CFD Markets News and Forecasts — 13-04-2022

• Pound bulls are witnessing wider ticks after exploding the consolidation formed in a 1.2982-1.3058 range.
• A double-bottom formation has driven the cable strongly to near 1.3120.
• The loud move on the RSI (14) is indicating a bullish bias ahead.

The GBP/USD pair is experiencing a strong upside after the successful re-test of its critical bottom at 1.3000. The cable has witnessed a vertical positive move after breaking out of the consolidation formed in a range of 1.2982-1.3058.

On a four-hour scale, GBP/USD has bounced sharply after a double bottom formation. Usually, the mentioned chart pattern indicates weak selling pressure on a critical bottom formed earlier. The pair has displayed a sheer upside after retesting March’s lows at around the psychological support of 1.3000. The trendline placed from March 3 high at 1.3418, adjoining the March 23 high at 1.3299 will continue to act as a major barricade.

The 20- and 50-period Exponential Moving Averages (EMAs) at 1.3045 and 1.3062 respectively have turned upside, which signals a firmer reversal.

Meanwhile, the Relative Strength Index (RSI) (14) has displayed a loud move as the momentum oscillator has climbed above 60.00, which indicates a bullish reversal.

A corrective pullback towards the 50-EMA at 1.3062 will be a bargain buy for the market participants. This will send the asset towards Thursday’s high at 1.3123, followed by April’s high at 1.3167.

However, 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 and the round level support at 1.2854 and 1.2800 respectively.

GBP/USD four-hour chart

• The DXY is balancing below 100.00 on multi-year high US PPI.
• Fed Waller has emphasized an aggressive stance but warns the adaptation of Volcker's way.
• The monthly US Retail Sales may get doubled to 0.6%.

The US dollar index (DXY) has witnessed a sheer downside after recording a fresh three-year high at 100.52 on Wednesday. The DXY ended its nine-day winning streak on Wednesday after investors shrugged off the hangover of the higher US Consumer Price Index (CPI). The US Bureau of Labor Statistics reported the yearly US inflation at 8.5% and also improved the certainty of a jumbo interest rate hike by the Federal Reserve (Fed) in May.

US PPI landed at a 12-year high of 11.2%

The US Labor Statistics agency reported the US Producer Price Index (PPI) on Wednesday. A print of 11.2%, remarkably higher than the market consensus of 10.6% and the prior figure of 10.3%. It is worth noting that the yearly print of 11.2% is the highest recorded since November 2010. A notable higher reading of the US PPI is going to hurt the corporate profits as the higher commodity prices will dampen the margins of the corporate and henceforth the pass on of higher input prices to the households will reduce their real income. This has weighed pressure on the DXY.

Fed Governor Christopher Waller's speech

Fed Governor Christopher Waller in his speech on Wednesday favored an aggressive interest rate hike going forward but aggressiveness should not be mixed with abruptness as it may lead the US economy into recession. "I don’t see value in trying to shock the markets also we are not in a Volcker kind of moment," Waller told CNBC. Investors should be aware of the fact that Fed Chair Paul Volcker shot the interest rates by 400 basis points at a time to battle the prolonged inflation.

Meanwhile, investors are shifting focus to the US Retail Sales data which is due on Thursday. The market consensus sees the monthly US Retail Sales getting doubled to 0.6% than the previous figure.

• USD/JPY has sensed a minor pullback after a decent correction from a six-year high at 126.32.
• The DXY ended its nine-day losing streak on higher than expected US PPI.
• BOJ’s Kuroda indicated fears of falling household income and corporate profits due to high energy bills.

The USD/JPY pair is experiencing a short-lived pullback after a steep fall from a six-year high at 126.32. The pair is likely to witness more downside as the mighty greenback loses strength. The US dollar index (DXY) has tumbled below the critical figure of 100.00 as the impact of higher inflation faded away.

On Wednesday, the DXY ended its nine-day winning streak after the US Bureau of Labor Statistics reported the yearly Producer Price Index (PPI) at 11.2%. The yearly US PPI has been significantly higher than the estimates of 10.6% and prior print of 10.3%. Also, the history dictates that the 52-week US PPI at 11.2% is the highest ever print since November 2010, which has raised the market expectations of a jumbo interest rate hike from the Federal Reserve (Fed) in May.

Earlier, the DXY was receiving bids on a higher US Consumer Price Index (CPI) at 8.5% as investors were expecting that the Fed has to shift the interest rates higher to tame the soaring inflation. A decent slippage in the DXY has underpinned the Japanese yen against the greenback.

Meanwhile, the speech from the Bank of Japan (BOJ)’s Governor Haruhiko Kuroda has emphasized the rising inflation and falling real income of households. The BOJ’s Kuroda dictated that the impact of the Covid-19 and the Ukraine crisis is hurting the economy. Higher energy and commodity prices are weighing on Japan’s economy by reducing households income and corporate profits.

Going forward, investors will focus on the US Retail Sales, which will release 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 AUD/JPY rallied late in the New York session and gained 0.16%.
• AUD/JPY Price Forecast: Upward biased, but RSI at overbought levels, and negative divergence between RSI/price action, might open the door for further losses.

The AUD/JPY edges slightly up as the North American session winds down, up 0.16% amid an upbeat market mood, as global bond yields fell. At the time of writing, the AUD/JPY is trading at 93.68, near the week and year-to-date highs.

On Wednesday, the AUD/JPY lifted from daily lows when the Reserve Bank of New Zealand (RBNZ) took the market by surprise, hiking rates by 50 bps to the Overnight Cash Rate (OCR). Due to its close ties with New Zealand, the Australian dollar reacted positively and edged higher against most G8 currency pairs. Nevertheless, during the North American session, some safe-haven flows and a “buy the rumor, sell the fact” reaction to the RBNZ’s decision weighed on the AUD/JPY, which fell towards daily lows around  93.00 flat.

AUD/JPY Price Forecast: Technical outlook

In the last few days, the price action has kept the AUD/JPY range-bound in the 92.40-93.80 area. Nevertheless, the cross-currency pair remains upward biased. However, the Relative Strength Index (RSI) at 73.79 within the overbought area further confirms the uptrend is overextended, a signal that might correct lower or probably would break towards fresh year-to-date highs.

Upwards, the AUD/JPY’s first resistance would be April 13 93.86 daily high. A breach of the latter might open the door towards the YTD high at 94.31, but first, AUD/JPY bulls would need to reclaim the 94.00 mark

On the flip side, the AUD/JPY first support would be the April 11 daily low at 92.42. A decisive break would expose the 92.00 mark, followed by March’s 31 90.76 daily low.

Technical levels to watch

• West Texas Intermediate (WTI) crude oil rose on Wednesday.
• International Energy Agency (IEA) lowered its 2022 demand forecast on weak demand from China.

Despite a big rise in US inventories, West Texas Intermediate oil extended recent gains as the expectations of global supply deficits climb. At the time of writing, WTI down 0.73% after falling from high of $104.27 to a low of $103.51/bbls.

International Energy Agency (IEA) lowered its 2022 demand forecast on weak demand from China amid Covid-19 lockdowns. In its monthly Oil Market Report, the IEA said Russian production and exports continue to fall following on its invasion of Ukraine. The agency said 0.7-million barrels per day of Russian production has been shut in so far this month and it expects that to rise to 1.5 million bpd by month's end as buyer become scarce.

Analysts at ANZ Bank explained that ''the International Energy Agency said OPEC+ members have only managed to provide 10% of their promised supply increases for March. The agency also warned Russian production could drop 1.5mb/d in April as the country’s barrels struggle to find buyers.''

''Russian President Vladimir Putin begged to differ, saying it will find new buyers for its energy exports. More than half of its Urals crude for April continued to flow to Europe, though the volume was much lower than usual as European refiners scale back purchases,'' analysts at ANZ Bank said.

Meanwhile, analysts at TD Securities are expecting supply risks to remain elevated as ''persistent underproduction from OPEC+ related to a decade of underinvestment, along with stretched global spare capacity and critically low inventories, provide little buffer for any further disruptions.''

''High food and energy prices may further lead to unrest across the globe, which could further disrupt production in line with historical precedents from the Arab Spring. In this context, we may look to re-engage topside.''

• NZD/USD is creeping back from the lows of the day.
• RBNZ hiked rates by 50bps, not traders will get set for next week's CPI.

At 0.6793, NZD/USD is back to being flat on the day after being thrown around in the aftermath of the Reserve Bank of New Zealand. The pair traded between a range of 0.6793 highs that were printed on the knee-jerk and the lows of 0.6788 made in afternoon London trade.

The RBNZ lifted the OCR by 50bps to 1.5% as the central bank moved aggressively to combat inflationary headwinds and to get ahead of the inflation curve. However, and as analysts at ANZ Bank noted, ''it’s been a wild 16 hours since the RBNZ hiked rates, with the Kiwi initially spiking sharply, only to completely unwind those gains and some as markets digested the idea that by going hard early, the RBNZ may not need to take the OCR as high later (certainly nowhere near the ~4.25% that was priced in by late 2023 yesterday morning).''

Meanwhile, traders will now look ahead to next week's Consumer Price Index. ''We think next week’s Q1 CPI data will robustly confirm that the 50bp hike was the right move. We estimate that headline annual CPI inflation rose to 7.4% in Q1, up from 5.9% in Q4,'' the analysts at ANZ Bank said. 

Bullish for NZD/USD, the analysts went on to explain, ''the RBNZ noted they expected inflation to peak “around 7%” in the first half of this year – but we see that as being closer to 7.5%. And with non-tradables inflation picked to hit 6.5% in Q1 (5.3% previously), the RBNZ still has a job to do to rein in surging domestic inflation pressures.  That speaks to another 50bp hike in May.''

NZD/USD daily chart

The price was testing a 38.2% Fibonacci retracement level before it dropped as markets repriced the prospects at the RBNZ. Depending now on the trajectory of the US dollar, the price could well continue lower towards the March 15 lows of 0.6729 in the coming sessions.  

• A positive market mood, falling US bond yields, and a weaker buck, a tailwind for precious metals and commodities.
• Hotter than expected, US PPI inflation reinforces a 50-bps increase by the Fed.
• Silver Price Forecast (XAG/USD): Remains upward biased, and a daily close above $25.85 would open the door for bulls towards $26.00

Silver (XAG/USD) rallies for the sixth consecutive day, in the middle of an upbeat market mood, taking advantage of fallings US Treasury yields, high US inflation figures, and despite the continuation of hostilities between Ukraine-Russia. At the time of writing, XAG/USD is trading at $25.72 and continues to aim towards $26.00.

Risk appetite increased throughout the North American session, as portrayed by US equities gaining. US Treasury yields fell, with the 10-year clinging to the 2.70% threshold, while the greenback fell.

High US inflation lays the ground for a Federal Reserve 50 bps hike

The ongoing week US economic docket keeps traders entertained. On Wednesday, consumer inflation rose to 8.5% y/y, higher than estimations but within the range. At the same time, the so-called core Consumer Price Index (CPI) increased 6.5% y/y, though lower than the 6.7% expected, a signal that inflation might be about to peak.

Nevertheless, prices paid for producers sent the hopes over the board on Thursday. The Producer Price Index (PPI) expanded by 11.2%, higher than the 10.8% y/y estimations, while core PPI hit 9.2% y/y, substantially up than the 8.4% estimations.

With both reports in the rearview mirror reinforces pressure on the Federal Reserve to raise rates at a faster pace. Fed officials have opened the door for 50-bps rate hikes at its May meeting, while STIRs shows a 94% chance of a 0.50% lift to the Federal Funds Rate (FFR).

Elsewhere precious metals extend their gains in the week. Silver is up close to 4%, while Gold gains 1.5%, trading at $1976 a troy ounce.

The US economic docket would unveil Retail Sales, Initial Jobless Claims, and the University of Michigan Consumer Sentiment survey by Thursday.

Silver Price Forecast (XAG/USD): Technical outlook

Silver’s (XAG/USD) daily chart depicts the pair as upward biased. The daily moving averages (DMAs) below the spot price confirmed the previously mentioned, though it’s worth noting that the 200-DMA at $23.89 is trapped between the 50-DMA at $24.61 and the 100-DMA at $23.74.

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 61.63, close to reaching overbought conditions.

Upwards, the XAG/USD first resistance would be the confluence of the March 24 cycle high and the R1 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 $26.43.

On the downside, the XAG/USD first support would be the 50-hour simple moving average (SMA) at $25.37. Once cleared, the next support would be the confluence of March 31 and the 100-hour SMA around the $25.05-09 range, followed by the 200-hour SMA at $24.78.

• EUR/USD bulls attempting to correct the bearish phase, eye 1.0950. 
• However, the hourly chart shows a build-up of failures that could result in a correction.
• EUR/USD bears need to get below the current support near 1.0870. 

EUR/USD had been pressured to the March lows this month but it has recovered to almost 23.6% of the daily bearish impulse with sights on a 38.2% ratio retracement near 1.0950 for the days ahead. 

EUR/USD weekly chart

The M-formation, a reversion pattern, is a compelling feature on the weekly chart with eyes on the neckline between 1.0920 and 1.0975.

EUR/USD daily chart

The price is facing some resistance on the daily chart currently but a break of it will be bullish for the foreseeable future. 

EUR/USD H1 chart

The hourly chart shows a build-up of failures that could result in a correction, potentially as far as the old resistance at a 61.8% ratio once the current support near 1.0870 is broken. 

What you need to take care of on Thursday, April 14:

Inflation, central banks and the Eastern European crisis remained in the eye of the storm and weighed on the market’s mood. The UK published the March Consumer Price Index, which jumped to a three-decade high of 7%, while the US reported that the March Consumer Price Index jumped to 11.2% YoY, both above anticipated.

The Bank of Canada increased benchmark interest rates by 50 bps to 1.00% and also announced plans to begin reducing the size of its balance sheet, starting April 25, given that it sees an increasing risk that expectations of elevated inflation could become entrenched.

Earlier in the day, the Reserve Bank of New Zealand decided to lift the official cash rate by 50 bps to 1.5% to combat inflationary headwinds pertaining to the Omricon disruptions and the Ukraine crisis.

On Thursday, it will be the turn of the European Central Bank to announce its monetary policy decision.

German government rejected the EU ban on Russian oil for now, while Moscow declared that US and NATO vehicles delivering weapons on Ukrainian soil would be considered legitimate military targets.

Wall Street shrugged off negative headlines and closed with substantial gains. Government bond yields, on the other hand, suffered a sharp U-turn during the American session, edging sharply lower and weighing on the greenback.

The EUR/USD pair trades at around 1.0880, while GBP/USD is just above the 1.3100 figure. The AUD/USD pair finished the day unchanged in the 0.7440 price zone, while USD/CAD ended the day in the red at 1.2565. The USD/JPY pair reached a fresh multi-year high of 126.31.

Spot gold maintains its bullish bias, trading near a fresh multi-week high of $1,981.57 a troy ounce. A generalized risk-averse mood alongside the dollar’s weakness during the American session maintained the metal bid throughout the day. Crude oil prices kept soaring, with WTI setting above $103.0 a barrel.

Bitcoin price rebounds after Terra’s LUNA Foundation Guard buys over $100 million in BTC

• USD/CAD has continued to pullback post-50 bps BoC rate hikes, as the loonie benefits amid higher equity and oil prices.
• A softening of the US dollar amid fading US yields also helped.
• The pair is now probing its 21DMA in the mid-1.2500s, having pulled back from earlier highs in the upper 1.2600s.

USD/CAD has continued to press lower in recent hours and, as the end of the US session beckons, the pair is currently trading at session lows in the 1.2550s, down some 0.7% on the day. The US dollar is seeing a modest pullback no thanks to a slight drop in yields across the US curve, despite much hotter than expected US Producer Price Inflation data released earlier in the day and, more recently, a batch of hawkish remarks from Fed’s Christopher Waller.

Waller said he supports a 50 bps rate hike at the upcoming meeting and potentially the next two meetings after that, and that the data supports this course of action. But with a lot of Fed hawkishness already in the price, the buck did not respond. While US dollar weakness explains some of USD/CAD’s pullback from earlier highs above its 50-Day Moving Average in the 1.2670s, a more important catalyst was the latest BoC meeting.

The central bank lived up to the hype in delivering a 50 bps rate hike and also announcing the start of (passive) balance sheet runoff as of 25 April. The bank unsurprisingly signalled that more rate hikes lay ahead, potentially in 50 bps intervals. With uncertainty about the risk of a potential dovish BoC surprise gone, loonie bulls got the green light to pile in and push the Canadian currency higher to reflect strength in oil and stock prices.

At current levels in the mid-1.2500s, USD/CAD is now probing its 21DMA (at 1.2543) one again. If oil continues to rally, if equity market sentiment continues to improve and if US yields continue their current consolidation below recent highs, USD/CAD is in with a shot of dropping back towards annual lows in the 1.2400 region.

Fed board of governors member Christopher Waller said on Wednesday that he supports a 50 bps rate hike at the upcoming May Fed meeting, and possibly more hikes of the same margin at the June and July meetings, reported Reuters citing comments made in a CNBC interview. 

Additional Remarks:

• The high inflation in the latest Consumer Price Inflation (CPI) report was not surprising. 
• The Fed will continue with its plan for rate hikes and reducing accommodation to get inflation under control. 
• March CPI was "pretty much the peak".
• The Fed will start seeing some relief on inflation in the coming months, but that doesn't relieve the need for us to raise rates. 
• "We want to get to above neutral in the later half of this year." 
• "Higher mortgage rates will have a bite on how much people can pay for houses, so we will see downward pressure on prices in the coming months."
• It's completely feasible to avert a recession. 
• "We can pull back demand for labor, and not have a big impact on jobs."
• "We can get prices down without causing a recession."
• "We are not in a Volcker moment."
• "We don't need to cause a shock, but we will do what it takes to get inflation back down, though we can do it in an orderly way."
• "This is a good time to do aggressive actions because the economy can take it."

• The Australian dollar remains defensive, struggling to capitalize on a weaker greenback trading session.
• Prices paid by producers in the US jumped to a 12-year high, above the 11% threshold.
• AUD/USD Price Forecast:

After reaching a daily high near the 0.7500 mark, the Australian dollar slides but clings to the March 7 swing high around 0.7441 amid a positive market mood, as portrayed by US equities. Meanwhile, in the FX space, the antipodeans are the laggards of the session; despite that, the RBNZ surprisingly hiked 50 bps the Overnight Cash Rate (OCR), which also boosted the prospects of the Aussie. In the New York session, the AUD/USD is trading at 0.7444.

AUD bulls remain defensive, despite a weaker US dollar

US equities remain in positive territory while falling US Treasury yields weighed on the greenback. The US 10-year T-note is plunging, from 2.788% to 2.685%, a ten basis point drop, a headwind of the buck, as shown by the US Dollar Index, down 0.29% sitting at 99.928, below the 100.000 mark. Albeit the previously mentioned, AUD bulls were unable to capitalize on the softer tone of the buck, despite an appetite for riskier assets.

The US economic docket featured the Producer Price Index (PPI) for March on Wednesday. The reading came at 11.4% y/y, much higher than expected, the most significant increase since 2010, emphasizing inflation is stickier than initially expected as producers get ready to pass costs to customers. At the same time, the so-called core PPI for the same period, which excludes volatile items like food and energy, expanded 9.2% y/y, higher than the 8.8% foreseen, in contrast to the last core CPI report, which showed that core consumer inflation might be near peaking.

Elsewhere, the Russo-Ukraine conflict continues. Ukraine’s forces stated that the Russian troops were preparing to attack Donetsk and Kherson regions. The Kremlin added that it would consider US and NATO vehicles carrying weapons on Ukrainian territory as legitimate military targets. Concerning peace talks, a Russian Foreign Ministry spokesperson stated that they continue online.

Later in the day, the Australian economic docket would feature Consumer Inflation Expectations and will report Employment Change alongside the Unemployment Rate.

AUD/USD Price Forecast: Technical outlook

The AUD/USD bias remains upwards. The last three days’ price action further supports the previously mentioned, but its fall on the RBNZ monetary policy decisions is courtesy of AUD weakness, more than a strong buck.

However, it’s worth noting that the pair lifted from daily lows around 0.7391 towards current levels but short of Pitchfork’s mid-line parallel line around 0.7470-80 range. That said, the AUD/USD first resistance would be the former, followed by the psychological 0.7500 figure. 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 rallies into a prior monthly support area.
• GBP/JPY bears are potentially looking for an opportunity in a reversion of the current bullish phase. 

GBP/JPY has rallied by almost 1% on the day in an extension of the bullish breakout of the 2021 resistance as per the monthly chart. However, whether the price can continue into the next mitigation zone without a prior retest of the old resistance area is the question:

GBP/JPY monthly chart

As illustrated, the price has rallied into an old level of monthly support that would now be expected to act as a resistance area and guard the next imbalance of price which occurred when GBP/JPY fell in 2016 to below 175 the figure. In May 2016, the price recovered back to 164.03 for which the current cycle has returned to and slightly beyond in printing today's highs of 164.59.

If the bulls stay in control, then the next area of mitigation will be towards 175 the figure for the weeks and months ahead. However, if the bulls throw in the towel anytime soon, a 50% reversion could be on the cards first which is a touch below 158.00. However, the bears will need to get beyond the weekly support as follows:

GBP/JPY weekly chart

The price is meeting the March 28 highs and should it now turn south, then the 61.8% Fibonacci near 161.20 could be eyed where it meets the weekly structure. before there, however, the daily support will be challenged near 163.50:

 GBP/JPY daily chart

• US equities advanced on Wednesday despite hotter than expected PPI and a mixed start to the Q1 earnings season.
• A continued pullback in US yields is giving big tech/growth stocks a lift.
• The S&P 500 was last up more than 1.0% and trading in the 4,440s, well within this week’s ranges.

Major US equity indices were undeterred by a larger than expected rise in MoM and YoY Producer Price Inflation in March, according to data released on Wednesday, and advanced across the board, with large-cap tech/growth stocks leading the charge amid a continued pullback in US yields. The S&P 500 was last up slightly more than 1.0% in the 4,440s and trading back to the north of its 50-Day Moving Average at 4,422, though still within this week’s 4,375-4,470ish ranges.

The tech-heavy Nasdaq 100 index was up around 1.8% and trading just below 14,200, with the bulls eyeing a test of its 50DMA at 14,300. The Dow, meanwhile, was up around 0.9% and trading back to the north of the 34,500 level. Wednesday marked the unofficial start of the Q1 2022 earnings season, which got off to a mixed start.

JP Morgan shares slumped after the bank reported a slide in Q1 profits, while Delta Airlines jumped after posting a smaller than expected Q1 loss and a forecast for a return to profit in Q2. Investors seemingly took a glass-half-full attitude to the first day of major earnings releases, with some analysts talking about how Delta’s earnings release highlighted the potential for post-pandemic “reopening” trade to come back into the swing.

But focus returns to the big US banks for the rest of this week, with the likes of Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley and Bank of America all reporting in the coming days. According to Refinitiv data cited by Reuters, analysts expect earnings to rise by roughly 6% YoY in Q1 versus a 32.1% YoY jump in Q4 2021, with Reuters analysts citing the hawkish Fed, rampant inflation and geopolitical uncertainties due to the Russo-Ukraine war as muddying the outlook.

• US prices paid by consumers and producers continue rising, further cementing the need for a 50 bps Federal Reserve hike.
• UK Inflation Rate at its highest in 30 years, hits 7%.
• GBP/USD Price Forecast: Double bottom near the YTD lows looms as cable rallies towards 1.3100.

The British pound rallies and recovers substantial ground, in the North American session, amidst an upbeat market mood, despite continuing fighting between Ukraine and Russia and a busy week for the US economic docket weighed by inflationary measurements weighing on the greenback. At the time of writing, the GBP/USD is trading at 1.3098.

The US docket witnessed the Consumer Price Index (CPI) on Tuesday, which rose above the 8.5% threshold for the first time since 1981, while inflation excluding food and energy, the so-called core CPI, rose by 6.5%, lower than the 6.7% estimated. The figures show that inflation is stubbornly high, but the core CPI showed that, in fact, prices easied in comparison with forecasts. That spurred a reaction in money market futures derivatives, as traders easied the 220 basis points Fed aggressive tightening to 200 by the end of the year.

In the meantime, on Wednesday, prices paid by producers (PPI) in March rose 11.4% y/y, the most since 2010, above all estimations and emphasizing inflation is stickier than expected, as producers are about to pass costs to customers. Excluding volatile items like food and energy, the so-called core PPI rose 9.2% y/y, higher than the 8.8% foreseen, in contrast to the last core CPI report, which showed that inflation might be near peaking.

Sources cited by Bloomberg said that “[D] despite the sigh of relief from yesterday’s core CPI reading, this is concerning,” and added that a “50 bps is starting to feel commonplace.”

Elsewhere, the UK economic docket also featured inflation figures, led by the Inflation Rate for March, which expanded by 7%, in line with expectations but higher than the March 6.2%, the highest in 30 years.

Money market futures have priced in a 25 bps rate hike by the Bank of England’s meeting on May 5. However, it’s worth noting that Deputy Governor Jon Cunliffe voted for no change at its last meeting, a move widely unexpected by investors, which weighed on the GBP prospects and pushed cable towards its YTD low around 1.2979.

GBP/USD Price Forecast: Technical outlook

The GBP/USD appears to have formed a double bottom in the daily chart, but as long as the daily moving averages (DMAs) reside above the exchange rate, the pair is downward biased. Nevertheless, it's worth noting the aforementioned.

If GBP/USD bulls lift prices above March 23 1.3298 swing high, then the double bottom could be confirmed and would target 1.3600.

The GBP/USD first resistance would be 1.3100. A breach of the latter would expose the December 2021, 1.3160 pivot low-now-resistance, followed by the 1.3200 figure. Once cleared, that would open the door towards 1.3298, March 23 cycle high.

• EUR/JPY rallied back above 136.50 on Wednesday as the yen failed to benefit from lower US yields.
• Bulls are eyeing a breakout towards annual highs in the 137.50 area if Thursday’s ECB meeting proves hawkish.

US yields continued their recent pullback on Wednesday, despite a worrying US Producer Price Inflation report that suggests inflationary pressures don’t look likely to ease any time soon, but this did not offer the battered yen much respite. Despite recent negative newsflow on the Russo-Ukraine front that would typically be seen as euro negative, EUR/JPY advanced on Wednesday to move back above the 136.50 mark.

The pair is now eyeing a retest of earlier weekly highs just above the 137.00 level, a break above which would open the door to a run towards recent multi-year highs in the 137.50 area. Recent commentary from Japanese fiscal and monetary policymakers has suggested that they are more worried about the rate of JPY depreciation in global FX markets, rather than targetting any specific levels.

That has come as a disappointment for those betting that some stronger jawboning might give the yen a near-term boost. EUR/JPY bulls will be hoping that Thursday’s ECB meeting might offer the pair some impetus in the form of, perhaps, a further shift in the bank’s tone regarding how worried it is about inflation, and how quickly it sees itself tightening monetary policy settings.

A break above 137.50 would see EUR/JPY trading at its highest levels since 2015 once again and the bulls would quickly turn their attention to the 140 level and June 2015 highs at 141.00.

The US is moving to significantly increase the intelligence it provides to the Ukrainian military so that they can target Russian forces in the Russian-occupied Donbas and Crimean regions and potentially take back territory, the WSJ reported on Wednesday citing sources.  

The WSJ states that this new intelligence comes at a time when the US is already moving to significantly increase the flow of weapons into Ukraine. Russia is expected to mount a major new offensive in the south and east in the coming days. 

• Oil prices gained for a second day, with traders citing the negative tone to recent Russo-Ukraine rhetoric/developments as bullish.
• WTI rallied towards its 21DMA in the $103.00s, with the bulls eyeing a push higher towards $110.

Bullish momentum in global crude oil markets continued for a second day on Wednesday, with front-month WTI futures pushing towards their 21-Day Moving Average in the $103.60s, after prices found decent support $100 per barrel area earlier in the day. At current levels just under $103.00, WTI trade with on-the-day gains of just under $2.0, taking its weekly gains to almost exactly $5.0/barrel.

Analysts cited the lack of signs of any progress towards peace in Ukraine as supportive for oil prices, pointing to recent commentary from Russian President Vladimir Putin, who on Tuesday referred to peace talks as at a dead-end, and to the continued build-up of Russian forces in Ukraine’s east as they prepare for an assault on the unoccupied portions of the Donbas oblast.

The International Energy Agency on Tuesday said it expects Russian oil output to have dropped by 1.5M barrels per day (BPD) this month, and to drop by 3M BPD in May. The lack of progress towards peace suggests that the Western sanctions that are the main catalyst of this large drop in Russian output won’t be lifted anytime soon.

Ongoing supply concerns helped oil markets shrug off the bearish impact of a much larger than expected more than 9M barrel build in US crude oil stocks, according to the latest weekly US Energy Information Agency data. Indeed, OPEC warned earlier in the week it would not be possible to make up for the shortfall in Russian output, and US output is only expected to rise a further 200K BPD by the end of 2022 (to 12M BPD from the current 11.8M BPD).

The WTI bulls will be hoping that recent gains over the past two days represent a break out of the downtrend that has engulfed oil markets since March 24 (when WTI was trading above $110. They will be hoping for a break above the 21DMA, which could open the door to a run back towards $110.

On Wednesday, the Bank of Canada, as expected, increased the key interest rate by 50 bps to 1% and also announced the beginning of quantitative tightening. Analysts at RBC, point out the BoC doesn’t provide an expected path for policy rates but they consider Governor Macklem gave some guidance at his press conference, “noting Canadians should expect the overnight rate to rise toward the bank’s assumed 2-3% neutral range.”

Key Quotes: 

“The Bank of Canada accelerated its tightening cycle today, building on March’s 25 bp rate hike with a larger, 50 bp move that lifts the overnight rate to 1%. The bank also said it will begin quantitative tightening (QT) later this month, shrinking its balance sheet by ceasing reinvestment of maturing GoC holdings. With 40% of its holdings maturing in the next two years, QT will reduce the size of the bank’s balance sheet relatively quickly. That move has been well telegraphed, though, and increases in the overnight rate—which the BoC emphasized is its main policy tool—will be more impactful for financial conditions going forward.”

“Today’s 50 bp move, the first hike of that magnitude in 22 years, suggests the BoC has lost the patience it demonstrated back in January when it took a pass on raising rates.”

“Our forecast assumes more standard, 25 bp hikes going forward—until the overnight rate hits 2% in October—though we think another 50 bp increase will be an option on the table in June.”

“While today’s meeting suggests upside risk to our forecast for the BoC to halt its tightening cycle at 2%, we continue to think the market is over-priced for rate hikes in 2023 when the bank will have to balance growth risks (which we view to the downside relative to today’s forecast) with inflation that should be moving toward its target, if not quite fast enough.”
 

Ukraine's Armed Forces Command said on Wednesday that Russian forces are ready to attack in the eastern Donetsk and southern Kherson regions of the country, reported Reuters. Russia recently pulled forces out of Ukraine's north, in essence giving up on its efforts to take Ukraine's capital Kyiv and is now switching its focus to securing the rest of the eastern Donbas region (of which Donetsk is a part), as well as more territory in the south. 

The US and its NATO allies have in recent days pledged to send additional arms to Ukraine to aid them in their defense against Russia, though Russia on Wednesday threatened to attack any such US/NATO convoys transporting weapons in Ukraine. 

• The USD/CHF cuts some of Monday’s losses amidst a mixed market sentiment.
• Falling US Treasury yields weigh on the greenback, which losses against most currencies except the Swiss franc.
• USD/CHF Price Forecast: Range-bound within 0.9300-70 amid the lack of a fresh impulse.

The USD/CHF advances for the second consecutive day and is about to trim Monday’s losses amid a mixed market mood as portrayed by European and US equities fluctuating between gainers and losers as global bond yields fall. In the FX space, safe-haven peers remain the laggards, while the greenback remains defensive against most peers but the Swiss franc. At the time of writing, the USD/CHF is trading at 0.9333.

Meanwhile, US Treasury yields remain downward pressured, with the 10-year benchmark note down from 2.788% highs to 2.672%, a headwind for the greenback, as the US Dollar Index, a gauge of the buck’s value vs. six currencies, edges down 0.25%, sitting at 100.069.

USD/CHF Price Forecast: Technical outlook

Overnight, the USD/CHF was subdued In the Asian Pacific session, but in the European one, it edged up above the R1 daily pivot, lying at 0.9353, forming a tweezer-top candlestick chart pattern, which dragged the USD/CHF down towards the 100-hour simple moving average (SMA) at 0.9332.

Meanwhile, the USD/CHF daily chart depicts the pair as upward biased, but it has remained consolidated in the 0.9300-70 area since April 6, amidst the lack of a catalyst.

Upwards, the USD/CHF’s first resistance would be the March 28 daily high at 0.9381. A breach of the latter would expose the psychological 0.9400 level, followed by the YTD high at 0.9460. On the downside, the USD/CHF first support would be 0.9300. A decisive break would expose the 50-day moving average (DMA) at 0.9270, followed by the 100-DMA at 0.9234 and the 200-DMA at 0.9213.

Technical levels to watch

• EUR/USD turns positive as the US dollar corrects lower.
• DXY drops for the first time in nine trading days.
• On Thursday, the ECB will announce decisions on monetary policy.

The EUR/USD rebounded sharply during the last hours and climbed from 1.0820 to 1.0878, reaching a fresh daily high. The move higher took place amid a decline of the US dollar across the board. The greenback lost momentum as US yields turned to the downside.

The US 10-year yield fell from 2.75 to 2.65%, reaching the lowest level since Friday, while the 30-year dropped from the multi-year high at 2.87% to 2.76%. The recovery in Treasuries weighed on the greenback.

The DXY is falling by 0.28%, ending an eight-day positive streak. It is hovering around 100.00. It is the first strong sign of a pause on the greenback’s rally. Under that scenario, EUR/USD could benefit, but a risk event for the euro is ahead.

On Thursday, the European Central Bank (ECB) will announce its decision on monetary policy. A more aggressive approach toward inflation is expected. Analysts at TD Securities see a “sharp hawkish pivot from the ECB this week, with an announcement that the APP will conclude at the end of May, and a clear signal that rate hikes will follow.” They still see the euro under pressure and look for near-term rallies to fade.

Supported by 1.0800

The EUR/USD again, like last month, found support above 1.0800 and is rebounding. Despite moving away from that critical area, risks remains tilted to the downside. A break under 1.0800 should clear the way to more losses.

If the move to the upside gains momentum, the next resistance might be seen at 1.0900 and above a more important barrier at 1.0940. A daily close above 1.0940 should alleviate the bearish pressure.

Technical levels

Bank of Canada Governor Tiff Macklem, in the post-BoC monetary policy decision announcement press conference, said that the bank is prepared to move s forcefully as needed to tackle inflation and took an important step in this fight on Wednesday, reported Reuters.  The BoC needs to ensure that inflation expectations remain moored, and that was a key part of Wednesday's decision, he explained. 

Oil prices have gone up a lot, partly as a result of the war, though many producers are expecting lower prices when the war ends, he noted. When asked about the level of the Canadian dollar, Macklem said that he would leave it to markets to determine its value, though he did note that the interest rate differential with the US may be weighing on the loonie a tad. 

The BoC's 50 bps rate hike sends a message that monetary policy needs to be normalised reasonably quicky, Macklem said. 

• Kiwi is among the weakest G10 currencies despite the RBNZ rate hike.
• The US dollar remains strong, supported by US inflation data.
• NZD/USD heads for the lowest close in a month.

The NZD/USD trimmed losses during the American session; however, it still heads toward the lowest daily close in a month. The pair bottomed at 0.6750 before rising toward 0.6780 amid a correction of the greenback across the board.

The kiwi is among the worst performers even after the Reserve Bank of New Zealand (RBNZ) announced early on Wednesday a 50bps rate hike, surpassing expectations to 1.50%. “The RBNZ is clearly looking to get ahead of the inflation curve and the more aggressive action was justified on the 'least regrets' approach to policy decisions”, explained analysts at TD Securities. They forecast a 50bps May hike, and 25bps hikes at each RBNZ meeting this year in July, August, October and November.

The US dollar peaked on Wednesday after the release of the March Producer Price Index that, rose to 11.2%, from 10.3%, above the 10.6% of market consensus. Despite the number, US yields turned to the downside during the American session and weighted don the US dollar. The DXY is falling 0.12% for the first time in nine days.

Despite the recovery, NZD/USD remains under 0.6800, at the 55-day Simple Moving Average (0.6780) with a negative perspective. The bias should change if the pair rises above 0.6910/15 (20 and 200-day SMA).

Technical levels

In his post BoC monetary policy announcement press conference on Wednesday, Governor Tiff Macklem said that if demand responds quickly to higher rates and inflationary pressures moderate, it may be appropriate to pause hikes once we get closer to the neutral rate, reported Reuters. 

Additional Remarks:

• On the other hand, the BoC may need to take rates modestly above neutral for a period to bring demand and supply back into balance and inflation back to target. 
• Canadians should expect rates to continue to rise towards more neutral settings and the current estimate is that this is between 2% to 3%.
• "We need higher interest rates," he said, adding that the economy can handle them and reiterating that the BoC will act forcefully if need be. 
• The impact of the Russo-Ukraine war on growth in Canada is likely to be small. 

The European Central Bank (ECB) will announce its decision on monetary policy on Thursday, April 14 at 11:45 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 12 major banks.

ECB is widely expected to leave key rates unchanged. Additionally, the central bank is set to signal tighter policy in response to higher inflation. 

TDS

“The ECB is likely to announce that its APP programme will end in May, and prepare markets for a June rate hike. An ECB pivot would anchor a possible low for EUR/USD, though a break of the 1.12 high requires settlement on the US terminal rate pricing. That said, a more active ECB is likely to reinforce the lows in EUR/CHF and would favor buying EUR/GBP dips towards 0.83.”

ING

“Staying put and continuing with the announced reduction of net asset purchases looks like the only viable option for now. However, given the latest market pricing of future ECB rate hikes and unclarity about the ECB’s exact reaction function in these times of high uncertainty, ECB President Christine Lagarde could be forced to somewhat limit the ECB’s optionality to a few options.”

Nomura

“With no new forecasts to announce, few hard data to confirm the precise extent of the impact of the war on the euro area economy, and with there being another meeting before the end of Q2 at which the ECB could make its decisions on an APP wind-down, we do not believe the ECB needs to – nor will – announce any major adjustments to its guidance at its April meeting. This is, after all, the flexibility with regard the path of monetary policy that the ECB has craved. The focus instead, we believe, will be on any nuances that ECB President Lagarde reveals in the press conference following the decision. We expect the ECB to announce, at its June meeting, an end to its asset purchases in September with the first 25bp Deposit Rate hike coming in December this year. Thereafter, we expect a further three quarter-point rate hikes to +0.50% by end-2023 – a total tightening of 100bp. We expect a cessation of ECB tightening from the end of 2023, as at that point inflation could already be in retreat, and a slowing US economy could be leading the global economic cycle downwards once again.”

Nordea

“We think the ECB will decide on the end date for net asset purchases only at the June meeting, but the decision could be taken already at this meeting. Markets continue to price in a more aggressive rate path than we think is warranted based on the ECB’s signals. ECB monetary policy account suggests the more hawkish tones within the ECB have gained the upper hand.”

Danske Bank

“We now look for a 25bp rate hike in both September and December 2022. Beyond that, we do not look for a prolonged hiking cycle into 2023 at the current stage. Yet another challenging meeting awaits this week. While the official decision is expected to be broadly unchanged, we expect Lagarde to keep the door open for a potential rate hike after summer, while she will continue to repeat the flexibility, optionality and data dependency. We believe markets will react to this, speculating about a potential rate hike in July. Upside risks to the EUR/USD on the day, but downside risks persist.” 

Commerzbank

“Due to the unclear situation, there is unlikely to be any decisions at Thursday's meeting, with one possible exception. The central bank could decide to increase the part of excess reserves that is exempt from interest at the prevailing deposit rate. Although we do not expect any decisions for Thursday's meeting apart from the tiered interest rate, the discussion on the normalisation of monetary policy is likely to continue in the Council. However, it remains uncertain whether this current increasing willingness to raise interest rates will be followed by action later in the year. After all, the willingness of many Council members is based on the expectation that the economy will continue to grow steadily despite significantly higher energy prices. However, in the event of a complete boycott of Russian energy supplies, for example, a recession would probably be unavoidable.”

Rabobank

“We expect only minor policy changes at the April meeting. Larger shifts, including a decision on APP after Q2, will be made when the ECB has new staff projections in June. Lagarde’s explanation of the new forward guidance on rates seems inconsistent with Lane's, and clarification during the Q&A session could potentially shift rate hike expectations. We expect the ECB to confirm that the TLTRO-III discount will not be extended after June. Simultaneously, we expect the tiering multiplier to increase to c. 10 times minimum reserves. Both policy rates and APP will probably be left unchanged. We expect the ECB to announce the end of net purchases in June and currently assume zero net purchases in Q3.”

Deutsche Bank

“We are not expecting much change to the ECB’s message. Instead, they think that when the new staff forecasts are available in June, they’ll announce that APP purchases will end in July, ahead of liftoff in the policy rate in September, so an underlying direction of travel that’s becoming clear. Our view is that the risks are tilted towards a more hawkish, rather than a less hawkish tone though, and as a reminder, we changed our call last week to expect a more aggressive ECB exit given the deteriorating inflation outlook, and now see the terminal rate reaching 2% by end-2023, which is 250bps higher than at present.”

SocGen

“No major changes expected but a clear communication that all options are possible, depending on the data. ECB is likely to stress the importance of anchoring inflation expectations and sound more concerned about too high inflation than the downside risks to growth. New staff forecasts will not be available, and there is not a lot of new data since the March meeting. However, the ECB should acknowledge that the data in many cases have been better than what could have been expected, while inflation again has been higher than expected. Risks to inflation are still to the upside, while risks to growth are to the downside.” 

Citibank

“Policy Rate (Deposit Facility Rate): Citi Forecast -0.5%, Prior -0.5%. Net asset purchases are set to continue at least until the end of June, rate hikes can only happen thereafter and TLTROs carry on until end-2024. However, nothing is set in stone and every meeting is live. A fixed end-date to net asset purchases, signals on pace or step-size of rate hikes could trigger a market reaction.”

Wells Fargo

“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. In that sense, we do not expect interest rate settings to change meaningfully 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.”

UOB

“We recognise that the situation remains very fluid. How the war evolves and the impact that has on energy prices will be crucial. But we are still not expecting any changes in key interest rates for now. Rather, any policy tightening by the ECB this year, will solely be in terms of ending its QE programs.”

• The Bank of Canada (BoC) lifts rates to the 1% threshold and will begin Quantitative Tightening on April 25.
• The USD/CAD plummeted as volatility increased, reaching a daily low at 1.2625 on its initial reaction.
• USD/CAD Price Forecast: The pair is upward biased, but BoC Governor Tiff Macklem’s press conference will trigger more volatility in the pair; caution is warranted.

The Canadian dollar soared after the Bank of Canada raised the interest rate policy from 0.50% to 1% and announced it would begin its Quantitative Tightening by April 25. At the time of writing, the USD/CAD is seesawing around the 1.2630-40 area as market participants digest the BoC monetary policy report.

Market’s Reaction

The USD/CAD nose-dived towards 1.2625, followed by an upward reaction to 1.2675, followed by a retracement to the mid-level between 1.2600-1.2700, settling around those levels.

Summary of the Bank of Canada statement

The BoC Governing Council judges that rates need to rise further and emphasizes that interest rates would be the bank’s primary tool for setting monetary policy. The BoC reiterated that they would guide the timing and pace of further rate hikes, as the BoC remains committed to achieving the 2% inflation target.

Regarding Quantitative Tightening (QT), the BoC said it would begin on April 25, halting the reinvestment phase. The BoC added that “Maturing Government of Canada bonds on the Bank’s balance sheet will no longer be replaced and, as a result, the size of the balance sheet will decline over time.”

Concerning Ukraine, the BoC said that elevated prices in oil, natural gas, and commodities are adding to global inflation. Supply chain constraints, a consequence of the war, weigh on activity and would be the primary drivers of “substantial upward revision to the Bank’s outlook for inflation in Canada.”.

The BoC added that Canada’s economy is strong and is moving into excess demand. The bank emphasized that labor markets are tight, and businesses report they have difficulty meeting demand, passing higher input costs to customers. Furthermore, the central bank added that growth looks to have been stronger in Q1 than projected in January and is likely to pick up in the second quarter.

Therefore, the interest rate differential so far benefits the Canadian dollar. However, in the mid to long-term, Fed’s hawkish expectations could favor the greenback, as money market futures expectations show a 94% chance of the Federal Reserve hiking rates to the 1% threshold, the same level reached by the BoC in April.

Later at 15:00 GMT, the Bank of Canada would have its press conference, led by Governor Tiff Macklem and Carolyn Rogers, Senior Deputy Governor.

BOC Press Conference: Governor Macklem speech live stream – April 13

USD/CAD Price Forecast: Technical outlook

The USD/CAD 1-hour chart is upward biased, and on the BoC rate decision, the USD/CAD reacted downwards, piercing below the 50-hour Simple Moving Average (SMA) and the daily pivot, each lying at 1.2634 and 1.2630, pushing the pair towards the 1.2620s area.

Upwards, the USD/CAD first resistance would be the R1 daily pivot at 1.2680. A breach of the latter would expose the psychological 1.2700 mark, followed by the R2 daily pivot at 1.2710. On the flip side, the USD/CAD first support would be the 50-hour SMA and the daily pivot at the 1.2634-1.2630 area. A decisive break would expose the 100-hour SMA at 1.2611, followed by the S1 daily pivot right at the 1.2600 mark.

US Treasury Secretary Janet Yellen said on Wednesday that it will be "a long time, if ever" before the US dollar is replaced as the key currency for the global economy. The impact of sanctions on Russia show the importance of the US dollar and euro, as well the US' partnership with its allies. The US dollar's dominance as a means of exchange is due to the strength of the US economy, financial system and confidence in US financial markets, Yellen added.  

Following the Bank of Canada's (BOC) decision to hike the policy rate by 50 basis points to 1% in April, Governor Tiff Macklem will deliver his remarks on the policy outlook and respond to questions from the press. Macklem's presser will start at 1500 GMT.

"The Canadian economy moving into excess demand, labor market conditions are tight; the economy is starting to operate beyond its productive capacity," the BOC said. 

In its quarterly Monetary Policy Report, the bank also revised the inflation forecast for 2022 to 5.3% from 4.2% previously. 

Breaking: BoC hikes interest rates by 50 bps to 1.00% as expected, to start QT from 25 April.

The Bank of Canada announced on Wednesday that it had increased benchmark interest rates by 50 bps to 1.00% from 0.50%, as widely expected by analysts. The central bank also announced plans to begin reducing the size of its balance sheet, also known as Quantitative Tightening (QT), from 25 April, given that it sees an increasing risk that expectations of elevated inflation could become entrenched. Interest rates will need to rise further and higher rates should moderate growth in domestic demand, the bank noted. 

Additional Takeaways as summarised by Reuters: 

• BoC will use monetary policy tools to return inflation to target and keep inflation expectations well-anchored. 
• The BoC will end reinvestment in Canadian government bonds - maturing bonds will no longer be replaced and the balance sheet will thus decline over time. 
• QT will complement increases in the policy rate, which is the bank's primary monetary policy instrument. 
• The housing market in Canada, which has been exceptionally high, is expected to moderate. 
• The Russian invasion of Ukraine is causing new economic uncertainty, such as commodity price spikes and price disruptions and these are the main drivers for higher inflation forecast. 

Economic forecasts and commentary in the new MPR

• The BoC hiked the outlook for Canadian inflation, which is now expected to average just below 6% through H1 2022, above the forecast in the January Monetary Policy Report (MPR), when the bank said it would be close to 5% in H1 2022. 
• Inflation will remain well above the 1-3% control range until the end of 2022 and will steadily decline to around 2.5% in H2 2023 and 2% in 2024, the bank forecast. 
• The Canadian economy is moving into excess demand, labor market conditions are tight and the economy is starting to operate beyond its productive capacity. 
• The BoC said it is paying attention to how inflation expectations are evolving and noted that long-term inflation expecations remain anchored on target, while near-term expectations have risen. 
• The effects of the Ukraine war to add 0.7% to CPI in 2022
• Overall, 2022 inflation is seen at 5.3% (vs previous estimate of 4.2%), 2023 inflation is seen at 2.8% (vs previous estimate of 2.3%) and 2024 inflation is seen at 2.1%. 
• Risks to the inflation outlook are roughly balanced but upside risks are of greater concern because inflation is very high. 
• The BoC projects 2021 Canada GDP growth was 4.6%, 2022 GDP growth is seen at 4.2% (vs previous estimate of 4.0%), 2023 GDP growth is seen at 3.2% (vs previous estimate of 3.5%) and 2024 GDP growth is seen at 2.2%. 
• The output gap in Q1 was between -0.25% and +0.75%, higher than the Q4 estimate of -0.75% to +0.25%. 
• Potential output growth is assumed to average about 2% a year over 2022-2024 vs the January forecast of 1.6% a year over 2021-2023. 
• Total ownership of Canadian government bonds outstanding has dipped to 43% from 45% in January, while the value of total assets in Canadian government bonds has remained constant at C$430B. 
• The BoC has updated its estimated range of nominal neutral interest rate to 2%-3%, 0.25% higher than in the April 2021 reassessment. 

Market Reaction

The loonie saw a choppy reaction to the latest BoC policy announcement and MPR and currently trades a tad lower versus pre-announcement levels in the 1.2640s, where it is now flat on the day. 

• Silver is on course for a sixth successive session of gains amid ongoing demand for inflation protection.
• XAG/USD bulls are eyeing a test of late March highs at $25.85 and a push towards annual highs near $27.00.

US yields, particularly at the front end of the curve, are falling on Wednesday, even though just released Producer Price Inflation data showed a fresh spike in inflationary pressures, and this, combined with demand for inflation protection, is helping precious metals gain ground. Spot silver (XAG/USD) bulls have their sights set on a test of late March highs in the $25.80s per troy ounce area, a break above which could open the door to a run above $26.00 and to annual highs near $27.00.

At current levels in the $25.60s, XAG/USD is trading higher by about 1.0% on the day, taking on the week gains to nearly 3.5%, with the precious metal on course for a sixth successive session of gains. For now, the demand for protection against inflation which continues to heat up (see the latest UK and US CPI and PPI numbers) is outweighing concerns about tighter monetary policy.

Indeed, the recent push higher may suggest that investors don’t deem the Fed’s stance as sufficiently hawkish to prevent a prolonged spike in inflation. But further hawkish policy shifts remain a downside risk to the precious metal, if further substantial upside in bond yields is triggered.

St Louis Fed President James Bullard is calling for the Fed to take interest rates into decisively contractionary territory (i.e. well above the neutral rate at 2.0-2.5%) to combat inflation, and if there is growing evidence of other members coming around to this view, yields could rocket yet further higher, weighing heavily on silver. Traders should caution against chasing silver higher, in other words.

• AUD/USD dropped to over a three-week low on Wednesday amid sustained USD buying.
• The setup supports prospects for an extension of the recent pullback from the YTD peak.
• Sustained strength back above the 0.7500 mark is needed to negate the bearish outlook.

The AUD/USD pair dropped to over a three-week low during the early North American session on Wednesday and is now looking to extend the downward trajectory further below the 0.7400 mark.

The US dollar stood tall near its highest level since May 2020 and remained supported by expectations that the Fed will tighten its monetary policy at a faster pace to curb soaring inflation. The bets were further boosted by the US Producer Price Inflation, which surpassed estimates and accelerated to 11.2% YoY in March from 10.0% in the previous month.

Investors also remain concerned about the potential economic fallout from the war in Ukraine, which was evident from the prevalent caution mood around the equity markets. This was seen as another factor that benefitted the greenback's relative safe-haven status and drove flows away from perceived riskier currencies, including the Australian dollar.

From a technical perspective, the overnight attempted recovery move faltered just ahead of the 0.7500 psychological mark. The subsequent decline - for the fifth day in the previous six - favours bearish traders. This, in turn, supports prospects for an extension of the recent sharp pullback from the 0.7660 region, or the YTD peak touched earlier this month.

That said, spot prices, so far, have been showing 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 pivotal point for short-term traders and help determine the next leg of a directional move.

A convincing break below should pave the way for a slide towards testing the 61.8% Fibo. level, around mid-0.7300s. This is closely followed by the lower end of an ascending trend-line extending from sub-0.7000 levels, around the 0.7330-0.7325 region, which if broken decisively will be seen as a fresh trigger for bearish traders.

Given that technical indicators on the daily chart have just started drifting into negative territory, the AUD/USD pair could then accelerate the downfall towards the 0.7300 mark. Some follow-through selling would make the pair vulnerable to extending the downward trajectory towards the 0.7240 region en-route the 0.7200 mark and the 0.7175-0.7170 support.

On the flip side, the daily swing high, around the 0.7475 region, which coincides with the 38.2% Fibo. level now seems to act as an immediate strong resistance ahead of the 0.7500 mark. Sustained strength beyond would suggest that the corrective pullback has run its course and shift the bias in favour of bulls, setting the stage for the resumption of the prior uptrend.

AUD/USD daily chart

Key levels to watch

• DXY hovers around the area of recent highs near 100.50.
• US yields reverse the earlier positive start.
• US Producer Prices rose 1.4% MoM, 11.2% YoY in March.

The rally in the greenback gives no sign of exhaustion so far and lifts the US Dollar Index (DXY) to new peaks around 100.50 on Wednesday.

US Dollar Index stays supported by Fed, geopolitics

The index trades on a positive footing for the second week in a row so far and now looks to consolidate the recent breakout of the psychological 100.00 barrier.

Wednesday’s positive performance of the dollar comes despite US yields reversed the earlier optimism and resumed the downside, adding to Tuesday’s post-CPI retracement at the same time.

In the US data space, MBA Mortgage Applications contracted 1.3% in the week to April 8 and headline Producer Prices rose at a monthly 1.4% in March and 11.2% from a year earlier.

What to look for around USD

The dollar extends the march further north of the 100.00 mark to levels last seen nearly two years ago. 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: 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 0.09% at 100.40 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 96.94 (100-day SMA) and then 95.67 (weekly low February 16).

EUR/USD crawls towards 1.08 with little help coming from the European Central Bank (ECB) tomorrow. Economists at Scotiabank expert the world's most popular currency pair to sustain further losses on unchanged guidance from the ECB.

Early runoff polls show Macron defeating Le Pen

“With three weeks until the Fed’s May meeting where it will likely roll out a 50bps hike, unchanged guidance from the ECB tomorrow will result in a continued risk of EUR losses over the coming days particularly ahead of the second round of French presidential elections on the 24th.”

“Early runoff polls show Macron defeating Le Pen 54% to 46% according to Opinionway and 52.5% vs 47.5% according to Ifop, but momentum can quickly change until the vote; particularly following the televised debate on the 20th.”

BoC Monetary Policy Decision – Overview

The Bank of Canada (BoC) is scheduled to announce its monetary policy decision this Wednesday at 14:00 GMT. The Canadian central bank is widely expected to hike its benchmark interest rate by 50 bps for the first time since May 2000 and announce quantitative tightening (QT) to control spiralling inflation. It is worth recalling that Canadian CPI remained above the BoC's 1-3% range for the 11th consecutive month and accelerated to 5.7% in February. Moreover, the jobless rate is the lowest since at least the mid-1970s, leaving no room for any dovish surprise. Apart from this, investors will take cues from the accompanying monetary policy statement and the post-meeting press conference.

Analysts at Wells Fargo offered their take on the Canadian central bank's likely policy outlook: “We expect BoC policymakers to continue lifting interest rates and are likely to cite the overall strength of the economy as justication for tighter policy. We also expect the BoC statement to refer to a closing output gap, which should also provide policymakers with rationale to keep raising interest rates. Given the Fed is likely to pick up the pace of interest rate hikes in the near future, there is certainly a possibility the BoC opts to raise policy rates 50 bps at its next meeting. Consensus forecasts believe the Canadian economy is strong enough to handle a 50-bp hike, while financial markets are priced for around 45 bps of tightening. Given our view for a 25-bp hike, the Canadian dollar could weaken in the immediate aftermath of the decision.”

How Could it Affect USD/CAD?

Heading into the key event risk, the USD/CAD pair jumped to a near four-week high amid sustained US dollar buying interest. Given that a 50 bps rate hike and QT are fully priced in the markets, a more hawkish BoC commentary is needed to hinder the pair's ongoing recovery move from the 1.2400 mark, or the YTD low touched earlier this April. Conversely, a dovish hike - though seems unlikely - would be enough to weigh heavily on the Canadian dollar and provide an additional boost to the major. This, in turn, suggests that the path of least resistance for spot prices is to the upside.

Key Notes

 •  Bank of Canada Preview: Three CAD-shaking things to watch out for beyond the 50 bps hike

 •  BoC Preview: Forecasts from 10 major banks, hard to argue against a 50 bp hike

 •  USD/CAD Analysis: Pivots around 200-DMA, traders await BoC for fresh impetus

About the BoC Interest Rate Decision

BoC Interest Rate Decision is announced by the Bank of Canada. If the BoC is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the CAD. Likewise, if the BoC has a dovish view on the Canadian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

GBP/USD reached a new low since late 2020 this morning under 1.30 before meekly climbing back above the figure. Economists at Scotiabank expect cable to extend its slide towards 1.29 on failure to hold above the daily low of 1.2974.

Resistance aligns at 1.3025

“A firmer drop under 1.30 and the daily low of 1.2974 leaves little in terms of support until the next big figure and the mid-1.28.”

“Resistance is ~1.3025 and the mid-1.30s.”

EUR/USD’s break under support in the mid-figure area yesterday has opened up losses to a re-test of the 1.08 figure. A drop below here would clear the way towards the mid-107s, then the 1.07 mark, economists at Scotiabank report.

March 2020 low of 1.0636 stands as key support

“If the EUR fails to hold above the 1.08 level, continuing bearish pressure (note there’s still room to go until oversold on the RSI) would weigh on it toward the mid-1.07s and 1.07-figure zones as support.” 

“The March 2020 low of 1.0636 stands as key support.”

“Resistance after ~1.0850 is the 1.09 area and ~1.0935.”

USD/INR remained well supported in the past month due to the firm USD and elevated oil prices. At its recent meeting, the Reserve Bank of India (RBI) signaled an intention to gradually withdraw excess liquidity over the coming year. This should alleviate downside pressure on the rupee.

RBI sets the stage to begin liquidity withdrawal

“The withdrawal of liquidity and prospects of RBI rate hikes in the second half of this year could provide some support for INR. It should at least mitigate INR’s weakness against the backdrop of further Fed rate hikes this year.”

“We see USD/INR holding within the 75-77 range near-term.”

• EUR/USD drops further and clinches new monthly lows.
• Next on the downside comes the 2022 low at 1.0805.

EUR/USD trades in an erratic fashion in the low-1.0800s so far on Wednesday.

In light of the ongoing price action, extra losses in the pair remain in the pipeline in the short-term horizon. Against that, a break below the so far monthly low at 1.0811 (April 13) should pave the way for a quick visit to the 2022 low at 1.0805 (March 7) before the May 2020 low at 1.0766 (May 7).

While below the 200-day SMA, today at 1.1445, the outlook for the pair is expected to remain negative.

EUR/USD daily chart

Economists at Commerzbank are seeing depreciation pressure for the Chinese currency over the coming year given the policy divergence between the People’s Bank of China (PBoC) and Federal Reserve (Fed) 

A weakening bias for CNY

“The Chinese economy is set to slow further as the property softness and Covid-induced consumption weakens remain the key drag. The economic growth is expected to slow to 4.5% in 2022, down sharply from about 8% growth in 2021.”

“A strong dollar due to policy tightening is likely to the main theme in the coming years. After the PBoC's recent rate cuts, the narrowing US-China yield differentials would pose downside bias to the Chinese currency.”

“We forecast 6.7 and 6.8 for USD/CNY at year-end of 2022 and 2023 respectively.”

• GBP/USD seesawed between tepid gains/minor losses around the 1.3000 mark on Wednesday.
• Hot UK CPI report extended some support, though sustained USD buying interest capped gains.
• The Fed’s hawkish outlook, the Ukraine crisis continued underpinning the safe-haven greenback.

The GBP/USD pair witnessed good two-way price moves through the early North American session and for now, seems to have stabilized just above the 1.3000 psychological mark.

The pair did get a minor lift on Wednesday and touched an intraday high level of 1.3025 following the release of hotter-than-expected UK consumer inflation figures. The uptick, however, lacked bullish conviction amid the underlying bullish sentiment surrounding the US dollar and concerns about the potential economic fallout from the Ukraine crisis.

The USD prolonged its recent upward trajectory and shot to its highest level since May 2020 amid the prospects for a more aggressive policy tightening by the Fed. In fact, the markets seem convinced that the US central bank would hike interest rates at a faster pace to combat high inflation, which soared to the highest level since late 1981 last month.

Adding to this, the US Producer Price Inflation accelerated to 11.2% YoY in March, above expectations for a rise to 10.6% from 10.0% in February. The data indicated that there are pipeline costs that could put upward pressure on the already high consumer prices. This, in turn, remained supportive of elevated US Treasury bond yields and underpinned the buck.

Investors were also worried that the war in Ukraine could hit global growth, which was seen as another factor that benefitted the safe-haven greenback and acted as a headwind for the GBP/USD pair. That said, repeated failures to find acceptance below the 1.3000 mark warrants caution for aggressive bearish traders and positioning for any further depreciating move.

Nevertheless, the fundamental backdrop seems tilted firmly in favour of the USD bulls, suggesting that any attempted recovery move runs the risk of fizzling out rather quickly. The GBP/USD pair seems vulnerable to prolonging a three-week-old downtrend and aim to test the next relevant support near the 1.2900 round-figure mark.

Technical levels to watch

• The YoY rate of PPI rose to 11.2% in March, well above the expected rise to 10.6% from 10.0% in February. 
• FX and bond markets didn't see a lasting reaction. 

The annual rate of US Producer Price Inflation (PPI) rose to 11.2% in March, above expectations for a rise to 10.6% from 10.0% in February, data released by the Bureau of Labour Statistics and Department of Labour showed on Wednesday. The jump was powered by a 1.4% MoM rise in prices, according to the Producer Price Index, which was above the expected 1.1% rise. 

Core PPI rose at an annual pace of 9.2%, well above the expected 8.4% reading and up from February's 8.4%. The MoM rate of Core PPI was 1.0%, above the expected 0.5% reading. 

Market Reaction

The DXY saw a very small pop, but has not been able to rally back to session highs above the 100.50 mark. The US 10-year yield chopped around the 2.75% mark and did not seem to have a lasting reaction. 

Russia will view US and NATO vehicles transporting weapons on Ukrainian territory as legitimate military targets, Russia's Deputy Foreign Minister said on Wednesday, reported Reuters citing Russia's Tass news agency. 

USD/CAD has closed just above the important 200-day moving average (DMA) at 1.2623. However, economists at Credit Suisse give the downside the benefit of the doubt for now. 

Bearish bias whilst below 1.2667

“USD/CAD has broken above its key 200-DMA, lessening conviction in our bearish outlook, but for now, we continue to give the downside the benefit of the doubt. Next key resistance is seen at 1.2653/67, which includes the 50% retracement of the 2021 fall and the 55-DMA.” 

“We stay biased directly lower whilst below 1.2653/67, with a break below 1.2565 needed to reassert the downtrend for a move back to 1.2537/35 initially and then to 1.2481/79. Thereafter, a break below the YTD low at 1.2427/00 would trigger a move to our core objective at 1.2287, which is the October 2021 low.” 

“A break above the 55-DMA at 1.2667 would reassert the rangebound environment and likely trigger further short-term strength, with next resistance at 1.2712.”

• USD/JPY rallied to the highest level since May 2002 during the early part of trading on Wednesday.
• The divergent Fed-BoJ monetary policy stance weighed heavily on the JPY and acted as a tailwind.
• Overbought conditions on intraday charts capped the upside amid concerns over the Ukraine crisis.

The USD/JPY pair retreated over 50 pips from a two-decade high touched earlier this Wednesday and was last seen trading below the 126.00 mark, still up nearly 0.40% for the day.

The Japanese yen weakened across the board and plunged to its lowest level since May 2002 against the US dollar amid the widening policy divergence between the Bank of Japan and the Fed. In fact, the BoJ Governor Haruhiko Kuroda stressed the need to maintain the current powerful monetary easing to support an economy that is yet to recover to pre-pandemic levels.

On the other hand, Fed Governor Lael Brainard's comments on Tuesday reaffirmed market bets that the Fed will tighten its monetary policy at a faster pace to curb soaring inflation. In an interview with the Wall Street Journal, Brainard emphasized that the central bank will proceed with a series of interest rate hikes, as well as an effort to trim its balance sheet.

This, in turn, assisted the USD/JPY pair to catch aggressive bids on Wednesday and surge past the 125.75-85 resistance zone (YTD/June 2015 high). The momentum pushed the USD/JPY pair beyond the 126.00 mark, though overbought RSI on the intraday charts kept a lid on any further gains amid fading hopes for a diplomatic solution to end the war in Ukraine.

In the latest developments, Russian President Vladimir Putin said on Tuesday that talks with Ukraine are at a dead-end. Putin further added that Ukraine has deviated from the agreements achieved at talks in Istanbul. Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and supports prospects for an extension of the recent strong move up.

Market participants now look forward to the US economic docket, featuring the release of the Producer Price Index during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide a fresh impetus to the USD/JPY pair. Traders will further take cues from the broader risk sentiment to grab some short-term opportunities.

Technical levels to watch

USD/RUB and EUR/RUB exchange rates do not exist in the normal sense, economists at Commerzbank report. 

Ruble is no longer a freely convertible currency

“USD/RUB and EUR/RUB exchange rates no longer exist in the normal sense, when Russia's central bank, itself, cannot transact in USD or EUR.” 

“The ruble is no longer a freely convertible currency, hence exchange rate numbers which we observe on our screens are a moot point.”

“Granted, CBR still tries to produce a fix which attempts to better guide towards a balance between demand and supply of FX, but this is not really a market-driven exchange rate.”

“Our symbolic forecasts for the ruble are significantly weaker than today’s levels in order to portray that we see the impact of sanctions playing out over a much longer period of time, which is unlikely to be adequately priced in today (we do not think it will resemble a one-off shock pattern, where the maximum impact occurs immediately, followed by recovery over the medium-term).”

• DXY reaches new cycle tops around 100.50 on Wednesday.
• Extra gains could hit the 100.86 level ahead of 100.93.

DXY extends the rally for yet another session to new tops in the 100.50 region, an area last seen in May 2020.

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). If the buying impetus persists, then the April 2020 peak at 100.93 could return to the investors’ radar.

The current bullish stance in the index remains supported by the 7-month line near 96.40, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 95.17.

DXY daily chart

• EUR/USD came close to printing fresh annual lows above 1.0800 earlier in the session but is now flat near 1.0830.
• EUR/USD bears are eyeing a break below the big figure and a run towards 2020 lows in the 1.0630s.

EUR/USD came within a whisker of hitting fresh annual lows under the March 1.0806 bottom earlier on Wednesday morning but has since rebounded back to trading flat on the day in the 1.0830 area. Ahead, the release of US Producer Price Inflation data at 1330BST could cause some choppiness as the Consumer Price Inflation report on Tuesday did, given the intense market focus on inflation and the Fed’s reaction function as of late.

An upside surprise, if it results in US yields rallying back to test multi-year highs printed earlier in the week, could push EUR/USD below 1.0800. No Fed speakers are scheduled, but recent commentary suggests that the bank is keen to press ahead with tightening plans. This, combined with ongoing geopolitical risks in Eastern Europe with Russo-Ukraine peace talks seemingly not going anywhere right now, suggests it makes sense for a EUR/USD downside bias to continue.

A break below 1.0800 would see the pair hit fresh lows since May 2020 and would bring into focus April 2020 lows in the low 1.0700s. Below that reside the 2020 lows in the 1.0630s, just 1.8% lower versus current levels. Unless the ECB gets cracking with monetary policy tightening, which they have slowly been leaning towards in recent weeks, or unless there is a sudden Russo-Ukraine peace pact, there isn’t much to prevent EUR/USD dropping to these levels.

• EUR/JPY resumes the upside following Tuesday’s retracement.
• The surpass of 137.12 should allow a test of the YTD high.

EUR/JPY reclaims ground lost and reverses Tuesday’s pullback midweek.

That said, further upside appears on the cards with the immediate target at the weekly high at 137.12 (April 11). Once cleared, the cross should embark on a probable visit to the 2022 high at 137.54 (March 28).

In the meantime, while above the 200-day SMA at 130.25, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

EUR/JPY remains well-supported. Analysts at Credit Suisse look for a retest of medium-term resistance from the 2018 and recent highs at 137.50/54. 

Closing break above 137.50/54 to mark a further significant break higher

“We maintain our immediate upward bias with resistance seen at 136.63/73 initially, above which should see strength back to 137.15, then a retest of medium-term resistance from the 2018 and recent highs at 137.50/54.” 

A closing break above 137.50/54 would mark a further significant break “higher to open up further medium-term upside, with resistance seen next at 138.17, ahead of what we look to be tougher initial resistance at the August 2015 highs at 138.86/139.03.” 

“Support is seen at 135.70 initially, with 135.55/51 ideally holding to keep the immediate risk higher. Below can see a setback to support next at 135.16, potentially the 13-day exponential average at 135.01, but with buyers expected to show here.”

Chinese authorities will take steps to boost consumption and will set up export tax rebates to stabilise foreign trade, China's Cabinet said on Wednesday reported Reuters citing Chinese state media. China will not limit new energy vehicle purchases, the Cabinet continued, adding that they will use policy tools including reserve requirement cuts in a timely way. 

China's Cabinet encouraged big US banks to lower provision ratios and said it will step up support for the real economy, especially Covid-19 hit industries and small firms. China will lower financial costs for the real economy, the Cabinet added. 

• GBP/JPY regained traction on Wednesday and was supported by a combination of factors.
• Dovish remarks by BoJ’s Kuroda and the risk-on impulse weighed on the safe-haven JPY.
• Hot UK consumer inflation figures underpinned sterling and provided an additional boost.

The GBP/JPY cross maintained its strong bid tone through the first half of the European session and was last seen trading near a two-and-half-week high, around the 164.00 mark.

Following the previous day's modest pullback, the GBP/JPY cross caught fresh bids on Wednesday and was supported by a combination of factors. The Japanese yen weakened across the board after the Bank of Japan Governor Haruhiko Kuroda reiterated to sustain the current powerful monetary easing to support economic recovery. Apart from this, the risk-on impulse - as depicted by a positive tone around the equity markets - undermined traditional safe-haven assets, including the JPY.

On the other hand, the British pound drew some support from hotter-than-expected UK consumer inflation figures. In fact, the UK Office for National Statistics reported that headline CPI jumped from 6.2% YoY in the previous month to 7% in March - the highest level since 1992. Adding to this, the Core CPI, which excludes volatile food and energy prices, rose to 5.7% YoY from the 5.2% reported in February. This was seen as another factor that provided an additional lift to the GBP/JPY cross.

With the latest leg up, spot prices have rallied nearly 150 pips from the weekly low, around the 161.60 region touched on Monday. Expectations that the BoJ will stick to its accommodative monetary policy stance should continue to act as a headwind for the JPY and supports prospects for a further near-term appreciating move for the GBP/JPY cross. Hence, a subsequent move back towards challenging the multi-year high, around the 164.65 region touched in March, remains a distinct possibility.

Technical levels to watch

• AUD/USD met with a fresh supply on Wednesday amid sustained USD buying.
• The Fed’s hawkish outlook pushed the key USD Index to a near two-year high.
• The risk-on impulse might cap the safe-haven buck and lend support to the pair.

The AUD/USD pair maintained its offered tone through the first half of the European session and was last seen trading near the daily low, around the 0.7420 region.

Following an early uptick to the 0.7475 area, the AUD/USD pair met with a fresh supply on Wednesday and has now moved well within the striking distance of the three-week low touched the previous day. The US dollar continued drawing support from the prospects for a more aggressive policy tightening by the Fed and climbed to its highest level since May 2020. This, in turn, was seen as a key factor that exerted some downward pressure on spot prices.

Despite signs that core inflation in the US is easing, investors seem convinced that the Fed will hike interest rates at a faster pace. The bets were reinforced by Fed Governor Lael Brainard's comments that the US central bank will proceed with a series of interest rate hikes, as well as an effort to trim its balance sheet. This, along with a goodish rebound in the US Treasury bond yields, continued lending some support to the greenback.

That said, a solid recovery in the risk sentiment - as depicted by a generally positive tone around the equity markets - capped the safe-haven USD and extended support to the perceived riskier aussie. Nevertheless, the overnight failure ahead of the 0.7500 psychological mark and the subsequent downfall favours bearish traders. This, in turn, suggests that the path of least resistance for the AUD/USD pair remains to the downside.

The technical set-up supports prospects for an extension of the recent sharp pullback from the 0.7660 region, or the highest level since June 2021 and a further near-term depreciating move. Sustained weakness below the 0.7400 mark will reaffirm the negative bias and drag the AUD/USD pair towards the 0.7330-0.7325 region. The said area marks ascending trend-line support extending from the YTD low and should act as a pivotal point.

Market participants now look forward to the US economic docket, featuring the release of the Producer Price Index later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide a fresh impetus to the AUD/USD pair. Traders will further take cues from the broader risk sentiment to grab some short-term opportunities.

Technical levels to watch

• USD/CAD attracted some dip-buying on Wednesday and inched closer to the multi-week high.
• The Fed’s hawkish outlook continued underpinning the USD and extended support to the pair.
• Subdued crude oil prices did little to influence the loonie or provide any meaningful impetus.
• Investors now preferred to move on the sidelines ahead of the BoC monetary policy decision.

The USD/CAD pair recovered the early lost ground and climbed to the top end of its daily trading range, around the 1.2640-1.2645 region during the first half of the European session.

The pair attracted some dip-buying near the 1.2610 region on Wednesday and inched back closer to a near four-week high, around the 1.2660 area touched the previous day. The US dollar stood tall around its highest level since May 2020 and continued drawing support from the prospects for a more aggressive policy tightening by the Fed. This, in turn, was seen as a key factor that acted as a tailwind for the USD/CAD pair amid subdued action around crude oil prices, which tend to drive demand for the commodity-linked loonie.

Despite the fact that the US Core CPI eased for the second straight month in March, the markets seem convinced that the Fed would hike interest rates at a faster pace to curb soaring inflation. In fact, the US consumer inflation showed no signs of easing in March and accelerated to levels last seen in 1981. The bets were reaffirmed by Fed Governor Lael Brainard's comments on Tuesday, saying that the US central bank will proceed with a series of interest rate hikes, as well as an effort to trim its balance sheet.

Apart from this, a pickup in the US Treasury bond yields further underpinned the greenback, though the risk-on impulse in the equity markets kept a lid on any further gains. On the other hand, expectations that the Bank of Canada (BoC) will raise interest rates by 50 bps and announce quantitative tightening (QT) to control spiralling inflation benefitted the Canadian dollar. The combination of diverging forces held back traders from placing aggressive bets around the USD/CAD pair ahead of the BoC decision later during the early North American session.

From a technical perspective, the emergence of some buying at lower levels and acceptance above a technically significant 200-day SMA favours bullish traders. Some follow-through buying beyond the overnight swing high will confirm that the USD/CAD pair has formed a temporary bottom near the 1.2400 mark and set the stage for a further appreciating move. Spot prices could then accelerate the momentum towards reclaiming the 1.2700 round-figure mark en-route the next relevant resistance near the 1.2715-1.2720 region.

Technical levels to watch

The Bank of Canada (BoC ) is set to raise its overnight rate by 50bps at its policy announcement on Wednesday – this is fully priced in by markets. Economists at Scotiabank expect the USD/CAD pair to edge lower towards 1.25 if the central bank also signals one or more additional 50bps hikes are on the horizon.

CAD awaits 50bps hike and hawkish guidance

“Overextended markets should not be too disappointed with a 50bps hike if the bank’s guidance suggests that one or more additional 50bps hikes are on the horizon. This scenario would likely translate into CAD gains back to below the 1.26 mark with additional strength to a test of 1.25 over the next few days depending on whether guidance points to 50bps in both June and July, but also on a recovery in the weak risk and commodities backdrop seen in recent trading.” 

“A 50bps hike that is not accompanied by hawkish guidance that tees up a half-point-hike repeat would likely result in losses that would see it aim for a test of 1.27 per USD.”

“The size of the negative reaction in the CAD to a 25bps hike would largely depend on the bank’s forward guidance. If the smaller-than-expected hike is not accompanied by a change in language that clearly tees up large hikes over the next few meetings, then the CAD may suffer losses above the 1.28 level over the coming days or weeks. If the BoC, in its ‘deliberate’ approach, chooses to go with 25bps while teeing up large hikes at upcoming meetings then the losses in the CAD may be limited to somewhere around 1.2750.”

See – BoC Preview: Forecasts from 10 major banks, hard to argue against a 50 bp hike

In a recently published report, Germany's leading economic institutes announced that they lowered Gross Domestic Product (GDP) growth forecast for Germany in 2022 to 2.7% from 4.8% previously, as reported by Reuters.

Additional takeaways

"2023 GDP growth forecast revised higher to 3.1% vs 1.9% previously."

"German CPI seen at 6.1% in 2022, 2.8% in 2023."

"In case of a sudden stop of Russian energy supply, GDP growth seen at 1.9% in 2022."

In case of a sudden stop of Russian energy supply, GDP seen contracting by 2.2% in 2023."

"Cumulative loss of GDP in 2022 and 2023 in event of an energy freeze likely around 220 billion euros, or more than 6.5% of annual economic output."

Market reaction

Germany's DAX 30 is down 0.4% on the day after this publication, reflecting a risk-averse market environment.

USD/JPY is seeing a test of long-term price and ‘neckline’ resistance at 125.86/127.33. A break above here would mark a secular change of trend higher that could eventually see the market test 150 over the coming years, analysts at Credit Suisse report.

USD/JPY may be close to establishing a multi-year base

“A sustained break above the 125.86 high of 2015 and then ‘neckline’ resistance at 127.33 though would suggest we have seen the completion of a secular base to suggest we should see a significant further rise over the coming years.”

“Immediate resistance on a break would be seen at the 78.6% retracement of the 1998/2011 decline at 132.20, ahead of the 2002 high at 135.20.” 

“Big picture, we would see scope for a rise into the 147.62/153.01 zone over the coming years should the base be confirmed. We would note though the ‘measured base objective’ would imply significantly higher levels than this.”

Economists at Credit Suisse reaffirm their USD/BRL and USD/MXN Q2 targets of 4.50 and 19.55 respectively and would look to fade USD strength to 4.80 and 20.24.

Still constructive on BRL and MXN 

“We remain bullish on BRL and MXN, in line with our Q2 targets of 4.50 in USD/BRL 19.55 in USD/MXN.” 

“We see risks of hawkish reassessment of monetary policy expectations as providing ongoing carry support for respective FX.” 

“Relatively benign levels of implied vols suggest MXN could be vulnerable in the event of sudden progress in electricity reform efforts. Our base case nevertheless remains that risks of a rapid change in the law’s prospects are limited at this point.”

“USD rallies to 4.80 in USD/BRL and to 20.24 in USD/MXN would in our view represent attractive entry points for fresh shorts.”

FX option expiries for April 13 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0800 214M  
• 1.0865-70 1.03B 
• 1.0900 1.34B   
• 1.0960 288M
• 1.0980 331M
• 1.0995 3B
• 1.1005-15 1.1B

- USD/JPY: USD amounts        

• 123.90-00 655M
• 125.25 550M

- GBP/USD: GBP amounts        

• 1.2975 205M
• 1.3085 394M

- EUR/GBP: EUR amounts                     

• 0.8340 409M

- EUR/JPY: EUR amounts                     

• 136.00 682M

- AUD/USD: AUD amounts        

• 0.7300 675M
• 0.7380-85 423M
• 0.7400 500M
• 0.7425-30 315M
• 0.7450 588M

- NZD/USD: NZD amounts        

• 0.6800 300M
• 0.6850 403M

- USD/CAD: USD amounts       

• 1.2500 486M
• 1.2550 410M

The NZD/USD rate initially hit an intra-day high of 0.6902 just after it was announced that the Reserve Bank of New Zealand (RBNZ) decided to deliver a larger 50bps hike lifting the key policy rate to 1.50%. However, the kiwi has since given back all of those initial gains. Economists at MUFG Bank note that the 0.70 level is proving to be a tough nut to crack.

RBNZ meets expectations for faster rate hikes to fight inflation

“The RBNZ’s message that it will deliver quicker rate hikes in the near-term has also encouraged the market participants to scale back tightening further out. It could partially reflect expectations that more decisive action now to combat upside inflation risks will help to reduce the need for action further down the road. At the same time, the re-opening of New Zealand’s borders are expected to help ease labour supply constraints further out.”

“With RBNZ rate hike expectations well priced in, the NZD/USD will rely more on rising commodity prices to strengthen further.”

“Resistance at the 0.7000-level is proving to be a tough nut to crack.”

• EUR/USD alternates gains with losses just above 1.0800.
• The greenback clinches new highs around 100.50 on Wednesday.
• US Producer Prices will be the salient release later in the NA session.

EUR/USD now manages to attempt a tepid rebound after hitting new 5-week lows near 1.0810 earlier on Wednesday.

EUR/USD keeps looking to USD, ECB

EUR/USD partially reverses Tuesday’s moderate retracement and regains some composure after briefly approaching the area of YTD lows in the 1.0800 neighbourhood earlier in the session.

As usual, the continuation of the march north in the greenback pushed the US Dollar Index (DXY) to clock new peaks in levels last seen back in May 2020 around 100.50, always on the back of the resumption of the upside momentum in US yields following Tuesday’s post-CPI hiccup. In the German cash market, the 10y bund yields follow suit and flirt with recent tops around the 0.85% area.

In the meantime, the European currency remains under pressure and keeps the cautious note well and sound against the backdrop of the vacuum of news from the Russia-Ukraine military conflict and the upcoming ECB event (Thursday).

Nothing noteworthy in the domestic calendar, whereas Producer Prices wil be the sole publication across the pond.

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 1.0810 midweek. The multi-week negative performance of the pair comes in response to the firmer pace of the greenback and renewed geopolitical concerns. As usual, occasional 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: 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 0.06% at 1.0833 and faces the next up barrier at 1.0933 (weekly high April 11) seconded by 1.1000 (round level) and finally 1.1123 (55-day SMA). On the other hand, the break below 1.0811 (monthly low April 13) would target 1.0805 (2022 low March 7) en route to 1.0766 (monthly low May 7 2020).

EUR/CHF maintains its decline. Analysts at Credit Suisse see scope for a retest of the 1.0000/0.9970 region.

Resistance at the mid-March high at 1.0400/0404 to hold any short-term recovery

“With weekly and daily MACD momentum indicators and medium-term averages painting a bearish picture, we reiterate our medium-term negative view and see potential for a renewed test of major support at parity and the YTD low at 1.0000/0.9970. 

“Whilst we would be alert to a hold at 1.0000/0.9970 to maintain the potential for further short-term ranging, our core bias is for weakness to eventually extend below here, which would trigger a move to our core objective at 0.9839/30.”

“Resistance at the mid-March high at 1.0400/0404 ideally holds any short-term recovery to keep the risk lower. Only a sustained break above the YTD high and the 55-week moving average at 1.0624/0646 though would raise a question mark over the current medium-term downtrend.”

• GBP/USD struggled to capitalize on the post-UK CPI uptick and dropped to a fresh YTD low.
• The Fed’s hawkish outlook pushed the USD to a near two-year peak and acted as a headwind.
• The risk-on impulse capped the safe-haven buck and helped limit deeper losses for the major.

The GBP/USD pair seesawed between tepid gains/minor losses through the early European session and was last seen trading in neutral territory, around the 1.3000 psychological mark.

The pair attracted some buying on Wednesday and touched an intraday high level of 1.3025 following the release of hotter-than-expected UK consumer inflation figures. The UK Office for National Statistics reported that headline CPI jumped from 6.2% in the previous month to 7% YoY in March - the highest level since 1992.

Adding to this, the Core CPI, which excludes volatile food and energy prices, rose to 5.7% YoY from the 5.2% reported in February and provided modest lift to the British pound. That said, a combination of factors held back bulls from placing aggressive bets and kept a lid on any meaningful gains for the GBP/USD pair.

The Bank of England had softened its language over the need for future interest rate hikes amid worries about the potential economic fallout from the war in Ukraine. This, along with the underlying bullish sentiment surrounding the US dollar, prompted some intraday selling and drag the GBP/USD pair to its lowest level since November 2021.

The USD shot to a near two-year peak and continued drawing support from expectations for a more aggressive policy tightening by the Fed. The bets were reaffirmed by Fed Governor Lael Brainard's comments, saying that the US central bank will proceed with a series of interest rate hikes, as well as an effort to trim its balance sheet.

Apart from this, a goodish bounce in the US Treasury bond yields underpinned the greenback, though a generally positive risk tone kept a lid on any meaningful gains. This, in turn, was seen as the only factor that helped limit deeper losses for the GBP/USD pair and assisted spot prices to recover around 30 pips from the 1.2975 area.

Market participants now look forward to the US Producer Price Index, due for release later during the early North American session. This, along with the US bond yields, will influence the USD and provide some impetus to the GBP/USD pair. Traders will further take cues from developments surrounding the Russia-Ukraine saga to grab some short-term opportunities.

Technical levels to watch

According to economists at Credit Suisse, EUR/USD consolidation may already be over. They look for a break of key trend and price support at 1.0830/06.

EUR/USD is back under pressure

“Although further consolidation above 1.0830, the long-term uptrend from early 2017, should be allowed for we maintain our broader bearish stance and look for a sustained break of 1.0830/06 in due course to expose the 2020 low at 1.0635 and probably we now think lower.”

“Only above 1.1185 would be seen to now mark a base and an important low.”

Gold rose to its highest level in a month at $1,978 on Tuesday. The yellow metal holds a slight upward bias in its broader sideways range, economists at Credit Suisse report.

Break above the $2,070/75 highs to resolve the range higher for a fresh bull trend

“Gold above $1,877 can maintain an immediate upward bias in the broader sideways range.”

“Only above the $2,070/75 highs though would be seen to resolve the range higher for a fresh bull trend, with resistance then seen at $2,280/2,300.”

“A break below $1,877 can further reassert the broad sideways range with support then seen next at $1,845, then $1,826/06.”

Sanctions on Russia are seen as accelerating a dramatic shift towards a new global commodity-focused ‘Bretton Woods 3’ architecture. In the view of economists at Rabobank, the opportunity to shift global trade flows away from USD to others is limited – fundamentally, neither CNY nor commodity currencies are set up to rival USD globally. 

‘Bretton Woods 3’ will not work

“Alongside dramatic world events ‘Bretton Woods 3’ has an appealing market narrative. Indeed, we agree with a lot of its core arguments, depressing as they are. However, it is not new. It is old. And in not looking back enough, it fails to look forward sufficiently.” 

“BW3 will not work, and USD will retain its leading global role – albeit perhaps with more sticks and fewer carrots.”

“If we were to see fewer USD circulating internationally via trade, servicing Eurodollar debt will just get harder – and that will keep a structural bid behind USD. By contrast, borrowing in CNY will still be unattractive for almost every economy given China’s persistent trade surpluses and capital controls.”

“On BW3 all we will see at best is a marginal increase in the ‘offsetting’ use of CNY ahead – and more rapid global decoupling, likely to its ultimate detriment.”

AUD/JPY has surged higher after completing a major base and bullish continuation pattern above 86.26. Economists at Credit Suisse expect the pair to reach the 105.45 high of 2013 on a long-term basis.

Scope for further significant gains

“We still see scope for further significant gains and look for a test of 95.69 next, the 78.6% retracement of the fall from the 2013 high. With the May 2015 high not far above at 97.30, we would expect a cap here at first for a consolidation phase to unwind the overbought condition.”

“Big picture, an eventual break above 97.30 should see strength extend to 101.50. On a long-term basis though, we believe strength could extend to the 105.45 high of 2013 and probably higher.”

The data published by the UK's Office for National Statistics revealed that annual CPI jumped to 7% in March. This reading surpassed analysts' estimate of 6.7% and helped the British pound find demand. Economists at ING expect the EUR/GBP to continue pressing the 0.83 level while GBP/JPY can push onto the 167.50 area.

Upside surprise in March CPI to keep GBP supported

“Today's broad-based upside surprise in March UK CPI looks set to keep aggressive Bank of England tightening expectations in place for a little longer and keep GBP supported.”

“Today's UK inflation data suggests CPI could be peaking in the 8.5% area in April and could bring back expectations that the BoE hikes by 50bp in May – currently a 28bp hike is priced. That can see EUR/GBP continuing to press the 0.8300 area, while GBP/JPY can push onto the 167.50 area.”

The Bank of Canada (BoC) is set to deliver a 50bp hike later today. Economists at ING expect the USD/CAD to retrace lower towards the 1.20-1.23 area though some spikes to 1.27 are on the cards.

50bp from the Bank of Canada today

“Strong growth, tight labour markets, and above-target inflation should see the BoC hike 50bp y to 1.00%. The focus will also be on what BoC does with its balance sheet, where it could potentially announce some fast quantitative tightening (QT). Given the short duration of its bond portfolio, any end of reinvesting maturing bonds could see the BoC balance sheet shrink quickly over the next couple of years.”

“USD/CAD has already retraced 50% of the March drop to 1.2400, and even if we were to see a temporary spike in USD/CAD to the 1.2700 area, we suspect plenty of CAD buyers would return.” 

“Healthy terms of trade gains on the back of the commodity shock leave the CAD as one of our preferred currencies this year – expecting levels in the 1.20-1.23 area as the year progresses.”

See – BoC Preview: Forecasts from 10 major banks, hard to argue against a 50 bp hike

• NZD/USD faded an intraday bullish spike to the very important 200-day SMA, around the 0.6900 mark.
• A dovish assessment of the RBNZ decision turned out to be a key factor that prompted fresh selling.
• The USD climbed to a near two-year high and also contributed to the ongoing downward trajectory.

The NZD/USD pair dropped to a near one-month low during the early European session and is now looking to extend the decline further below the 0.6800 round-figure mark.

The pair struggled to capitalize on its post-RBNZ bullish spike to the 0.6900 round-figure mark and witnessed a dramatic intraday turnaround from the very important 200-day SMA. The New Zealand central bank raised interest rates by a hefty 0.5% for the first time since 2000 to curb soaring inflation. This marked the fourth consecutive rate increase from the Reserve Bank of New Zealand, though was not accompanied by a change in the outlook. Apart from this, the underlying bullish sentiment surrounding the US dollar turned out to be a key factor that prompted aggressive selling around the NZD/USD pair.

Fed Governor Lael Brainard's comments on Tuesday reaffirmed market expectations for a more aggressive policy tightening by the Fed. In fact, Brainard said that the Fed will proceed with a series of interest rate hikes, as well as an effort to trim its balance sheet. This followed the release of the US consumer inflation figures, which showed no signs of easing in March and accelerated to levels last seen in 1981. This, along with a goodish rebound in the US Treasury bond yields, pushed the USD Index to its highest level since May 2020 and exerted heavy downward pressure on the NZD/USD pair.

Bulls seemed rather unimpressed by a generally positive tone around the equity markets, which tends to benefit perceived riskier currencies, including the kiwi. Apart from this, the emergence of fresh selling near a technically significant moving average and a subsequent break below the 0.6800 mark favours bearish traders. This supports prospects for an extension of the recent sharp pullback from the YTD peak and a slide towards the next relevant support near the 0.6745-0.6740 region. Traders now look to the US Producer Price Index for some impetus later during the early North American session.

Technical levels to watch

• DXY’s rally now flirts with the 100.50 region midweek.
• US yields resume the upside following Tuesday’s correction.
• Mortgage Applications, Producer Prices next on tap in the docket.

The US Dollar Index (DXY), which gauges the greenback vs. its main competitors, keeps pushing higher and trades near the 100.50 region on Wednesday.

US Dollar Index in levels last seen in May 2020

The index extends the positive streak for the tenth session on Wednesday and navigates an area last seen back in May 2020 in the mid-100.00s, always underpinned by the firmer expectations of a tighter normalization by the Federal Reserve in the next months.

On the latter, Richmond Fed T.Barkin advocated for a quicker move to the neutral rates, while St. Louis Fed J.Bullard suggested that neutral rates appear insufficient to bring down inflation.

In the US cash markets, in the meantime, yields resume the upside following Tuesday’s drop after US inflation figures rose at the fastest pace since 1981 in March. Despite the uptick of consumer prices, investors appear to start perceiving that the inflation pressures could be losing some traction and that the peak could be close.

In the US data space, usual weekly Mortgage Applications tracked by MBA are due in first turn seconded by Producer Prices for the month of March.

What to look for around USD

The dollar extends the march further north of the 100.00 mark to levels last seen nearly two years ago. 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: 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 0.19% at 100.50 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 96.94 (100-day SMA) and then 95.67 (weekly low February 16).

• USD/JPY gained strong traction on Wednesday and jumped to its highest level in two decades.
• The divergent Fed-BoJ policy outlook continued weighing on the JPY and remained supportive.
• The USD held steady near the YTD peak and further contributed to the pair’s strong move up.

The USD/JPY pair caught aggressive bids during the early European session and surged past the 126.00 mark for the first time since May 2002.

Following the previous day's good two-way price moves, the USD/JPY pair regained positive traction on Wednesday and was supported by a combination of factors. A goodish recovery in the risk sentiment - as depicted by a generally positive tone around the equity markets - undermined the safe-haven Japanese yen. This, along with the big divergence in the monetary policy outlooks between the Fed and the Bank of Japan, further drove flows away from the JPY.

In fact, Fed Governor Lael Brainard said on Tuesday that the US central bank will proceed with a series of interest rate hikes, as well as an effort to trim its balance sheet. The comments followed the release of the US consumer inflation figures, which showed no signs of easing in March and accelerated to levels last seen in 1981. The Fed's hawkish stance pushed the US dollar to a nearly two-year high and acted as a tailwind for the USD/JPY pair.

Conversely, the BoJ Governor Haruhiko Kuroda reiterated to sustain the current powerful monetary easing to support economic recovery. This was seen as a key factor behind the latest leg of a sudden spike over the past hour or so, taking along some trading stops near the 125.75-125.85 region (the previous YTD high and the 2015 peak). Hence, the momentum could also be attributed to some technical buying, warranting caution for bulls amid overbought conditions.

Market participants now look forward to the US economic docket, featuring the release of the Producer Price Index later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide a fresh impetus to the USD/JPY pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch

Economists at Credit Suisse anticipate a 25 bps hike from the Bank of Korea (BoK) on Thursday, April 14. But they still expect USD/KRW to continue rising toward 1,250.

New governor, same stance

“We expect a 25 bps hike from the upcoming BoK meeting. Although Governor Lee Ju-Yeol stepped down from the BoK board on 31 March, we think his hawkish views on household debt and upside inflation risks still resonate with the remaining MPC (six voters instead of the usual seven) will be meeting on 14 April.”

“Although the BoK began tightening well before the Fed, the more gradual pace of BoK rate hikes (25 bps per quarter) vs the Fed (50 bps moves expected in coming meetings) still points towards higher USD/KRW.”

“Because South Korea is a net oil importer we expect KRW to remain sensitive to global energy supply concerns, and we expect USD/KRW to continue rising toward 1,250.”

See – BoK Preview: Forecasts from seven major banks, maintaining its policy rate, vacant governor position a key factor

The Bank of Korea (BoK) will hold its Monetary Policy Committee (MPC) meeting on Thursday, 14 April at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of seven major banks.  

The BoK is likely to stand pat as its committee awaits the appointment of a new governor. Changyong Rhee, Asia-Pacific director for the International Monetary Fund, has been nominated to take the helm.

SocGen

“The BoK is likely to hold its policy rate at 1.25%. Above all, the meeting is set to take place without a governor, as the parliamentary hearing for nominee Chang-Yong Rhee is to be held on 19 April. Headline inflation finally exceeded 4% due to higher energy prices, while a tight labour market added to inflation fears. But concerns on growth have also increased due to the war in Ukraine, the Fed’s hawkish stance, and the ongoing Omicron wave. A significant slowdown in household debt growth may also result in a wait-and-see stance. Our base scenario is still for one 25bp hike per quarter, resulting in a year-end (and terminal) rate of 2.0%. We expect rate hikes to resume at the following meeting in May. Although we see a higher terminal rate to address the rising inflation risks as a possibility, we await more information on governor nominee Rhee’s stance before reviewing our BoK call.”

ANZ

“Recent economic data support the case for the BoK to resume monetary policy normalisation with another 25bp rate hike. Admittedly, it is possible that the BoK will opt to defer a policy rate hike until its May meeting after the new governor takes office and when there may be more clarity on the extent of risks to growth. Notably, uncertainties surrounding the extent of the fallout from the Ukraine-Russia crisis and Omicron outbreak in mainland China are clouding the growth outlook. Still, we think growing pressure to anchor rising inflation expectations will take precedence, and note that the BoK has clarified that the absence of the governor will not affect operations and that the rate decision will be based on consensus. In the event that the central bank keeps policy rate unchanged, we expect the policy messaging to signal persistent concerns about inflation and that the pause is only temporary.”

Standard Chartered

“We expect the BoK to hold the base rate. We expect at least one dissenting vote for the rate hike, considering the recent CPI inflation report. CPI inflation came in at over 4% for the first time in 10 years, higher than the market survey. The market expected a print below 4%. Still, we expect the MPC to remain on hold in April, as it may prefer to first monitor the impact of its previous three hikes. The last MPC decision was unanimous and did not send a signal for a hike in April. Furthermore, the upcoming meeting will be conducted without the BoK’s governor, whose appointment awaits National Assembly confirmation. We think the MPC will send a message for a hike in May at this meeting. We think the MPC can wait until May, given that the BoK is ahead of the Fed rate-hike cycle.”

ING

“Given governor-nominee Rhee Chang-Yong's parliamentary hearing scheduled for 19 April, the MPC will be held for the first time in the absence of a governor. Indeed, the absence of a governor makes it even more difficult to predict BoK’s decision-making in a situation where inflationary pressures rise and concerns about the future growth outlook grow. It's a close call, but we predict a rate hike will occur in April, rather than May. Nevertheless, the question remains as to whether BoK is enterprising enough to make such an important decision in the absence of the governor. It is only because holding MPC without a governor itself is unprecedented. However, we think BoK will make a data-dependent decision rather than waiting for a new governor to come on board. If not, a couple of dissenting votes next week, then a rate hike will follow in May.”

TDS

“The new governor won't be confirmed at this meeting, but elevated and persistent inflation and high household debt, mean no reason to delay another hike.”

UOB

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

Credit Suisse

“We expect a 25 bps hike from the upcoming BoK meeting. Although Governor Lee Ju-yeol stepped down from the BoK board on 31 March, we think his hawkish views on household debt and upside inflation risks still resonate with the remaining MPC (six voters instead of the usual seven) will be meeting on 14 April. Although the BoK began tightening well before the Fed, the more gradual pace of BoK rate hikes (25 bps per quarter) vs the Fed (50 bps moves expected in coming meetings) still points towards higher USD/KRW.”

China's trade figures for March clearly illustrate the sluggish domestic demand due to endless lockdowns. Therefore, the Chinese yuan is set to weaken over the next couple of quarters, economists at Commerzbank report.

Sluggish domestic demand

“While the export figures still look resilient thanks to buoyant global demand, import growth missed the market expectations by a huge margin. Obviously, the virus lockdowns are the major factor of sluggish imports as many people have to stay at home and can't buy durable goods.”

“As the lockdowns are likely to continue in Shanghai, the consumption and services sector will remain under pressure to weaken, further clouding the growth prospects.” 

“The weakening economy points to softness of the Chinese currency over the next couple of quarters.”

In light of advanced figures from CME Group for natural gas futures markets, open interest dropped by around 14.6K contracts on Tuesday, reversing the previous daily build. Volume, in the meantime, rose by around 102.6K contracts after two consecutive daily retracements.

Natural Gas still targets $7.00 and beyond

The rally in natural gas remains well and sound. Tuesday’s advance, however, was on the back of diminishing open interest, leaving the door open to a probable corrective move in the very near term. This view appears reinforced by the current overbought conditions of the commodity.

The Bank of Canada (BoC) will announce its rate decision later at 14:00 GMT. A 50 bps rate hike is on the table. As a lot seems to have been priced in already the reaction of the CAD exchange rates is likely to be limited if the BoC delivers as expected, economists at Commerzbank report.

Will the BoC deliver a step of 50bp?

“Like the majority of analysts, we expect a large rate step of 50bp to then 1% for the BoC’s rate decision today. A step of this nature has been largely priced in by the market.”

“A statement that is seen to be hawkish and that signals further large rate steps might provide short-term support for the loonie, in particular against the euro.”

“The loonie is likely to struggle against USD as the market is always keeping an eye on the US central bank, as it had sounded rather hawkish recently.”

“If the BoC were to hike its key rate by only 25bp today, contrary to expectations, this is likely to disappoint the market thus putting notable pressure on the loonie at least short-term, with a hawkish statement dampening the losses.”

See – BoC Preview: Forecasts from 10 major banks, hard to argue against a 50 bp hike

EUR/USD extended its slide toward 1.08 during the Asian trading hours but managed to stage a rebound toward 1.0850. Economists at Commerzbank believe that the pair could slide below 1.08 on renewed tensions in Ukraine. 

EUR/USD between escalation and recession fears

“EUR/USD is caught between escalation fears, which weigh on the euro, and recession fears, which can put downward pressure on the dollar.”

“Since escalation fears in the Ukraine conflict are prevailing again right now, which are more real and ‘closer’ in time for the market, the euro is under greater pressure again. 

“If the signs that there could be a new escalation stage really intensify, it is quite possible that EUR/USD slips below the 1.08 mark.”

Bank of Japan (BOJ) Governor Haruhiko Kuroda said on Wednesday that the Japanese economy was picking up as a trend despite showing some signs of weakness, as reported by Reuters.

Additional takeaways

"Japan's economy likely to improve as the impact of pandemic, supply constraints ease."

"Japan's consumer inflation hovering around 0.5%, likely to clearly accelerate for the time being."

"There is very high uncertainty on Ukraine developments, impact on commodity prices."

"Recent rise in inflation driven by higher import costs weigh on Japan's economy."

"BOJ will underpin economy's recover from pandemic by patiently sustaining current powerful monetary easing."

Market reaction

USD/JPY extended its rally after these comments and was last seen trading at its highest level since May 2002 above 126.00.

CME Group’s flash data for crude oil futures markets noted traders trimmed their open interest position by around 3.3K contracts on Tuesday, extending the downtrend for the fourth consecutive session. On the other hand, volume went up for the second straight session, now by around 54.6K contracts.

WTI: Further losses seen below $93.00

Tuesday’s uptick in prices of the barrel of WTI was on the back of shrinking open interest, removing strength from the bull run and exposing the commodity to further decline in the very near term. Against that, further losses in WTI could gather traction on a close below recent lows around the $93.00 mark per barrel (April 11).

Capital controls and current account surpluses have allowed the rouble to strengthen. Relaxation of capital restrictions could lead to a possible increase in USD/RUB to the 100 area, ecnomists at Credit Suisse report.

Rouble supported by current account flows and capital control measures

“Russia’s capital control measures, adopted right after the US sanctioned the Russian central bank in late February are working.”

“A possible increase in USD/RUB (e.g. to the 100 area) could be triggered by further relaxation of the capital control measures.”

USD/CAD visited a low of 1.2403 earlier in the month. Economists at Rabobank expect the pair to temporarily trade back below 1.25 as oil prices rise again. 

USD/CAD to primarily trade in a 1.25-1.27 range heading mid-year

“We expect USD/CAD to revisit trading below the 1.25 handle as oil prices surge once more, but we think the pair will primarily trade in a 1.25 to 1.27 range heading into the middle of the year.”

“Near-term, we see strong support at 1.2470 before the 1.24 handle, while on the upside, we expect some resistance at 1.2660, but 1.27 is the important level to watch for as a confirmed close north of there will likely usher in a test of 1.2820 in short order.”

Here is what you need to know on Wednesday, April 13:

The greenback lost interest after the US inflation data on Tuesday but managed to regain its traction on hawkish Fed commentary. With the market mood improving early Wednesday, the US Dollar Index (DXY), which touched its highest level in nearly two years at 100.44 earlier in the day, is edging lower. The Bank of Canada will announce its rate decision later in the day and the US economic docket will feature March Producer Price Index (PPI) data.

Bank of Canada Preview: Three CAD-shaking things to watch out for beyond the 50 bps hike.

The US Bureau of Labor Statistics announced on Tuesday that annual inflation in the US, as measured by the Consumer Price Index (CPI), jumped to a fresh multi-decade high of 8.5% in March. The Core CPI, however, came in at 6.5%, slightly lower than the market expectation of 6.6%. Later in the day, Richmond Fed President Thomas Barkin argued that they should quickly get interest rates up to a level where borrowing costs will no longer be stimulating the economy. Fed Vice Chair Lael Brainard said that the reduction in the balance sheet could come as soon as June after announcing the decision in May. Brainard further noted that the balance sheet run-off could be worth "two to three additional rate hikes" through its course.

US March Consumer Price Index: Another 40-year record for inflation, but worse was feared.

Meanwhile, 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. Reuters also reported that US President Joe Biden was expected to announce a $750 million in military assistance for Ukraine for its fight against Russian forces on Wednesday. 

In the early European morning, US stock index futures are up between 0.7% and 1%, the benchmark 10-year US Treasury bond yield is rising 1% at 2.75% and the DXY is posting small losses near 100.20.

EUR/USD extended its slide toward 1.0800 during the Asian trading hours but managed to stage a rebound toward 1.0850. There won't be any high-impact data releases from the euro area on Wednesday and the risk perception could drive the pair's action. 

GBP/USD is posting small daily gains above 1.3000 in the early European session. The data published by the UK's Office for National Statistics revealed on Wednesday that annual CPI jumped to 7% in March from 6.2% in February. This reading surpassed analysts' estimate of 6.7% and helped the British pound find demand.

NZD/USD rose sharply to a fresh daily high of 0.6900 during the Asian trading hours but lost its bullish momentum. The Reserve Bank of New Zealand (RBNZ) announced earlier in the day that it hiked the policy rate by 50 basis points to 1.5%. In its policy statement, the RBNZ noted that it will be appropriate to continue to tighten monetary conditions moving forward.

Gold capitalized on falling US T-bond yields on Tuesday and rose to its highest level in a month at $1,978. XAU/USD seems to have gone into a consolidation phase near $1,970 early Wednesday.

Bitcoin is trading within a touching distance of $40,000 after failing to break below that level on Tuesday. Ethereum registered modest daily gains on Tuesday and was last seen fluctuating in a tight range above $3,000. 

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, April 13 at 14:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 10 major banks, regarding the upcoming announcement. 

The BoC is set to raise rates by 50 bps to 1% and probably signal a more aggressive policy given high inflation and employment.

ING

“We expect a 50bp interest rate increase given the economy is in a strong position, particularly given commodity production is such an important story, employment is at record levels, and inflation is at 30+ year highs. BoC voters have made the case for acting aggressively and we expect them to follow up their words with strong action. CAD may not benefit immediately from the hike  – which is fully priced in – but should stay supported beyond the very short-term.”

TDS

“We expect the BoC to hike by 50bps while announcing an end to reinvestment in a hawkish policy statement. GDP and CPI are both tracking above the January MPR, and the Bank remains keenly focused on controlling LT inflation expectations. On QT, we expect the Bank to cease GoC purchases in the secondary market by May, but maintain primary market retention going forward.”

RBC Economics

“We expect the BoC to hike interest rates by 50 basis points. The central bank will likely take some comfort from the fact that businesses expect inflation to return to the 2% target after the next couple of years. But current price growth is still running too firm to ignore, with pressures building over a widening array of products and services. Easing off the monetary policy accelerator – and getting interest rates back to a more ‘neutral’ level that won’t add to or subtract from longer-run inflation pressures – is the most likely path near-term. We expect more rate hikes from the BoC to lift the overnight rate to 2.00% (up from 0.5% currently) before the end of this year. The bank will likely pause at that point to assess what we expect to be a slowing economic growth backdrop.”

NBF

“The BoC has hardly been putting a 50 bp move on a silver platter for this meeting. While there are no mulligans in central banking, a 50 bp move would at least push us closer to the path that we should already be on. A market that’s braced for such a move should make that decision even easier. We think the Bank will take the opportunity and raise its benchmark rate by half a percentage point. The timing seems all the more good as the meeting will be accompanied by a fresh Monetary Policy Report and a press conference, both of which will provide the Bank with the opportunity to explain its decision more fully.”

BMO

“A 50-bp rate hike is now seen as almost a done deal. This would mark the first 50 bp gulp since May 2000, and would double the rate to 1.0%. Markets are priced for a cannonading 220 bps of rate hikes through the rest of the year (we’re holding at 150 bps), and we would readily allow that the market has been amazingly prescient in its hawkish view on the BoC, at least so far.”

Scotiabank

“Scotiabank Economics led consensus in calling for a 50 bps hike accompanied by ending reinvestment of maturing Government of Canada bond holdings with no roll-off caps. This probably won’t be the last of the fifty moves on the front-loaded path to what we forecast will be a terminal rate overshoot of the estimated 2.25% nominal neutral policy rate that is reflective of where the policy rate should rest in the Canadian economy if it were at full equilibrium. The BoC lost the flexibility to pursue more gradual and measured adjustments by reacting too late to rising inflation. We don’t expect policy rate adjustments to be accompanied by much rate equivalence derived from the pace at which the BoC’s balance sheet is expected to contract independent of other factors.”

Citibank

“Bank of Canada Rate Decision – Citi: 1.00%,  prior: 0.50%. Following the start of its rate hiking cycle with a 25bp hike in March, we now expect the BoC to speed up the pace that it raises rates with a 50bp increase in the policy rate to 1.0%. We also expects this to come alongside an announcement that the BoC will begin to run down its balance sheet. Governor Macklem indicated in March that the BoC plans to allow all Government of Canada bonds on its balance sheet to mature without reinvestment, which would suggest around C$50bn running off this year. The meeting will also feature updated forecasts in the April MPR. Citi analysts see mostly balanced risks around GDP forecasts with some slight upside risks, but inflation forecasts will be the more important update.”

Wells Fargo

“We expect BoC policymakers to continue lifting interest rates and are likely to cite the overall strength of the economy as justication for tighter policy. We also expect the BoC statement to refer to a closing output gap, which should also provide policymakers with rationale to keep raising interest rates. Given the Fed is likely to pick up the pace of interest rate hikes in the near future, there is certainly a possibility the BoC opts to raise policy rates 50 bps at its next meeting. Consensus forecasts believe the Canadian economy is strong enough to handle a 50-bp hike, while financial markets are priced for around 45 bps of tightening. Given our view for a 25-bp hike, the Canadian dollar could weaken in the immediate aftermath of the decision.”

BofA

“We expect the BoC to hike the overnight rate by 50bp to put the rate at 1.00%, and to formalize its quantitative tightening (QT) program. Several reasons support our view of a more aggressive BoC: (i) headline and core inflation above target and increasing inflation expectations; (ii) a tight labor market with the unemployment rate at its lowest level on record; (iii) a positive terms of trade shock from higher oil and other commodity prices; (iv) a hawkish US Fed, which will likely hike 50bp in May and start QT as well. We believe a hawkish 50bp hike and the official end of reinvestment will provide idiosyncratic support to bond yields and CAD this week. Going forward, we expect the BoC to hike by 50bp three consecutive times (April, June, July) and then to continue hiking 25bp at each subsequent meeting until it reaches 3.25% in March 2023. We see upside risks to our BoC call.”

Rabobank

“We expect the Bank of Canada to raise the policy rate 50bp to 1.00%. This marks a shift in our forecast, given we had previously expected the BoC to stick with 25bp clips. Still, a more hawkish Fed and stronger activity, labor and inflation data have led the market to price in a 50bp hike, and in this environment, if you price it, they will come. We expect a more aggressive path in general, with another 50bp likely at the June meeting followed by three 25bp clips taking the policy rate up to a terminal level of 2.25% by year-end. We see the current market-implied rate of 2.55% in December as overdone. We expect the formal announcement of quantitative tightening, which will mark the end of secondary market purchases.”

Economist at UOB Group Lee Sue Ann comments on the upcoming ECB event on April 14.

Key Quotes

“We recognise that the situation remains very fluid. How the war evolves and the impact that has on energy prices will be crucial.”

“But we are still not expecting any changes in key interest rates for now.”

“Rather, any policy tightening by the ECB this year, will solely be in terms of ending its QE programs.”

• GBP/USD is approaching 1.3030 on higher UK CPI and Retail Sales Index. 
• A UK’s inflation has raised the odds of one more interest rate hike by the BOE in May.
• Risk-on impulse is fetching the spotlight amid a rebound in the Asian markets.

The GBP/USD pair as the UK’s Office for National Statistics has reported the yearly Consumer Price Index (CPI) at 7%. A print of 7% is significantly higher than the preliminary forecast of 6.7% and the prior figure of 6.2%. However, the yearly Core CPI has landed at 5.7%.

This has raised the odds of an elevation in the interest rates by the Bank of England (BOE) in May.  Earlier, the BOE raised its interest rates to 0.75%. The BOE hiked its borrowing rate by 25 basis points (bps) twice in February and March and by 10 bps in December. In March’s monetary policy, BOE Governor Andrew Bailey announced that inflation is set to reach 8% in the month of April and the Ukraine crisis due to Russia’s invasion of Ukraine, which is bolstering the energy bills of households. Also, the higher commodity prices have dented the margins of corporate.

The yearly UK Retail Price Index has landed at 9%, higher than the previous figure and market consensus of 8.8% and 8.2% respectively.

Meanwhile, the US dollar index (DXY) is eyeing a re-test of the critical figure of 100.00 on improvement in the risk appetite of the market participants. Asian markets have rebounded sharply as fears of higher US inflation are fading away. Positive market sentiment is favoring the risk-sensitive assets.

• CPI inflation in UK rose at a stronger pace than expected in March.
• GBP/USD edges higher above 1.3020 after UK data. 

The data published by the UK's Office for National Statistics revealed on Wednesday that annual inflation, as measured by the Consumer Price Index (CPI), jumped to 7% in March from 6.2% in February. This print came in higher than the market expectation of 6.7%. On a monthly basis, CPI arrived at 1.1%, compared to analysts' estimate of 0.7%.

The Core CPI, which excludes volatile food and energy prices, rose to 5.7% on a yearly basis from 5.2%. Moreover, the Retail Price Index (RPI) climbed to 9% from 8.2% in the same period and the Producer Price Index (PPI) - Input surged to 19.2%, surpassing the market forecast of 13.4% by a wide margin.

Market reaction

The British pound gathered strength against its rivals with the initial reaction to these figures. The GBP/USD pair was last seen trading in positive territory at 1.3020.

Open interest in gold futures markets extended the uptrend for the sixth session in a row on Tuesday, this time by nearly 7K contracts according to preliminary readings from CME Group. Volume, instead, reversed two consecutive daily pullbacks and dropped by around 6.5K contracts.

Gold remains focused on $2000

Gold prices remained on the rise on Tuesday amidst rising open interest, which is indicative that extra gains are likely in the very near term. That said, the precious metal keeps the attention on a test of the key $2000 mark per ounce troy for the time being.

Gold settled in the green and held steady near the $1,970 through the Asian session on Wednesday. XAU/USD bulls await ascending channel breakout amid Ukraine crisis, FXStreet’s Haresh Menghani reports.

The $1,960-$1,959 zone now seems to protect the immediate downside

“Investors remain concerned about the potential economic fallout from the Ukraine crisis, which, in turn, continued lending some support to the safe-haven XAU/USD.”

“Ascending channel extending from sub-$1,900 levels, currently around the $1,979-$1,980 region, should now act as a pivotal point for short-term traders, which if cleared decisively will set the stage for additional gains. Gold could then accelerate the momentum and aim back to reclaim the key $2,000 psychological mark.”

“The $1,960-$1,959 region now seems to protect the immediate downside, below which XAU/USD could slide back to test the ascending channel support, around the $1,935 zone. A convincing break below will shift the bias back in favour of bearish traders and make gold vulnerable to decline further towards the $1,918 intermediate support en-route the $1,900 mark.”

• USD/INR has climbed to near 76.20 amid a firmer rebound in oil prices.
• Easing lockdown restrictions in China has spurted the demand for oil.
• The Indian rupee will remain on the sidelines in a holiday-truncated week.

The USD/INR pair is experiencing a bullish open drive session on Wednesday as the boiling oil prices are hurting the Indian rupee. The oil prices have rebounded sharply after easing lockdown restrictions in China. Also, the higher US Consumer Price Index (CPI) at 8.5% has dented the demand for risk-perceived assets.

The Swift epidemic of Covid-19 in Shanghai forced the Chinese administration to put restrictions on the movement of men, materials, and machines. The lockdown curbs brought fears of a slump in the aggregate demand and eventually in the oil demand. China, being the biggest importer of oil in the world carries a significant impact on the oil prices. The easing of demand worries in China brought bulls back to the oil counter and a firmer rebound is clear in the oil prices. This is hurting the oil-sensitive currencies.

Meanwhile, Indian rupee investors are uncertain over the economic events this week as the Indian currency market will witness a long weekend due to holidays on Thursday and Friday. Therefore, investors will prefer to carry light positions for next week.

The US dollar index (DXY) has bounced back after a mild correction from its three-year high at 100.45. Mixed Asian markets are favoring the negative market sentiment and eventually the risk-off trade advice, which is underpinning the greenback against the Indian rupee.

• AUD/USD has slipped to near 0.7450 as the DXY has recovered on mixed Asian markets.
• Aussie dollar has been offered on slippage in Chinese exports.
• The DXY is continuing its nine-day winning streak on higher US CPI.

The AUD/USD pair has surrendered half of its intraday gains on weak Chinese imports data. In the Asian sessions, the pair is displaying a bullish open rejection-reverse day. The asset opened at around 0.7450 and slipped below the opening price to 0.7442. Later, the major recovered sharply and printed an intraday high at 0.7474 after overstepping the opening price.

The February month Trade surplus of China has been narrowed to 300.58 billion yuan against the previous figure of 738.8 billion yuan. Australia is a leading exporter to China and the major concern for the antipodean is the slippage in China’s imports by 1.7%, while the street was expecting a positive jump of 11.4%.

Meanwhile, the US dollar index (DXY) is recovering after a minor pullback towards 100.23. The DXY is continuing its nine-day winning streak on Wednesday amid adequate odds of a 50 basis points (bps) interest rate hike by the Federal Reserve (Fed). The Fed is expected to announce a jumbo interest rate hike along with a swift balance sheet reduction to reduce the risks of soaring inflation. The 10-year US Treasury yields have rebounded from intraday’s low at 2.72% on mixed Asian markets.

This week Australia’s Unemployment Rate will hold significant importance. Aussie’s jobless rate is likely to land at 3.9% against the previous figure of 4%. On the greenback front, US Retail Sales will be the major catalyst, which is due on Thursday. A preliminary estimate of the monthly US Retail Sales claims a higher print at 0.6% against the prior figure of 0.3%.

• USD/CAD has tumbled below amid the boiling oil prices.
• Investors await monetary policy announcement by the BOC.
• An interest rate hike by 50 bps is expected from the BOC.

The USD/CAD pair has witnessed a steep fall after failing to sustain above 1.2650 on Tuesday. Loonie bulls have been strengthened on a sharp rebound in the oil prices and a minor correction in the US dollar index (DXY).

The oil prices have bounced back firmly after hitting a low of $92.65 on Monday. The black gold has overstepped $100.00 after the lockdown curbs eased in China. Earlier, the Chinese administration imposed a lockdown in Shanghai to contain the epidemic of Covid-19. This posed a threat to aggregate demand in China due to restrictions on men, materials, and machines in one of the most populated cities. However, the ease in lockdown measures has wobbled the fears of slippage in oil demand.

Also, the oil prices have shrugged off the impact of additional oil supply by the US administration and the International Economic Agency (IEA). The collective effort of the US and IEA will add 240 million barrels to the global oil supply in the next six months. Canada, being the largest exporter of oil to the US, carries a positive relationship with the oil prices.

Meanwhile, the DXY has plunged to 100.24 at the press time post the hangover of juggernaut US Consumer Price Index (CPI).  A higher US CPI print at 8.5% has triggered the possibility of a 50 basis point (bps) interest rate hike by the Federal Reserve in May.

Going forward, loonie bulls will dance on the monetary policy dictation by the Bank of Canada (BOC) on Wednesday. The street is expecting a 50 bps interest rate hike by the BOC, which will support restricting the price pressures in Canada.

• Japanese equities are firmer on Wednesday, Nikkei share average had risen 1.68%.
• US Core CPI missed estimates, suggesting that the Federal Reserve could be less hawkish.

Japanese equities are higher on Wednesday and fell in the previous session while the US inflation data released overnight missed expectations on the core Consumer Price Index, adding some relief to the US stock market, if only momentarily. 

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

By 0340 GMT, the Nikkei share average had risen 1.68% after hitting a near four-week low on Tuesday. The broader Topixhad climbed 0.77% to 1,880.45. Meanwhile, China's markets are less dented with the relief that lockdowns and easing up in the City of Shanghai.

However, China reported 26,525 new asymptomatic coronavirus cases and 1,513 symptomatic ones on Wednesday. Chinese blue chips lost and Hong Kong fell 0.2%. The trade data was non-impactful though, which showed China's exports rose 13.4% in yuan terms year on year in January-March, while imports increased 7.5%.

• EUR/USD bulls moving in from daily support but bears eye hourly W-neckline. 
• 50% mean reversion on H1 chart is compelling for sessions ahead. 

EUR/USD has left a W-formation on the hourly chart as defined between the last bearish impulse to the lows, the correction that was followed by a subsequent drop only to rally again for a fresh corrective high.

This has left a neckline of the W-pattern on the hourly chart that would be expected to now act as support on a restest.

If this were to hold, then the bulls could be encouraged to pile in and drive the price higher. In doing so, the 50% mean reversion of the original bearish impulse that has a confluence with the old support structure that could be targetted for the foreseeable future, as illustrated as follows:

EUR/USD H1 chart

• NZD/JPY has surrendered the majority of its Tokyo session’s gains on a jumbo rate hike by the RBNZ.
• Against the forecast of a 25 bps OCR hike, the RBNZ has gone for a 50 bps elevation.
• The RBNZ is moving its OCR to neutral rates to minimize the risk of the inflation mess.

The NZD/JPY pair has tumbled after recording an intraday high of 86.66 in the Asian session. The cross has sensed a decent correction after the Reserve Bank of New Zealand (RBNZ) pushed its Official Cash Rate (OCR) higher by 50 basis points (bps).  Currently, the OCR of the RBNZ has reached 1.50%.

Earlier, a 25 bps OCR hike was expected in the monetary policy announcement by the RBNZ Governor Adrian Orr. The street was expecting that the RBNZ will follow the streak of 25 bps OCR hike, which has been followed in the last three monetary policies announced in October 2021, November 2021, and February 2022. A firmer hawkish stance dictated by the RBNZ is indicating a swift mean reversion of OCR to its neutral rate. To minimize the risk of soaring inflation in the kiwi area, a tightening policy is a principal option and the RBNZ is capitalizing upon the same rigorously.

Going forward, investors will focus on the speech from the Bank of Japan (BOJ)’s Governor Haruhiko Kuroda, which will provide insights into the likely monetary policy action in the last week of April. While the kiwi docket will report the NZ Consumer Price Index (CPI) next week. A preliminary estimate for the quarterly CPI is 6.4% against the prior print of 5.9%.

• AUD/NZD has rebounded sharply from 1.0834 as the RBNZ increased its OCR by 50 bps.
• To reduce the risk of inflation sooner, the RBNZ is moving its OCR to neutral rates quickly.
• The RBNZ has elevated its OCR fourth time consecutively and its last three hikes were done by 25 bps.

The AUD/NZD pair has attracted significant bids at around 1.0834 as the Reserve Bank of New Zealand has raised its Official Cash Rate (OCR) higher than the street expectation. RBNZ Governor Adrian Orr has announced an OCR hike by 50 basis points (bps) while the street was expecting status-quo maintenance by the RBNZ.

The RBNZ has been elevating its OCR by 25 bps from the last three monetary policies and a similar action was also expected this time. However, to tame the soaring inflation, the RBNZ has preferred a jumbo rate hike, which may curb the ramping-up inflation significantly. Formally, the RBNZ’s OCR has been increased to 1.5% now. It looks like that RBNZ is attempting to reach neutral rates as early as possible as a swift move approach to a neutral stance will reduce the risks of inflation. The NZ Consumer Price Index (CPI) was recorded at 5.9% for the fourth quarter of CY2021. And, for the first quarter of CY2022, the preliminary estimate is 6.4%, which is indicating the extent to which the inflation in the kiwi area is gearing up.

Meanwhile, aussie investors are on the sidelines ahead of the Unemployment Rate, which is due on Thursday. The street is expecting a slight improvement in Australia’s jobless rate to 3.9% from the prior print of 4%.

• NZD/USD has spiked to near 0.6900 as the RBNZ has elevated its interest rate by 0.5%.
• An OCR hike of 50 bps is higher than the estimate of 25 bps.
• A higher US CPI at 8.5% has underpinned a 50 bps interest rate hike by the Fed in May.

The NZD/USD pair has witnessed a strong upside move to near 0.6900 as the Reserve Bank of New Zealand (RBNZ) has hiked its official cash rate (OCR) by 50 basis points (bps). Now, the current OCR of the RBNZ stands at 1.50%. RBNZ Governor Adrian Orr has opted for a jumbo hike to tame the galloping inflation.

This is the consecutive fourth interest rate hike by the RBNZ. The kiwi’s central bank elevated its policy rates in its last three monetary policy announcements by 25 basis points. The inflation rate of kiwi was last recorded at 5.9% for the fourth quarter of the Calendar year 2021. Next, NZ Consumer Price Index (CPI) will release next Wednesday.

Meanwhile, the US dollar index (DXY) is holding above 100.00 after reporting multi-decade high US inflation at 8.5%. This has raised the odds of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) in its May monetary policy. To contain the soaring inflation, the Fed has left with no other alternative than to deliver a hawkish tone for this year. Fed policymakers are indicating that the Fed should paddle up the interest rates to a neutral rate so that inflation could be tamed without impacting the growth rate.

Apart from the NZ CPI next week, investors will focus on US Retail Sales, which will be disclosed on Thursday. As per the market forecast, the monthly US Retail Sales will land at 0.6% against the prior figure of 0.3%.

The Reserve Bank of New Zealand met on Tuesday to decide on its official cash rate and has lifted rates by the max expected, 50 basis points to 1.5% to combat inflationary headwinds pertaining to the Omricon disruptions and the Ukraine crisis.

NZD/USD has rallied to test the resistance of 0.6890s.

NZD/USD daily chart

Prior to the decision:

The M-formation is a reversion pattern on the daily chart and the neckline is located near the highs of Tuesday's business in the 0.6890s where it meets a 38.2% Fibonacci retracement level.

0.6820 on the downside and 0.6890 on the upside are critical levels that likely guard breakout territories for the days ahead. 

On the release:

The price is stalling at 0.69 the figure five minutes after the data with a high made of 0.6901 so far. 

RBNZ says:

Appropriate to continue to tighten monetary conditions.

Agreed ‘path of least regret’ to increase by more now, rather than later.

RBNZ says will remain focused on ensuring that current high consumer price inflation does not become embedded into longer-term inflation expectations.

RBNZ says monetary tightening brought forward.

RBNZ says remained comfortable with the outlook for the OCR as outlined in their February.

RBNZ says moving the OCR to a more neutral stance sooner will reduce the risks of rising inflation expectations.

RBNZ says larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment.

RBNZ minutes:

Committee noted that the OCR is stimulatory at its current level.

Members agreed that this ‘stitch in time’ approach is consistent with near-term financial market pricing.

Committee agreed that their policy ‘path of least regret’ is to increase the OCR by more now, rather than later.

Members noted that inflation is above target and employment is above its maximum sustainable level.

Committee confirmed that further increases in the OCR are needed in order to meet their mandate.

About the RBNZ

RBNZ Interest Rate Decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the NZD.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3752 vs. the previous fix of 6.3795 and the prior close of 6.3663.

About the fix

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

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

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

The Reserve Bank of New Zealand has much work to do and has been meeting on Tuesday to decide on its official cash rate.

Some analysts say that hiking in 25bps increments at consecutive meetings won't fit the bill. Therefore, at 02:00 GMT, it will be known to markets just how far the central bank needed to lift rates to combat inflationary headwinds pertaining to the Omricon disruptions and the Ukraine crisis.

''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,'' analysts at TD Securities explained. 

''We remain of the view that a 50bp hike will be better received on grounds that it’ll add to RBNZ credibility and cap inflation down the track. Whatever the decision is and however it reacts, that could all be short-lived given the global backdrop,'' analysts at ANZ Bank argued. 

''As in February, it’s likely to be a tough call between a 25bp and a 50bp hike,'' analysts at Westpac viewed in a more balanced outlook.  

''That 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 that the hurdle for larger OCR hikes is quite high.''

How will NZD/USD react? 

The Kiwi has been trading to non-specific domestic-related noise of late. For instance, on Tuesday, it rallied to a handful of pips away from 0.69 the figure. The antipodeans have been responding to the bounce in energy and broader commodity markets of late in light of how badly the peace talks have been going between Russia and Ukraine. 

However, that will all be set aside for the RBNZ today, if only momentarily. ''We remain of the view that a 50bp hike will be better received on grounds that it’ll add to RBNZ credibility and cap inflation down the track. Whatever the decision is and however it reacts, that could all be short-lived given the global backdrop,'' analysts at ANZ Bank said. 

The levels to watch for are pinpointed on the daily chart as follows:

NZD/USD daily chart

0.6820 on the downside and 0.6890 on the upside are critical levels that likely guard breakout territories for the days ahead. 

About the RBNZ

RBNZ Interest Rate Decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the NZD.

• Gold price is mitigating some of the bullish impulse from Tuesday.
• US dollar remains on firm footing despite Core CPI miss. 
• Ukraine's geopolitical risk is offering support to gold and Putin is turning up the heat. 

The gold price rallied on Tuesday and is consolidating on Wednesday in early Asian markets after another strong rise in US inflation that was reported in the early hours of the New York trade. XAU/USD is currently trading at $1,963.03, down some 0.18% after sliding from a high of $\1,968.06 to a low of $1,962.95. 

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

However, we saw the US dollar rally hard again while US equities fell, 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 relatively steady, if the 10-year yield continues higher beyond the 2.836% highs set this week, it will be on track to test the October 2018 high near 3.26%.

Fed officials are likely to remain hawkish. Overall, this data is unlikely to change the Federal Reserve’s near term thinking about the need to hike. ''Fed governor Brainard (governors always vote) reiterated that controlling inflation is the FOMC's priority,'' an analyst at Westpac explained. ''She expects some tightening in financial conditions to help moderate demand, with easing in supply constraints as well, the combination helping bring inflation down. She welcomed the moderation in core goods prices in the March CPI report, but also warned not to put too much stock into one piece of data.''

Therefore, the expectations are that 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, in addition to inflation hedges, gold is continuing to benefit from heightened geopolitical risks and the Russian president, Vladimir Putin, has turned up the heat in this respect. 

• US to announce $750 million more in weapons for Ukraine

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 should provide support for gold prices in 2022.

Gold technical analysis

The gold price has been range-trading since mid-March, and if this is  accumulating the 2022 rally, then the price could now be ripening for a bullish continuation as per the daily chart: 

We have seen an attempt to break out, but naturally, a pullback is occurring and it is a question of just how far the price can mitigate the bullish impulse before bulls move back in. However, should a strong US dollar prevail, $1,930 could come under pressure again and if that were to give out, the near term prospects of a move higher will be severely diminished.

• AUD/USD has sensed a correction from 0.7500 ahead of Australia’s jobless rate.
• Investors are shrugging off higher US inflation print, interest rates seek a decent hike.
• A preliminary estimate of Australia’s Unemployment Rate at 3.9% indicates an outperformance.

The AUD/USD pair has witnessed a minor pullback at around 0.7500 after a decent bullish reversal from Tuesday’s low at 0.7400.  The major has bounced back after the disclosure of US inflation on Tuesday. A print of 8.5% US Consumer Price Index (CPI) was highly expected by the market participants, which has brought some bids in the antipodean.

Multi-decade high inflation and higher participation rate in the US labor market are signaling a significant interest rate hike in May’s monetary policy. Price pressures from the core goods are hurting the US economy, which is visible from a moderate performance of US CPI ex-food and energy. The US inflation excluding the food and energy items has been recorded at 6.5%, in a mid of market estimate and prior figure.

Earlier, the asset eased sharply from last week’s high at 0.7662 after the Reserve Bank of Australia (RBA) kept the interest rate unchanged and adopt a ‘wait and watch’ approach. The insights from the RBA’s monetary policy indicated that the administration has yet not felt any constructive price pressures, which could push the interest rates higher.

For further guidance, the market participants will keep an eye on the Aussie’s Unemployment Rate, which is due on Thursday. A preliminary estimate of Australia’s jobless rate indicates a slippage to 3.9% from the prior print of 4%.