresh three-year high at 2.61%.

Meanwhile, the Indian rupee is performing lackluster ahead of the monetary policy from the Reserve Bank of India (RBI) on Friday. This will be the first monetary policy announcement by the RBI after Russia’s invasion of Ukraine. The RBI is likely to ignore the alarming inflation and will keep the benchmark rates unchanged considering a pause in the growth rates. However, a decent cut in the real GDP growth rate estimates and a higher inflation target seem to be certain.

• EUR/USD is under pressure on a combination of weighty fundamentals
• Bears move in for the kill, forcing the euro to below 1.09 the figure. 

EUR/USD has been under pressure in Asia as markets are trading risk-off and the dollar continues higher on the bud, extending the overnight gains. The euro has dropped to a low of 1.0890 from the 1.0908 highs of the session. 

The prospect of the Federal Reserve quickly reducing its debt holdings was whipped up in the early stages of the Us session on Tuesday at the same time that fresh sanctions are being imposed on Russia. The combination of that coupled with terrible Chinese Services data has knocked the wind out of markets in Asia.

Fed's Brainard stated on Tuesday that containing inflation is "critical," adding that the central bank may begin rapidly reducing its balance sheet as soon as May. Investors are concerned that a more restrictive US central bank will ultimately cause a recession. 

Meanwhile, activity in China's services sector imploded at the sharpest pace in two years in March. The Covid infections have ultimately restricted mobility and weighed the demand for services. China's Caixin services PMI for March came in at 42.0 vs. 53.0 expected and 50.2 last, showing that the country’s services activity contracted on coronavirus outbreak-induced lockdown measures.

On Tuesday, Chinese authorities extended a COVID-19 lockdown in Shanghai to cover all of the financial centre's 26 million people, despite growing anger over quarantine rules in the city.

As a consequence of this toxic mix of fundamentals, an Asia-Pacific stock index fell about 1.5%, led by Japan and Hong Kong, which reopened after a holiday. Futures in the US and Europe also fell as a result of a drop in Wall Street stocks.

Meanwhile, the release of minutes from the Fed's last policy meeting is out later in the US session on Wednesday. These are expected to scrutinise for clues on the prospect of a 50 basis point hike in May. '' '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. 

A senior strategist at Standard Chartered offers his bullish view on Chinese equities for the balance of this year.

Key quotes

“We may have seen the worst in Chinese equities this year.”

“Chinese authorities will continue to ease monetary policy and step-up fiscal stimulus in order to hit its ambitious GDP growth target.”

“Chinese stocks likely to outperform global peers over the next 12 months.”

“Cheap valuations along with further policy easing will support.”

• GBP/USD remains vulnerable amid BOE/Fed policy divergence.
• Risk-aversion adds to the pain the GBP/USD pair on the Ukraine crisis.
• All eyes remain on the Fed minutes for fresh near-term direction.

GBP/USD is off the lows but remains modestly flat above 1.3050 in Wednesday's Asian trading, as bears take a breather after Tuesday’s one big figure sell-off.

Cable remained resilient so far this week before bulls gave into the bearish pressures on Tuesday, as the market sentiment took a big hit and smashed the risk-sensitive GBP alongside.

Investors’ confidence was sapped on mounting tensions over the global economic growth, in light of the fresh Western sanctions against Russia over its atrocities on the Ukrainian civilians.

Additionally, markets assessed the potential impact of the aggressive Fed’s tightening, as the policymakers at the world’s most powerful central bank suggest that the balance sheet reduction as well as, bigger rate increases could be well on the table in the upcoming May meeting.

The divergent monetary policy outlooks between the Fed and the BOE keep the pound undermined against the US dollar. The BOE policymakers remain in a tricky spot and refrain from committing any further rate rises, as they battle raging inflation amid increasing risks to economic growth.

Tuesday’s upward revision to the UK S&P Services PMI for March also failed to limit the downside in the pair. The S&P Global/CIPS UK Services PMI rose to 62.6 in March from 60.5 in February, an upward revision from a preliminary “flash” reading of 61.0.

Looking forward, all eyes will remain on the Fed March meeting’s minutes due later in the NA session for the pricing of the rate hike in May, as well as, fresh US dollar valuations.

GBP/USD: Technical levels

• USD/CHF has scaled above 0.9300 on hawkish Fed officials.
• The 10-year benchmark US Treasury yields have recorded a fresh three-year high at 2.61%.
• The DXY is approaching 100.00 amid improving safe-haven appeal.

The USD/CHF pair is scaling higher amid broader strength in the greenback after the hawkish stance from the Federal Reserve (Fed) policymakers underpinned the latter. The pair recorded a strong upside move after hitting a low of 0.9374 on Tuesday and managed to surpass 0.9300 comfortably.

The comments from Fed Governor Lael Brainard on Tuesday indicated that the Fed is prepared to announce an interest rate hike of 50 basis points (bps). Fed Governor Lael Brainard claimed that strong action will be displayed from the Fed if the indicators of inflation and inflation expectations dictate doing so.

As the economy is aware of the rising tide of inflation so a jumbo interest rate hike by the Fed is likely on the cards. In addition to that, Fed President Mary Daly cited that the labor market is extremely tight amid the achievement of full employment while the Fed is moving on to raise the interest rates.

The proportion of hawkishness from the Fed officials is reflected in the US Treasury yields. The 10-year benchmark US Treasury yields have recorded a fresh three-year high at 2.61%. The benchmark yields are trading 2.43% higher than their previous close on Tuesday.

Meanwhile, the US dollar index (DXY) is heading towards the psychological figure of 100.00, tracing the US Treasury yields and souring market mood. Also, the market participants are underpinning the DXY amid the uncertainty over the release of the Federal Open Market Committee (FOMC) minutes on Wednesday. The FOMC minutes will unfold the methodology behind the decision of a 25 bps interest rate hike in March. While, the Swiss docket will report the Unemployment Rate, which is due on Thursday.

The United States and the European Union are proposing further sanctions against the Kremlin after allegations of Russian war crimes in Ukraine.

As soon as Wednesday, the Biden administration will announce sanctions on:
Sberbank, Russia’s largest bank (furthering sanctions imposed last week);
Alfa Bank, one of Russia’s largest private lenders;
Vladimir Putin’s two daughters (EU also considering this move).

On Tuesday, the European Commission, the EU’s executive arm, proposed broad new sanctions on Russia, including a ban on imports of Russian coal, slashing the access of Russian road and shipping goods carriers into the bloc, targeting oligarchs and their families and blocking some machinery exports. EU ambassadors meeting on Wednesday to decide what steps to take.

While the decision further complicates Russia’s attempts to keep meeting debt obligations, ''there is growing recognition that they cannot prevent Russia pivoting its fight towards eastern Ukraine, the West will instead need to supply far more, and far more powerful armaments than it has so far,'' analysts at Rabobank said. ''In other words, escalation. Moreover, a far longer war than many had been hoping, which will have larger consequences for markets.''

A sharp contraction in Chinese services activity for March offered a glimpse of how the latest coronavirus outbreaks-driven lockdowns across the nation are impacting the economic performance.

Read: China's Caixin Services PMI unexpectedly slumps to 42.0 in March

But there seems to be little relief, as the daily count of new covid infections continues to hit records. China reported the biggest one-day increase on record at 20,472 new infections while the city of Shanghai recorded over 17,000 new covid cases.  

Against this backdrop, the authorities in Shanghai city came out with fresh guidelines, citing that they will start another city-wide round of mass covid testing from April 6.

Lockdown curbs on the city will remain until the testing is complete, they added.  

Additional takeaways

On Tuesday, Chinese authorities extended a COVID-19 lockdown in Shanghai to cover all of the financial centre's 26 million people, despite growing anger over quarantine rules in the city, per Reuters.

Market reaction

Risk aversion remains at full steam in Asia, as investors worry about the aggressive Fed’s tightening and its potential impact on the economy alongside the looming risks from the Russia-Ukraine crisis.

The covid resurgence in China also remains a cause for concern ahead of the critical Fed March meeting’s minutes.

China’s Shanghai Composite Index is down 0.80% on the day while the AUD/USD pair faces a double whammy, meandering in lows near 0.7560, as of writing.

Note that markets in mainland China reopened after two days of public holidays.

• AUD/USD dips on poor Chinese Services data, weighed by USD.
• The US dollar was firm overnight on the back of hawkish Fed expectations. 

At 0.7565, AUD/USD is losing 0.17% after falling to a low of 0.7561 from a high of 0.7593, recently falling on the back of China's Caixin services PMI for March that came in at 42.0 vs. 53.0 expected and 50.2 last, showing that the country’s services activity contracted on coronavirus outbreak-induced lockdown measures. 

The data has weighed on the currency that was already under pressure from a strong US dollar despite the hawkish switch-up at the Reserve Bank of Australia. Federal Reserve Governor Lael Brainard spoke and talked about potential aggressive actions by the Fed in anticipation of hawkish minutes tomorrow. As a consequence, the US Treasury yields surged to multi-year highs 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. 

Looking ahead to the day, the Fed March 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. 

As for the RBA, it gave a hint yesterday that it ''might have to raise rates from 0.1% in the face of global inflation, booming Aussie commodity exports, and such ridiculous building approvals and house-price data that either the economy is on fire, or the credibility of the Australian Bureau of Statistics is in tatters,'' analysts at Rabobank said.

''The Aussie 10-year yield now stands at 2.93%, up from 0.61% back in 2020, while 2s, nearer to the lifeblood of the Aussie economy, mortgage debt, is at 2.04%, again nearly all the way back to the 2018 levels prevailing before the RBA started to cut rates.''

China's Caixin services PMI for March came in at 42.0 vs. 53.0 expected and 50.2 last, showing that the country’s services activity contracted on coronavirus outbreak-induced lockdown measures.

China’s services activity falls at the quickest rate since February 2020 amid a notable drop in sales.

Wang Zhe, senior economist at Caixin Insight Group said, “The latest wave of the Covid-19 epidemic hit China’s services sector hard.”

“Both supply and demand in the services sector contracted sharply after the latest wave of Covid outbreaks started to take off in early March. The services PMI dropped to its lowest since February 2020, while the gauge of total new business dropped to its lowest since March 2020. Overseas demand remained weak, with the gauge of new export business falling to its lowest since October 2020,” he added.

AUD/USD drops further towards 0.7550

The downside surprise on the Chinese Services PMI numbers adds to the weight on the aussie dollar, as AUD/USD is testing daily lows, currently trading at 0.7527, down 0.09% on the day.

• NZD/USD bulls step in as the bears start to move out. 
• The price is held up at familiar support as traders await fresh catalysts. 

NZD/USD is holding in a flat position in a quiet Asian session. At the time of writing is trading at 0.6945 after travelling from a high of 0.6945 and a low of 0.6937. There is a lack of catalysts until the US session's Federal Open Market Committee minutes, although Chinese data will be eyed. 

Overnight, it was a story about the US dollar and yields. Federal Reserve Governor Lael Brainard spooked the markets while she talked about potential aggressive actions by the Fed and in anticipation of hawkish minutes tomorrow. 

the Fed member explained that 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.

As a consequence, the US Treasury yields surged to multi-year highs 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. 

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. 

Coming up, the Chinese data is coming up. ''The March Caixin/Markit services PMI should reflect weakness in the sector on account of weak demand and elevated input costs,'' analysts at Westpac said. 

In its latest report published on Wednesday, Moody’s Investors Service warned that supply strains will worsen for APAC companies amid the energy and raw material cost pressures.

Additional takeaways

Russia-Ukraine crisis and ongoing pandemic will delay supply-side recovery, with all APAC corporate sectors exposed to related cost risks.

All corporate sectors in the region will be exposed to cost risks from supply-side pressures to varying degrees through at least the end of this year.

In addition, pandemic-related mobility restrictions remain strict in parts of the region and are creating new uncertainties.

Market reaction

The worsening Russia-Ukraine crisis is weighing heavily on the market sentiment, with the Asian equities incurring moderate losses while the S&P 500 futures drop 0.09% on the day.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3799 vs. the last close of 6.3620 and estimate of 6.3799.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day closing level and quotations taken from the inter-bank dealer.

• The exploding of the Darvas box chart formation has imbalanced the asset.
• Advancing 20 and 50-period EMAs claim that the upside is intact.
• The RSI (14) has settled in a bullish range of 60.00-80.00.

The USD/JPY pair has turned imbalance and is approaching its fresh six-year high at 125.10, which was recorded on March 28 after auctioning in a narrow-range box. The pair witnessed a bullish open rejection-reverse session on Tuesday as the asset moved lower after opening at 122.80. However, the major faced significant bids to near 122.38 as investors preferred a ‘buy the dip’ approach.

The structure on the hourly scale is displaying a firmer breakout of a Darvas box chart pattern, which is plotted in a range of 121.30-123.00. The exploding of the Darvas box chart pattern results in an expansion of volumes and volatility.

The 20- and 50-period Exponential Moving Averages (EMAs) at 123.35 and 123.00 respectively continue to scale higher, which signals that a bullish bias is intact.

Meanwhile, the Relative Strength Index (RSI) (14) has comfortably settled in a bullish range of 60.00-80.00, which indicates more gains ahead.

A breach of the round level resistance at 124.00 will drive the asset towards the six-year high at 125.10, followed by the 1 June 2015 high at 125.86.

On the contrary, the yen bulls can dictate the asset if it drops below the 50-EMA at 123.00. This will send the asset towards the March 29 and March 30 lows at 121.98 and 121.31 respectively.

USD/JPY hourly chart

• EUR/USD bears are in control but the bulls are putting up a fight.
• Bulls eye a correction in towards 1.0920 and 1.0950 key levels. 

EUR/USD is under pressure but has stalled just below 1.0900 on the offer. This gives rise to the prospect of a significant correction of the hourly bearish impulse where bears could be attracted to the discount. The following illustrates the daily and hourly stricture from a bearish perspective.

EUR/USD daily chart

The daily chart shows the price in free fall and the March lows are in sight so long as the bears can get below 1.09 the figure, 11 March low where the price is stalling. 

EUR/USD H1 chart

The bulls need to commit and 1.09 the figure, although we are seeing some pressures moving in with a current low of 1.0895 so far. Should the price hold up, then there will be prospects of a correction towards 1.0920 and 1.0950 for the coming sessions at which point the bears could be lurking. 

• Explode of symmetrical triangle formation on the downside has triggered bears.
• Momentum oscillator RSI (14) has dropped to a bearish range of 20.00-40.00.
• A bear cross of 20- and 50-EMAs has sent the asset into bearish territory.

The GBP/USD pair went through an intense sell-off on Tuesday after failing to sustain above the monthly highs at 1.3150. The pair witnessed a sheer downfall, which forced the asset to establish beneath the round level support of 1.3100.

On an hourly scale, GBP/USD has exploded the symmetrical triangle formation on the downside after a failed attempt on the upper boundary of the chart pattern. The upper boundary of the symmetrical triangle is placed from March 25 high at 1.3225 while the lower boundary is marked from March 29 low at 1.3051. Usually, a failed attempt at symmetrical triangle breakout denotes sheer responsive selling and eventually a bearish reversal.

The Relative Strength Index (RSI) (14) has slipped into a bearish range of 20.00-40.00 swiftly, which adds to the downside filters.

A bear cross of 20- and 50-period Exponential Moving Averages (EMA) at 1.3120 has infused fresh blood into the greenback bulls.

Should the asset drop below Tuesday’s low at 1.3067, greenback bulls will get strengthened and the pair may hit the downside to near March 16 low at 1.3036, followed by the psychological support at 1.3000.

On the flip side, overstepping of the 50-EMA at 1.3109 will send the asset towards Tuesday’s high at 1.3167. Breach of the latter will drive the asset towards the round level resistance at 1.3200.

GBP/USD hourly chart

• Aussie bulls are firmer as the RSI (14) has shifted into a bullish range of 60.00-80.00.
• A re-test of the bullish flag formation will be a bargain buy for the market participants.
• Advancing 20- and 50-EMAs add to the upside filters.

The AUD/USD pair has witnessed a juggernaut upside after overstepping the April 4 high at 0.7557, which has sent the pair towards the north and the asset has printed a fresh nine-month high of 0.7662 on Wednesday. Aussie bulls have been in the bullish territory after hitting the March lows at 0.7165. The pair has given a breakout of its consolidation phase, which placed in a range of 0.7455-0.7541.

On a four-hour scale, AUD/USD is forming a bullish flag pattern, which signals back and forth moves after a strong run towards the north and leads to a fresh impulsive wave if consolidation breaks out decisively. Usually, a consolidation phase denotes the placement of bids by investors who didn’t take positions in the initial rally and those investors place their bids, which prefer to enter an auction after a bullish bias sets in.

The ascending 20- and 50-period Exponential Moving Averages (EMAs) at 0.7550 and 0.7514 add to the upside filters.

Meanwhile, the Relative Strength Index RSI (14) has shifted into a bullish range of 60.00-80.00 from 40.00-60.00, which indicates a firmer upside move going forward.

A re-test of the upper boundary bullish flag at 0.7541 will fetch significant bids from investors, which will send the pair towards Wednesday’s high at 0.7662, followed by the 11 June 2021 high at 0.7776.

However, the greenback bulls can regain strength if the asset drop below March 29 low at 0.7455, which will drag the asset towards March 10 high at 0.7369. Breach of the latter will expose the asset to more downside towards the round level support at 0.7300.

AUD/USD four-hour chart

• Gold holds in a tight range and awaits a catalyst.
• Fed rhetoric is boosting the US dollar and weighing on gold. 
• XAU/USD to remain bearish amid rising US yields.

The gold price was a touch lower as the US dollar weighed. The greenback hit its highest level in nearly two years as measured by the DXY index vs. a basket of other currencies.  A more hawkish Fed also saw the benchmark 10-year Treasury yield run to 2.55% while the two-years hit 2.56% for the first time since March 2019. 

Spot gold was down 0.3% at $1,916 per ounce, but trading in a narrow range while US gold futures eased 0.1% to $1,931.20. At the time of writing, XAU/USD is down 0.2% at $1,921 and weighed in Asia following comments from Federal Reserve Governor Lael Brainard.

The Fed member spoke of potential aggressive action from the Fed 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.” Brainard added that interest rate hikes could come at a more aggressive pace than the typical increments of 0.25 percentage points.

Eyes on the Fed

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. 

''Gold prices have remained incredibly resilient, reflecting that strong ETF and comex inflows into gold are trumping outflows associated with a hawkish Fed, which is in turn creating a divergence between gold and rates markets,'' analysts at TD Securities said.

''Considering that real rates could be less useful as a barometer for measuring gold's relative price, we turn our attention to gold flows to gauge the sustainability of interest in the yellow metal. Our analysis highlighted 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 subsidies.''

Gold, technical analysis 

As per the pre-open analysis, Chart of the Week, Gold: XAU/USD is pressured for the open ...

... the M-formation is a bullish reversion pattern and the price would be expected to be attracted to the neckline between $1,980 and $2,000. However, the sideways consolidation has played out to the point that there appears to be a bias to the downside for the near term where gold is being resisted by a 61.8% Fibo currently.