CFD Markets News and Forecasts — 12-04-2022

• WTI has retreated from $92.65 on easing demand worries in China.
• API has printed a solid build-up of US oil inventories at 7.8 million barrels.
• The impact of additional oil supply by the US and IEA seems to fade away.

West Texas Intermediate (WTI), futures on NYMEX, has recaptured the $100.00 mark as the Chinese administration has lifted some of its lockdown curbs, which were imposed to contain the Covid-19 epidemic in Shanghai city. The black gold has witnessed a sheer upside after sensing a decent buying interest from Monday’s low at $92.65.

It seems that the announcement of additional oil supply by the US administration and International Economic Agency (IEA) out of their Strategic Petroleum Reserve (SPR) has faded away. Earlier, the US administration and IEA announced an oil supply of 180 and 60 million barrels respectively. To offset the cut of one million barrels of oil per day (bpd) from Russia due to sanctions imposed by Western leaders, the collective leakage of 1.3 million bpd by the US administration and IEA may bring price stability.

Also, the WTI bears failed to capitalize on the solid build-up of oil stocks reported by the American Petroleum Institute (API). On Tuesday, the API reported that the US oil inventories rose by 7.8 million barrels, outperforming the previous figure of 1.08 million barrels.

For further guidance, the oil inventory report from the Energy Information Administration (EIA) will hold significant importance. The oil inventories are likely to land at 1.367 million barrels against the previous print of 2.421 million barrels.

Reuters reported that the Russian Energy Minister Nikolai Shulginov told Izvestia newspaper that Moscow is ready to sell oil and oil products to "friendly countries in any price range", Interfax news agency said on Tuesday.

''Shulginov said crude prices in the range of $80 to $150 a barrel were in principle possible but said Moscow was more focused on ensuring the oil industry continues to function, Interfax said.''

Meanwhile, crude oil rallied on Tuesday after Russia vowed to continue its offensive in Ukraine.

 President Vladimir Putin said on Tuesday that peace talks with Ukraine had hit a dead end. Instead, Putin promised that Russia would achieve all of its "noble" aims in Ukraine. "We have again returned to a dead-end situation for us," Putin told a news briefing during a visit to the Vostochny Cosmodrome 3,450 miles (5,550 km) east of Moscow.

"We don't intend to be isolated," Putin added. "It is impossible to severely isolate anyone in the modern world - especially such a vast country as Russia."

''This raises the spectre of continued risk of supply disruptions in the oil market,'' analysts at ANZ Bank said.

''Europe, Russia’s major customer of its crude exports, has been reluctant to implement sanctions due to its heavy reliance on the fuel. The Energy Information Administration added to the bullish sentiment by lowering its forecast for US crude output in 2022 and 2023 as shale producers grapple with higher production and labour costs''.

Reuters reports that the US Federal Reserve should quickly get interest rates up to a level where borrowing costs will no longer be stimulating the economy and should raise them further if high inflation proves persistent, Richmond Fed President Thomas Barkin said on Tuesday.

Key comments

"How far we will need to raise rates, in fact, won’t be clear until we get closer to our destination, but rest assured we will do what we must to address this recent bout of above-target inflation," Barkin said in remarks prepared for delivery to the Money Marketeers in New York.

"The best short-term path for us is to move rapidly to the neutral range and then test whether pandemic-era inflation pressures are easing, and how persistent inflation has become. If necessary, we can move further."

''If bouts of high inflation do become more common in the future than they were before the pandemic,'' Barkin said,

"Our efforts to stabilize inflation expectations could require periods where we tighten monetary policy more than has been our recent pattern."

''Doing that could create communication challenges as Fed policymakers explain why stabilizing prices may need to be balanced against costs to employment.''

The comments followed today's volatility in the US dollar when the markets moved away from it following an unexpected miss in the Core Consumer Price Index.

Core CPI fell short of estimates, suggesting that the Federal Reserve might not need to be in such a hurry that the market has been pricing for. Core CPI, which excludes food and energy prices, moved up by just 0.3%, below the 0.5% expectations and the smallest increase since September. 

However, with inflation expectations remaining relatively steady, the dollar bounces back and went on to score fresh cycle highs in 100.333 DXY. If the 10-year yield continues higher beyond the 2.836% highs set this week, it could be on track to test the October 2018 high near 3.26%.

• Despite the positive correlation with US Treasury yields, the USD/JPY consolidates in the 125.30-70 range.
• USD/JPY Price Forecast: The bias remains upwards, but a doji near the YTD highs might open the door for lower prices.

USD/JPY is almost flat as the Asian Pacific session begins, up 0.05%, but short of the YTD highs around 125.77, as Tuesday’s price action forms a doji, which means indecision looms over the pair. At the time of writing, the USD/JPY is trading at 125.48.

On Tuesday, the USD/JPY meandered around the 125.45 area but slumped sharply on the release of mixed US inflation figures, albeit hotter than expected; the numbers were not far from the expectations.

USD/JPY Price Forecast: Technical outlook

The USD/JPY is upward biased, as depicted by the daily chart. However, a doji near the YTD highs might open the door for a correction lower.

Meanwhile, the USD/JPY 1-hour chart, depicts the pair has formed a double top, but as the USD/JPY broke above 125.35, the USD/JPY might consolidate in the 125.30-77 region.

Upwards, the USD/JPY first resistance would be 125.56. A breach of the latter would expose the confluence of the YTD high and the R1 daily pivot near the 125.77-80 area. Once cleared, the following line of defense for JPY bulls would be 126.00.

On the flip side, the USD/JPY first support would be the confluence of the 50-hour simple moving average (SMA) and the daily pivot around 125.28-30 area. A decisive break would open the door towards the S1 daily pivot at 124.81, followed by the 100-hour SMA at 124.64.

Technical levels to watch

• The cable is consolidating near the psychological support of 1.3000.
• The greenback bulls are firmly defending the 20-EMA.
• A bearish range shift in the momentum oscillators RSI (14) is indicating weakness in the counter.

The GBP/USD pair is witnessing a nasty consolidation of around 1.3000 since Friday. A failed bull’s attack at the 200-period Exponential Moving Average (EMA) brought an intense sell-off in the asst from March 23 high at around 1.3300.

On a four-hour scale, the cable is auctioning in a narrow range of 12982-1.3057. It is worth noting that the asset is consolidating near its critical bottom, which is March’s low at 1.3001. Usually, a decent consolidation near the previous bottom level, which is also a psychological figure, signifies a double bottom formation. However, a break below the consolidation is also a certainty and the asset could enter into a prolonged bearish trajectory. The trendline placed from March 23 high at 1.3300, adjoining the April 5 high at 1.3167 will act as a major barricade going forward.

Pound bulls are also failing to overstep the 20-EMA, which is trading at 1.3032. Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a bearish range of 20.00-40.00, which indicates a continuation of bearish bias.

A decisive plunge below Friday’s low at 1.2982 will trigger the greenback bulls, which will drag the asset towards the 2 November 2020 low at 1.2854, followed by round level support at 1.2800.

On the flip side, pound bulls may dictate the prices if the asset surpass April 7 high at 1.3106 decisively. This will push the pair towards the April 4 high at 1.3137. Breach of the latter will drive the asset towards the round level resistance at 1.3200.

GBP/USD four-chart

• The shared currency struggles at 0.8366 and drops below a bottom trendline of a descending channel, opening the door for further losses.
• A dismal market mood weighs more on the euro than the British pound.
• EUR/GBP Price Forecast: A break below 0.8307 would exacerbate a fall towards 0.8202.

The EUR/GBP slides for the second consecutive day in the week, and on its way down, the EUR/GBP broke the bottom trendline of a descending channel, exerting additional downward pressure on the already battered euro. At the time of writing, the EUR/GBP is trading at 0.8328.

A dismal market mood usually has favored the euro, but the conflict between Ukraine-Russia is taking place in Europe; it weighs on the shared currency. Furthermore, comments made on Tuesday by Russian President Vladimir Putin that talks with Ukraine are at a dead end, so the hopes of a cease-fire or truce seem farther now than before. Meanwhile, hostilities remain in the region of Donetsk as Russia regroups its troops as evacuations of the area continue.

Another factor that accelerated the euro depreciation was the ZEW Economic Sentiment for Apri, which came worse than March’s reading in the Euro area and Germany. Furthermore, Germany reported inflation for March that rose by 7.3%, in line with expectations but much higher than the 5.1% February jump.

Elsewhere, the UK docket unveiled the jobs report. The Unemployment rate rose by 3.8% in line with forecasts, while Employment Change for January reported that the economy added just 10K jobs, lower than the 40K estimated. Albeit the report was mixed, the British pound has the upper hand as the Bank of England has already hiked rates, while the ECB is to finish first the Quantitative Easing by the summer of 2022.

Therefore, the EUR/GBP will keep falling unless the ECB turns more hawkish on Thursday, April 14, when the ECB unveils its Interest Rates Decision.

EUR/GBP Price Forecast: Technical outlook

The EUR/GBP remains downward biased, as shown by the daily moving averages (DMAs) located above the spot price, with a downslope. Furthermore, the EUR/GBP broke the bottom trendline of a descending channel, exacerbating a move towards March 07 swing low at 0.8202. Nevertheless, the cross-currency pair would need to overcome essential demand zones on its way south.

The EUR/GBP’s first support would be the April 12 0.8319 daily low. A decisive break would expose the April 7 daily low at 0.8307, followed by March 23 daily low at 0.8295. If that level gives way to EUR/GBP sellers, a move towards the YTD low at 0.8202 is on the cards.

• USD/CHF has sensed a minor sell-off at around 0.9330 as fears of US CPI wobble.
• US Treasury yields tumbled from 2.83% as investors have already discounted the higher US inflation print.
• This week, US Retail Sales will be a major trigger for further guidance.

The USD/CHF pair has attracted some offers at around 0.9328 in early Tokyo after the market participants shrug off the fears of higher US inflation. Considering Russia’s invasion of Ukraine and helicopter money infused by the Federal Reserve (Fed) since the pandemic of Covid-19 to spur the aggregate demand, a US inflation print at a multi-decade high was highly expected.

The US Consumer Price Index (CPI) has landed at 8.5%, higher than the estimates of 8.4%. This has triggered the need for a reign in on inflation by spurring the interest rates and balance sheet reduction. The announcement of the US CPI has brought a sell-off in the US Treasury yields. The 10-year US Treasury yields eased sharply after hitting a fresh-three-year high at 2.83%. It seems that investors have already priced in the higher print of US inflation.

Meanwhile, Fed Vice Chair Lael Brainard in her speech on Tuesday has emphasized more on moderation of inflation in the core goods segment. She also added that it is encouraging to see a fall in the unemployment rate in the last few months of labor market reports and that the improvement in the participation rate has more way to go.

Going forward, investors will focus on US monthly Retail Sales, which will be released by the US Census Bureau on Thursday. A preliminary estimate of the US Retail Sales claims a higher print at 0.6% against the prior figure of 0.3%.

• The DXY is marching towards 101.00 as higher US CPI has underpinned Fed’s tightening bets.
• US CPI Ex Food & Energy have landed at 6.5%, in mid of the estimates and previous figure.
• Weaponry assistance to Ukraine by UK and US has bolstered the risk-off impulse.

The US dollar index (DXY) has confirmed a fresh bullish rally after overstepping the previous week’s high at 100.19 decisively. The DXY bulls have got an adrenaline rush as the disclosure of US inflation has slightly crossed the estimates. The US Bureau of Labor Statistics has reported the yearly US Consumer Price Index (CPI) at 8.5%, mildly higher than the market forecast of 8.4% and significantly higher than the previous print of 7.9%. Multi-decade record-high inflation in the US is compelling the Federal Reserve (Fed) to elevate interest rates and initiate balance sheet reduction soon.

Meanwhile, the US CPI Ex Food & Energy has landed at 6.5%, in between the estimate of 6.6% and the prior figure of 6.4%, which indicates price pressures majorly in necessity products.

The US Treasury yields surrendered Monday’s gains in the American session as the market participants have already discounted the elevated print of US CPI. The 10-year US Treasury yields have tumbled to 2.73% after printing a three-year high at 2.83%.

US and UK agree to put pressure on Russia

US President Jo Biden and UK Prime Minister Boris Johnson have agreed to put pressure on Russian leader Vladimir Putin as Moscow has repositioned its rebels in the eastern Donbas region. The two administrations are planning to accelerate and bolster military and economic assistance to Ukraine.

Key events this week: Producer Price Index (PPI), Initial Jobless Claims, Retail Sales, Michigan Consumer Sentiment Index (CSI), and Industrial Production.

Eminent issues on the back boiler: Russia-Ukraine Peace Talks, Reserve Bank of New Zealand (RBNZ) interest rate decision, European Central Bank (ECB) interest rate decision, and Bank of Canada (BOC) interest rate decision.

• The EUR/JPY failure to reclaim 137.00 exposed the pair to selling pressure.
• EUR/JPY Price Forecast: A double top in the daily chart looms and targets 131.40.

After Monday’s price actions witnessed the EUR/JPY lifting to the 137.10s region and then dropping towards the 136.60s area, the EUR/JPY continues falling as a double-top chart pattern forms in the daily chart. At the time of writing, the EUR/JPY is trading at 135.73.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY daily chart depicts an upward bias in the cross-currency pair. However, price action since March 28, when the EUR/JPY printed a YTD high at 137.54, coincides with the Relative Strength Index (RSI) highest level reached at 73.27, within overbought conditions, the first signal that the pair might consolidate.

Then, on April 4, the EUR/JPY fell towards the 134.20s area and was range-bound in the 134.20-135.40 range before April 11, when the EUR/JPY exploded upwards, close to 190-pips, failing to reclaim 137.00, retreating afterward towards 136.65.

That said, the cross-currency pair formed a double top, and as it is headed south, it would find some hurdles on its way down. The EUR/JPY first support would be April 7 at 135.50. A breach of the latter would expose 135.00. Once cleared, the EUR/JPY bull’s following line of defense would be the neckline at 134.29, followed by the double-top target at 131.40.

Technical levels to watch

Reuters has reported that US President Joe Biden's administration is expected to announce as soon as Wednesday another $750 million in military assistance for Ukraine for its fight against Russian forces, two US officials familiar with the matter told Reuters.

''The equipment would be funded using the Presidential Drawdown Authority, or PDA, in which the president can authorize the transfer of articles and services from US stocks without congressional approval in response to an emergency.''

Meanwhile, President Vladimir Putin said on Tuesday that peace talks with Ukraine had hit a dead end. Instead, Putin promised that Russia would achieve all of its "noble" aims in Ukraine. "We have again returned to a dead-end situation for us," Putin told a news briefing during a visit to the Vostochny Cosmodrome 3,450 miles (5,550 km) east of Moscow.

"We don't intend to be isolated," Putin added. "It is impossible to severely isolate anyone in the modern world - especially such a vast country as Russia."

• USD/CAD bulls stepping on the gas into early Asian markets. 
• Oil prices are elevated and yet the CAD struggles in the face of a firm US dollar and fresh cycle highs. 

At 1.2641, USD/CAD is up 0.13% on the day, little changed although in recovery mode from its weakest level in nearly four weeks. This is despite a rally in the price of oil and US data that showed a measure of underlying inflation climbing less than expected in March. The US dollar has printed a fresh cycle high in the DXY. 

While the initial readout came in slightly hotter than analysts expected, with the US Consumer Price Index (CPI) posting the biggest monthly rise in consumer prices in 40 years, the data showed some signs that inflation may have peaked.

Core CPI fell short of estimates, suggesting that the Federal Reserve might not need to be in such a hurry that the market has been pricing for. Core CPI, which excludes food and energy prices, moved up by just 0.3%, which was below the 0.5% expectations and the smallest increase since September. 

However, we saw a turnaround in the greenback as US stocks sank, retracing the relief rally as money markets continue to price in a hawkish Fed. The US Treasury's 10-year auction hit a high yield of 2.72% on Tuesday, up from the 1.92% high in the previous month. With inflation expectations remaining fairly steady, if the 10-year yield continues higher beyond the 2.836% highs set this week, it will on track to test the October 2018 high near 3.26%.

This leaves the bias to the upside for the greenback and Fed officials are likely to remain hawkish. The expectations are for a 50 bp hike next month will potentially keep the US dollar on track for the March 2020 high near 103 as measured by the DXY. It has already printed a fresh cycle high on the day at 100.333. 

Meanwhile, Canada's central bank is expected to raise interest rates by a half-percentage point on Wednesday, its first hike of that magnitude since May 2020. It could also start to shrink its bloated balance sheet which would likely support the CAD, especially in the face of recovering oil prices. 

The price of crude oil, being one of Canada's major exports, settled up 6.7% at $100.60 a barrel as Russian oil production fell to 2020 lows. OPEC also warned it would be impossible to replace potential supply losses from Russia. Additionally, Shanghai begins to ease mobility restrictions which are likely to continue giving relief to the price of oil. 

• NZD/USD bulls moving in on critical daily resistance and the counter trendline
• RBNZ will be the focus now that the markets have traded the US CPI.

At 0.6857, NZD/USD is up some 0.5% and has travelled from a low of 0.6805 to a high of 0.6889 so far. However, the Us dollar has firmed in recent trade owing to a recovery in US yields and the hawkish narrative surrounding the Federal Reserve. 

The US dollar, as measured by the DXY index, is above the 100 level again after being below it at 99.74 the low for the start of the trading session. It is now printing fresh session highs of 100.332 as traders in the money markets rethink the outlook for the Federal Reserve despite the Core Consumer Price Index. The market was priced for a beat but the core moved up by just 0.3%, which was below the 0.5% expectations and the smallest increase since September.

Nevertheless, the greenback did not stay down for long and  US Treasury's 10-year auction hit a high yield of 2.72% on Tuesday, up from the 1.92% high in the previous month has helped to support a hawkish sentiment in markets. The bid to cover ratio for the auction was 2.43, down from the 2.47 ratio in March and the 10-year yield is recovering from the lows of the day.

Overall, US inflation expectations remain elevated and if the US 10-year yield moves beyond the 2.836% high, it will on track to test the October 2018 high near 3.26%. Additionally,  Fed officials are likely to remain hawkish and given the market, expectations are still for a 50 bp hike next month, the US dollar has embarked on fresh cycle highs, on track for the March 2020 high near 103.

RBNZ in focus

Meanwhile, the Reserve Bank of New Zealand is meeting this week and has much work to do, according to analysts at TD Securities. ''We suspect the Board realises this too. However, hiking in 25bps increments at consecutive meetings won't fit the bill. The Bank now needs to hike in 50bps increments at its next two meetings. We see no compelling reason for the Bank to await incoming data before deciding to act more aggressively.''

NZD/USD technical analysis

The M-formation is a reversion pattern and the price is embarking on a restest of the prior support in a 38.25 Fibonacci retracement near 0.69 the figure. Given the break of the dynamic trendline support, the bias is to the downside from a medium-term perspective, but it may be a little premature to expect such a trajectory for now. Instead, the price perhaps needs to stay with the bulls for a little while longer, at least into the RBNZ meeting.

• Gold hit near one-month highs on Tuesday at just under $1980 and is on course for healthy on-the-day gains.
• The precious metal was supported as US yields pulled back in wake of evidence of easing Core CPI pressures.
• Gold bulls will now be eyeing a test of the $2000 level.

Spot gold (XAU/USD) prices are set to end the day firmly on the front foot just to the south of the $1970 level, having jumped to fresh near one-month highs earlier in the session near $1980. XAU/USD is currently trading with on-the-day gains of about 0.7%, taking weekly gains to more than 1.0%.

Powering the move higher was a pullback in US yields in wake of a not as hot feared US Consumer Price Inflation report that, although showing headline price pressures hitting a four-decade high at 8.5% YoY in March, showed some evidence of a slow down in core price pressures. Lower yields reduce the “opportunity cost” of holding non-yielding assets like gold.

Though Fed Vice Chair Lael Brainard followed up the release of the inflation data a message that the Fed would be pressing ahead with monetary tightening anyway, markets seem to have dialed back on expectations for the pace of Fed tightening in the latter half of this year.

Meanwhile, gold also derived support from geopolitics, after Russian President Vladimir Putin referred to Russo-Ukraine peace talks as being at a dead-end, dampening hopes of a ceasefire. Now that spot gold prices have broken convincingly above late March highs in the $1960s, the gold bulls will set their sights on the $2000 level once again.

But further Fed commentary this week and US Producer Price Inflation data on Wednesday could present downside risks, particularly if Fed policymakers continue the hawkish chatter and producer prices don’t also moderate as expected. That might send US yields higher, which could stymie gold’s advances, though traders note that gold has been unusually resilient in the face of rising yields in recent weeks.

What you need to take care of on Wednesday, April 13:

The American dollar shed ground ahead of the release of US inflation figures, later recovering ground to close the day unevenly. It is stronger against the shared currency, as EUR/USD trades around 1.0830, not far from the year low at 1.0805.

The GBP/USD pair battles around 1.3000, despite upbeat UK employment-related data. The ILO Unemployment Rate edged lower to 3.8% in three months to February from 3.9%  previously, slightly better than the 3.9% expected. Also, the Average Earnings Including Bonus rose by 5.4%, compared to 4.8% in January, as expected. Finally, the number of job vacancies in the UK from January to March 2022 increased to a new record of 1,288,000.

Commodity-linked currencies spent most of the day up against their American rival, trimming some gains ahead of the close as Wall Street was unable to hold on to early gains. US indexes edged modestly lower.

AUD/USD trades around 0.7450, partially helped by soaring gold prices, as the bright metal reached a fresh multi-week high of $1,978.59 a troy ounce.

USD/CAD stands at 1.2640, despite oil prices soaring. WTI trades above $100.00 a barrel after the OPEC cut this year’s oil demand growth also its supply forecast. Oil suffered a short-lived knee-jerk after Iran’s Iran supreme leader said that nuclear talks “are going well.”

Generally speaking, trading was sluggish in stocks markets. Asian indexes edged lower, while European and US ones posted modest losses. Wall Street spent most of the day in the green after US inflation data proved less concerning than anticipated.

US government bond yields soared ahead of US data, later retreating. The yield on the 10-year US Treasury note peaked at 2.836%, now standing at 2.72%.

The dismal mood was exacerbated by comments from Russian President Vladimir Putin, who said that talks with Ukraine are at a dead-end, claiming that the latter has deviated from the agreements achieved at talks in Istanbul, Turkey. Putin added that the news reporting war crimes in Bucha were fake.

 Meanwhile, news coming from China are a red flag. The country said that the latest coronavirus wave in Shanghai is not under effective control. Lockdowns continue in the country, and the world wonders whether a new, unknown strain will soon spur globally and how it could affect economic growth.

Dogecoin Price Prediction: DOGE hints at a 30% rebound

• The shared currency aims to test the YTD low around 1.0806 after dropping below the 1.0900 mark.
• The US inflation broke the 8% threshold, a level last seen in 1981, which cements a 50 bps rate hike of the Fed at its May meeting.
• EUR/USD Price Forecast:  Bears are aiming to hit the raising wedge target of 1.0727.

The EUR/USD drops to fresh monthly lows and aims towards the YTD low at 1.0806, following a mixed US inflation report, which does not change the scenario of the Federal Reserve hiking rates for the second time in the year, though a 50 bps increase is expected. At the time of writing, the EUR/USD is trading at 1.0831.

Late in the New York session, the market sentiment turned sour. US equities record falls between 0.14% and 0.23%, while US T-bond yields jumped off lows, above the 2.70% threshold but well below the 2.832% daily highs. Meanwhile, the US Dollar Index (DXY) extends its weekly rally and is set to print a new YTD high above the 100 mark. At press time is up 0.31%, sitting at 100.283.

US inflation broke the 8% threshold, a 40 year high as the Fed prepares to hike 50 bps

Before Wall Street opened, the US Department of Labor revealed US inflation figures for March. The Consumer Price Index (CPI), a general view of inflation, rose by 8.5%, higher than the 8.4% y/y estimates. The so-called core CPI, excluding food and energy volatile items, rose by 6.5%, lower than the 6.7% expected.

“The price increase in March was mainly due to more expensive energy. For example, the price of gasoline increased by 18.3% compared with February. Otherwise, inflationary pressure tended to ease somewhat. Used car prices, for example, fell by 3.8%, after having pushed up inflation last year. Overall, goods prices outside energy and food fell by 0.4%,” analysts at Commerzbank expressed in a note.

They added that whether the inflation rate peaked in March, they said it would “depend above all on the further development of oil and gasoline prices. If the oil price remains at the current level of around $100 per barrel of Brent and does not rise again, March probably was the high in the inflation rate.”

Additionally to the abovementioned, money market futures, as shown by STIRs, depicts that investors have priced in a 94% chance of the Fed raising rates by 0.50% up to 1%.

Elsewhere, the conflict between Russia and Ukraine also summed up the dampened market mood of late. Earlier in the North American session, the Russian President Vladimir Putin said that talks with Ukraine are at a dead end, a signal that he would carry on until the objective is achieved, as he said previously to the former.

EUR/USD Price Forecast: Technical outlook

The EUR/USD keeps treading water after breaking below the 1.0900 mark. The daily chart shows that the pair remains downward biased and is set to hit the “rising wedge” target at 1.0727, but it would find some hurdles on its way south.

The EUR/USD first support would be the YTD low at 1.0806. A breach of the latter would expose 1.0727. Given way to 1.0727, it might open the door towards the psychological 1.0700 level.

• USD/JPY has stabilised in the low 125.00s in recent hours as traders digest Fed commentary and the day’s US CPI.
• The pair is flat, having pulled back from earlier levels above 125.50 after US yields fell.

USD/JPY has stabilised in the low 125.00s in recent trade and currently trades unchanged on the day, having slipped back from earlier high to the north of 125.50 in tandem with a pullback in US yields following US inflation data. Though the annual pace of headline Consumer Price Inflation hit a four-decade high at 8.5%, a tad above expected, core measures (particularly the MoM) missed expectations, resulting in the market paring back on some Fed tightening bets.

But the most recent batch of comments from Fed Vice Chair Lael Brainard suggests that, while the Fed is relieved to see some early signs of a slowdown in core inflation, the bank remains committed to normalising policy quickly. Brainard talked about deciding on a balance sheet reduction plan in May for runoff to then start in June, and noted that normalising policy to a significant degree by the end of the year remains the appropriate policy path.

Brainard's remarks have helped the dollar recover its poise in recent trade and the DXY recover back to multi-month highs in the 100.30 region. US yields are yet to recover back to pre-US CPI data levels, with the US 10-year still down about 8bps on the day just above 2.70%, hence why USD/JPY has been unable to recover back above 125.50.

But the USD/JPY bulls will likely remain highly confident. Further Fed speak throughout the rest of this week will likely reinforce Brainard’s message that the bank will press ahead with tightening plans. Meanwhile, US Producer Price Inflation data out on Wednesday may yet offer an upside surprise. Risks thus remain tilted towards the upside for the pair.

• AUD/USD bulls back off as the US dollar firms up again. 
• Aussie jobs will be a key event for this week, as will the RBNZ.

At 0.7458, AUD/USD remains in bullish territory, higher by some 0.6% but is losing steam as the greenback recovers in afternoon New York trade. The US dollar, as measured by the DXY index, is above the 100 level again after being below it at 99.74 the low for the start of the trading session. 

We have seen a strong turnaround in the US dollar as money markets rethink the outlook for the Federal Reserve despite the Core Consumer Price Index, which excludes food and energy prices, that moved up by just 0.3%, which was below the 0.5% expectations and the smallest increase since September. 

The US Treasury's 10-year auction hit a high yield of 2.72% on Tuesday, up from the 1.92% high in the previous month. The bid to cover ratio for the auction was 2.43, down from the 2.47 ratio in March and the 10-year yield is recovering from the lows of the day.

Therefore, with inflation expectations remaining fairly steady, the US yield can continue higher and if it moves beyond the 2.836% high, it will on track to test the October 2018 high near 3.26%. This would leave the bias to the upside for the greenback as Fed officials are likely to remain hawkish. the market expectations are still for a 50 bp hike next month and this will potentially keep the US dollar on track for the March 2020 high near 103.

Domestically, it is an important week for the antipodeans. For AUD, the Aussie Employment report will be key, but a close eye will also be paid to its neighbouring central bank, the Reserve Bank of New Zealand. A 50% rate hike to the OCR could tip the balance in favour of AUD again, especially given the miss in the Core CPI data for the US today. 

As for the Aussie Employment, ''we are expecting another strong headline print of +40k, reaffirming the RBA's message that the labour market outlook remains upbeat,'' analysts at TD Securities said. ''Consistent with this, we pencil in a small uptick in the participation rate from 66.4% to 66.5%. Despite this uptick in the participation rate, we forecast the unemployment rate will fall to a record low of 3.9%.''

• GBP/USD sinking to test 1.30 the figure again as the US dollar firms up.
• Markets are volatile following a mixed day in sentiment with the US CPI data at the core of the moves. 
• Uk data this week so far has been underwhelming and has weighed on the pound. 

Trading at 1.3017, GBP/USD is slightly underwater in the mid-day New York session, down 0.1%. Sterling has been tested by the bears to below 1.30 the figure once again on Tuesday when it traded at a low of 1.2993 in the London session after sliding from a high of 1.3030. Cable has since rallied to a high for the day at 1.3053 but has since started to slide again, back below Monday's closing price.  

It has been a day driven by flows through the US dollar rather than anything domestic-related to the pound. The greenback initially fell on Tuesday after US inflation data showed consumer prices rose by 8.5% in March compared to a year ago, boosted by oil and soaring gasoline prices.

While the initial readout came in slightly hotter than analysts expected, with the US Consumer Price Index (CPI) posting the biggest monthly rise in consumer prices in 40 years, the data showed some signs that inflation may have peaked. Core CPI fell short of estimates, suggesting that the Federal Reserve might not need to be in such a hurry that the market has been pricing for. 

The US seasonally adjusted Consumer Price Index climbed 1.2% in March, as expected in markets. The gauge climbed from 0.8% in February, the Bureau of Labor Statistics said Tuesday. The CPI surged 8.5% year on year, the biggest annual gain since 1981. Gasoline prices soared more than 18% in March and accounted for more than half of all items' monthly increases. Core CPI, which excludes food and energy prices, moved up by just 0.3%, which was below the 0.5% expectations and the smallest increase since September. Core CPI was up 0.5% in February.

Consequently, Wall Street's benchmarks climbed after government bond yields fell as money market traders pondered as to whether price increases have peaked at multi-decade highs. The US 10-year yield slumped by 7.4 basis points to 2.71%, falling back from a three-year high marked-up at the start of the week. The dollar index DXY fell 0.146% and reached a low of 99.74. 

US dollar bulls move in again

However, we have seen a strong turnaround in the US dollar since. DXY is now 0.3% higher on the day and trades at fresh highs of around 100.275. 

Money markets are having a rethink with the US Treasury's 10-year auction hitting a high yield of 2.72% on Tuesday, up from the 1.92% high in the previous month. The bid to cover ratio for the auction was 2.43, down from the 2.47 ratio in March. US stocks are also back under pressure and the 10-year yield is recovering from the lows of the day.

With inflation expectations remaining fairly steady, if the yield continues higher beyond the 2.836% highs, it will on track to test the October 2018 high near 3.26%. This leaves the bias to the upside for the greenback and Fed officials are likely to remain hawkish. Market expectations for a 50 bp hike next month will potentially keep the US dollar on track for the March 2020 high near 103.

Meanwhile, the UK began its monthly data dump on a soft note with February Gross Domestic Product falling in at 0.1% MoM vs. 0.2% expected and 0.8% in January, Industrial Production fell in at -0.6% MoM vs. 0.3% expected and 0.7% in January.

''It appears that the UK economy is already slowing ahead of the upcoming hikes in the payroll tax and the cap on household energy costs,'' analysts at Brown Brothers Harriman said.  As for the Labor market data, this too showed signs of growth losing momentum, despite very strong job vacancies. 

''The UK economy faces headwinds from here, as was clear from the labour market data (and yesterday's trade figures). So, GBP/USD remains vulnerable to a more convincing break below 1.30,'' analysts at Societe Generale said. 

Consumer Price Index data will be reported Wednesday.

Nomura analysts said that they ''see UK inflation peaking in spring 2022. Further energy price rises mean a further (slightly lower) peak in the autumn.''

''We see 25bp Bank of England rate hikes in May, August and November this year and February next, for a terminal rate of 1.75%.''

There are no BOE speakers scheduled for this week. 

• Gold prices rose in the North American session by close to 1%.
• Geopolitics, mixed US inflation data, and China’s Covid-19 lockdowns affect oil prices, which lifted XAUUSD.
• Gold Price Forecast (XAUUSD): Remains upward, and a daily close above $1966, might exacerbate a move towards $2000.

Gold (XAUUSD) surges above March 24 high at $1966, and It aims to get back to the $2000 mark after US consumer inflation rose to levels last seen in 1981, amidst a mixed sentiment, courtesy of high global inflation, the Ukraine-Russia conflict, and China’s Covid-19 lockdowns. At the time of writing, XAUUSD is trading at $1967.93 a troy ounce.

Reflection of the market’s sentiment is European and US equities, fluctuating between gainers and losers. The US Department of Labor reported that the Consumer Price Index (CPI) for March rose by 8.5%, higher than 8.4%, while the so-called core CPI, which excludes volatile items like food and energy, expanded by 6.5%, lower than the 6.7%.

The greenback reacted negatively to the news, dropping below the 100.000 mark, while XAUUSD broke above the $1966 threshold as US bond yields fell.

Of late, the US Dollar Index, a measurement of the buck vs. six currencies, reclaimed the 100.00 mark, edges up 0.26%, while the US 10-year Treasury yield is twelve basis points down from the 2.836% highs, towards 2.710%, a tailwind for the non-yielding metal prices, as high inflationary scenarios boosts appetite for the yellow metal.

Aside from this, the Ukraine-Russia conflict extends for the seventh straight week. Ukraine’s President Volodymyr Zelenskyy reported that Russia could make use of chemical weapons, as social media reports emerged that Russia made use of them in Mariupol. However, journalists have not confirmed it, and the US Pentagon Press Secretary Kirby said that the US is aware and will monitor the situation.

Regarding peace talks, Russian President Vladimir Putin said that talks with Ukraine are at a dead end, and there is no doubt that the military operation in Ukraine will achieve its objective.

Gold Price Forecast (XAUUSD): Technical outlook

XAUUSD’s bias is upwards, but since March 16, is trapped in the $1900-66 range. On Tuesday, mixed Us inflation data boosted Gold prospects, as XAUUSD reacted upwards and broke above the top of the range, reaching a daily high at $1978.53, though of late, it is testing the $1966 level as support.

Upwards, XAUUSD’s first resistance would be $1978.53. A breach of the latter would expose the R2 daily pivot at $1984 and then the R3 pivot point at $1998, short of the $2000 mark.

• AUD/JPY rallied on Tuesday as the Aussie benefitted from risk-on flows, rising commodity prices and strong domestic data.
• The pair hit fresh weekly highs at 93.80 and bulls are eyeing a test of annual highs above 94.00.

A significant improvement in the market’s appetite for risk which has seen US and global equity markets turn higher in wake of the latest not as hot as feared US inflation figures has given the Aussie in recent trade. AUD/JPY recently pushed to a fresh weekly high to the north of Monday’s highs in the 93.60s to briefly touch 93.80.

At current levels in the 93.60s, it trades with gains of around 0.7%, having already seen a healthy rebound from earlier session sub-93.00 lows, with the Aussie benefitting from strength across global commodity markets and in the afterglow of strong business survey data released during the Asia Pacific session.

For reference, NAB’s Business Conditions index in March jumped to 18 from 9 in February, its highest since July 2021, while the Business Confidence index rose to 16 from 13. The improvement in risk appetite and upside in commodity prices has got some bulls eyeing a breakout above recent highs just above 94.00.

Indeed, looking at AUD/JPY price action over the last few weeks, it does seem to be forming an ascending triangle, which typically signals an upcoming bullish breakout. But a downturn in yields in the US in wake of the latest inflation report is offering the yen some respite.

For AUD/JPY to break above 94.00 and hit fresh year-to-date highs, yields may have to regain some of their recent upside bias, alongside a continuation of the current more risk-friendly flows in equities and commodities. Domestic Australian fundamentals could also be a catalyst for upside; the March labour market report is out during Thursday’s Asia Pacific session and, if sufficiently strong, could further boost conviction that the RBA will begin hiking by the end of H2 2022.

• On Tuesday, the white metal rose close to 2% in a mixed market mood.
• Geopolitics, mixed US inflation data, and China’s Covid-19 outbreak boost Silver.
• Silver Price Forecast (XAG/USD): Upward biased but about to reach overbought levels.

Silver (XAG/USD) extended its rally in the North American session, trading above the April 11 cycle high of $25.37, amid a mixed market mood, courtesy of the Russian-Ukraine crisis, hotter than expected US inflation, and China’s coronavirus outbreak. XAG/USD is trading at $25.58.

Russo-Ukraine tussles, hot US inflation, and China’s Covid-19 outbreak lifts precious metals

Global equities are trading mixed, with European bourses down while their US counterparts rise. Overnight, Ukrainian President Zelenskyy reported that Russia could make use of chemical weapons, while the US Pentagon Press Secretary Kirby said that the US is aware of this but it would continue to monitor the situation. On the Russian side, President Vladimir Putin said that there is no doubt that the military operation in Ukraine will achieve its objectives. Furthermore, earlier in the North American session, Russian President Putin added that talks with Ukraine are at a dead end.

Meanwhile, China’s Covid-19 outbreak helped to ease oil prices but kept close to 25 million people in lockdown.

Aside from this, the US economic docket reported US inflation for March. The headline figure rose by 8.5% y/y, higher than the 8.4% estimated by analysts, while the so-called Core CPI, which excludes volatile items, expanded by 6.5%, lower than the 6.7% foreseen

The market’s initial reaction was that the greenback fell below the 100.000 mark, while US Treasuries edged lower as investors assessed that March’s reading could be the peak of US inflation.

Meanwhile, money market futures keep their aggressive forecasts of the Federal Reserve hiking at 0.50%. The odds show a 94% chance that the Federal Reserve would lift the Federal Funds Rate (FFR) to 1% in its May meeting.

Silver Price Forecast (XAG/USD): Technical outlook

XAG/USD’s daily chart confirms that Silver has an upward bias. The daily moving averages (DMAs) reside below the spot price, though it’s worth noting that the 200-DMA at $23.90 is trapped between the 50-DMA at $24.56 and the 100-DMA at $23.72.

Silver’s 1-hour chart bias is aligned with the daily chart, and the uptrend is intact. The price action of the last two candlesticks shows that the rally is overextended, further confirmed by the Relative Strength Index (RSI) at 67.92, close to reaching overbought conditions.

Upwards, the XAG/USD first resistance would be the confluence of the March 24 cycle high and the R2 pivot point around the $25.75-85 range. A breach of the latter would expose the psychological $26.00 mark, followed by the R3 pivot at $26.12.

On the downside, the XAG/USD first support would be the R1 daily pivot at $25.40. Once cleared, the next support would be the confluence of March 31 and the daily pivot at the $25.09-05 range, followed by the 50-hour simple moving average at $24.97. A decisive break would expose a solid support area near the confluence of the 100, the 200-hour SMAs, and the S1 pivot point around $24.68-72.

UK PM Boris Johnson and US President Joe Biden agreed on the need to continue joint efforts to ratchet up the economic pressure on Russian President Vladimir Putin over his invasion of Ukraine, a Downing Street statement on Tuesday said, reported Reuters. The two leaders discussed the need to accelerate and bolster military and economic assistance to Ukraine, the statement noted. 

Ahead of an expected increase in the intensity of fighting in Ukraine's eastern Donbas region as Russia repositions its military, Ukraine has been demanding more support in the form of weapons from its Western allies. 

The balance sheet runoff could be worth two or three additional rate hikes through its entire course, Fed Vice Chair Lael Brainard said on Tuesday according to Reuters. The balance sheet will play an important role in the removal of monetary policy accommodation, she noted, but estimates as to exactly how much are uncertain. 

Additional Remarks: 

"I would not hang my hat on any particular number, but the reduction in the balance sheet will contribute to tightening."

The health of US economy bodes well for bringing inflation down without causing recession.

"I remain attentive to the shape of the yield curve."

"I think there are different parts of the yield curve that are information and the forward part really doesn't signal anything of concern."

"The later part of the yield curve is what I am watching very carefully."

"I am also watching inflation expectations and economic activity as I judge the pace of removal of accommodation."

Fed Vice Chair Lael Brainard said on Tuesday that, moving forward, she is going to be very cautious about making predictions and that she is watching core inflation very carefully, reported Reuters.  

Additional Remarks:

• The Fed's goal is to bring inflation down while sustaining economic recovery. 
• The very high inflation we are seeing is a result of a series of shocks. 
• A tightening in financial conditions will help moderate demand, particularly in areas such as durable goods. 
• "We're in a period of very high uncertainty."
• "We saw a moderation in core inflation this month."
• "Those kinds of developments will give me confidence we'll achieve 2% inflation, but the timeline is unclear."
• Today's economy is shaped by a unique set of circumstances."
• "We still have well-anchored longer-term inflation expectations."
• That will be enormously helpful to us going forward on inflation.
• There is quite a bit of capacity for labor demand to moderate by reducing job openings without the need for layoffs. 

Fed Vice Chair Lael Brainard said on Tuesday that reductions in the size of the Fed's balance sheet could come as soon as June, after a decision is made in May, reported Reuters. The Fed is tightening methodically as well as expeditiously, she commented, echoing recent remarks from Fed Chair Jerome Powell, noting that the Fe will tighten through a series of rate increases. In terms of the pace of rate increases meeting to meeting, the Fed doesn't want to focus on that, she cautioned. Nonetheless, the added, the combined effect will bring policy to a more neutral rate expeditiously later this year, she noted. 

Additional Remarks:

• "I don't have a stopping rule per se on interest rates."
• "I don't want to be too rigid in the appropriate course of policy this year and next."
• "I expect the combined effect of moving policy to a more neutral rate and reducing the balance sheet of bringing inflation down and moderating demand."
• "By moving expeditiously it gives us more options in the future."
• It is too early to have great confidence in what the post-pandemic, post-war new normal will be for the US economy. 
• In terms of the neutral rate, there are good reasons to think it will continue to be at quite low levels historically. 
• "We need to see how the economy evolves."
• The Fed is committed to bringing inflation back to our 2% goal. 
• "We are committed to keeping inflation expectations anchored."
• "We can anticipate inflation will return to our 2% goal over time."
• It will take more time than anybody would have thought for employment to go back to pre-pandemic norms.

Fed Vice Chair Lael Brainard said on Tuesday that Russia's invasion of Ukraine skews risks to the upside on inflation and to the downside on economic activity, and that China's "zero Covid' policy has the potential to lengthen out supply chain constraints, reported Reuters. 

Additional Remarks:

• Russia's invasion of Ukraine is an important contributor to inflation pressures. 
• There are likely to be knock-on effects on global supply chains from the war.
• The longer the war persists, the greater the potential risks to the upside on inflation and to the downside on growth. 
• This is just another set of inflationary shocks that are hitting the economy. 

Fed Vice Chair Lael Brainard said on Tuesday that it is welcome to see some moderation in the rate of core goods inflation and that getting inflation down is the Fed's most important task, reported Reuters. Brainard said that she would be looking to see if we continue to see a moderation in inflation in the months ahead, and that she is most focused on core inflation for assessing the path of monetary policy. 

Russia's invasion of Ukraine is driving the topline of inflation, Brainard stated, pointing to the jump in energy prices in March. The labour market and the economy overall have seen very strong demand, she added, though she said she expects this demand to moderate. Brainard said it is encouraging to see a rebound in the participation rate in the last few months of labour market reports and that the improvement in the participation rate has room to run. 

Additional Remarks:

• There will be spillover from slower growth abroad and less stimulus from the fiscal side. 
• The recovery can be sustained even as we bring inflation down. 
• Fading fiscal support will be a substantial drag this year.
• Financial conditions will bring demand down to more sustainable levels. 
• As the pandemic lifts, we should see more demand for services and less pressure in durables.
• On the supply side, we expect to see continued improvements in labor force participation.
• As we move policy to more neutral levels, I expect to see labor demand coming down.
• There is plenty of room for businesses to reduce the number of job openings.

On Thursday, the European Central Bank will have its monetary policy meeting. Market consensus sees no change in rates. Most analysts look for the ECB to start responding to elevated inflation levels. At Wells Fargo, analysts now look for a rate hike in September. 

Key Quotes: 

“The Eurozone economy has had a tough start to 2022. A surge in COVID cases and uncertainties tied to the Russia-Ukraine conflict have weighed on overall activity. Consumer excess savings and spending power also seem to be softer now than previously, which we believe can further contribute to a slowdown in activity. Against this backdrop, we recently lowered our Eurozone GDP forecast and now expect the economy to grow only modestly over 3% this year.”

“Despite a softer growth outlook, Eurozone headline inflation has moved sharply higher. Core inflation has also trended higher but to a lesser extent as it does not include volatile price components such as energy and food. But, even with core inflation slightly more modest, we still expect ECB policymakers to respond to elevated headline inflation.”

“We do not expect interest rate settings to change meaningfully next week but do expect ECB policymakers to taper asset purchases; however, we do now expect the ECB to lift interest rates 25 bps at the September 2022 meeting. We also expect steady interest rate hikes over the remainder of this year as well as into 2023.”

On Wednesday, the Bank of Canada (BoC) will announce its decision on monetary policy. A rate hike of 50 bp is widely expected. According to analysts from TD Securities, the most likely scenario is a 50 bp hike and the beginning of quantitative tightening in May. They see the central bank revising to the upside GDP and inflation forecasts. They look for a “hawkish” policy statement. 

Key Quotes: 

“We look for the BoC to lift rates by 50bps, announce QT beginning in May, and signal that more hikes will be needed. We also look for material upward revisions to 2022 GDP and inflation forecasts.”

“Our high-frequency fair value framework pegs USDCAD at 1.25, underscoring the anchor of the current range. We prefer to fade extreme moves on both sides, where a bounce towards 1.28 would offer selling opportunities. For now, CAD crosses offer better opportunities, and we maintain our short NZDCAD exposure.”

• The Mexican peso rises for the fourth consecutive day on Tuesday versus the US dollar.
• USD/MXN is approaching oversold readings but has no significant signs of consolidation.
• Bearish bias prevails, a daily close under 19.80 is likely to trigger more losses.

The USD/MXN moved further to the downside on Tuesday and hit weekly lows at 19.77 before rising back above 19.80. A daily close below should point to further weakness in the pair.

The RSI Index in is oversold territory in the four-hour chart. In the daily chart, however, the index still shows some room for further losses before reaching 70. The Mexican peso needs to make a clear break from the 19.80 area.

The next strong support area might be seen at 19.70, followed by 19.60. The area at 19.50/55 should cap the downside if reached in the next sessions, favouring a rebound, initially to 19.70.

On the upside, at 19.97/20.00 is the immediate resistance. Above the next level stands at 20.10 (20-day Simple Moving Average). A recovery above 20.20 should negate the bearish bias in the short term, adding support to the US dollar for a more significant recovery.  

USD/MXN daily chart

• Major US equity indices were higher across the board on Tuesday as investors breathed a sigh of relief post-US CPI.
• Core measures weren’t as hot as feared, allowing yields to pull back and tech to lead the US equity recovery.
• The S&P 500 was last up nearly 1.0% in the 4,450 area.

Major US equity indices were higher across the board on Tuesday as investors breathed a sigh of relief after US Consumer Price Inflation (CPI) data revealed price pressures rising broadly in line with expectations in March. Though the headline rate of annual CPI hit a four-decade high at 8.5%, core measures came in lower than expected, which investors interpreted as easing pressure on the Fed to lift interest rates as high in the coming years.

As markets dialed down their hawkish Fed bets, US yields have dropped across the curve, leading to outperformance in yield-sensitive tech/growth stocks. As a result, the Nasdaq 100 is the best performing of the major US indices, trading up about 1.4% in the 14,200 area after Monday’s sub-14,000 close, though is still below its 50-Day Moving Average at 14,320.

Meanwhile, the S&P 500 currently trades with gains of about 1.0% just above the 4,450 mark and is back above its 50DMA at 4,425 after closing near 4,410 on Monday. The Dow is trading 0.8% higher near the 34,600 level where it probes its 21DMA, having also rebounded back to the north of its 50DMA in the 34,2300s.

Sectors that typically don’t perform as well in an environment of falling yields (financials) and risk-on (health care) are acting as a slight weight to the Dow, though big gains in energy names after WTI lept back above $100 per barrel is more than offsetting this. Looking ahead, attention returns to the topic of inflation on Wednesday with the release of March Producer Price Inflation figures, though investors will likely be much more focused on earnings, with big US banks unofficially kicking off the earnings season.

• The Australian dollar found support around 0.7400 and is trimming four-day losses.
• Geopolitics, US mixed inflation report, and falling US bond yields lifted the AUD/USD.
• AUD/USD Price Forecast: After reclaiming the 0.7441, opened the door for a re-test of 0.7500.

AUD/USD snaps four days of consecutive losses, advances some 0.91% in the North American session amidst a mixed market mood, courtesy of geopolitics jitters, elevated inflation, high US T-bond yields, and mixed economic data. At the time of writing, the AUD/USD is trading at 0.7491.

Global equities have traded mixed. Europen stocks drop, contrarily to US equities rising, as US inflation figures were reported. The Consumer Price Index (CPI) for March in the US rose to 8.5% y/y, higher than the 8.4% expected, a level last seen in 1981. Meanwhile, the so-called Core CPI increased by 6.5%, lower than the 6.7% y/y foreseen, a signal that inflation could be peaking, as shown by monthly figures.

The monthly readings missed expectations, with CPI expanding by 1.2%, higher than the 1% estimations, while Core CPI came at 0.3%, lower than the 0.6%. The market’s initial reaction was that the greenback fell below the 100.000 mark, US Treasuries edged lower and US stocks rallied,  as investors assessed that March’s reading could be the peak of US inflation.

Meanwhile, the AUD/USD lifted from 0.7460s to the 0.7490 area, as the appetite for riskier assets, increased.

Elsewhere, money market futures keep their aggressive bets that the Federal Reserve would hike 0.50% at its next meeting. The odds show a 94% chance that the Federal Reserve would lift the Federal Funds Rate (FFR) to 1% by May.

The Australian docket featured the NAB Business Confidence, which came at 16, higher than its previous reading, while Business Conditions also improved, as the index rose by 18 vs. 9 on the last figure.

AUD/USD Price Forecast: Technical outlook

The AUD/USD fell below March 7 0.7441 daily high and achieved a daily close around 0.7414, which would expose the pair to the 0.7400-41 area. However, mixed US economic data lifted the Aussie above the former and is aiming towards the 0.7500 mark, so the AUD/USD bias remains upwards.

The AUD/USD first resistance would be 0.7500. Once cleared, the next resistance would be the 0.7540-55 area, the confluence of March 28 and October 2021 cycle highs, followed by the 0.7600 mark.

• GBP/JPY is currently trading flat in the 163.20 area, as a fall in global yields post-US CPI supports the yen.
• The pair wasn’t reactive to mixed UK jobs data on Tuesday, and focus now shifts to Wednesday’s UK CPI release.

GBP/JPY has stabilised in the lower-163.00s on Tuesday, after mixed UK labour market data didn’t give pound sterling much impetus, and with a pullback in global yields from recent highs in wake of not as hot as forecast US inflation easing pressure on the yen. The pair has swung between 162.80-163.60ish levels and is currently trading flat on the day in the 163.20 area, FX market focus more on 1) outperformance in commodity-sensitive currencies like NOK, AUD and NZD and 2) underperformance in USD post the release of US inflation figures.

Speaking of, even though the headline rate of Consumer Price Inflation hit a new four-decade high at 8.5%, core measures of price pressures weren’t as hot as feared, leading markets to wind in some recently built-up hawkish Fed bets. As a result, US bond yields are pulling back from multi-year highs hit earlier in the day and weighing on yields in the Eurozone, UK and other developed markets.

This is handing the yield-sensitive yen some respite, with the currency having been battered by widening rate differentials in recent weeks. Looking ahead to the rest of the week, traders will be keeping an eye on whether the pullback in yields has further legs. If so, a dip back towards 162.00 is likely for GBP/JPY.

But UK CPI data is out on Wednesday and if it surprises to the upside, could be a bullish catalyst for sterling. Whether that would be enough to see the pair test March highs in the mid-164.00s is another question.

The MoM rate of inflation according to the CPI came in at 1.2%. Core Consumer Price Inflation came in at 0.3% MoM, below expectations for 0.5%. This print should not materially change price action in the currency space, according to economists at TD Securities. They think the EUR and especially the JPY remain inferior to the USD.

CAD and AUD should find modest support as the need for tightening remains

“Consumer prices came on top of expectations in March, rising an eye-popping 1.2% MoM. The core index, however, rose a less strong 0.3%, surprising expectations to the downside. The 12-month changes in the overall and core CPI rose to new multi-decade highs, but we expect March to represent the peak of the cycle.”

“The need for the Fed to deliver a series of 50bp hikes remains in place. Inflation prints will be consequential for terminal rate pricing, which will matter more for the USD from a cyclical point of view.”

“We think USD/JPY will remain elevated around 125 (unless terminal rate pricing moderates substantially).”

“EUR/USD is unlikely to budge until we get past the ECB meeting this week (in what could be a far more hawkish event) and perhaps until the outcome of the French elections is known.” 

“A moderation in US inflation should be more supportive for commodity currencies, as the need for tightening persists there but they continue to benefit from a tailwind arising from the terms of trade. We see USD/CAD more fairly priced towards 1.25, while AUD/USD dips are a strategic buy on dips.”

The annual rate of inflation climbed to 8.5% in March, the highest level since 1981. Analysts at Wells Fargo point out that despite wide-ranging price increases again in March, they believe this likely marks the peak in post-COVID inflation. They expect demand for goods to waver as spending pivots back toward services, and this transition should temper goods inflation.

Key Quotes: 

“The headline consumer price index surged 1.2% in March, the largest monthly increase since September 2005. About 70% of March's increase can be tied to higher energy prices following Russia's invasion of Ukraine, but energy was not the only source of pain for households.”

“The squeeze on households' from skyrocketing prices for necessities is very real. However, underneath the surface there are signs that pandemic-related inflation is beginning to ease. Core goods inflation fell by the most since April 2020, led by a decline in used auto prices, while core services inflation gathered steam amid higher prices for airfare, lodging away from home and other "reopening" categories. This rotation away from goods and toward services inflation has been long anticipated, and although widening lockdowns in China are a risk to this transition, today's data are an encouraging sign that goods inflation is finally rolling over.”

“Despite another month of wide-ranging price increases in March, we believe this likely marks the peak in post-COVID inflation. Upcoming monthly gains will be set against the eye-popping inflation of last spring's reopening, when prices rose 0.6%-0.9% per month from April to June.”

“Inflation remains a long way off from returning to the Fed's target. With inflation so far above target, we expect the Fed to expedite tightening and hike the fed funds rate by 50 bps at both the May and June FOMC meetings, in addition to beginning to wind-down the balance sheet in May.”
 

• US dollar tumbles after US inflation data, DXY back under 100.00.
• US CPI climbs to 8.5% in March, the highest since December 1981.
• USD/CAD slides to 1.2580 as crude oil soars and the dollar tumbles.

The USD/CAD retreated further from the highest level in almost a month above 1.2650 following the release of US inflation data. The pair printed a fresh daily low at 1.2580 and it remains with a negative bias, hovering around 1.2600.

Price up, dollar down

The slide of the USD/CAD intensified after data showed the US CPI in March rose 1.2%, in line with expectations, with the annual rate reaching the highest level since December 1981 at 8.5%.

The US dollar weakened after the report. The DXY turned negative and dropped back under 100.00, ending an eight-day positive streak. The key driver of dollar’s weakness was a recovery in Treasuries. The US 10-year yield dropped from multi-year highs at 2.83% to 2.70%, the 30-year pulled back under 2.80%.

Higher equity and crude oil prices are helping the loonie. The WIT barrel is rising more than 6% while the Dow Jones climbs 0.48%.

In Canada, the focus is on the Bank of Canada (BoC) that will announce is monetary policy decision on Wednesday. A rate hike is expected. “We look for the BoC to lift rates by 50bps, announce it will end its balance sheet reinvestment program by the end of the month, and signal that additional rate hikes will be needed. We also look for material upward revisions to 2022 GDP and inflation forecasts. Suffice it to say, this should be hawkish”, mentioned analysts at TD Securities.

Technical levels

Ukrainian Presidential Advisor Mykhailo Podolyak, when asked about Russian President Vladimir Putin's earlier statement that talks with Ukraine were at a dead-end, said that negotiations continue, reported Reuters on Tuesday. Podolyak said that talks are very hard, but continue at the level of working sub-groups and said that Russia is trying to put pressure on peace talks with its public statements. 

Russian President Vladimir Putin had said earlier in the day that talks with Ukraine had reached a dead-end and that Ukraine had deviated from the agreements achieved at talks in Istanbul. 

• WTI rebounded back above $100 per barrel to test its 50DMA on Tuesday, gaining more than $5.0 on the session.
• Traders cited risk-on flows, easing China lockdown fears and geopolitics as bullish for the price action.

Oil prices have seen a strong rebound thus far this Tuesday, with front-month WTI futures retaking the $100 per barrel mark and testing the 50-Day Moving Average in the $100.50s. At current levels, WTI trades with gains of more than $5.0 on the day, easily making up for Monday’s slightly more than $2.50 loss, and is now nearly $7.50 higher versus Monday’s lows near $93.00.

Traders are citing a reduction in China demand concerns as Shanghai eases lockdown restrictions for some 7,000 residential units as supportive to the price action, as well as geopolitics after Russian President Vladimir Putin spoke negatively on Russo-Ukraine peace talks. There is also no doubt that an improvement in the market’s broader appetite for risk in recent trade that is seeing US equities rebound and the US dollar come under modest selling pressure is also helping crude oil.

The improvement in risk appetite was triggered by the latest US Consumer Price Inflation data showing that Core price pressures didn’t rise as much as feared last month. If WTI can break back to the north of 50DMA at $100.50, that would open the door to a run towards its 21DMA in the $103.00s.

Though fears of an acute near-term oil shortage as a result of sanctions-related disruptions to Russian exports after its invasion of Ukraine have eased in wake of recent reserve release announcements from the International Energy Agency, supply concerns linger. OPEC warned on Tuesday that it would be impossible to replace the loss of 7M barrels per day in Russian oil and oil product exports in case of sanctions or voluntary embargoes.

So far, Russia has been able to continue selling oil to major Asian customers, but India is showing signs of caving to US pressure to no longer buy Russian. Reportedly, the Indian Oil Corp (IOC) has removed Russia’s Ural grade crude oil from its tender list for its next major purchase. US President Joe Biden had spoken with Indian PM Narendra Modi on Monday and warned that buying Russian oil was not in India’s best interests.

Meanwhile, the EU is still buying Russian energy products (oil and gas) given its heavy reliance and leaders/lawmakers remain divided about whether to implement a full embargo. Oil traders should keep an eye on reports that Russian forces recently used chemical weapons in Mariupol. Western intelligence is yet to confirm these reports, but if they do, this will strengthen the argument for a full EU embargo, which should be bullish for crude.

Ahead, weekly US private API crude oil inventory figures are scheduled for release at 2130BST and could, as usual, lead to some short-term volatility in WTI. But traders are likely to remain more focused on the broader themes of geopolitics, China lockdowns and risk appetite.

GBP/USD has managed to resist a close under 1.30 over the previous two sessions as it recovered from under the figure. However, economists at Scotiabank expect cable to suffer further losses below the recent lows of 1.2990/80 towards the 1.2850 regions.

Solid resistance around the 1.3050 zone is set to prevent a material rebound

“Solid resistance around the mid-figure zone is set to prevent a material rebound in the GBP that would suggest a rejection of the bearish trend since the test of 1.33 about three weeks ago.”

“Price action continues to point to losses extending and holding below 1.30 and the recent lows between 1.2980 and 1.2990; the mid-1.28s and the figure follow as support.”

Gold has surged past the $1,965/oz mark following the US March CPI print. Above target inflation expectations are set to lift the yellow metal – a fact less robust Core CPI will not change, strategists at TD Securities report.

A more moderate Core CPI print spells good news for gold 

“Headline inflation jumped to 8.5%. With US March consumer prices rising by the most since late 1981 and most components showing large y/y increases, many gold traders continue to believe that inflation will not be as transitory as policymakers hoped. But at the same time, core CPI has moderated, which likely prompted yields across the treasury curve to slump, lowering real yields.” 

“Real rates, a key determinant of gold price levels, may not move up as quickly as if core inflation was accelerating as quickly as the headline.”

“If the stars continue to align for gold, $1,982/oz looks within reach in the not too distant future and the yellow metal could test the recent high of $2,070/oz.”

• USD/JPY witnessed aggressive selling following the release of the US consumer inflation figures.
• A sharp pullback in the US bond yields prompted USD profit-taking and exerted some pressure.
• The widening US-Japanese bond yield differential acted as a tailwind and helped limit losses.

The USD/JPY pair quickly reversed the post-US CPI low to a fresh daily low and was last seen trading in neutral territory, around the 125.25-125.30 region.

The pair retreated from the vicinity of the multi-year peak, around the 125.75 region and fell nearly 100 pips during the early North American session on Tuesday. The USD witnessed a typical "buy the rumour, sell the news" trade following the release of the US consumer inflation figures.

The headline CPI accelerated to 8.5% YoY in March from the 7.9% previous, while the core CPI missed expectations and rose 6.5% YoY during the reported month. The data was not as bad as feared and forced investors to scale back their expectations for a more aggressive policy tightening by the Fed.

This was evident from a sharp pullback in the US Treasury bond yields, which, in turn, prompted the USD bulls to take some profits off the table and exerted downward pressure on the USD/JPY pair. That said, a strong rally in the equity markets undermined the safe-haven JPY and helped limit losses.

Moreover, investors remain concerned that the recent surge in commodity prices would put upward pressure on already high consumer prices. This should act as a tailwind for the US bond yields ad supports the prospect of the emergence of some USD dip-buying and lend support to the USD/JPY pair.

Conversely, caution around the BoJ's intervention to defend its 0.25% yield target should cap the Japanese government bond. The resultant widening of the US-Japanese government bond yield differential suggests that any fall should continue to attract fresh buyers around the USD/JPY pair.

Technical levels to watch

EUR/USD weakens to mid-1.08s to trade unchanged for the week. Economists at Scotiabank expect the pair to test the Friday low of 1.0837.

Resistance aligns at 1.0875/85 followed by the big figure zone

“Price action points to a test of the Friday low of 1.0837 that stands as the sole support marker ahead of the big figure.”

“Resistance is ~1.0875/85 followed by the big figure zone and 1.0935.”

• EUR/USD resumes the downtrend, retests 1.0850 on Tuesday.
• Next on the downside comes the 2022 low at 1.0805.

EUR/USD fades the bull run to the 1.0900 zone soon after the release of US inflation figures.

Considering the ongoing price action, further decline remains in store for the pair in the short-term horizon. Against that, a break below the so far monthly low at 1.0836 (April 8) should open the door to a move to the YTD low at 1.0805 (March 7).

The medium-term negative outlook for EUR/USD is expected to remain unchanged while below the key 200-day SMA, today at 1.1450

EUR/USD daily chart

Gold is benefiting from large-scale Chinese purchases. However, the bright metal is set to come under pressure as the Federal Reserve is signaling its intent to reach neutrality by year-end and to start an aggressive QT regime, strategists at TD Securities report.

Breadth of traders short in gold is near its smallest levels on record

“Our tracking of the aggregate net positions held by Shanghai's largest traders long and short suggests that this cohort has increased their gold length to its highest levels in the past twelve months, supporting prices while Comex shorts have largely been wiped out and ETF inflows have slowed as the fear trade subsides. In fact, dry-powder analysis still highlights the breadth of traders short in gold is near its smallest levels on record.”

“A Fed that is signaling its intent to reach neutrality by year-end and to start an aggressive QT regime doesn't exactly stand out as a macro context in which gold inflows are expected to firm.” 

“Either gold bugs are sleepwalking towards a significant drawdown as inflows could subside alongside larger short positioning, or the resilience in prices is a canary in the coal mine for a different macro regime on the horizon.”

• NZD/USD has rallied into the upper 0.6800s in wake of post-softer than expected US CPI US dollar profit-taking.
• Short-term bulls are eyeing a test of recent lows and the 21 and 200DMA at 0.6900.
• Focus has now turned to Wednesday’s RBNZ meeting.

After finding strong support above the 0.6800 level and its 50-Day Moving Average just below it earlier in the session, NZD/USD has now extended gains to the 0.6860s, where it now trades up about 0.6% on the day. The latest US Consumer Price Inflation report, which saw Core measures come in a little softer than expected, triggered a bout of profit-taking in USD long positions, hence the most recent bounce in NZD.

Short-term NZD/USD bulls will now be eyeing a retest of resistance in the 0.6900 area, which coincides with the 1 April low and the 21 and 200DMAs. Before that though, the pair is going to need to break back to the north of the 29 March lows at 0.6875, which for now, it has not been able to do. That shouldn’t come as too much of a surprise to traders.

NZD/USD is likely to trade in subdued fashion for the rest of Tuesday’s session ahead of the release of the RBNZ’s latest monetary policy decision during Wednesday’s Asia Pacific session. Market participants are debating whether the bank will lift interest rates by 25 or 50 bps and how aggressive subsequent rate guidance will be.

Any dovish surprise (i.e. a 25 bps move) would threaten the RBNZ’s status as the most hawkish G10 central bank and would weigh heavily on NZD/USD. A drop back to the 0.6800 area and the 50DMA, and potentially below it, would be on the cards. For now though, the pair seems highly likely to stick within a 0.6800-0.6900ish range.

• A combination of supporting factors pushed spot gold to a fresh multi-week high on Tuesday.
• The US CPI accelerated to 8.5% and boosted the metal’s appeal as a hedge against inflation.
• Retreating US bond yields prompted some USD profit-taking and further extended support.

Gold caught some bids during the early North American session and jumped to a fresh multi-week high, around the $1,973 region in the last hour. The US consumer inflation showed little signs of easing and topped 8% in March for the first time in more than four decades. In fact, the headline CPI accelerated to 8.5% during the reported month as against expectations for a rise to 8.4% from 7.9% in February. This, in turn, was seen as a key factor that boosted the metal's appeal as a hedge against inflation. The intraday move up was further fueled by modest US dollar weakness, which tends to benefit the dollar-denominated commodity.

Given that the markets have priced in a 50 bps Fed rate hike move in May, the USD witnessed a typical "buy the rumour, sell the news" kind of trade amid a sharp fall in the US Treasury bond yields. Core CPI was a shade below expectations, which might have forced investors to scale back expectations for a more aggressive policy tightening. That said, concerns that the recent surge in commodity prices would continue to put upward pressure on inflation should limit the downside for the US bond yields. This, in turn, supports prospects for the emergence of some USD dip-buying, which should keep a lid on any meaningful upside for spot gold.

Apart from this, a goodish rebound in the equity markets could further collaborate to cap gains for the safe-haven XAU/USD. Even from a technical perspective, gold was last seen trading near the top end of an upward sloping channel extending from sub-$1,900 levels, or March swing low. This further makes it prudent to wait for some follow-through buying before confirming that the recent slide from the vicinity of the all-time high has run its course and positioning for any further gains. Nevertheless, gold, so far, has managed to hold in positive territory for the fourth straight day and remains at the mercy of the US bond yields/USD price dynamics.

Gold 4-hour chart

Key levels to watch

• EUR/USD now reverses the initial drop and looks to 1.0900.
• Germany Economic Sentiment dropped to -41.0 in April.
• US headline CPI rose 8.5% YoY in March, the highest since 1981.

After bottoming out in the 1.0850 region earlier in the session, EUR/USD now regains some buying interest and returns to the 1.0900 neighbourhood on Tuesday.

EUR/USD: Upside looks capped by 1.0930

EUR/USD now adds to Monday’s uptick and hovers around the 1.0900 region, reversing the pessimism seen earlier on Tuesday in the wake of the release of US inflation figures for the month of March.

Indeed, the greenback lost some upside momentum after US consumer prices rose at the fastest pace since late 1981 in March at 8.5% YoY, while prices excluding food and energy costs rose at an annualized 6.5%. The knee-jerk in the dollar comes pari passu with the corrective downside in US yields across the curve despite the inflation release appears to reinforce the case for a 50 bps interest rate hike by the Fed at its next meeting.

Earlier in the session, the German and EMU Economic Sentiment dropped to -41 and -43, respectively, for the current month.

What to look for around EUR

Sellers continue to rule the sentiment around EUR/USD, which extended the downtrend to fresh lows in the vicinity of 1.0830 at the end of last week. The multi-session negative performance of the pair comes 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 Final Inflation Rate, ZEW Economic Sentiment (Tuesday) – ECB Interest Rate Decision (Thursday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Second round of the presidential elections in France. Impact on the region’s economic growth prospects of the war in Ukraine

EUR/USD levels to watch

So far, spot is up 0.09% at 1.0893 and faces the next hurdle at 1.0933 (weekly high April 11) followed by 1.1000 (round level) and finally 1.1131 (55-day SMA). On the other hand, a breach of 1.0836 (monthly low April 8) would target 1.0805 (2022 low March 7) en route to 1.0766 (monthly low May 7 2020).

Russian President Vladimir Putin said on Tuesday that talks with Ukraine are in a dead-end, reported Reuters citing Russia's state-run RIA. Ukraine has deviated from the agreements achieved at talks in Istanbul, he added. 

Putin's remarks come after he earlier stated that Russia's special military operation in Ukraine is going "as planned" and said that Russia was right to start its "operation" in Ukraine. Putin also said the situation in Bucha, where Russian forces stand accused of committing widespread war crimes including the murder of civilians, is a "fake". 

• AUD/USD staged a goodish rebound from the multi-week low touched earlier this Tuesday.
• Rising commodities turned out to be a key factor that benefitted the resources-linked aussie.
• The intraday uptick got an additional lift following the mixed release of the US CPI report.

The AUD/USD pair built on its intraday recovery move through the early North American session and shot to a fresh daily high, above mid-0.7400s post-US CPI report.

Having shown some resilience below the 0.7400 mark, the AUD/USD pair staged a goodish recovery from the three-week low touched earlier this Tuesday and snapped a four-day losing streak. The prospects for more sanctions on Russia pushed commodity prices higher, which turned out to be a key factor that benefitted the resources-linked Australian dollar.

On the other hand, the US dollar eased a bit from the highest level since May 2020 following the mixed release of the US consumer inflation figures. In fact, the headline CPI accelerated to 8.4% YoY in March from the 7.9% previous. This, however, was negated by a slight disappointment from the core reading, which rose to 6.5% as against 6.6% expected.

Nevertheless, the data reinforced market bets for a more aggressive policy tightening by the Fed and a 50 bps rate hike at the next two policy meetings. This, along with concerns that the recent surge in commodity prices will put upward pressure on the already high inflation, should act as a tailwind for the US Treasury bond yields and the buck.

The fundamental backdrop seems tilted firmly in favour of the USD bulls, warranting some caution for aggressive traders. Hence, it will be prudent to wait for strong follow-through buying before confirming that the AUD/USD pair has formed a temporary bottom near the 0.7400 round figure and positioning for any meaningful upside.

Technical levels to watch

• Headline CPI came in at 8.5% YoY, a tad above expected, though Core CPI figures were softer than forecast. 
• As a result, the US Dollar weakened in an initial reaction, with the DXY slipped back to test 100. 

The annual rate of US inflation, as per the Consumer Price Index (CPI), came in at 8.5% in March, slightly the median economist forecast for a reading of 8.4% and higher versus February's YoY rate of 7.9%. The MoM rate of inflation according to the CPI came in at 1.2% MoM, in line with the median economist forecast for a reading of 1.2% and above versus February's 0.8% MoM reading. 

Core Consumer Price Inflation came in at 6.5% YoY and 0.3% MoM, both below expectations for 6.6% and 0.5% respectively. Indeed, the MoM rate of Core CPI was lower versus February's 0.5% reading, while the YoY rate in March was only up slightly versus February's 6.4% reading. 

Market Reaction

The initial reaction in the DXY was to plunge back towards the 100 level, likely due to the softer than expected Core CPI figures. The DXY is now back to trading flat on the day.  

• DXY extends the upside above the 100.00 yardstick.
• Further gains now target the 100.55 level (May 14 2020).

DXY keeps pushing higher, this time leaving behind the key barrier at the 100.00 mark on Tuesday.

Price action around the index continues to suggest further upside in the very near term. That said, the next hurdle of note now emerges at the May 2020 high at 100.55 (May 14) followed by 100.86 (high April 24 2020).

The current bullish stance in the index remains supported by the 6-month line near 96.40, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 95.13.

DXY daily chart

• GBP/USD is trading just above 1.3000 ahead of the release of key US CPI data at 1330BST.
• A mixed UK jobs report did not have a lasting impact on the pair.
• Analysts warn that in a continued strong dollar environment, cable risks slipping towards 1.2850.

GBP/USD continues to trade support to the north of the 1.3000 level in the run-up to the release of key US March Consumer Price Inflation data at 1330BST. Mixed UK jobs data released earlier in the session didn’t give cable traders much to go off of, hence the indecisive trading conditions that have prevailed thus far this session.

On the one hand, the UK jobless rate fell to a fresh post-pandemic low of 3.8% as expected in February, taking it even further below its pre-Covid levels. On the other hand, British earnings growth, when adjusted for inflation, slumped the most since 2013, highlighting the cost-of-living crisis faced in the UK even before the start of the Russo-Ukraine war and tax/energy price hikes as of Q2.

According to ING, "for the time being, this kind of data can probably support market expectations of a Bank of England Bank Rate above 2.00% by year-end (versus 0.75% currently)”. But the bank cautioned that any sterling strength as a result of BoE tightening expectations would likely play out versus the euro or yen, not the US dollar.

Indeed, the US dollar continues to trade on the front foot on Tuesday ahead of the release of US CPI data that should further reinforce expectations for Fed tightening. The DXY currently trades above 100 and just below its highest levels since May 2020 and more gains may be in store if the recent trend of higher US yields and lower US (and global) equities continues. ING think that in a continued strong dollar environment, GBP/USD is at risk of slipping towards 1.2850.

USD/JPY easily punched through the 'psychological' level of 125 to start the week, off the back of the push higher in US yields. Economists at TD Securities expect the pair to advance towards 130 on a high US Consumer Price Inflation (CPI) print.

US CPI will exacerbate a move topside if it surprises to the upside

“Sights should continue to be set topside with 130 now coming into view.” 

“Today's US CPI will exacerbate a move topside if it surprises to the upside. That's likely to agitate terminal rate pricing further.”

See – US CPI Preview: Forecasts from 12 major banks, another lurch forward

• EUR/JPY reverses part of Monday’s gains beyond 137.00.
• Firm support remains around the 134.40 region.

EUR/JPY looks offered after two consecutive daily advances on Tuesday.

The cross managed to regain the 137.00 mark and above at the beginning of the week, although it closed below it. That said, further upside appears on the cards with the immediate target at the 2022 high at 137.54 (March 28) ahead of a probable visit to the August 2015 peak at 138.99 (August 15) and prior to the round level at 140.00.

In the meantime, while above the 200-day SMA at 130.22, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

• USD/CAD failed to capitalize on its intraday modest gains to the highest level since March 17.
• Rebounding crude oil prices underpinned the loonie and acted as a headwind for the major.
• Sustained USD buying helped limit any deeper losses as investors await the key US CPI report.

The USD/CAD pair struggled to preserve its intraday gains to a near four-week high and retreated to the daily low, around the 1.2630-1.2625 region heading into the North American session.

A goodish recovery in crude oil prices underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair. On the other hand, the US dollar stood tall near its highest level since May 2020 amid the prospects for a more aggressive policy tightening by the Fed. This should help limit deeper losses for spot prices ahead of the crucial US consumer inflation figures, scheduled for release at 12:30 GMT.

From a technical perspective, the overnight sustained strength above the 1.2600 mark and a subsequent move beyond the very important 200-day SMA favours bullish traders. The constructive outlook is reinforced by the fact that technical indicators on the daily chart have just started gaining positive traction. The technical setup suggests that the USD/CAD pair might have formed a temporary bottom near the 1.2400 round figure.

That said, it will be prudent to wait for some follow-through buying beyond the daily swing high - the 50% Fibonacci level of the 1.2901-1.2403 fall - before positioning for any further gains. The USD/CAD pair could then accelerate the momentum towards reclaiming the 1.2700 round-figure mark en-route the next relevant hurdle near the 1.2715-1.2720 region, or the 61.8% Fibo. level.

On the flip side, the 1.2600 mark, or the 38.2% Fibo. level, now seems to protect the immediate downside ahead of the 1.2555 region and the 23.6%  Fibo. level, around the 1.2525 area. A convincing breakthrough, leading to subsequent weakness below the 1.2500 psychological mark, will make the USD/CAD pair vulnerable to slide back to challenge the YTD low, around the 1.2400 mark.

USD/CAD daily chart

Key levels to watch

• Spot silver is trading subdued in the $25.00 area in the run up to US CPI data at 1330BST.
• Though an upside surprise could spur USD/US yield upside, it may also spur demand for inflation protection.
• Thus, XAG/USD’s reaction function to the upcoming data isn’t quite clear and traders should prepare for volatility.

Spot silver (XAG/USD) prices are unsurprisingly trading in a subdued fashion near the $25.00 per troy ounce level in the run-up to the release of key March US Consumer Price Inflation (CPI) data at 1330BST. Economists expect the headline rate of YoY CPI to hit 8.4%, a four-decade high, thus exerting further pressure on the Fed to get on with its monetary tightening plans.

Typically, when US economic data encourages the Fed to pursue a more hawkish policy path, this would be bad for spot silver via 1) a stronger US dollar which makes spot silver more expensive for international buyers and 2) higher US yields, which increase the “opportunity cost” of holding non-yielding assets such as silver.

However, given the backdrop of exceptionally high inflation in the US and around the world, and given uncertainties regarding how long this inflation will last amid the ongoing Russo-Ukraine war and lockdowns in China, demand for inflation protection remains elevated. Precious metals have typically been seen as the “ultimate hedge” against inflation thanks to their status as financial commodities that in the past formed a great part of the world’s monetary base.

That means that it's not quite clear how silver would react to an upside US inflation surprise and traders should be aware that any such reaction could go either way. To the downside, traders will be watching the 21-Day Moving Average in the $24.90s which has already offered support on Tuesday, ahead of the 50DMA in the $24.50s just below it. To the upside, XAG/USD traders will be watching support in the form of Monday’s highs just under $25.40.

US CPI Overview

Tuesday's US economic docket highlights the release of the critical US consumer inflation figures for March, scheduled later during the early North American session at 12:30 GMT. The headline CPI is anticipated to rise by 1.2% during the reported month as compared to the 0.8% in February. The yearly rate is projected to accelerate to 8.4% in March from 7.9% in the previous month. Meanwhile, core inflation, which excludes food and energy prices, is anticipated to come in at a 6.6% YoY rate, up from the 6.4% in February.

Analysts at RBC Economics offered a brief preview of the report and explained: “March US CPI data will reinforce those inflation concerns with the headline rate likely to increase to the 8.3% range, driven by skyrocketing gasoline prices following the Russian invasion of Ukraine. But gas isn’t the only thing to see faster YoY price growth. And pressures are broadening as strong consumer demand bumps up against production capacity limits and extremely tight labour markets.”

How Could it Affect EUR/USD?

The markets seem convinced that the Fed would adopt a more aggressive policy response to combat high inflation and have been pricing in a 50 bps rate hike move over the next two meetings. A stronger than expected CPI print would further boost bets and push the US bond yields higher, along with the US dollar. Conversely, a softer reading – though seems unlikely – might do little to calm market fears about a faster policy tightening by the Fed or prompt any meaningful selling around the buck. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside, though a more hawkish ECB last week should help limit deeper losses.

Eren Sengezer, Editor at FXStreet, outlined important levels to trade the EUR/USD pair: “1.0860 aligns as key support for EUR/USD. Although the pair dropped below this level last week and early Tuesday, it failed to make a four-hour close below it. If this support fails, 1.0835 (April 8 low) could be seen as interim support ahead of 1.0800 (psychological level).”

“On the upside, 1.0900 (psychological level) forms the first hurdle before 1.0940 (Fibonacci 23.6% retracement of the latest downtrend, 50-period SMA on the four-hour chart) and 1.0980 (Fibonacci 38.2% retracement, 100-period SMA),” Eren added further.

Key Notes

  •   US Consumer Price Index March Preview: Federal Reserve policy affirmed

  •   US CPI Preview: Forecasts from 12 major banks, another lurch forward

  •   EUR/USD Forecast: Euro stays vulnerable, tests key support

About the US CPI

The Consumer Price Index released by the US Bureau of Labor Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish).

Economist at UOB Group Lee Sue Ann suggests the Bank of Korea (BoK) would keep the policy rate intact at its meeting later this week.

Key Quotes

“Although concerns over financial imbalances have slightly abated, the higher commodity and food prices which may be further exacerbated by supply disruption has underpinned expectations that the BoK will resume its rate normalisation in Apr/May.”

“Our base case remains for 25 bps hike each in 2Q and 3Q but the higher inflation risk may warrant a further 25 bps increase in 4Q, though this is not in our base case yet.”

A swing by the Riksbank toward a more restrictive stance in April is overdue. The krona has appreciated in line with the restrictive comments from Executive Board members that this is finally likely to come. This means that a lot has already been priced in. Therefore, the krona does not have much more upside potential, economists at Commerzbank report.

U-turn of the Riksbank overdue

“A U-turn of the Riksbank is overdue, considering inflationary risks, and should come in April. With more and more Executive Board members signaling this move, the krona has appreciated. However, this should also mean that a lot has already been priced in and that the krona doesn't have much more upside potential, especially since the ECB is also likely to raise the key rate in autumn.”

“EUR/SEK is likely to move sideways for the foreseeable future. Only next year, when the ECB will end its interest rate cycle again, but the Riksbank will likely continue with gradual interest rate hikes, should the SEK be able to appreciate somewhat again.”

• AUD/USD staged modest recovery from the multi-year low touched earlier this Tuesday.
• Resilience below the 0.7400 mark/50% Fibo. level warrants caution for bearish traders.
• Sustained move back above the 0.7500 mark will shift the bias back in favour of bulls.

The AUD/USD pair attracted some buying near the 0.7400 mark, or the three-week low touched earlier this Tuesday and for now, seems to have snapped a four-day losing streak. The pair held on to its modest recovery gains through the first half of the European session and was last seen trading around the 0.7430-0.7435 region, up over 0.20% for the day.

From a technical perspective, the recent sharp pullback from the highest level since June 2021 showed some resilience below the 50% Fibonacci retracement level of the 0.7165-0.7662 strong rally. This is closely followed by the 200-period SMA on the 4-hour chart, around the 0.7385 region, which should now act as a key pivotal point for short-term traders.

Some follow-through selling below the aforementioned support could pave the way for an extension of the corrective slide towards the 61.8% Fibo. level, around mid-0.7300s, en-route the 0.7325 region. The latter coincides with an ascending trend-line extending from sub-0.7000 levels, or the YTD low, which if broken will be seen as a fresh trigger for bears.

With technical indicators on the daily chart losing positive traction and holding deep in the bearish territory on the 4-hour chart, the AUD/USD pair could then turn vulnerable to test the 0.7300 mark. The downward trajectory could further get extended towards the 0.7240 region en-route the 0.7200 round figure and the 0.7175-0.7170 support zone.

On the flip side, the 38.2% Fibo. level, around the 0.7470 area now seems to act as an immediate strong resistance ahead of the 0.7500 psychological mark. Sustained strength beyond would suggest that the corrective pullback has run its course and shift the bias back in favour of bullish traders, setting the stage for the resumption of the prior uptrend.

The AUD/USD pair might then aim to surpass an intermediate resistance near the 0.7535-0.7540 region and reclaim the 0.7600 round-figure mark. Some follow-through buying has the potential to lift spot prices further towards the 0.7635-0.7640 region en-route the YTD peak, around the 0.7660-0.7665 area touched earlier this month.

AUD/USD 4-hour chart

Key levels to watch

In a video address to the Lithuanian parliament on Tuesday, Ukrainian President Volodymyr Zelenskyy called on the European Union to sanction all Russian banks and oil imports in the next package, as reported by Reuters.

"If there is still no clarity of banning Russian gas, no one can be sure there is a will to stop Russian war crimes," Zelenskyy added. "In all Ukrainian towns where Russians stayed for a period of time, occupants did the same as in Bucha."

Market reaction

Markets remain cautious on Tuesday with the US stock index futures trading little changed on the day.

• Gold edged lower on Tuesday and extended the overnight pullback from the multi-week high.
• The Fed’s hawkish outlook, surging US bond yields continued acting as a headwind for the metal.
• Worries about stubbornly high inflation should help limit losses ahead of the key US CPI report.

Gold struggled to capitalize on its early uptick and attracted some selling around the $1,960 region on Tuesday. The pullback extended through the first half of the European session and dragged spot gold further away from the four-week high touched the previous day. The prospects for a faster policy tightening by the Fed pushed the US Treasury bond yields to a fresh multi-year peak and acted as a headwind for the non-yielding yellow metal. That said, concerns that the war in Ukraine and tough new COVID-19 restrictions in China could hit global growth could limit losses for the safe-haven XAU/USD. Apart from this, worries that the recent surge in commodity prices would put upward pressure on already high consumer prices could further benefit the metal's appeal as a hedge against inflation. Hence, the market focus will remain on the US CPI report, scheduled for release later during the early North American session.

Gold: Key levels to watch

The Technical Confluences Detector shows that any subsequent slide is likely to attract some buying near the $1,952-51 region - the Fibonacci 61.8% one day. The next relevant support is pegged near the $1,941 area - the Fibonacci 23.6% one week - ahead of the $1,937 zone, marking the 5-day SMA. A convincing break below could negate prospects for any further near-term appreciating move and drag spot gold to the $1,921-$1,919 intermediate support en-route the $1,900 round-figure mark.

On the flip side, the $1,960 region now seems to have emerged as an immediate strong barrier. The said resistance is the convergence of the Fibonacci 38.2% one day, Pivot Point one week R1, Bollinger Band one-day Upper and the Fibonacci 61.8% one month. Sustained strength beyond would be seen as a fresh trigger for bullish traders and pave the way for a move back towards the $2,000 psychological mark.

Here is how it looks on the tool

About Technical Confluences Detector

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

The Ukraine war has led to significant USD strength, causing USD/JPY to shoot up as well. The yen suffers from the global inflationary supply shock because the Bank of Japan (BoJ) does not have to react to it – unlike most other G7 central banks. Only some recovery from current overshooting seems likely, according to economists at Commerzbank.

BoJ should be interested in a weak yen

“The current extreme weakness of the yen may in part be seen as ‘overshooting’ and is not sustainable at the current pace. But we do not expect the yen to recover substantially.”

“The BoJ is unlikely to be satisfied with the recent pace of yen depreciation and – if it were to continue – would take countermeasures. But in principle, it should be interested in a weak yen. Its goal should be to end the exaggeration of the current move, but to stabilize the yen at weak levels.”

• EUR/USD resumes the downside and retests 1.0850.
• Germany Economic Sentiment surprised to the upside in April.
• Markets’ attention will be on US CPI later in the session.

EUR/USD has quickly left behind Monday’s bullish attempt and resumes the downtrend in the mid-1.0800s on turnaround Tuesday.

EUR/USD looks to US data, USD

EUR/USD returns to the negative territory after Monday’s daily gains and quickly re-shifts the attention to the area of recent lows near 1.0830 (April 8). It is worth noting that the pair have lost ground in eight out of the last nine sessions and so far retreats nearly 3% since the March 31 tops in the 1.1180/85 band.

The pair’s retracement continues to follow the sharp rally in the greenback, which appears in turn reinforced by the equally intense advance in US yields across the curve. The latter is also underpinned by the firm prospects for a tighter rate path by the Fed, including a potential back-to-back 50 bps rate hike at the May and June gatherings.

In the German debt market, the 10y bund yields slowly approach the 0.90% area for the first time since July 2015.

In the docket, Germany Economic Sentiment gauged by the ZEW institute came a tad above estimates at -41 for the current month. Still in Germany and earlier in the session, final inflation figures showed the CPI rise 2.5% MoM in March and 7.3% over the last twelve months.

Across the pond, the publication of inflation figures for the month of March will be the salient event seconded by the NFIB Index, the IBD/TIPP Index and speeches by Barkin and Brainard.

What to look for around EUR

Sellers continue to rule the sentiment around EUR/USD, which extended the downtrend to fresh lows in the vicinity of 1.0830 at the end of last week. The multi-session negative performance of the pair comes 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 Final Inflation Rate, ZEW Economic Sentiment (Tuesday) – ECB Interest Rate Decision (Thursday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Second round of the presidential elections in France. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is down 0.13% at 1.0869 and a breakdown of 1.0836 (monthly low April 8) would target 1.0805 (2022 low March 7) en route to 1.0766 (monthly low May 7 2020). On the flip side, immediate resistance comes at 1.0933 (weekly high April 11) seconded by 1.1000 (round level) and finally 1.1131 (55-day SMA).

Commenting on the latest ZEW Survey for Germany, "experts are pessimistic about the current economic situation and assume that it will continue to deteriorate," ZEW President Professor Achim Wambach said.

"The decline in inflation expectations, which cuts the previous month’s considerable increase by about half, gives some cause for hope," Wambach added. "However, the prospect of stagflation over the next six months remains."

Market reaction

Safe-haven flows continue to dominate the financial markets during the European trading hours on Tuesday. Germany's DAX 30 Index was last seen losing 1% on the day. 

• Economic confidence in Germany and the eurozone deteriorated in April.
• EUR/USD continues to trade in negative territory below 1.0900.

The findings of the German ZEW survey showed on Tuesday that the Economic Sentiment Index declined modestly to -41 in April from -39.3 in March. This reading came in much better than the market expectation of -48.

Underlying details of the publication revealed that the Current Situation Index dropped to -30.8 from -21.4 in the same period, compared to the market expectation of -35.

Finally, the Economic Sentiment Index for the eurozone edged lower to -43 from -38.7.

Market reaction

The shared currency stays on the back foot and was last seen losing 0.2% on the day at 1.0862.

• USD/JPY caught fresh bids on Tuesday and climbed back closer to the multi-year peak.
• The widening of the US-Japanese government bond yield differential acted as a tailwind.
• Overbought conditions held back bulls from placing fresh bets ahead of the US CPI report.

The USD/JPY pair traded with a mild positive bias through the first half of the European session and was last seen hovering around the 125.65-125.70 region, up over 0.25% for the day.

The pair attracted fresh buying in the vicinity of the 125.00 psychological mark on Tuesday and inched back closer to the highest level since June 2015 touched the previous day. The widening of the US-Japanese government bond yield differential continued weighing on the Japanese yen and acted as a tailwind for the USD/JPY pair amid modest US dollar strength.

The Bank of Japan has repeatedly said that it remains ready to use powerful tools to avoid long-term interest rates from rising too much. In fact, the Japanese central bank last month offered to buy unlimited 10-year Japanese government bonds to defend the 0.25% yield cap. This, to a larger extent, negated a generally weaker risk tone, which tends to benefit the safe-haven JPY.

On the other hand, firming expectations for a more aggressive policy tightening by the Fed pushed the US Treasury bond yields to a fresh multi-year peak. Adding to this, concerns that the recent surge in commodities will put upward pressure on already high consumer prices remained supportive of elevated US bond yields. This, in turn, lifted the USD to its highest level since May 2020.

That said, overbought conditions on short-term charts held back bullish traders from placing aggressive bets. Investors also seemed reluctant and preferred to wait on the sidelines ahead of the US consumer inflation figures, due for release later during the early North American session. The data will influence the USD price dynamics and provide a fresh impetus to the USD/JPY pair.

Technical levels to watch

FX option expiries for April 12 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0800 313M  
• 1.0830 226M 
• 1.0925-30 437M   
• 1.1000 325M

- GBP/USD: GBP amounts        

• 1.3100-05 810M

- USD/CHF: USD amounts                     

• 0.9355 310M

- AUD/USD: AUD amounts        

• 0.7400 726M
• 0.7600 366M

- NZD/USD: NZD amounts        

• 0.6850 304M

- USD/CAD: USD amounts       

• 1.2500-10 570M
• 1.2585 310M
• 1.2650 1.51B

GBP/USD has reversed its direction following Monday's meager recovery attempt. The pair trades within a touching distance of 1.30 and sellers could show interest in case this level turns into resistance.

1.30 support looks increasingly likely to fail

“Later in the session, March inflation data from the US will be looked upon for fresh impetus. The Consumer Price Index (CPI) is forecast to jump to 8.5% in March from 7.9% in February. A stronger-than-forecast CPI reading could help the greenback preserve its strength and weigh on GBP/USD.”

“GBP/USD fell below 1.30 (psychological level) on Monday and last Friday but is yet to make a four-hour close below that level. In case that happens, 1.2980 (April 8 low) could act as interim support before sellers can target 1.29 (psychologically level).”

“On the upside, the descending trend line coming from late March forms the first technical resistance at 1.3050 ahead of 1.3080 (50-period SMA) and 1.31 (psychological level).”

See – US CPI Preview: Forecasts from 12 major banks, another lurch forward

Economists at ANZ Bank see gold continuing to be a good hedge against inflation. Prices are sitting in a neutral zone of $1,920-50/oz. A break above $1,960/oz would be a bullish signal.

Investor demand for gold is strong, amid heightened geopolitical risks

“Stagflation risks are rising, encouraging investors to divert funds to safe havens such as gold.”

“Now, more than one month into the Ukraine war and with no resolution in the sight conditions are still supporting haven demand.”

“A weekly close near $1,950/oz signals upside potential. If prices hold above $1,960/oz, this would be a bullish signal. We see prices inching towards $2,000/oz soon.”

“A strong support lies near $1,910/oz, and a breach of this level could cause a technical sell-off.”

EUR/USD has failed to hold above 1.09 following Monday's recovery. A four-hour close below 1.0860 could open the door for additional losses, FXStreet’s Eren Sengezer reports.

CPI inflation in the US is expected to jump to 8.5% in March

“The US Bureau of Labor Statistics will release the March inflation report. The Consumer Price Index (CPI) is expected to jump to a fresh multi-decade high of 8.5% in March. A stronger-than-expected CPI print could open the door for another leg higher in the US Dollar Index (DXY). On the other hand, a soft inflation reading could trigger a correction in the DXY and help EUR/USD limit its losses.”

“1.0860 aligns as key support for EUR/USD. Although the pair dropped below this level last week and early Tuesday, it failed to make a four-hour close below it. If this support fails, 1.0835 (April 8 low) could be seen as interim support ahead of 1.08 (psychological level).”

“On the upside, 1.09 (psychological level) forms the first hurdle before 1.0940 (Fibonacci 23.6% retracement of the latest downtrend, 50-period SMA on the four-hour chart) and 1.0980 (Fibonacci 38.2% retracement, 100-period SMA).”

See – US CPI Preview: Forecasts from 12 major banks, another lurch forward

• GBP/USD edged lower on Tuesday amid sustained USD buying interest.
• Bulls seemed unimpressed and largely shrugged off upbeat UK jobs data.
• The market focus remains glued to the latest US consumer inflation figures.

The GBP/USD pair remained depressed through the early European session, with bears still awaiting sustained weakness below the 1.3000 psychological mark.

Following the previous day's two-way/directionless price move, the GBP/USD pair met with a fresh supply on Tuesday and edged back closer to the YTD low touched last week. Traders seemed rather unimpressed by mostly upbeat UK employment details, instead took cues from sustained US dollar buying interest.

The UK Office for National Statistics (ONS) reported that the ILO Unemployment Rate unexpectedly fell to 3.8% in three months to February from the 3.9% previous. Additional details revealed that Average Earnings Including Bonus rose by 5.4% and the number of people claiming benefits still fell by 46,900 in February.

The data, however, failed to provide any impetus to the British pound and was largely overshadowed by the underlying bullish sentiment surrounding the USD. The prospects for a more aggressive tightening by the Fed, along with inflation fears, pushed the US bond yields to a fresh multi-year peak and underpinned the buck.

Hence, the market focus will remain glued to the latest US consumer inflation figures, due for release later during the early North American session. In the meantime, concerns that the war in Ukraine and tough new COVID-19 restrictions in China could hit global growth should underpin the safe-haven USD and cap the GBP/USD pair.

Technical levels to watch

USD/JPY continues to push higher and trades at its strongest level since June 2015 above 125.50. Economists at MUFG Bank think the pair could climb as high as the 130 level.

Yen weakness attracts attention as USD/JPY approaches 2015 high

“USD/JPY trades within touching distance of the June 2015 high at 125.86. There is a clear risk in the near-term that yen weakness will accelerate when USD/JPY finally breaks through the previous cycle high and then moves quickly towards the 130.00-level which could trigger more concern from Japanese policymakers.”

“It remains difficult to dampen USD/JPY upside right now with the divergence between Fed and BoJ policies continuing to widen. Market participants would have to become much more fearful over a sharper slowdown in global growth to trigger a significant reversal of yen weakness given that an imminent tightening of BoJ policy is unlikely.”

GBP/NZD is recovering from a recent 1.8713 low and appears to be pushing higher on a near-term bullish falling wedge pattern. The cross faces the risk event of a Reserve Bank of New Zealand (RBNZ) policy meeting on 13 April where a dovish outcome would underpin further advances, Benjamin Wong, Strategist at DBS Bank, reports.

Expectations of a dovish RBNZ

“The lack of data since the February 25 bps rate hike has us veer towards an ideal 25 bps rate hike, with the RBNZ likely to hold back on its gunpowder before the 25 May monetary policy statement which would provide a timely update. This dovish outcome is supportive for a higher advance on the GBP/NZD cross.”

“The weekly Ichimoku chart reveals the cross has ventured into an oversold reading. However, there are limitations too given the weekly MACD signal remains bearish. The cross’ first resistance of sorts rests into the Ichimoku cloud fringe at 1.9299. Sustaining gains over that would start to build the case for the upside for the mid-March highs contouring 1.9368.”

“Shifting to a short-term time frame, one can see that the cross is enjoying the support of a bullish falling wedge reversal.”

See – RBNZ Preview: Forecasts from six major banks, surprising with a double shot hike?

On Tuesday, the Consumer Price Index (CPI) data will be featured in the US economic docket. A high print is required to propel the US dollar, economists at Commerzbank report.

USD to struggle to appreciate further

“For inflation to have a positive effect on USD it would have to surprise notably on the upside.”

“It might well be possible that even more aggressive rate expectations would not support USD but might even be detrimental to USD due to the risk of a recession.”

“USD remains supported due to the Fed’s active monetary policy, but a lot has been priced in as regards monetary policy so that USD is probably going to find it increasingly difficult to appreciate further.”

See – US CPI Preview: Forecasts from 12 major banks, another lurch forward

• NZD/USD managed to defend and stage modest recovery from the 0.6800 neighbourhood.
• Hawkish Fed expectations pushed the USD to a near two-year high and capped the upside.
• The downside seems limited ahead of the US CPI on Tuesday and the RBNZ on Wednesday.

The NZD/USD pair seesawed between tepid gains/minor losses through the early European session and was last seen trading in neutral territory, around the 0.6825 region.

The pair attracted some buying in the vicinity of the 0.6800 mark and staged modest intraday recovery from the four-week low touched earlier this Tuesday. The uptick, however, lacked follow-through and ran out of steam ahead of the mid-0.6800s amid sustained US dollar buying interest, bolstered by the Fed's hawkish outlook.

The markets seem convinced that the Fed will tighten its policy at a faster pace and have been pricing in a 50 bps rate hike over the next two meetings. The bets were reaffirmed by the comments from Chicago Fed President Charles Evans, saying that an accelerated pace of interest-rate increases to combat inflation is worth debating.

This, along with concerns that the recent surge in commodities will put upward pressure on already high consumer prices, pushed the US Treasury bond yields to a fresh multi-year peak. Apart from this, a generally weaker trading sentiment around the equity markets lifted the USD to its highest level since May 2020 and capped the NZD/USD pair.

The downside, however, remains cushioned, at least for the time being, amid expectations for a 50bp rate hike move by the Reserve Bank of New Zealand (RBNZ) on Wednesday. Investors might also refrain from placing aggressive directional bets and prefer to wait for the US CPI report, due for release later during the early North American session.

That said, sustained weakness below the 0.6800 mark will be seen as a fresh trigger for bearish traders and set the stage for an extension of the NZD/USD pair’s recent pullback from the YTD low. The downward trajectory could then drag spot prices further towards the next relevant support, around the 0.6730-0.6725 region, or March swing low.

Technical levels to watch

• The index extends the rally north of 100.00 on Tuesday.
• US 10y note yields leave behind the 2.80% level.
• US inflation tracked by the CPI comes next in the docket.

The greenback, in terms of the US Dollar Index (DXY), keeps the uptrend well and sound for yet another session, this time beyond the key 100.00 mark on Tuesday.

US Dollar Index focuses on CPI

The index advances for the ninth consecutive session so far on turnaround Tuesday, recording new cycle peaks further north of the psychological 100.00 yardstick and always underpinned by the march higher in US yields.

The unabated move higher in the greenback comes along an equally strong uptick in US yields across the curve, where the 10y note yields surpass the 2.80% barrier for the first time since December 2018 and continue to target the key 3.00% barrier in the short term.

In addition, no news from the geopolitical landscape also seems to bolster the sentiment in the dollar, while peace talks between Russia and Ukraine remain stalled.

Later in the NA session, all the attention will be on the release of US inflation figures tracked by the CPI for the month of March. In addition, the NFIB Business Optimism Index, the IBD/TIPP Economic Optimism Index and Monthly Budget Statement are also due seconded by the speech of FOMC L.Brainard (permanent voter, hawkish) and Richmond Fed T.Barkin (2024 voter, centrist).

What to look for around USD

The dollar finally managed to retake and advance further north of the psychological 100.00 hurdle so far this week. So far, the greenback’s price action continues to be dictated by the likeliness of a tighter rate path by the Fed and geopolitics. In addition, the case for a stronger dollar remains well propped up by the current elevated inflation narrative, higher US yields and the solid performance of the US economy.

Key events in the US this week: Inflation Rate (Tuesday) – MBA Mortgage Applications, Producer Prices (Wednesday) – Retail Sales, Initial Claims, Business Inventories, Flash Consumer Sentiment (Thursday) – Industrial Production, TIC Flows (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 advancing 0.24% at 100.21 and a break above 100.55 (monthly high May 14 2020) would aim to 100.86 (high April 24 2020) and finally 100.93 (monthly high April 11 2020). On the downside, initial contention is seen at 97.68 (weekly low March 30) seconded by 97.61 (55-day SMA) and then 96.90 (100-day SMA).

Despite lacking the backing of fossil fuel exports, the New Zealand dollar has been one of the better performing commodity currencies this year. The Reserve Bank of New Zealand (RBNZ) meets on Wednesday to set interest rates. The focus will be on whether the RBNZ chooses to hike 25bp or 50bp. As economists at ING note, NZD/USD could dip to the 0.6720/6780 zone after the decision.

RBNZ expected to hike 25bp 

“Most are expecting the fourth 25bp hike, which will take the OCR policy rate to 1.25%. A few economists and the money markets believe the chances of a 50bp hike do exist as well. Holding the RBNZ back from 50bp may be the fact that this is not a meeting backed by a Monetary Policy Statement (where it might be easier to explain a 50bp adjustment) as well as the recent dip in consumer confidence.”

“With the US dollar expected to stay strong, there could be some downside risks to the New Zealand Dollar tomorrow should the RBNZ do 25bp and not provide more meat to market expectations which look for the policy rate above 3% by the end of the year.”

“A correction in NZD/USD to 0.6720/6780 looks the risk. But, medium-term, we expect NZD/USD can advance to the 0.71/73 area.”

See – RBNZ Preview: Forecasts from six major banks, surprising with a double shot hike?

• USD/CAD climbed to a multi-week high on Tuesday, though lacked follow-through buying.
• An uptick in crude oil prices underpinned the loonie and acted as a headwind for the major.
• A combination of factors should continue to benefit the USD and help limit the downside.
• Investors might also refrain from placing aggressive bets ahead of the crucial US CPI report.

The USD/CAD pair surrendered a major part of its intraday gains to the four-week high and was last seen hovering near the lower end of its daily trading range, around the 1.2635 region.

The pair added to the overnight strong gains and edged higher for the second straight day on Tuesday - also marking the fifth day of a positive move in the previous six. The momentum was sponsored by sustained US dollar buying, though an uptick in crude oil prices offered some support to the commodity-linked loonie and capped the USD/CAD pair.

The USD inched back closer to its highest level since May 2020 and continued drawing support from expectations for a more aggressive policy tightening by the Fed. The bets were reinforced by Chicago Fed President Charles Evans' comments on Monday, saying that an accelerated pace of interest-rate increases to combat inflation is worth debating.

This, along with worries that the recent surge in commodities will put upward pressure on already high consumer prices, pushed the US Treasury bond yields to a fresh multi-year peak and benefitted the buck. Hence, the market focus will remain glued to the latest US consumer inflation figures, due for release later during the early North American session.

In the meantime, reluctant to place aggressive directional bets kept a lid on any meaningful upside for the USD/CAD pair amid modest pickup in oil prices. Meanwhile, investors remain concerned that the war in Ukraine and tough COVID-19 restrictions in China could hit global growth. This should continue to underpin the safe-haven USD and lend support to the pair.

Technical levels to watch

All eyes today are on the US March CPI reading, expected to hit a new cycle high at 8.4% year-on-year. A number in that vicinity should maintain aggressive Fed tightening expectations and keep the dollar supported across the board, economists at ING report.

High CPI to support aggressive Fed

“Consensus expects today's US March CPI release to push up to a new cycle high of 8.4% year-on-year and core rising to 6.6% YoY. Although it seems extreme, this kind of number should support market expectations that the Fed will take the policy rate towards the 2.50% area by year-end.”

“DXY is now nudging above the 100 area and we see no reason why it cannot continue to push on to 100.80/101.00. Equally, USD/JPY has broken clear of the 125.00 area and gains could accelerate on a technical break of 125.85 – the high in 2015.”

See – US CPI Preview: Forecasts from 12 major banks, another lurch forward

NZD/USD could extend its decline and test the 0.68 support level. However, economists at Westpac expect the kiwi to enjoy a substantial rise towards the 0.72 region by June.

Tomorrow’s RBNZ will be a close call between a 25bp and 50bp hike, causing a market reaction either way

“NZD/USD remains in corrective mode, with the next technical support level at around 0.6800.”

“The RBNZ on 13 April will be a close call between a 25bp and 50bp hike (Westpac expects 25bp) and will likely cause a market reaction either way.”

“Longer term, fundamentals should remain NZD-supportive, and we see potential for 0.7200 by June.”

“Overall, the NZD has performed well during the past month, as markets take heed of the commodity price trend, which will probably be an enduring source of support for the NZD this year.”

See – RBNZ Preview: Forecasts from six major banks, surprising with a double shot hike?

EUR/USD is languishing below 1.09. Economists at ING believe that the world’s most popular currency pair could extend its slide towards the 1.0820/00 zone if US 10-year Treasury yields lurch higher after US CPI data.

New sanctions in focus

“Barring a surprisingly hawkish ECB meeting on Thursday, EUR/USD should stay soft. Indeed, some argue that with 65bp of ECB hikes now priced in by year-end, it is actually difficult for the ECB to deliver a hawkish surprise.”

“Europe has yet to go so far as to place an embargo on Russian oil, but clearly that is the risk over the coming months. Such action may cost Eurozone growth anywhere between 1% and 3% and add a new layer of bearishness to the euro.”

“For today, look out for another plunge in German ZEW investor expectations – perhaps matching the extreme pessimism seen in March 2020. EUR/USD could drift down to the 1.0800/0820 area today if US CPI sees the US 10 year Treasury yields push higher and the German ZEW is as bad as expected.”

See – US CPI Preview: Forecasts from 12 major banks, another lurch forward

GBP/USD stays on the back foot and edges lower toward 1.30 after data published by the UK's Office for National Statistics (ONS) showed that the ILO Unemployment Rate edged lower to 3.8% in three months to February from 3.9% in January. Economists at ING expect the pair to tick down towards 1.2850.

Unemployment rate dips back to pre-Covid levels

“The UK has just released employment data for February, showing the ILO unemployment rate dipping to 3.8% – back to pre-Covid levels – and average earnings rising as expected back to 5.4% 3m average year-on-year. For the time being, this kind of data can probably support market expectations of a Bank of England Bank Rate above 2.00% by year-end (versus 0.75% currently). Any rude awakening for BoE policy expectations will probably have to wait for the 5 May BoE rate meeting.”

“We prefer any GBP strength to be played out against the euro and the Japanese yen, while cable still looks vulnerable to 1.2850 in a strong dollar environment.”

The NZD/USD is little changed and what happens next depends a lot on tomorrow’s Reserve Bank of New Zealand (RBNZ) decision. Economists at ANZ Bank expect a 50bp rate hike to provide support to the kiwi.

Historical experience is that the USD tends to peak early in the tightening cycle

“The USD is hovering near post-COVID highs (in DXY terms), having been fuelled by rapidly rising bond yields there and flight to safety considerations, but the historical experience is that the USD tends to peak early in the tightening cycle, and that’s hanging over the market a touch.”

“On the Kiwi side, we expect a 50bp OCR hike tomorrow. We expect this will lend the NZD support on grounds that it’ll add to RBNZ credibility and cap inflation down the track. So it’s all liking a bit binary, with markets pricing in a 43bp hike.”

See – RBNZ Preview: Forecasts from six major banks, surprising with a double shot hike?

The Reserve Bank of New Zealand (RBNZ) is set to announce its interest rate decision on Wednesday, April 13 at 02:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of six major banks.  

The RBNZ is widely expected to increase the Official Cash Rate (OCR) by another 25bps from 1% to 1.25%. If the expectation is met, the central bank will hike rates for the fourth straight meeting. This meeting will not be followed by Governor Adrian Orr’s press conference.

ANZ

“We expect the RBNZ will raise the OCR 50bp to 1.50%. The RBNZ has a big job to do to rein in runaway inflation, and the sooner they rip into it, the lower the economic cost is likely to be. We think a 50bp hike poses mild upside risks for the NZD.”

Westpac

“We expect the RBNZ to raise the Official Cash Rate by another 25 basis points to 1.25%. As in February, it’s likely to be a tough call between a 25bp and a 50bp hike. That decision won’t be helped by the unusually light data flow between reviews. The data that we have had suggests that near-term inflation is a growing headache for businesses and households. But it also shows that monetary policy moves to date are getting the intended traction via the housing market. The RBNZ has given little guidance as to how it might view recent developments. But its decisions to date suggest to us that the hurdle for larger OCR hikes is quite high.”

TDS

“We now expect the RBNZ to hike 50bps at this week's MPR and at the May MPS vs our prior call for 25bps hikes for each meeting. The data demands more aggressive action. The Bank need not wait for data following the April meeting to confirm hiking by 50bps in May. We expect the RBNZ Board will conclude the upside risks to inflation from the Ukraine/Russia war surpass the downside risks to growth, warranting 50bps hikes. A weaker growth outlook is not an adequate reason for hiking less aggressively at this stage. Officials should tighten policy to slow growth sufficient to re-anchor inflation expectations.”

Standard Chartered

“We expect the RBNZ to hike the OCR by 25bps to 1.25% and maintain a hawkish stance. While we see a risk of a 50bps hike at this meeting, we maintain our view of a 25bps hike for the following reasons. First, uncertainty due to Omicron and the Ukraine crisis remains elevated and is weighing on sentiment; consumer confidence plummeted in February and business confidence remained negative in March. Second, there are concerns surrounding China’s growth outlook, with Shanghai in lockdown. Third, the RBNZ is likely to wait for more data before deciding on a higher 50bps hike.”

Danske Bank

“We see risks as tilted towards a 50bp rate hike given the global inflation pressures.”

Citibank

“RBNZ OCR Decision Citi forecast; +25bps to 1.25%, Previous; +25bps to 1.0%. We expect the MPC to lift the OCR by 25bps at the April 13 meeting to a level of 1.25% and to repeat the sentence from the February 23 policy statement that ‘the committee agreed that further removal of monetary policy stimulus is expected over time given the medium-term outlook for growth and employment, and the upside risks to inflation’. This is because the RBNZ remains concerned about inflation expectations rising above the target for longer and for employment to remain above its maximum sustainable level.”

Here is what you need to know on Tuesday, April 12:

In the absence of high-tier macroeconomic data releases on Monday, the dollar capitalized on safe-haven flows and continued to gather strength against its rivals. Ahead of the ZEW sentiment survey results for the euro area and Germany, markets remain risk-averse early Tuesday. Later in the day, the Consumer Price Index (CPI) data will be featured in the US economic docket. Meanwhile, the 10-year US Treasury bond yield is sitting at its highest level since December 2018 above 2.8%. A 10-year US Treasury note auction will be held at around 1700 GMT. 

US Consumer Price Index March Preview: Federal Reserve policy affirmed.

The UK's Ministry of Defence said on Tuesday that they were expecting fighting in eastern Ukraine to intensify over the next two or three weeks. Earlier in the day, Ukrainian President Volodymyr Zelenskyy noted that they take the threat of Russia using chemical weapons seriously. Additionally, Germany's foreign minister announced on Monday that EU foreign ministers had agreed to ramp up weapon deliveries to Ukraine. Reflecting the sour market mood, US stock index futures are down between 0.3% and 0.5% in the European morning. 

EUR/USD recovered to 1.0950 on Monday but turned south in the second half of the day to close below 1.0900. The pair stays under modest bearish pressure early Tuesday. The ZEW survey is expected to unveil a deterioration in Economic Sentiment in the eurozone and Germany in April. Germany's Destatis announced earlier in the day that the annual HICP inflation climbed to 7.6% in March, matching the flash estimate and the market expectation.

GBP/USD stays on the back foot and edges lower toward 1.3000. The UK's ONS reported on Tuesday that the ILO Unemployment Rate declined to 3.8% in three months to February. Wage inflation, as measured by Average Earnings Including Bonus, rose to 5.4% on a yearly basis from 4.8% in January.

USD/JPY continues to push higher and trades at its strongest level since June 2015 above 125.50. The benchmark 10-year US Treasury bond yield, which gained more than 13% last week, is already up 4% this week.

Gold touched a fresh multi-week high near $1,970 on Monday on the back of safe-haven flows but retreated below $1,960. XAU/USD fluctuate in a relatively tight channel at around $1,955 in the European session.

Bitcoin fell to its lowest level in nearly a month on Monday and trades within a touching distance of $40,000 early Tuesday. Ethereum tests the $3,000 handle after losing 7% on Monday.

• Annual HICP inflation in Germany climbed to  7.6% in March as expected.
• EUR/USD continues to trade in negative territory below 1.0900.

Annual inflation in Germany, as measured by the Harmonised Index of Consumer Prices (HICP), rose to 7.6% in March, Destatis reported on Tuesday. This print matched the market expectation and the flash estimate.

The Consumer Price Index (CPI) arrived at 7.3% and 2.5% on a yearly and monthly basis, respectively.

Market reaction

These figures don't seem to be having a significant impact on the shared currency's performance against its major rivals. As of writing, the EUR/USD pair was down 0.15% on the day at 1.0867.

• UK ILO Unemployment Rate declined to 3.8% in February.
• GBP/USD edges lower after the data but holds above 1.3000.

The data published by the UK's Office for National Statistics (ONS) showed on Tuesday that the ILO Unemployment Rate edged lower to 3.8% in three months to February from 3.9% in January. This reading came in slightly better than the market expectation of 3.9%.

Underlying details of the publication revealed that the Average Earnings Including Bonus rose by 5.4%, compared to 4.8% in January, as expected. 

The ONS further noted that the number of job vacancies in the UK from January to March 2022 increased to a new record of 1,288,000.

Market reaction

With the immediate market reaction, the British pound came under modest selling pressure. The GBP/USD pair was last seen posting small daily losses at 1.3020.

Open interest in natural gas futures markets rose by around 8.5K contracts on Monday, resuming the uptrend and leaving behind the previous pullback, according to advanced prints from CME Group. Volume, on the other hand, shrank for the second session in a row, this time by more than 21K contracts.

Natural Gas now points to $7.00

Prices of natural gas climbed to levels last seen back in November 2008 at the beginning of the week. The move was on the back of increasing open interest, opening the door to extra gains in the very near term and with the immediate target at the $7.00 mark per MMBtu.

• WTI has found a short-lived pullback around 92.60 but may likely extend losses further.
• Lockdown in China and additional oil supply by the US and IEA are underpinning bears in the counter.
• The additional oil supply of 1.3 million bpd will easily offset the cut in Russian oil.

West Texas Intermediate (WTI), futures on NYMEX, is experiencing a short-lived bounce in the early European session after plunging around 3% on Monday. The oil prices are likely to find significant offers soon amid lockdown measures in China to contain the epidemic of Covid-19 and ease supply concerns as the US administration and International Energy Agency (IEA) have resorted to strategic oil stock reserves.

To contain the epidemic of Covid-19 in Shanghai, the Chinese administration has imposed ‘zero tolerance'. The restrictions on the movement of men, materials, and machines have renewed fears of a plunge in aggregate demand. This may dent the demand for oil and slippage in oil demand by the biggest oil importer will imbalance the demand-supply mechanism.

Meanwhile, the additional supply of 1.33 million barrels of oil per day (bpd) for the next six months collectively by the US administration and IEA (60 million barrels by IEA +180 million barrels by the US =240 million barrels for 180 days) will efficiently offset the cut of one million bpd oil supply by Russia. Therefore, a significant fall in the oil demand due to lockdown curbs in China and sufficient additional oil supply may bring a further sell-off in the oil prices.

On the US dollar front, the US dollar index (DXY) is displaying wild moves around the psychological figure of 100.00 ahead of the US inflation. The market participants are bracing for a higher US Consumer Price Index (CPI) print, which will elevate the expectation of a higher interest rate hike by the Federal Reserve (Fed) in May.

XAU/USD holds steady near multi-week high ahead of key US CPI report. Bullish traders await a move beyond the $1,972 resistance zone, FXStreet’s Haresh Menghani reports.

The market focus will remain glued to the US consumer inflation figures

“The market focus will remain glued to the latest US consumer inflation figures. Any meaningful upside seems elusive as traders might refrain from placing aggressive bets ahead of the key macro data.”

“Gold has struggled to find acceptance above the 38.2% Fibonacci retracement level of the $2,071-$1,890 fall. The said barrier, currently around the $1,972 region, should now act as a pivotal point, above which bulls could aim back to reclaim the $2,000 psychological mark.”

“The $1,946-$1,945 region now seems to protect the immediate downside ahead of the $1,934 area and the $1,928 zone. The latter coincides with the lower boundary of the aforementioned channel, which if broken decisively will shift the bias back in favour of bearish traders. Gold could then accelerate the fall towards the $1,915 intermediate support before eventually dropping to the $1,900-$1,890 region.”

See – US CPI Preview: Forecasts from 12 major banks, another lurch forward

Considering preliminary readings from CME Group for crude oil futures markets, traders scaled back their open interest positions for the third straight session on Monday, now by around 13.2K contracts. Volume, instead, went up by around 112.5K contracts, reversing two consecutive daily drops.

WTI met support near $93.00

Monday’s pullback in prices of the WTI was in tandem with shrinking open interest, removing some strength from the prospects of a deeper retracement in the very near term. That said, the $93.00 region still appears as a decent contention for the time being.

• AUD/USD has sensed a nominal buying interest around 0.7400 as DXY has surrendered intraday gains.
• The uncertainty over the release of the US CPI is underpinning the ‘stay on sidelines’ approach.
• Australia’s Unemployment Rate is seen at 3.9%.

The AUD/USD pair has attracted some bids around 0.7400 after displaying a steep fall from the last week’s high at 0.7662. The pair has remained vulnerable from the previous week after the Reserve Bank of Australia (RBA) announced its monetary policy. The RBA kept its interest rate decision unchanged but dictated that price pressures would remain under observation. The asset has defended its four-day losing streak in the Asian session but may witness some turmoil after the disclosure of the US inflation by the US Bureau of Labor Statistics.

The US Statistics department is expecting a healthy jump in the US Consumer Price Index (CPI) numbers. The yearly US CPI is expected to print at 8.5%, much higher than the prior figure of 7.9%. While the yearly US CPI Ex Food & Energy is likely to land at 6.6% against the previous print of 6.4%. This is going to elevate the expectations of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) in May sharply.

Meanwhile, the US dollar index (DXY) has surrendered its entire intraday gains after recording a high of 100.13. Considering the price action, the DXY is expected to tumble below 100.00 decisively in the European session.

On aussie front, the antipodean will report the Unemployment Rate on Thursday. The Australian Unemployment Rate is expected to land at 3.9% lower than the previous record of 4%.

CME Group’s flash data for gold futures markets noted open interest extended the uptrend for yet another session on Monday, this time by around 1.6K contracts. In the same line, volume rose for the second session in a row, now by around 39.2K contracts.

Gold now looks to $2000

Gold prices added to the ongoing recovery on Monday amidst rising open interest and volume. That said, there is scope for the continuation of the upside in the very near term and with the key target emerging at the $2,000 mark per ounce troy.

• USD/INR has overstepped 76.00 firmly on expectations of a higher US inflation print.
• A plunge in oil prices is not advocating the oil-sensitive Indian rupee.
• US administration and IEA will collectively infuse 240 million barrels of oil into the global supply.

The USD/INR pair has climbed above the round level resistance of 76.00 in the opening trade as the market participants are betting over a solid US inflation print on Tuesday. The asset is consolidating in a range of 75.70-76.07 since April 6 and is expecting to witness decent gains after exploding the trading range on the upside.

The upcoming release of the US Consumer Price Index (CPI) has underpinned the greenback against the Indian rupee. The yearly US CPI is likely to land at 8.5%, significantly higher than the prior figure of 7.9%. The collective effort of elevated inflation print and Unemployment Rate, which was released last week at 3.6%, will strengthen the intention of the Federal Reserve (Fed) to feature a jumbo interest rate hike.

Meanwhile, the market participants are likely to remain on the sidelines amid a holiday truncated week. The Indian markets will remain close on Thursday and Friday on account of Dr.Baba Saheb Ambedkar Jayanti and Good Friday respectively.

The Indian rupee has failed to capitalize upon the falling oil prices. West Texas Intermediate (WTI) plunges around 3% on Monday amid easing supply concerns as the US administration and International Energy Agency (IEA) will collectively release 240 million barrels in a period of six months. The additional release of 1.3 million barrels per day (bpd) of oil will comfortably offset the cut of one million bps in Russian oil exports.

• USD/CHF is oscillating in a narrow range of 0.9300-0.9323 ahead of the US inflation.
• FOMC member Charles Evans is hoping for an interest rate elevation by 200 bps this year.
• A higher inflation print will certainly underpin the 50 bps interest rate hike.

The USD/CHF pair is displaying back and forth moves in a narrow range of 0.9300-0.9323 after plunging from 0.9372 on Monday. The asset sensed selling pressure in the previous trading session amid multiple failed attempts of overstepping 0.9380.

The asset is likely to deliver wild swings later in the New York session after the release of the US Consumer Price Index (CPI). As per the market consensus, the yearly US CPI is likely to land at 8.5%, much higher than the February figure of 7.9%. Surely, this will underpin the 50 basis points (bps) interest rate hike for May’s monetary policy. On Monday, the speech from the Chicago Federal Reserve (Fed) President and Federal Open Market Committee (FOMC) member Charles Evans indicated that the Fed could tighten the interest rates by 200 bps this year. Execution of the same will push the borrowing rates near the neutral rates by this year itself.

Meanwhile, the US dollar index (DXY) is trading above the critical figure of 100.00 on the latest Reuters poll of economists, which advocates a consecutive 50 bps interest rate hike for the month of May and June, considering the likely multi-decade high US inflation at 8.5%. The 10-year US Treasury yields have climbed above 2.81% on advancing bets over a tight policy by the Fed in May.

• A barricade of the 200-EMA has dragged the asset to its critical bottom to near 1.3000.
• A bearish range shift in the RSI (14) is advocating the greenback bulls to dictate the asset.
• The trendline placed from 1.3300 will continue to act as a strong resistance.

The GBP/USD pair is oscillating in a wide range of 1.2989-1.3056 since Monday, struggling hard to secure 1.3000. The pair has witnessed a sheer downside after printing March highs to near 1.3300. The cable is eyeing a trigger that may help in finding a direction going forward. However, the asset is going to witness heavy volumes and wider ticks soon.

On a four-hour scale, the asset has witnessed a steep fall after failing to overstep the 200-period Exponential Moving Average (EMA) at 1.3300. The pair is auctioning near the critical previous bottom, which is March 14 low at 1.3000. Usually, a decisive break below a critical bottom pushes the asset into a prolonged negative trajectory. The trendline placed from March 23 high at 1.3300, adjoining the April 5 high at 1.3167 will act as a major barricade going forward.

The 50-EMA is scaling lower, which signals more weakness ahead. Adding to that, the Relative Strength Index (RSI) (14) has shifted into a bearish range of 20.00-40.00, which indicates the continuation of a bearish move.

A confident drop below Friday’s low at 1.2982 will activate greenback bulls, which will drag the asset towards the 2 November 2020 low at 1.2854, followed by round level support at 1.2800.

On the contrary, sterling bulls may dictate the prices if the asset oversteps April 7 high at 1.3106 decisively. This will push the pair towards the April 4 high at 1.3137. A breach of the April 4 high will send the asset towards the round level resistance at 1.3200.

GBP/USD four-hour chart

• A mixed mood in Asia as Shanghai has eased the lockdown vs. incoming US CPI data. 
• SCI's broadest index of Asia-Pacific shares outside Japan was down 0.3% while China's bluechip CSI300 Index was up 0.4%.

It has been a disappointing start to the week in global equities and on Tuesday, Japanese shares dropped to their lowest in nearly four weeks, with index heavyweight tech stocks leading the fall riding the bear's coattails on Wall Street. The Nikkei share average was down 1.5% at 26,424.42, while the broader Topix had slipped 1.28% to 1,865.50.

Wall Street closed sharply lower on a holiday-shortened week as Good Friday approaches. Rising bond yields weighed on market-leading growth stocks ahead of key inflation data. The Core Consumer Price Index will likely increase by 0.47% in March, Goldman Sachs said in a research note, taking the year-on-year inflation rate higher by 20 basis points to 6.6%. The data is due Tuesday. The US 10-year yield jumped 5.4 basis points on the day to almost 2.77%.

Meanwhile, MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3%. Australian shares were down 0.65%, while Japan's Nikkei stock index slid 1.5%. However, on a more positive note, China's markets are in bullish correction mode as signs have emerged in a report from Bloomberg that Shanghai has eased a lockdown for 43% of its housing complexes. Hong Kong's Hang Seng Index added 0.6% in early trade on Tuesday, while China's bluechip CSI300 Index was up 0.4%.

• EUR/USD has tumbled below 1.0900 amid uncertainty over the release of the US CPI.
• Higher US inflation may force the Fed to paddle interest rates quickly.
• The ECB will announce its monetary policy later this week.

The EUR/USD pair is scaling lower sharply after sliding below 1.0900 on Monday. The shared currency has been the worst performer these days amid the ongoing Ukraine crisis after Russia’s invasion of Ukraine. The military activity in the eastern part of Ukraine has triggered the fears of stagflation in the Eurozone. The asset is likely to remain uncertain as investors are waiting for the release of the US Consumer Price Index (CPI) and European Central Bank (ECB)’s Bank Lending Survey on Tuesday.

The US CPI has created havoc in the FX domain. The preliminary estimate of yearly US CPI at 8.5% is going to feature a jumbo interest rate hike by the Federal Reserve (Fed).

Although the Fed has already announced seven interest rate hikes this year, the higher US inflation print will force the Fed for tightening the policy to a great extent in the monetary policies, which will come first. The agenda of the Fed to return to the neutral rates may get strengthened and will demand a 50 basis point (bps) interest rate decision for more than one once this year.

On the Euro front, the ECB will report the Bank Lending Survey which will provide a glimpse of financing conditions in the Euro area. Adding to that, investors will also focus on Germany’s Harmonized Index of Consumer Prices (HICP), which is expected to land at 7.6% on Tuesday.

Although these economic data hold significant importance on the asset, the real show stopper will be the monetary policy announcement by the ECB on Wednesday. The ECB is expected to keep the interest rate decision unchanged at 0%.

• Support is located in and above the $1,930s with 'blue skies' in the $2,000s eyed. 
• From a 4-hour perspective, the bullish structure is being carved out and a break beyond $1,970 could be on the cards for the sessions ahead.  
• Will XAU/USD continue to ignore rising US yields?

The gold price is down a touch by some 0.11% and is trading in a tight range slightly above and below $1,950 in Asia on Tuesday in a risk-off setting. The mood is a little sombre following a weak start on Wall Street as investors focus on inflation and the impact of central bank policy tightening.

- All major groups in the S&P 500 fell, while the tech-heavy Nasdaq 100 fell more than 2%. Ten-year Treasury yields surpassed 2.75% for the first time since March 2019. Traders in the money markets are pricing in a hot inflation number for data in the US this week as the Federal Reserve signalled sharp rate hikes and balance-sheet reductions to combat price pressures last week. Additionally, adding to the sour mood, China's largest coronavirus outbreak in two years has raised economic concerns.

• Shanghai COVID new cases: 23,342

There were 26,087 new daily infections reported in the Chinese financial hub Sunday, an all-time high while April 11 reports a similar load of 23,342. Bloomberg reported earlier that ''economists now predict the economy will expand 5% this year, below the official target of around 5.5%. Analysts at Morgan Stanley have cut their growth forecasts this year on the lockdown impact, while Citigroup Inc. has warned of risks to growth in the current quarter.''

As for the Fed, in speakers this week so far, Charles Evans, president of the Federal Reserve Bank of Chicago and a long-time dovish policymaker in the United States, said an accelerated pace of rate hikes to combat inflation is worth debating. Nevertheless, gold has continued to churn higher despite a decisively hawkish Fed.

''All the shorts have been wiped out and ETF inflows have slowed as the fear trade subsides,'' analysts at TD Securities said.

Economic events will be critical this week and the US Consumer Price Index will be the first major economic data to help unveil the health of the global economy. With strong prices for March reinforcing the hawkish outlook at the Fed, this would be potentially supportive of the US dollar and weight for the price of gold. On the other hand, analysts at Rabobank have warned that the Fed could be hiking into recession. 

Gold technical analysis

The gold price has been range-trading since mid-March, potentially accumulating the 2022 rally and ripening for a bullish continuation. 

From a 4-hour perspective, the bullish structure is being carved out and a break beyond $1,970 could be on the cards for the sessions ahead. However, should a strong US dollar prevail, $1,930 could come under pressure and if that were to give out, the near term prospects of a move higher will be severely diminished in the absence of a risk-off shock in the markets, such as a sudden Ukraine crisis escalation: Ukraine pres. Zelenskyy: Russian forces could use chemical weapons.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3795 vs the previous fix of 6.3645 and the prior close of 6.3695 with an estimate of 6.3752.

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.

• USD/CAD is sustaining comfortably above 1.2600 amid falling oil prices.
• Additional oil supply at 1.3 million bpd will offset the supply cut by Russia after sanctions on Moscow.
• This week BOC ‘s interest rate decision and the US CPI will be the main events to keep on the radar.

The USD/CAD pair managed to establish above 1.2600 on Monday after multiple failed attempts last week. The asset is advancing sharply towards 1.2650 as subdued oil prices have dented the optimism of the loonie. The major has extended its gains on Tuesday after overstepping Monday’s high at 1.2641.

Oil prices have tumbled around 3% on Monday amid a push of 240 million barrels of oil supply through the collective effort of the US administration and the International Economic Agency (IEA) in the next six months. The market participants will figure out the extent to which the additional oil will offset the prohibited Russian oil after sanctions on the latter.

The release of Strategic Petroleum Reserve (SPR) volumes is equivalent to 1.3 million barrels per day (bpd) over the next six months, which is enough to offset a shortfall of 1 million bpd of Russian oil supply, analysts at JP Morgan said.

Meanwhile, the lockdown curbs in China to contain the Covid-19 have restricted the movement of men, materials, and machines. This has dampened the demand of oil in a country, which carries the tag of the biggest importer of oil.

Canada, being the largest exporter of oil to the US is facing the heat of lesser cash flows amid falling crude prices.

Going forward, investors will focus on the US Consumer Price Index (CPI), which is due on Tuesday. The US inflation is likely to print a fresh multi-decade high at 8.5%. Apart from that, the Bank of Canada (BOC) will dictate its interest rate decision on Wednesday. The BOC is expected to push its interest rates by 50 basis points.

China’s largest Covid-19 outbreak continues to spread despite an extended lockdown of Shanghai’s 26 million people, concerning investors with regard to economic growth and strained global supply chains.

There were 26,087 new daily infections reported in the Chinese financial hub Sunday, an all-time high while April 11 reports a similar load of 23,342. Shanghai reported 22,348 new asymptomatic coronavirus cases and 994 symptomatic cases for April 11, the local government said on Tuesday. Asymptomatic cases were down from 25,173 a day earlier. The symptomatic cases rose from 914.

Residents have been locked down for weeks now, with frustration building among the population as they struggle to get access to food and medical care. 

Elsewhere, the southern metropolis of Guangzhou is looking at implementing a series of restrictions after local authorities warned the 20 cases they found last week could be the tip of the iceberg. ''The city is a trading hub and infections and similar containment measures across China are an increasing drag on the world’s second-largest economy, with consequences for global growth, supply chains and inflation,'' Bloomberg reported. 

''Economists now predict the economy will expand 5% this year, below the official target of around 5.5%. Analysts at Morgan Stanley have cut their growth forecasts this year on the lockdown impact, while Citigroup Inc. has warned of risks to growth in the current quarter.''

Market implications

Chinese stocks are likely to remain under pressure this week, getting off to a bad start on Monay when they plunged over the rising global interest rates and persistent regulatory headwinds. The Hang Seng Index declined 3% Monday in Hong Kong, as did China’s benchmark CSI 300 Index.

• Kiwi bulls have witnessed an intense sell-off after failing to balance above 0.7000.
• The asset is auctioning below 38.2% Fibo retracement at 0.6842.
• A bear cross of 20- and 200-EMAs signals a bearish impulsive wave ahead.

The NZD/USD pair has displayed a four-day losing streak after failing to sustain above the psychological resistance of 0.7000 last week. The pair is trading near Monday’s low at 0.6813 and is expected to extend its losing streak after dropping below Monday’s low decisively.

On a four-hour scale, NZD/USD has tumbled below the 38.2% Fibonacci retracement (placed from January’s low at 0.6529 to March’s high at 0.7035) at 0.6842. The major is auctioning a tad lower the trendline placed from January 28 low at 0.6529, adjoining the February 14 low at 0.6593 and February 24 low at 0.6640.

A bear cross, represented by 20- and 200-period Exponential Moving Averages (EMAs) adds to the downside filters.

The Relative Strength Index (RSI) (14) has shifted into a bearish range of 20.00-40.00, which signals more pain ahead.

Should the asset drops below Monday’s low at 0.6813, greenback bulls may drag the asset towards the 50% and 61.8% Fibo retracement at 0.6782 and 0.6722 respectively.

On the contrary, kiwi bulls can drive the asset higher if the asset oversteps the 200-EMA at 0.6866. This will send the major towards the 23.6% Fibo retracement at 0.6916, followed by the psychological resistance at 0.7000.

NZD/USD four-hour chart

• AUD/USD bears are in control and target a downside extension. 
• The bulls could look to the neckline of the daily M-formaiton thereafter. 

AUD/USD fell from 0.7460 to 0.7420 overnight and remains on the backfoot, with bears eeking out a score of 0.7411 in Asia. Looking at the weekly and daily charts, the outlook remains bearish until weekly and daily support structures as illustrated below. 

AUD/USD weekly chart

The price rallied to a high of 0.7663 which was met with a strong bout of supply last week leading the outlook bearish for the days ahead this week. 

AUD/USD daily chart

From the daily chart's perspective, there is some room to go to the downside still until the prior resistance, looking left. At the moment, the neckline of the M-formation aligns with the 23.6% ratio, but the 38.2%, a preferred Fibonacci level, would align with the same resistance once the price reaches the aforementioned downside target and presumed support area. 

• The NZD/JPY remains steady at around 85.50 amid a dismal market mood.
• Geopolitics and higher bond yields spurred risk aversion.
• NZD/JPY Price Forecast: A symmetrical triangle in an uptrend looms and, once broken, would target 88.86.

NZD/JPY is almost flat as the Asian Pacific session begins, gaining some 0.08%, though short of Monday cycle high around 86.04. At press time, the NZD/JPY is trading at 85.56.

Risk aversion, global bond yields rising, and Russo-Ukraine jitters weighed on the NZD/JPY

The market sentiment remains dismal, following the lead of US equities. Asian stock futures point to a lower open, while worldwide bond yields keep rising as global central banks tighten monetary conditions to tackle inflation. Additionally, the Ukraine-Russia conflict intensified, as reports point out that Russia could use chemical weapons, as Ukrainian President Volodymyr Zelenskyy stated early in the Asian session.

Zelenskyy added that Russia concentrates tens of thousands of soldiers for its next offensive near the Donbas regions. At the same time, the leader of the Donetsk People’s Republic claimed that the Russian forces have control of the Mariupol port.

The New Zealand docket featured the NZIER Business confidence survey, which showed that business confidence and demand conditions worsened in the first quarter of 2022, blaming the coronavirus pandemic.

On the Japanese front, March’s Producer Price Index (PPI) rose by 0.8% m/m, lower than the 0.9%, while the yearly reading showed that prices increased by 9.5%, higher than the 9.3% estimated.

NZD/JPY Price Forecast: Technical outlook

The NZD/JPY consolidated in the last eleven trading days in the 84-86.50 area. The daily moving averages (DMAs) reside below 80.39, with just the 50-DMA trending, while the 100 and the 200-DMA’s lie at 78.88 and 78.54, respectively. The Relative Strength Index (RSI), at 71.90, signals that the NZD/JPY upward move is overextended, as RSI is in overbought territory, meaning that the pair might be range-bound.

Nevertheless, a symmetrical triangle in an uptrend would break upwards, and the target would be 88.86. If the NZD/JPY breaks upward, the first resistance would be 86..00. A breach of the latter would expose April 5 daily high at 86.38, followed by the March 28 daily high at 86.95.

On the flip side, the NZD/JPY first support would be 85.00. Once cleared, the NZD/JPY first support would be 84.24, followed by 84.00.