CFD Markets News and Forecasts — 17-03-2022

• GBP/USD struggles for clear directions after a volatile day, sidelined of late.
• Doji signals reversal from previous rebound but MACD teases bull cross.
• Previous support from late January holds gate for buyers, 10-DMA challenges downside.

GBP/USD makes rounds to 1.3150 amid Friday’s initial Asian session, following a BOE-led volatile day that ended near the opening levels.

In doing so, the cable pair portrayed a Doji candlestick below a support-turned-resistance line from January 27, suggesting consolidation of the latest gains.

However, the MACD line is likely crossing the signal line from below, which in turn suggests a bull cross and may keep the buyers hopeful to conquer the 1.3205 resistance.

Following that, 21-DMA and January’s low, respectively around 1.3280 and 1.3360, will lure the GBP/USD buyers.

On the contrary, the 10-DMA level surrounding 1.3100 restricts the immediate downside of the pair ahead of a three-week-old previous resistance line near 1.3030.

During the quote’s weakness past 1.3030, the latest multi-month low of 1.3000 may act as an intermediate halt before direct GBP/USD bears towards November 2020 low around 1.2855.

GBP/USD: Daily chart

Trend: Sideways

• The NZD/JPY is barely unchanged as the Asian session begins, though up 2.29% in the week.
• NZD/JPY Price Forecast: The pair is upwards, though RSI at overbought levels suggesting a correction is on the cards.

NZD/JPY is subdued around 81.60 early in the Asian Pacific session on Friday, after rising for three consecutive days, so far in the week, reaching a YTD high around 81.73, the highest level since November 2021.

Overnight, the NZD/JPY pair braced to the 81.00 area, though later it reached a daily high near 81.44, subsequently followed by a drop around 81.00, a solid demand area, which pushed the pair towards 81.73 year-to-date high.

NZD/JPY Price Forecast: Technical outlook

The NZD/JPY remains upward biased, despite being a barometer for risk sentiment trades. Daily moving averages (DMAs), although almost horizontal, begin to aim higher, led by the 50-DMA at 77.66, which is about to cross over the 200-DMA at 77.92, forming a golden cross a signal of bullish strength.

However, the Relative Strenght Index (RSI), a momentum oscillator, sits near the 80 reading in the overbought zone, meaning a reversion move is on the cards, so the pair might correct lower before resuming the ongoing uptrend.

If that scenario plays out, the NZD/JPY first support level would be the 81.00 mark, followed by the March 14 daily high previous resistance-now-support at 80.26.

Upwards, the NZD/JPY first resistance would be 82.00. Breach of the latter would expose the 2021 yearly high at 82.50, followed by the 83.00 mark.

• Silver snaps two-day rebound, eyes first weekly loss in seven.
• Ukraine-Russia peaces talks remain sluggish, fears of Moscow’s nuclear use challenge sentiment.
• Hopes of Putin, Zelenskyy meeting join softer yields, USD to keep buyers hopeful.
• Risk catalysts remain in the driver’s seat, light calendar may offer easy day.

Silver (XAG/USD) prices consolidate recent gains around $25.30 during a sluggish Asian session on Friday, adding strength to the first weekly downside since late January.

The bright metal’s latest weakness could be linked to the market’s cautious sentiment concerning the Ukraine-Russia crisis, as well as mixed messages from China. However, hopes of overcoming the grim situation in Kyiv and softer USD keep the XAG/USD buyers hopeful.

Ukraine brokers a top-tier gathering of Russian President Putin and his Ukrainian counterpart Volodymyr Zelenskyy to discuss the 15-point peace plan in detail, which in turn keeps the markets hopeful of overcoming the stand-off between Moscow and Kyiv. However, the Western warning that Moscow may contemplate the use of nuclear weapons dims the optimism. Also challenging the market’s mood are the fears over Russia’s default, as cited by the global rating agency S&P, even if some on the floor confirm receiving coupon payment due this week in the USD.

Elsewhere, China’s step back from previously hawkish comments to ease regulatory crackdown on the property and IT companies joined downbeat comments from the Organisation for Economic Cooperation and Development (OECD) to add to weigh on the market sentiment. “The global economic growth will be more than 1% lower this year due to the Ukraine crisis,” said the OECD.

Amid these plays, the US 10-year Treasury yields closed Thursday with a mildly downbeat performance around 2.16% while Wall Street remained firmer for the third consecutive day.

Considering the light calendar and a lack of major events scheduled on Friday, silver prices may witness fewer moves and can end the week by snapping the six-week winning streak. However, headlines from China and Ukraine remain important to follow for fresh impulse.

Technical analysis

Despite the recent pullback from 10-DMA, around $25.55 by the press time, silver prices keep the upside break of a downward sloping trend line from March 08, which in turn suggests the quote’s strength until it drops back below $24.90.

• NZD/USD has advanced near 0.6900 on the announcement of helicopter money from China.
• The DXY has weakened amid risk-on impulse in the market.
• Kiwi bulls got stronger on upbeat GDP numbers.

The NZD/USD pair has advanced sharply near 0.6900 on multiple positive triggers in the market. The recent resurgence of Covid-19 in China has renewed the fears of a pandemic in the world. In response to the rising cases of Covid-19, the China administration has imposed severe lockdown measures to corner the spread of the Omicron variant, detected in the Covid-19 patients. Apart from that China’s Vice Premier Liu He has signaled more stimulus to support Chinese markets.

The announcement of stimulus has brought optimism for the antipodean as New Zealand is one of the leading exporters to China.

Meanwhile, the underperformance of the US dollar index (DXY) has also underpinned the kiwi against the greenback. The DXY has plunged near 97.60 after the announcement of the interest rate decision by the Federal Reserve (Fed). Fed Chair Jerome Powell increased the interest rates by 25 basis points (bps). The announcement expanded the demand for risk-perceived assets significantly. Also, the antipodeans were trading strong when risk-sensitive assets were going through the carnage. Therefore, underperformance from the DXY firmed bids for the kiwi further.

Apart from that, the outperformance from the yearly Gross Domestic Product (GDP) numbers, which were reported on Thursday, strengthened the kiwi further. The yearly kiwi GDP landed at 3.1%, much higher than the previous print of -0.2%.

• EUR/USD retreats from a two-week top, pauses four-day winning streak.
• Bullish MACD, firmer RSI keep buyers hopeful to overcome immediate resistance.
• 50-DMA adds to the upside filters, short-term support line restricts bear’s entry.

EUR/USD dribbles around 1.1090-95 during a sluggish early Asian session on Friday, after rising for the last four days to poke the highest levels since March 02.

The major currency pair’s latest moves are challenged by the 21-DMA level of 1.1100. However, major attention is given to the horizontal line comprising multiple levels marked since late January and a five-week-old descending resistance line, around 1.1120.

Given the firmer MACD and ascending RSI line, not overbought, EUR/USD prices are likely to cross the aforementioned key hurdles.

Following that, the pair buyers may aim for the 50-DMA level of 1.1241 before the mid-February lows near 1.1280 challenge the further upside.

On the flip side, the EUR/USD pair’s fresh downside may initially aim for the 1.1000 threshold before challenging an upward sloping support line from March 07, close to 1.0985 at the latest.

It should be noted, however, that a daily closing below 1.0985 will allow EUR/USD prices to revisit the 1.0900 round figure ahead of directing the bears towards the multi-month low marked earlier March near 1.0800.

EUR/USD: Daily chart

Trend: Further recovery expected

• The EUR/JPY has rallied for four consecutive days in the week, eyeing for a fifth one.
• A positive market mood kept safe-haven peers under pressure.
• EUR/JPY Price Forecast: The path of least resistance is upward, though would need a decisive break above 132.00.

The EUR/JPY weekly rally persists for the fourth consecutive day, up 2.83% as the Asian session is about to begin. The financial market mood reflects an upbeat market mood, though of late, news citing a US intelligence official saying that “Putin is likely to make nuclear threats if the war drags” caused some nervousness on market players, though not enough to spur a sell-off on equities. At the time of writing, the EUR/JPY is trading at 131.54.

Overnight, the EUR/JPY seesawed around the 131.00 mark, though break upwards once North American traders got to their desks, and reached a new YTD high at 131.90, retreating afterward towards 131.50s.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY achieved to break above the 78.6% Fibonacci retracement, which sat at 131.27 and left the Japanese yen vulnerable to further weakness, which indeed happened. The EUR/JPY rallied short the 132.00 figure, though retreated and is trading above 131.52 Thursday’s close.

The EUR/JPY path of least resistance is upwards, and the first resistance would be 132.00. Breach of the latter would expose the downslope trendline around the 132.70-80 area, followed by the February 10 at 133.15.

• AUD/USD pauses after a three-day uptrend near the fortnight high.
• Market’s initial risk-on mood fades amid fears of likely chemical weapon use by Russia, OECD forecasts also weigh on sentiment.
• Aussie jobs report, firmer gold prices and softer USD all favored bulls previously.
• The absence of major data highlights risk catalysts for fresh impulse.

AUD/USD is all set to reverse the previous week’s losses, despite the latest pullback from a two-week high to 0.7380 during early Friday morning in Asia.

The risk-barometer pair rose in the last three consecutive days amid rising hopes of the Ukraine-Russia peace and the US dollar’s failure to cheer Fed’s rate-hike, as well as upbeat Aussie jobs report. Also adding to the pair’s upside momentum was the news suggesting some traders’ receipt of bond coupon payment due this week in USD. However, another credit rating downgrade of Moscow and fears that Vladimir Putin’s forces may use chemical weapons recently probed bulls amid a light calendar.

No clear progress on the 15-point peace plan negotiations between Russia and Ukraine signals an upcoming top-tier gathering of Russian President Putin and his Ukrainian counterpart Volodymyr Zelenskyy, adding to the market's hopes of a solution. However, the recent fears raised by the Western experts that Moscow may contemplate the use of nuclear weapons dim the optimism. Ukraine is brokering a deal for the key meeting, for which an official confirmation is left pending, which if confirmed can help the risk appetite and AUD/USD prices.

Elsewhere market sentiment improved as the US Treasury yields and the US dollar remained on the back foot, following the Fed’s widely anticipated rate hike and Fed Chairman Jerome Powell’s hopes of easy inflation. The same favored gold prices to rise for the second consecutive day and underpin the AUD/USD run-up.

Also, upbeat prints of Australia’s February month jobs report and mixed US data, as well as upbeat Wall Street performance, offered additional help to the Aussie.

It’s worth noting that China’s step back from previously hawkish comments to ease regulatory crackdown on the property and IT companies joined Ukraine-Russia fears to challenge the bulls. On the same line were comments from the Organisation for Economic Cooperation and Development (OECD) that the global economic growth will be more than 1% lower this year due to the Ukraine crisis.

Looking forward, Friday’s economic calendar doesn’t carry any major data/events, which in turn may allow AUD/USD prices to end the week on easy flow. However, the geopolitical and covid updates remain important for the pair traders to watch.

Technical analysis

Although the 200-DMA puts a floor under the AUD/USD prices around 0.7300, upside momentum remains capped below an ascending trend line from January 13, close to the 0.7400 threshold by the press time.

• WTI has climbed near $102.00 as IEA renewed fears of supply shortage.
• The expectation of supply shortage from Russia has already been discounted by investors.
• The OPEC’s positive response to the urge of US President Joe Biden will fix the demand-supply gap.

West Texas Intermediate (WTI), futures on NYMEX, has rebounded sharply after hitting a low of $92.37 on Tuesday. The oil prices have increased around 9% overnight on renewed fears of supply worries due to sanctions on Russia by the Western leaders. Investors should be informed that the Russian economy attracted sanctions from the West on its invasion of Ukraine, three weeks back.

The International Energy Agency (IEA) said three million barrels per day (bpd) of Russian oil and products could be shut in from next month. That loss would be far greater than an expected drop in demand of one million bpd from higher fuel prices. The headline faded the promise of the OPEC cartel, which responded positively to the urge of US President Joe Biden to pump more oil to fill the demand-supply gap.

The statement from the IEA has impacted positively for the oil prices but investors must keep in mind that the previous rally in the oil prices was banked upon the expected shortage of supply from Russia. Therefore, the impact is known to the market and the rebound in oil prices is mere a pullback and not a reversal.

EIA oil inventories

The Energy Information Administration (EIA) reported higher oil stockpiles on Wednesday. The oil stockpiles figure landed at 4.345M outperformed the preliminary estimate of -1.375M and the previous print of -1.863M.

Global rating agency S&P cut Russia rating to ‘CC’ from CCC- while citing difficulties meeting debt payments due on its dollar-denominated 2023 and 2043 Eurobonds on Thursday, per Reuters.

“Russia's payment difficulties stem from international sanctions that reduced its available foreign exchange reserves and restricted its access to the global financial system, markets and infrastructure,” adds S&P per the news.

Key quotes

FX implications

Although the news adds to the market sentiment, chatters that some on the floor did get coupon payment in dollar eased the risk-off mood. Even so, the Antipodeans witnessed a pullback during early Friday morning in Asia.

Read: Forex Today: Dollar fights back amid talks about chemical weapons

• USD/CHF has detected a pullback from 0.9340 on rising bets over a prolonged war between Moscow and Kyiv.
• Russia claimed that headlines that were aiming for a ceasefire were ‘wrong’.
• The DXY has plunged after activation of 'buy on rumor and sell on news' indicator.

The USD/CHF pair has witnessed a pullback near 0.9340 after a decisive selling pressure from 0.9460 amid renewed fears of ceasefire delay between Russia and Ukraine. The Kremlin reportedly said that news pointing to progress in Ukraine-Russia peace talks was “wrong,” as per Reuters.

Earlier, Ukraine officials reported that the negotiators from Russia and Ukraine are progressing towards a ceasefire as both nations are preparing a 15-point peace plan, which inculcates the clause of ceasefire and withdrawal of Russian military activities in Ukraine. This had brought a steep reversal in the demand for risk-perceived assets. The expansion of risk appetite had weighed pressure on the greenback. However, rising bets over a prolonged war between Russia and Ukraine has renewed fears of dragging sentiment at the backfoot.

Meanwhile, the US dollar index (DXY) has addressed some bids near 97.70, which seems a minor pullback after a steep fall on elevation in Federal Reserve (Fed)’s interest rates by 25 basis points (bps). Fed Chair Jerome Powell and his colleagues have dictated a solution of seven rate hikes for 2022 to corner the galloping inflation. This had activated the ‘buy on rumor and sell on news’ indicator and the DXY eased swiftly.

Going forward, the market participants are likely to dictate their positions on the headlines from the Russia-Ukraine war. But, the US Existing Home Sales data from the National Association of Realtors and speech from Federal Reserve Bank Governor Michelle Bowman will hold significant importance, which are due on Friday.

• The Japanese yen recover some ground vs. the greenback but stays vulnerable above 118.00.
• US equities ended with gains, while the greenback edges lower on an upbeat market mood.
• USD/JPY Price Forecast: The uptrend remains intact but a correction towards the 116.35-117.00 area is on the cards.

USD/JPY pares Wednesday’s gains as it is headed down as the greenback remains soft as New York’s session is about to end amid a positive market mood, which witnessed US equities rallying. At 118.63, the yen strengthens vs. the buck.

Positive market sentiment benefits US equities finishing with gains

US equities finished on the right foot, confirming the upbeat mood, while investors assessed the first rate hike of the US central bank in three years. Alongside that, Russia and Ukraine’s “peace talks” continue, though they failed to deliver what the market players hope, a ceasefire and an agreement that could keep the world in peace. Meanwhile, US Secretary Blinken claimed that Russia could be preparing chemical weapons in a false-flag operation that could justify Russia’s escalation of its attacks on Ukraine.

The headline impact was barely-noticed in the financial markets, though the USD/JPY  retreated from highs 118.60s to 118.50.

The US Dollar Index, a gauge of the greenback’s value against a basket of six rivals, grinds lower 0.60%, sitting at 98.02, while the 10-year benchmark note drops two basis points, down at 2.167%, a headwind for the USD/JPY.

Macroeconomic-wise, the US docket featured Initial Jobless Claims for the week ending on March 12, which came at 214K, lower than the 220K expected, while Industrial Production for February showed some strength, rose by 7.5%y/y  higher than the 3.6% previous reading.

On the Japanese front, on Friday, the Bank of Japan would reveal its monetary policy decision, widely expected at -0.10%, and would keep supporting the Japanese economy.

Read more: BoJ Preview: Forecasts from seven major banks, a dovish hold

USD/JPY Price Forecast: Technical outlook

The USD/JPY daily chart shows that the pair remains uptrend. Thursday’s retracement is seesawing around January 17, 2017 resistance/support at 118.61, and in the event of recording a daily close above it, would leave the JPY vulnerable for further upside.

If that scenario plays out, the USD/JPY first resistance would be 118.61. Breach of the latter would expose the 119.00 mark, followed by 120.00, and January 25, 2017, high at 121.68.

In the case of a correction, the USD/JPY first support would be 118.00. Once cleared, the next demand zone would be the top-side of the 24-year-old downslope trendline around 117.00, followed by 116.35.

• USD/CAD is moving in on a daily support area. 
• The bulls will be looking out for a bullish structure from the lower time frames. 

USD/CAD's M-formation is a compelling feature on the daily chart as the price moves in on a key area of what could be a demand area.

USD/CAD daily chart

Should this turn out to be the case, then there will be a strong bias towards the 1.27 area and the Fibonacci scales, starting with the 38.2% ratio and then the 50% mean reversion point near the neckline of the M-pattern and 1.2750. 

USD/CAD H1 chart

The hourly chart offers a compelling outlook as well. There are still prospects of lower levels at this juncture for the momentum remains with the bears so far. However, the moment this slows and the trajectory decelerates, traders can be on the lookout for a kindred schematic in the price action as illustrated above.

This illustration forecasts a break of the trendline resistance and retest of the breakout structure prior to a continuation to the upside. This would ultimately equate to a correction of the daily bearish impulse and a reversion towards the M-formation's neckline. 

• Despite the broadly risk-on market mood on Thursday, the dovish BoE rate hike prevented GBP/JPY from holding above 156.00.
• Amid rumblings of a Russo-Ukraine peace deal that could hit FX haven like the yen, this may not be enough to prevent GBP/JPY’s rally.
• The BoJ will be deciding on monetary policy during Friday’s Asia Pacific session.

Markets were in a risk-on mood on Thursday with global equities higher across the board, but this wasn’t enough for GBP/JPY. Indeed, the pair was last trading ever so slightly in the red just to the south of the 156.00 level, with sterling struggling to take advantage of risk-on flows in wake of Thursday’s more dovish thank expected BoE rate decision.

The central bank raised interest rates by 25bps as expected, but one of the nine rate-setters unexpectedly voted not to raise interest rates and the bank’s guidance on the prospect for future rate hikes was less hawkish than at its last meeting. Analysts interpreted the dovish hike as a negative for GBP, which, the reasoning goes, can no longer count on the tailwind of being backed by one of the more hawkish G10 central banks. Indeed, the Fed, though a few hikes behind the BoE in this hiking cycle, is looking much more hawkish right now.

Whether that will ultimately be enough to prevent GBP/JPY from advancing is another thing entirely. The BoJ, who decides on monetary policy in the coming hours, is nowhere near moving towards monetary tightening and G10/JPY currency pairs remain highly sensitive to G10/Japan rate differentials. That means if UK rates can maintain recent upside momentum, even if driven by rising inflation expectations, GBP/JPY stands a good chance at continuing to rally.

Though the reporting on the topic has been mixed and conflicting, there seems to be some momentum towards a Russo-Ukraine peace deal. If reached, that would hit JPY and likely give GBP/JPY, which has already rallied more than 3.0% versus earlier weekly lows, further tailwinds. Whether that would be enough to help the pair muster a break above annual highs in the 158.00 area is another thing entirely.

• Bulls hit a 1.3210 high into the BoE meeting in anticipation of a hawkish tilt to the likely 25bps rise in rates.
• The weekly 38.2% Fibonacci retracement level near 1.3245 was a stone's throw away.

GBP/USD is back to trading around flat the day as the US dollar firms within a bearish phase. GBP/USD has travelled with a 1.3087 and 1.3210 range and at 1.3150 currently, the price is 0.03% in the green. The drivers in markets are central banks and the Ukraine crisis.

Markets have been momentarily distracted from the calamity of the Russian invasion by the Federal Reserve and Bank of England central bank meetings. The US dollar has been unwound and the pound has been thrown around by mixed sentiment on the outcomes of both meetings and subsequent reactions in global financial markets. 

On Wednesday, there were no tougher surprises from the Fed that might have added to the greenback's weeks-long momentum. Instead, the bar for a hawkish surprise at the Fed was high and given how much was priced in, the US dollar has unwound.

The dollar index (DXY), which measures the US dollar vs. a basket of currencies, fell as much as 0.6% following the Fed. The follow-through Today took the index down 0.8% as traders parse the Fed's chairman's less hawkish statements from the press conference:

• “We do anticipate inflation will move back down. It may take longer than we’d like.”
• “I guess I would say the expectation still is that inflation will come down in the second half of this year, but we still expect inflation to be high this year.”
• We expect inflation to remain high through the middle of the year, begin to come down, then begin to come down more sharply next year.”

The Fed was undeniably hawkish, with the Fed's dot plot suggesting that the committee is looking to overshoot the neutral rate by the end of 2023. However, the convergence of central banks is what has driven the greenback lower which had gained 3% since the start of the Russia-Ukraine war on Feb. 24 and 10% since May 2021.

There had been signs that the pond was on the verge of a comeback earlier in the week when it shot higher against the dollar on strong jobs data. This had supported the prospect of a Bank of England rate hike, while optimism around talks between Russia and Ukraine weighed on the US dollar safe-haven demand. Britain's unemployment rate fell more than expected to 3.9% in the three months to January, official figures showed, while vacancies hit a record high in the three months to February.

However, despite the BoE raising Bank Rate to 0.75% from 0.5%, its third consecutive hike since the COVID-19 pandemic, it softened its language on the need for more increases. This led to a significant drop in the pound on Thursday on the knee-jerk in response to the dovish dissent and cautious tone of the minutes. A deteriorating growth outlook is becoming more of a concern to the MPC which has formed the Policymakers to push back against investors' bets that the Bank Rate will rise sharply to around 2% by the end of this year.

GBP/USD technical analysis

From a weekly perspective, the M-formation is a compelling feature on the charts. The price is currently moving in on the winter 2021 lows near a 23.6% Fibonacci retracement around 1.3150. However, they reached as high as 1.3210 into the BoE meeting in anticipation of a hawkish tilt to the likely 25bps rise in rates. This was close to a 38.2% Fibonacci retracement level near 1.3245. However, the neckline of the M-formation could be appealing which aligns with a golden ratio of the 61.8% target neat 1.34 the figure. 

• EUR/USD has been waning from earlier session highs in recent trade and is now back below the 1.1100 level.
• Since Wednesday’s Fed hawkish policy announcement, EUR/USD has gained about 1.0%, flummoxing some analysts.
• Markets seem to currently be being driven by “hopes” for a Russo-Ukraine peace deal, meaning geopolitics remains a key theme.

EUR/USD has been waning in recent trade and recently fell back under the 1.1100 level, meaning that the pair has, for now, failed to break above its 21-Day Moving Average at 1.1108. Nonetheless, the pair is still trading with gains of about 0.6% on the day, as the dollar succumbs to broad weakness despite strong US weekly jobless claims numbers and a better-than-expected Philly Fed Manufacturing Survey released earlier in the session.

Since Wednesday’s Fed policy announcement EUR/USD has gained about 1.0%, despite the fact that the Fed signaled its intention to hike interest rates at all of its remaining rate decisions this year, which was more hawkish than market participants had been expecting. Fed Chair Jerome Powell even warned that the pace of rate increases might be accelerated if deemed necessary and that the Fed could decide to take interest rates well beyond the so-called “neutral” level (in the 2.0-2.5% area) if inflation fails to abate as expected.

Despite all this hawkishness, the buck has failed to benefit, flummoxing some analysts. Clearly, markets are more focused right now on geopolitics and the apparent hope that Russia and Ukraine might reach some sort of peace deal in the near future. Reporting on this front over the last few days has been mixed and conflicting, making it difficult to assign a probability to a peace deal being reached.

But traders have nonetheless used “hope” as an excuse to pair US dollar longs, just as they have used this as an excuse to bid up equities in recent sessions. Whether this momentum can last is the big question and markets are very much expected to remain choppy and headline-driven with a focus on geopolitical headlines in the coming weeks.

Ultimately, while a peace deal might offer EUR/USD some near-term respite, the theme of West/Russia economic decoupling is not going anywhere. A ceasefire in Ukraine doesn’t mean the massive hit to the Eurozone economy as a result of Western sanctions on Russia for its invasion will be magically and immediately negated. 1.1100 is actually a key level of support turned resistance for EUR/USD, and its failure on Thursday to hold above this level might herald some near-term profit taking that could see the pair move back towards 1.10.

What you need to take care of on Friday, March 18:

The American Dollar remained under selling pressure throughout the day, accelerating its slump ahead of the London fix. The greenback was affected by persistent weakness in government bond yields following the hawkish Federal Reserve's announcement on Wednesday.

By the end of the American session, US Secretary of State Antony Blinken said that Russia might be contemplating a chemical-weapons attack, helping the greenback to recover some ground.

The Russian invasion of Ukraine keeps going without progress in peace talks. Financial markets enjoyed some temporal relief on headlines indicating that international bondholders received Russian bond coupon payments due March 16th in dollars. Nevertheless, there's an increased risk to global growth, while the war will only fuel inflationary pressures.  

 Ukraine and Turkey are working on setting up a meeting between Volodymyr Zelenskyy and Vladimir Putin. US President Joe Biden will talk to his Chinese counterpart Xi-Jinping on Friday to discuss the matter.

The Bank of England hiked the benchmark UK interest rate by 25bps to 0.75% from 0.50%, as had been widely expected, noting that "some further modest tightening might be appropriate in the coming months," a dovish twist that sent GBP/USD to an intraday low of 1.3087. The pair managed to recover some ground and settled at 1.3150.

The EUR/USD pair retreated from an intraday high of 1.1137 and finished the day in the 1.1090 price zone, while USD/CAD plunged to 1.2630 as oil recovered the upside, with WTI ending the day at $103.75 a barrel.

Gold flirted with $1,950 a troy ounce, ending the day at around 1,939. The AUD/USD pair retained most of its intraday gains and trades in the 0.7370 price zone.

The USD/JPY pair consolidated its latest gains, ending the day unchanged at around 118.60.

Bitcoin price maintains uptrend in response to the Federal Reserve's rate hike

• DXY accelerates its reversal from the 99.30 area to test two-week lows at 97.80.
• The USD drops across the board after Fed's monetary policy decision.
• Upbeat employment and construction data have failed to cheer USD buyers.

The greenback is losing ground across the board on Thursday.  The US Dollar Index, which measures the value of the USD against a basket of the six most-traded currencies has lost about 0.7% so far today to test two-week lows below 97.80.

The dollar loses ground after the Fed’s rate hike

The USD accelerated its reversal from levels right below 21-month highs at 99.35 following the Federal Reserve’s monetary policy decision. The Bank confirmed investors' expectations raising interest rates by 25 basis points and signaled six more hikes in 2022.

In a clear illustration of the “buy the rumor, sell the fact” adage, the US dollar is giving away gains, pulling back from pre-Fed highs, and going through a steady downtrend, despite the release of a string of upbeat macroeconomic figures.

US Housing starts increased by 1.769 M. in February, beating expectations of a 1.69 M. advance, while Building Permits posted an increment of 1.859 M, beyond the 1.85 M. forecasted by market analysts.

Furthermore, US Initial Jobless Claims have dropped to 214K in the week of March 11 from 229K in the previous week, and the Philadelphia Fed Manufacturing Index has improved to 27.4 in March from 16 in the previous month.

Technical levels to watch

• AUD/USD has rallied as the RBA is expected to move towards policy tightening. 
• US dollar is on the backfoot following the Fed.

AUD/USD is stalling in the last hour of recent trade following a strong rally to the upside. The price has jumped from a low of 0.7282 to a high of 0.7393 on the day so far and is printing 1.21% higher at the time of writing. 

Firstly, the Federal Open Market Committee's two-day meeting drew to a close on Wednesday and failed to surprise markets with anything more hawkish than what was anticipated. The bar for a hawkish surprise at the Fed was high and given how much was priced in, the US dollar has failed to hold up. 

The dollar index (DXY), which measures the US dollar vs. a basket of currencies, fell as much as 0.6% on Wednesday. Today, the index has fallen by almost 0.8% as traders parse the Fed's chairman's less hawkish statements from the press conference:

• “We do anticipate inflation will move back down. It may take longer than we’d like.”
• “I guess I would say the expectation still is that inflation will come down in the second half of this year, but we still expect inflation to be high this year.”
• We expect inflation to remain high through the middle of the year, begin to come down, then begin to come down more sharply next year.”

Meanwhile, the release of stronger than expected February Australian labour data has drawn in further speculation that the Reserve Bank of Australia will be moving towards tighter monetary policy.  ''At 4.0%, the February unemployment rate sank to a near 14 year low, while the employment change was double market expectations at 77.4K. The labour report did not contain fresh numbers for wage inflation.  However, the tightness of conditions clearly suggests scope for upward pressure on this front,'' analysts at Rabobank explained. 

The analysts noted that, last week. the RBA governor Phillip Lowe opened the door a little further towards the possibility of a rate rise this year with his comments that it was ‘plausible’ that rates will rise this year and that it would be prudent to prepare for a move.  

''Lowe also expressed concerns about a potential change in the psychologically of inflation.  He remarked that in recent years domestic firms have been reluctant to put up prices which in turn made it difficult to raise wages. In the current environment, however, is may be easier to raise both''

• The Australian dollar extends its gains vs. the Japanese yen, up some 2.21%.
• An upbeat market mood keeps risk-sensitive currencies up while safe-haven peers fall.
• AUD/JPY Price Forecast: Upwards, though might be headed to a correction before resuming upwards.

The AUD/JPY risk barometer in the FX space rallies for the second straight day in the week and reached a four-year-high at 87.58 before retreating under 87.50 amid an upbeat market mood. At 87.49, the AUD/JPY reflects the abovementioned, after the US central bank paved the way for higher borrowing costs.

On Wednesday, the Federal Reserve hiked rates for the first time in three years, increasing the benchmark rate by 25 bps, and trimmed its economic growth projections for the remainder of the year, 2023 and 2024. Furthermore, policymakers expect inflation to peak around 4.1%, to decrease near the bank’s target at 2.3% by the end of 2024.

Equities reacted negatively, selling-off. However, it erased those losses and remained trading with gains, while in the FX space, the greenback was buoyant vs. safe-haven peers, while risk-sensitive currencies like the AUD and the NZD rose.

Australia’s strong jobs report boosts the AUD

Earlier In the Asian session, the Australian economic docket featured a strong jobs report for February. The economy added 77.4K jobs, smashing the 37K foreseen by analysts, while the unemployment rate fell to 4%.

Analysts at Rabo bank expressed that “the release of stronger than expected February Australian labour data would appear to tick another box on the country’s journey towards tighter monetary policy. At 4.0%, the February unemployment rate sank to a near 14 year low.”

On the Japanese front, on Thursday, the Bank of Japan would reveal its monetary policy decision, widely expected at -0.10%, and would keep supporting the Japanese economy.

Read more: BoJ Preview: Forecasts from seven major banks, a dovish hold

Worth noting that Citi said that “The focus will be on Governor Kuroda’s view about the recent depreciation of the yen, given media reports that the Kishida administration is increasingly concerned about yen weakness.”

AUD/JPY Price Forecast: Technical outlook

The AUD/[JPY is upward biased and with nothing on its way towards the 88.00 mark. However, due to the steepness of the rally, it could be subject to a mean reversion move or consolidation, as AUD bulls prepare an assault towards 88.00.

Upwards, the AUD/JPY first resistance would be the YTD high at 87.58. Breach of the latter would expose the 88.00 mark, followed by 89.00. On the flip side, in the event of a correction, the AUD/JPY first support would be 87.00, followed by October 21, 2021, high at 86.25, and then the 86.00 mark.

US Secretary of State Antony Blinken on Thursday said he agrees with President Joe Biden that war crimes have been committed in Ukraine, adding that US experts are in the process of documenting and evaluating potential war crimes in Ukraine.

"Intentionally targeting civilians is a war crime," Blinken told reporters, adding that he finds it "difficult to conclude that the Russians are doing otherwise" after the destruction over the past few weeks.

''Russia may be contemplating a chemical-weapons attack,'' he added.

Key comments

''Concerned China is considering directly assisting Russia with military equipment.''

Says he ''hasn’t seen any meaningful efforts by Russia to bring the war to a conclusion through diplomacy.''

''Biden will make clear to Xi, China bears responsibility for any actions it takes to support Russia's aggression.''

''The US will not hesitate to impose costs on China.''

''China is refusing to condemn Ukraine's aggression, seeking to ‘portray itself as a neutral arbiter’.''

''China has the responsibility to use its influence on president Putin to defend international rules and principles.''

''We will not hesitate to impose costs on China.''

''Concerned that China is considering directly assisting Russia with military equipment.''

''I have not seen any meaningful efforts by Russia to bring the war to a conclusion through diplomacy.''

''Putin's remarks yesterday suggest he is moving in the opposite direction from diplomacy.''

''Can confirm death of US citizen in Ukraine.''

• The New Zealand dollar reaches 0.6900 in a three-day rally.
• The kiwi extends gains amid a moderate risk appetite and USD weakness.
• NZD/USD aiming towards 0.6925 this week – Westpac.

The New Zealand dollar has surged about 1% against the USD so far on Thursday, to extend its three-day rally from 0.6730 lows to session highs right at 0.6900.

The kiwi appreciates on post-Fed dollar weakness

The US dollar is losing ground across the board, weighed by a pull-back on US bond yields. The Federal Reserve‘s first interest rate hike in more than three years and its plan to gradually normalize monetary policy has failed to provide support to the USD and the US Dollar Index is nearly 0.7% down on the day, testing two-week lows around 97.80.

The NZD has taken advantage of the US dollar's weakness to appreciate further amid a mixed market mood. Investors remain fairly optimistic about the possibility of seeing some progress in the Russia – Ukraine talks and the US equity markets are posting moderate gains after a mixed session in Europe.

Furthermore, the Chinese Government’s pledge to roll out a new economic stimulus program triggered a fresh impulse to the NZD, as China is one of New Zealand’s main trading partners.

NZD/USD aiming towards 0.6925 this week – Westpac

According to FX Analysts at Westpac, the pair might extend towards 0.6925 this week: “NZD/USD retains upward momentum and is poised to test 0.6875 and then 0.6925 during the week ahead (…) While geopolitical risks will restrain the NZD during the weeks ahead, by year-end we target 0.7100+.”

Technical levels to watch

• Gold is moving in on a critical area of resistance on the daily charts. 
• The focus is on Ukraine and Russian peace talks after the Fed failed to deliver any hawkish surprises. 

The Gold price is firming despite the undeniably hawkish Federal Open Market Committee, with the Fed's dot plot suggesting that the committee is looking to overshoot the neutral rate by the end of 2023. Nevertheless, the US dollar fell on Wednesday considering that there were no tougher surprises that might have added to the greenback's weeks-long momentum.

The dollar index (DXY), which had gained 3% since the start of the Russia-Ukraine war on Feb. 24 and 10% since May, fell as much as 0.6% on Wednesday. On Thursday, the price has fallen by almost 0.8% as traders parse the Fed's chairman's less hawkish statements from the press conference:

• “We do anticipate inflation will move back down. It may take longer than we’d like.”
• “I guess I would say the expectation still is that inflation will come down in the second half of this year, but we still expect inflation to be high this year.”
• We expect inflation to remain high through the middle of the year, begin to come down, then begin to come down more sharply next year.”

The bar for a hawkish surprise at the Fed was high and given how much was priced in, the US dollar has failed to hold up vs the cautious optimism in peace talks. 

Ukraine and Russian peace talk optimism, albeit arguably somewhat misplaced, has been playing into the moves which are set to remain the primary driver. Consequently, the euro has benefitted from this also which is a primary driver in the forex space currently, offering a lifeline to the gold bugs that have managed to bust through $1,927 on Thursday as Wednesday's closing price.

Ukraine / Russian peace talk progress, or lack thereof

The hopes of a possible peace deal are faint but are alive. The Financial Times published a ‘15-point plan’ that was allegedly close to being agreed upon that included Ukraine being a neutral state like Switzerland or Austria and having security guarantees from the US, UK, and Turkey.

However, as analysts at Rabobank said, ''this was then almost immediately rejected by Ukraine. Indeed, a spokesperson said that plan reflected only the Russian position.'' Moreover, the analysts highlighted troubling tones and rhetoric from Russia's president, Vladimir Putin, who gave a national speech.

''He claimed Russia was ‘being cancelled’ and spoke of “fifth columns”  and “national traitors” who “cannot do without oysters, foie gras, and gender freedoms,” who “by their very nature are located exactly there, not here, not with our people, not with Russia. This is, in their opinion, a sign of belonging to a higher caste, a higher race. Such people are ready to sell their own mother… The collective West is trying to split our society, speculating on the combat losses, on the socio-economic sanctions… and there is only one goal… the destruction of Russia. But I am convinced that… the Russian people will be able to distinguish true patriots from scum and traitors and simply spit them out like a midge that accidentally flew into their mouths. Spit them out on the pavement. I am convinced that such a natural and necessary self-purification of society will only strengthen our country, our solidarity, cohesion, and readiness to respond to any challenges.”''

''Does this sound like a man looking to deescalate, or one who is going to double down to get better terms?,'' Rabobank questioned, pointing to darker days to come for both the ruble, financial markets and world peace in general. 

In trade today, a western official said there's a very big gap between the two nation's positions. The official also said those who have seen Putin's remarks would be forgiven for thinking he is not in a mood for compromise.

''Although both sides have pointed to limited progress in peace talks this week, Putin showed little sign of relenting during a televised speech in which he inveighed against "traitors and scum" at home who helped the West, and said the Russian people would spit them out like gnats,'' Reuters reported. 

Gold technical analysis

In the pre-Fed analysis on Wednesday, Gold Price Forecast: XAU/USD stalls just ahead of $1,900, driven by Ukraine crisis ahead of the Fed, it was explained that Gold was meeting a support area on the daily chart and was due for a correction from within.

It stated, ''there is room for a continuation to 24 Feb. lows $1,878, but as it stands, a 50% mean reversion from here could be on the cards, targeting the neckline of the M-formation at around $1,960/70.''

Gold live market, daily chart

As illustrated, the price has indeed moved in toward the aforementioned resistance area and according to the prior analysis, there is from for further mitigation of the imbalance of price where the counter trendline meets the prior lows near a 50% mean reversion around $1,960. Should this area of resistance hold, then bears could be attracted by the discount which could equate to a test of $1,880 which is the last defence for a downside continuation. 

• The euro breaches Fibonacci retracement resistance to confirm its bullish momentum.
• The next upside targets are 1.0420 and 1.0465.

The euro has rallied further against the Swiss franc on Thursday, extending its uptrend from early March lows right below parity, to the 1.0400 area so far.

The pair has reaffirmed its uptrend earlier today after the confirmation above the 61.8% Fibonacci retracement level of the February-March decline, at 1.0365, which has acted as support to attack the 1.0400 area at the time of writing.

With the euro strengthening across the board amid a moderate optimism about the possibilities of some progress in the peace talks between Ukraine and Russia and the EUR/CHF standing comfortably above the 50-day SMA, the next upside targets are the 100-day SMA at 1.0420 and February 21, 22 and 23 highs at 1.0465.

Once above here, the pair might take some time before attempting an attack to February 16 high at 1.0555.

On the downside, a bearish reversal below the mentioned Fibonacci retracement level, at 1.0365 might extend towards 1.0290/00 (March 10 high, 50% Fib. Retracement) before testing March 11 lows at 1.0195.

EUR/CHF daily chart

Technical levels to watch

• GBP/USD has recovered from post-BoE lows in the 1.3100s and is back in the green above 1.3150.
• The pair hasn’t yet been able to get back to pre-BoE levels at 1.3200 as traders mull the dovish meeting.
• BoE dovishness coupled with headwinds to the global economy as a result of the Russo-Ukraine conflict will continue to weigh.

Whilst the pair has regained a modicum of poise in recent trade after rebounding from support in the 1.3100 level since the start of US trade to back above 1.3150 amid a weakening US dollar, GBP/USD has been unable to recover back to pre-dovish BoE hike levels in the 1.3200 area. Nonetheless, at current levels in the 1.3160 region, cable is back to trade higher by 0.1% on the day and is no longer the worst-performing G10 currency of the day, as it was in the immediate BoE aftermath. The US dollar has taken that crown in recent trade, despite strong US weekly jobless claims report and an inflationary March Philly Fed survey results which reaffirmed the economic themes that motivated the Fed to turn more hawkish on Wednesday.

Despite recent USD weakness, analysts have cooled on GBP in wake of the latest BoE policy announcement and this may impact cable’s ability to get back above 1.3200 this side of the weekend. “In contrast to both the Fed and the ECB, the BoE delivered a relatively dovish message to investors today,” said a senior analyst at Aviva Investors, adding that “there was more of a focus on slower growth and its impact on households going forward”. Investors also interpreted the vote of one BoE rate-setters voted to leave rates on hold and the newly worded guidance on further rate hikes as more dovish than expected.

Money markets have pared back on BoE tightening bets for 2022, and now see the bank hiking rates another four times in 2022 rather than another five as was expected before the policy announcement. Many analysts see these tightening expectations as overly hawkish and out of sync with the BoE’s new statement that “some further modest tightening might be appropriate in the coming months”. Going forward it thus seems likely that dovish BoE vibes will act more as a headwind to GBP, particularly versus the USD amid the more hawkish Fed. With the pair failing to get back above a key area of resistance in the upper 1.3100s now for a second successive weak, traders might now be upping bets on a move back to annual lows in the 1.3000 area.

Of course, geopolitics will be a key driver of short-term sentiment as has been the case over the last few weeks. Reports regarding the possibility of a Russo-Ukraine peace agreement have been mixed/conflicting. Whilst a peace deal (not most analysts base case) would be a positive surprise that could boost GBP/USD in the short-term (via USD weakness/GBP strength amid risk appetite), it’s unclear whether this would lead to a lasting rebound. Certainly, the West is going to continue with efforts to economically decouple with Russia (via sanctions, etc.) meaning that severe disruption to the global economy (to which the UK is more exposed versus the US) isn’t going to be cured with a peace deal.

• The Mexican peso keeps the greenback under pressure gains the week 2.24%.
• Risk appetite increases in the session, as portrayed by global equities rising.
• USD/MXN Price Forecast: Neutral, but the path of least resistance is downwards, though facing solid support around 20.50.

The Mexican peso rallies versus the greenback during the North American session, after the first rate hike in three years by the US central bank, which appears to be ignored by USD/MXN traders, which pushed the pair from around 21.00 towards the 20.50s area. At 20.5229, the USD/MXN reflects a risk-on sentiment.

An upbeat market sentiment portrayed by global equities keeps risk-sensitive currencies bid. In the FX space, the AUD, NZD, and the CAD extend gains, followed by the high-interest rate Mexican peso, which appreciated on ebbs and flows, benefitted by the rising Mexican 10-year bond, thirty-three basis points, up at 8.861%.

Meanwhile, the US Dollar Index, a gauge of the greenback’s value against a basket of six rivals, continues its free-fall, down 0.68%, sitting at 97.728, a tailwind for the USD/MXN.

USD/MXN Price Forecast: Technical outlook

Overnight, the USD/MXN seesawed in the 20.60-70 area until the North American open, when the pair pierced under March 2 daily low at 20.5783, reaching a daily low at 20.5060.

That said, the USD/MXN bias is neutral. However, in the last two days, the pair broke below the 50 and 100-day moving averages (DMAs), shifting the bias from neutral-upwards as the spot price approaches the 200-DMA at 20.4100. The USD/MXN path of least resistance is downwards, and the Mexican peso's first support would be 20.5000. Breach of the latter would expos ethe 200-DMA at 20.4100, followed by the February 23 YTD low at 20.1558.

Upwards, the USD/MXN first resistance would be the 100-DMA at 20.5660. Once cleared, the next resistance would be the 50-DMA at 20.7019, and the 21.00 mark.

• The euro bounces up strongly to retest six-week highs at 0.8455.
• BoE's dovish hike sends the pound lower.
• EUR/GBP seen around 0.8300 for the coming months – ING.

The euro has bounced up strongly against the British pound on Thursday to resume the near-term uptrend from the 0.8200 area, aiming for a fresh test to the six-week high at 0.8455.

BoE’s dovish hike hurts the pound

The sterling is losing momentum against its main rivals after the Bank of England’s monetary policy decision. The BoE has hiked rates by 25 basis points, to 0.75, for the third consecutive time, but it has struck a more cautious tone, which has undermined the pound.

The bank said that consumer inflation, now at 30-year highs, might reach levels beyond 8% this year and warned that the Russia - Ukraine conflict is likely to disrupt the global supply chain, increasing significantly the uncertainty around the economic outlook.

On the other end, the euro is showing strength, fuelled by the optimism about some progress in the peace talks in Ukraine that might lead to a cease-fire over the coming days.

EUR/GBP seen around 0.8300 over the coming months – ING

Looking forward, FX Analysis Team at ING does not see the euro appreciating significantly in the first half of the year: “Should the BoE continue to prefer a strong GBP to insulate against higher natural gas prices and the run-up in CPI to 8% this April, it could choose to delay a rate protest until later in the year(…) Our preference is for GBP holding gains through the first half of this year – and EUR/GBP continuing to trade near 0.83. If we are wrong and the rate protest comes today, EUR/GBP could spike to the 0.8480/8500 area.”

Technical levels to watch

• EUR/JPY is pushing higher for a fifth successive session and is eyeing a test of 132.00.
• The pair’s more than 3.0% rally in the last five days comes as Eurozone bond yields push to multi-year highs.
• As long as geopolitical developments don’t deter the ECB from tightening in Q4, EUR/JPY has a shot at 2021 highs.

As Eurozone bond yields maintain their recent upwards trajectory to reflect recent more hawkish than expected policy announcements from both the ECB (last week) and Fed (this week), as well as an apparent realisation that the current inflationary environment will require higher longer-term interest rates, an ongoing widening of Eurozone/Japanese yield differentials continues to favour EUR/JPY. The pair is currently on course to post its fifth successive gain during which time it has rallied more than 3.0% from around 127.50 to current levels above 131.50. EUR/JPY bulls will be eyeing a test of the 132.00 level and a break above here could see the pair challenge earlier yearly highs above 133.00.

After EUR/JPY broke back above an important long-term trendline which has provided both support and resistance in recent weeks in the 129.00 area on Monday, technicians will likely not have been overly surprised to see the pair extend to the upside. Technicians have noted an important downtrend that links the Q2 2021, Q4 2021 and Q1 2022 highs as a key level to keep an eye on. It will likely offer substantial resistance in the upper 132.00s. Given that Eurozone bond yields are at multi-year highs (meaning EZ/Japan rate differentials are also at multi-year highs) some might interpret that as suggesting that there is plenty of room for further EUR/JPY upside in the near term.

A break above this long-term downtrend, as well as above the previous annual high just above 133.00 could open the door to a run towards 2021 highs above 134.00. As long as developments in the Russo-Ukraine war don’t deter the ECB from its current policy path of ending QE in Q3 and starting rate hikes in Q4, EUR/JPY may well maintain a medium-term upwards trajectory. That makes watching geopolitical developments of paramount importance for traders. The reporting on this topic has been mixed and conflicting, but there appears to be some momentum towards a peace deal being reached – if peace can be reached, that would only be bullish for EUR/JPY.

• The dollar pulls back from six-year highs at 119.00.
• The Japanese yen has lost about 3.5% over the last eight days.
• USD/JPY might rally as high as 125.00 – ING

The US dollar seems set to put an end to an eight-day rally on Thursday, as the pair turned down from multi-year highs at 119.00 retreating to session lows near 118.40 so far.

The US dollar treads water after Fed’s rate hike

The dollar is losing ground across the board as the market digests the rate hike and Federal Reserve’s plan to gradually increment borrowing released on Wednesday. The US Dollar Index has dropped about 0.5% so far today, to week lows right below 98.00.

The Japanese yen is taking some breather after having plummeted nearly 3.5% in less than two weeks. The monetary policy divergence between the Federal Reserve and the Bank of Japan boosted the gap between the US and Japanese yields ahead of Fed’s meeting boosting a steady USD appreciation.

From a wider perspective, however, the pair remains steady near Wednesday’s peak, with the investors awaiting the Bank of Japan’s monetary policy decision, due on Friday. The BoJ is widely expected to maintain its ultra-expansive policy which, in a context of generalized monetary tightening in most of the major central banks, might provide a fresh impulse to the US dollar.

USD/JPY might rally as high as 125.00 – ING

FX Analysts at ING expect the pair to resume its uptrend aiming to levels well past the 120.00 mark: “The clearest trend will be a higher USD/JPY, where a dovish Bank of Japan and Japan's large negative income shock from the fossil fuel rally will send USD/JPY to 120 and possibly 125 later this year. We also think the dollar can hold/build on gains against European FX too.”

Technical levels to watch

• The New Zealand dollar keeps the rally intact, up 1.29% in the week.
• A mixed market mood keeps the greenback under pressure, with the US Dollar Index down 0.74%.
• Russia-Ukraine fighting endures, while discussions fail to provide a ceasefire or truce.
• NZD/USD Price Forecast: Neutral upward biased, but faces a wall of resistance around 0.6900-25.

The NZD/USD rallies for the third straight day, erasing most of last week’s losses amid a mixed market sentiment, courtesy of geopolitical concerns, which adds upward inflation pressure, despite efforts of central banks increasing borrowing costs to tame it. At press time, the NZD/USD is trading at 0.6895.

European and US stock indexes whipsaw in the North American session, reflecting investor sentiment. In the FX space, the greenback aims lower, down 0.74%, below the 98 mark at 97.89, while US Treasury yields slide, led by the 10-year benchmark note, down two and a half basis points, sitting at 2.160%, a tailwind for the NZD/USD.

Russia-Ukraine faltering to reach an agreement

Elsewhere, Russia-Ukraine tussles keep grabbing headlines as discussions continue between Kyiv and Moscow. However, they have failed to deliver a “fast-track” solution to the conflict, with Ukraine’s President Zelensky saying that talks are challenging. At the same time, Ukraine’s Defense Minister stated that there is nothing to satisfy Ukraine’s posture. On the Russian front, the Kremlin said that their delegation is putting “colossal energy” into those discussions.

Putting this aside, New Zealand reported 2021’s Q4 GDP, which rose by 3%, short of the 3.2% estimated. On the US front, the US central bank hiked borrowing costs 0.25% and expected to increase the bank’s benchmark rates on at least six occasions by the end of the year. All of the Fed’s monetary policy meetings would be subject to hiking rates, at least 25 bps each.

In the same meeting, Fed board members updated their forecasts. Policymakers expect core PCE to peak around 4.1% before falling to 2.3% in 2024. Regarding growth, the board expects the GDP at 2.8% by year’s end, lower than the 3.8% estimated in December, while the balance sheet reduction would be discussed at “coming meetings.”

Earlier in the North American session, the US docket featured Initial Jobless Claims for the week ending on March 12, which came at 214K, lower than the 220K expected, while Industrial Production for February showed some strength, rose by 7.5%y/y  higher than the 3.6% previous reading.

NZD/USD Price Forecast: Technical outlook

Overnight, the NZD/USD traded on top of the 200-hour simple moving average (SMA), seesawed around the 0.6820-50 range, surging higher near the London Fix, though falling short of breaking above the 0.6900 mark.

The NZD/USD bias is neutral-upwards and is approaching solid resistance around the 0.6900-13 area, which lies the psychological zero resistance and the 200-day moving average(DMA).

Upwards, the NZD/USD first resistance would be 0.6900-13. Breach of that region would sponsor amove towards the YTD high around 0.6925, followed by the 0.7000 figure.

• The euro has accelerated its recovery to reach levels right above 1.1100.
• Hopes of a cease-fire in Ukraine and USD weakness are boosting the euro.
• EUR/USD is likely to meet strong resistance at 1.1100/20 – ING.

The euro has accelerated its recovery from week lows at 1.0900, to reach session highs right above 1.1100 with the US dollar losing ground across the board.

The euro appreciates with the US dollar losing ground

The common currency keeps building up on Thursday, favored by a moderate optimism about an agreement between Ukraine and Russia that might lead to a cease-fire in the battered eastern European country.

Beyond that, ECB President Lagarde has assured earlier today that inflation will stabilize at 2% in the medium-term while ECB's chief economist, Philip Lane, confirmed that the current inflationary pressures are temporary. These comments seem to have eased concerns after the release of higher-than-expected consumer prices figures released earlier today.

Furthermore, the US dollar remains on the back foot on Thursday as the market seems little impressed by the Federal Reserve’s interest rate and the monetary policy normalization plan disclosed on Wednesday.

US Treasury bond yields, which had reached multi-year highs right before the Fed’s meeting, have pulled back, weighing on the US dollar’s demand. The US Dollar Index, which measures USD’s value against a basket of the most traded currencies, has retreated about 0.5% so far today to hit weekly lows below 98.00.

EUR/USD faces tough resistance at 1.1100/20 – ING

According to the FX Analysis team at ING the pair might find strong resistance right above 1.1100 area: “After the Fed's success with a hawkish message and some suggestion from sourced reports that the ECB was unhappy with EUR/USD sub 1.10, ECB speakers may be happy to support expectations that the deposit rate is raised 35-50bp by the end of the year (…) EUR/USD could nudge a little firmer on a risk-on day, but we favor gains to stall ahead of the 1.1100/1120 area.” 

Technical levels to watch

• US equities have traded in mixed fashion thus far on Thursday, having been buffeted by mixed Russo-Ukraine negotiations headlines.
• The S&P 500 is a tad higher on the day in the 4360s and eyeing a test of 4400.
• With the Fed meeting and US data out of the way, investor focus will switch back to geopolitics and China.

US equities have traded in mixed fashion thus far on Thursday, having been buffeted in recent hours amid conflicting reporting regarding the state of Russo-Ukraine peace talks. The major US indices are currently trading in mixed fashion, with the S&P 500 very slightly in the green in the 4360s after an earlier dip below 4350 was bought into. The Nasdaq 100 index is modestly lower with the 14,000-level capping the price action for now and the Dow is flat just above 34,000. That comes after the three indices posted respective 2.2%, 3.7% and 1.6% rallies on Wednesday as equity investors took the first 25bps rate hike from the Fed in three years and hawkish guidance in their stride.

Analysts said that the positive reaction to the hawkish Fed meeting likely reflects the fact that investors deem such a policy shift from the Fed (to signaling six more 25bps hikes in 2022 and four in 2023) as appropriate given the economic backdrop of hot inflation and a tight labour market. Thursday’s US data in the form of a robust weekly jobless claims report and stronger than expected Philly Fed March survey reinforced these economic themes and thus didn’t impact market sentiment.

With the Fed meeting out of the way and no more important US data releases for the rest of the week, investor focus will switch back onto geopolitics, which suggests markets will remain choppy and headline-driven. Asia markets are also worth watching with indices having seen considerable volatility as a result of initial fears about a widespread Covid-19 outbreak but also optimism related to new pledges for economic support from Chinese officials. So long as news regarding Russo-Ukraine peace talks and the Chinese Covid-19 outbreak doesn’t take a substantial turn for the worse, the S&P 500 probably has a good shot at hitting 4400 again and testing earlier monthly highs around 4415.

• The Australian dollar rallies for the third consecutive day to levels past 0.7350.
• The aussie appreciates on the back of bright employment data and USD weakness.
• The AUD/USD is about to test resistance at 0.7365.

The Australian dollar has extended its recovery from Tuesday’s lows at 0.7165 to reach fresh one-week highs right above 0.7350 favored by broad-based US dollar weakness. The pair has appreciated nearly 2.5% in a three-day rally to erase the reversal witnessed in the previous two days.

Upbeat employment data and USD weakness boost the AUD

The AUD/USD has managed to continue rallying on Thursday in a somewhat sourer market mood as the positive employment data has spurred fresh hopes of monetary tightening by the Reserve Bank of Australia.

The number of employed workers increased by 77K in February, according to the Australian Bureau of Statistics, well beyond the 37K increase expected by the market, while the unemployment rate dropped to 4%. These figures have boosted hopes that the Australian Central Bank might consider accelerating its monetary normalization plans, ultimately increasing demand for the AUD.

On the other hand, the US dollar has been trading moderately lower across the board, with US bond yields retreating from highs as the markets digest Fed’s rate hike. Investors are showing little enthusiasm for the Central Banks’ plans to gradually increase borrowing costs expressed after Wednesday's monetary policy meeting.  

AUD/USD is approaching resistance at 0.7365

The pair is now heading toward the 0.7365 area where it might find some resistance at the March 10, 11 highs, following a three-day rally.

Once above 0.7365, the next potential target would be 0.7440 (March 7 high) before aiming for October 2021 highs at 0.7555.

On the downside, a bearish reaction from current levels might seek support at the 200-day SMA, now around 0.7300 and below there, 0.7240 (March 8 low) and 0.7165 (March 15 low).

Technical levels to watch

• Oil prices have seen a strong rebound on Thursday, with front-month WTI futures surging nearly $8.0 to the $102s.
• While prices are still $27 below last week’s highs, Thursday’s rally may signal an end to the recent bear run.

Oil prices have seen a strong rebound on Thursday, with front-month WTI futures surging nearly $8.0 (or over 8.0%) from under $95.00 per barrel to current levels in the $102.00s. That means WTI has now been able to erase more than 50% of this week’s losses that at one point saw it trading more than $15.0 lower in the $93.00s and is now down under $7.0 on the week. That still leaves prices about $27 below last week’s highs, but Thursday’s rally may signal an end to the near-non-stop selling pressure of the past six sessions.

As for the catalysts behind Thursday’s rally, there hasn’t been one clear headline or factor driving the rebound, but analysts have put forth a number of explanations. Firstly, uncertainty regarding whether or not Russo-Ukrainian peace talks can actually come up with a ceasefire to end the increasingly brutal war remains highly elevated. Conflicting reports with various news outlets citing different sources make it difficult for investors to unpack what’s actually going on.

That is helping to keep a high degree of geopolitical risk premia priced into energy markets amid uncertainty about what will happen to Russia’s vast exports. On this topic, the International Energy Agency on Wednesday warned that while higher oil prices will probably destroy about 1M barrels per day in demand, the loss in Russian supply would be far greater. Morgan Stanley came to a similar conclusion in a note out on Thursday, with analysts at the bank predicting a 1M barrel per day drop in Russian oil output from April which would more than offset a 600K barrel per day downward revision to global demand.

Separately, concerns about lockdowns in China eroding oil demand there have eased a touch as Covid-19 cases start to fall back again and sentiment in Asia markets has been given a massive boost by recent announcement from Chinese officials of new policy support. “China fears” were a big reason why WTI fell back under $100 per barrel earlier in the week and so as they fade, it makes sense to see oil rebounding.

As for what lies ahead for oil markets, geopolitics remains the main big risk. If a peace deal does suddenly look highly likely and is on the cusp of being announced, this is a big downside risk for prices, which could be easily sent tumbling back below earlier weekly lows in the $93.00s. Meanwhile, Covid-19 risk in China remains worth monitoring to see whether authorities there can get things back under control.

• DXY remains depressed and closer to 98.00.
• The Philly Fed Index surprised to the upside in March.
• Weekly Claims rose by 214K in the week to March 12.

The greenback remains unable to ignite even the smallest of the rebounds and drops to daily/weekly lows in the boundaries of the 98.00 mark when gauged by the US Dollar Index (DXY).

US Dollar Index under pressure on risk-on mood

The index extends the leg lower to 5-session lows on Thursday and pokes with the 98.00 mark in a context still favourable to the riskier assets, which are in turn propped up by hopes of an end to the Russian invasion of Ukraine.

Further selling pressure in the buck also comes from the corrective downside in US yields along the curve following post-FOMC highs recorded on Wednesday.

Auspicious results from the US data space did not help the dollar either after Initial Claims rose by 214K in the week to March 12 and the Philly Fed Index improved to 27.4 in March. Further data saw Housing Starts expand 6.8% MoM in February, or 1.769M units, and Building Permits contract 1.9% MoM, or 1.859M units. Additionally, Industrial Production expanded 0.5% MoM in February and 7.5% from a year earlier and Capacity Utilization eased a tad to 77.6%.

What to look for around USD

The index corrects further south following the start of the tightening cycle by the Federal Reserve at its meeting on Wednesday. Hopeful news from the geopolitical landscape could be weighing on the buck along with the better tone in the risk-associated complex, all putting DXY under extra pressure. Looking at the broader picture, bouts of risk aversion – exclusively emanating from Ukraine - should prop up inflows into the safe havens and lent legs to the dollar at a time when its constructive outlook remains propped up by the current elevated inflation narrative, the Fed’s lift-off and the solid performance of the US economy.

Key events in the US this week: Building Permits, Housing Starts, Philly Fed Index, Initial Claims, Industrial Production (Thursday) – CB Leading Index, Existing Home Sales (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Futures of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is losing 0.28% at 98.12 and a break above 99.29 (high Mar.14) would open the door to 99.41 (2022 high Mar.7) and finally 99.97 (high May 25 2020). On the flip side, the next down barrier emerges at 98.06 (weekly low Mar.17) followed by 97.71 (weekly low Mar.10) and then 97.44 (monthly high Jan.28).

The Bank of Japan (BoJ) will hold its policy meeting on Friday, March 18 at 03:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of seven major banks.

The BoJ is set to maintain its current accommodative policy stance while the assessment of growth and inflation is in focus.  

Standard Chartered 

“We expect the BoJ to keep the policy rate on hold. Japan is not currently under inflationary pressure, and considering the external risk, it is likely to normalise monetary policy only gradually.”

ING

“The BoJ is expected to keep its policy rate unchanged. Inflation has gone up rapidly over the past few months, but still remains below the BoJ’s target and lags the global upward trend.”

TDS

“The BoJ meeting is likely to be a non-event though there is a strong likelihood that the Bank downgrades its economic assessment. BoJ stance on increased inflationary pressure in focus.”

BBH

“It’s clear from recent official comments that the bank is not too concerned about higher inflation as it is viewed as a temporary spike from energy prices. Instead, some have focused on weak wage growth as a major reason to remain dovish. We fully expect a dovish hold. The April 27/28 meeting should provide more clues to future policy, as FY24 will be added to the forecast horizon then.”

Deutsche Bank

“The BoJ is expected to hold the key rate steady but there is a chance of economic assessment being downgraded.”

Citibank

“The focus will be on Governor Kuroda’s view about the recent depreciation of the yen, given media reports that the Kishida administration is increasingly concerned about yen weakness. However, Kuroda's recent comments tying BoJ policy to a covid recovery suggest an end to NIRP or shift to a shorter YCC target maturity (from 10yr to 5yr) are unlikely as responses to yen depreciation. Widening the target range for the 10yr JGB yield (currently +/-0.25%) may be an option though the BoJ has conducted fixed-rate operations in 2022 to keep yields below the upper end of this range (+25bps) and a sudden move to widen the target range in response to yen depreciation would therefore reduce confidence in the BoJ's commitment.” 

Credit Suisse

“There appears little likelihood as yet that the BoJ will take any measures that argue for a stronger JPY. But if it were to surprise with a strong focus on the odds of cost push inflation turning into a more persistent source of price pressure, the wider consensus on an ever-weaker JPY would see a clear challenge.”

A Western official on Thursday said that there is a very big gap between the positions of Ukraine and Russia in peace talks, reported Reuters. Those who have seen Russian President Vladimir Putin's remarks would be forgiven for thinking he is not in a mood to compromise, the official added. 

• The USD/CHF is losing 0.29% in the North American session.
• Geopolitics and central bank tightening conditions keep the mood fluctuating.
• USD/CHF Price Forecast: Remains upwards, but a break under 0.9373 would exert downward pressure in the pair.

The USD/CHF continues sliding for the second consecutive trading day after a hawkish Federal Reserve increased rates by 25 bps and expects to hike for the remainder of the year, meaning six more increases are yet to come. At the time of writing, the USD/CHF is trading at 0.9377.

Geopolitics and tightening monetary policy conditions keep markets whipsawing

Mixed market sentiment clouds the financial markets, as European and US equity indices fluctuate in the green/red, courtesy of Russia’s invasion of Ukraine and central bank tightening monetary conditions.

Discussions between Russia and Ukraine continue, though they were qualified as challenging by Ukraine’s President Zelensky, while one of his aids and Defense Minister said that there is nothing to satisfy us in negotiations with Russia. On the Russian side, the Foreign Minister Lavrov says discussions persist, and the Kremlin added that their delegation is putting “colossal energy” into Ukraine peace talks.

Aside from this, on Wednesday, the US Federal Reserve began its tightening cycle, increasing rates 25 basis points, and the so-called dot-plot, a projection of the Federal Fund Rates (FFR), foresees six more hikes in the rest of 2022. Furthermore, Fed members revealed that the US economy would grow by 2.8%, a 1% drop compared to December projections. Fed’s favorite gauge of inflation, the core Personal Consumption Expenditure (PCE), is estimated to peak around 4.1%.

Earlier in the North American session, the US docket featured Initial Jobless Claims for the week ending on March 12, which came at 214K, lower than the 220K expected, while Industrial Production for February showed some strength, rose by 7.5%y/y  higher than the 3.6% previous reading.

USD/CHF Price Forecast: Technical outlook

Overnight, the USD/CHF seesawed around the 0.9400-20 area after the US central bank hiked rates

The USD/CHF bias is upwards, but downside risks persist unless USD/CHF bulls hold the exchange rate above the November 24, 2021, high at 0.9373, previous resistance-turned-support. In that event, the 0.9400 would be the first resistance, followed by March 15 high at 0.9431. Once cleared, the next stop would be April 1, 2021, high at 0.9472, exposing the 0.9500 mark once cleared.

On the flip side, the USD/CHF first support would be 0.9373, followed by January 31 resistance-turned-support at 0.9343 and the 0.9300 psychological level.

• The greenback is capped below 1.2680 after a three-day reversal from 1.2870. 
• The Canadian dollar appreciates on higher oil prices, softer US dollar.
• USD/CAD seen dropping further below 1.2650 – Scotiabank.

The US dollar is trying to pick up from two-week lows at 1.2650 seen earlier on Thursday yet, so far unable to break past 1.2680.

The Canadian dollar advances as oil prices pick up

The USD is set for a three-day decline against its Canadian counterpart. The pair has extended its reversal from week highs at 1.2870 to the mid-range of 1.2650, weighed on Thursday by a pick-up in crude prices that is underpinning the CAD.

Oil prices bounced up on Thursday, buoyed by renewed supply concerns after the International Energy Agency (IEA) warned that the decline in global demand caused by higher prices will not offset the shut-in of Russian supplies.

Beyond that, the US dollar is showing a weaker tone. US Treasury bonds, retreating from recent highs, are weighing on USD demand while the market seems little impressed after the Federal Reserve increased interest rates on Wednesday for the first time in three years.

USD/CAD: Further losses to be witnessed below 1.2650 –  Scotiabank

In the longer term, currency analysts at Scotiabank see the pair biased lower, and point out to a break of 1.2650 level: USD/CAD may continue to find support in the low/mid 1.26s for now but, at the very least, we see limited scope for USD/CAD gains at present and continue to prefer fading USD rallies (…) Upside momentum in the USD has waned in the past few session and broader signals suggest solid resistance above the market in the mid-1.28s.” 

Technical levels to watch

The Bank of England (BoE) has raised its Bank Rate to 0.75% but the tone has turned more cautious. GBP has sold off and looks more vulnerable against the dollar, in the view of economists at ING.

BoE delivers a cautious hike

“The BoE hiked the Bank Rate by 25bp to 0.75%. The committee voted 8-1 in favour of the hike with one dissenter preferring no change. This is a more dovish split than the four members voting in favour of a 50bp hike at the February meeting.”

“With the US more exposed to demand-driven inflation, a confident Fed should keep the dollar in the ascendancy. We see a greater risk of GBP/USD trading 1.28 than 1.34 over the coming weeks.”

“The same factors restraining BoE hawkishness will be playing out across continental Europe, too. And at least the BoE has already now delivered three hikes. We, therefore, see the EUR/GBP upside as more limited and do not see a strong case for it sustaining gains above the 0.8450/70 area.” 

“Focusing on a further BoE rate hike on 5 May, a time when UK CPI will be pushing to the 8% area, could see EUR/GBP trading back down to the 0.83 area.”

Turkish President Recep Erdogan told Russian President Vladimir Putin on Thursday that he could host a meeting between him and Ukrainian President Volodymyr Velenskiy in Turkey, and told Putin that a permanent ceasefire could lead to a long-term solution, reported Reuters. 

The reports come after Ukrainian Foreign Minster Dmytro Kuleba said earlier in the day that Ukraine and Turkey were focused on setting up a meeting of the Russian and Ukrainian Presidents and that Ukraine is ready to continue with diplomatic efforts to stop Russian aggression. 

Market Reaction

While markets are yet to hear the Russian response, the more positive-sounding headlines coming from the Ukrainians and Turkish regarding a potential Presidential meeting appear to be spurring some hopes for a ceasefire, which seems to be impacting markets. The Dollar Index (DXY) has fallen back towards session lows in the 98.10s in recent trade, while the S&P 500 has been pushing higher and is now in the green and comfortably back above the 4350 level. 

The S&P 500 has seen a strong recovery above near-term resistance from its 13-day exponential average and recent high at 4299 and on increased volume. This maintains thoughts of a lengthier consolidation phase, which could still evolve into a bearish “triangle” pattern, analysts at Credit Suisse report.

Next key resistance test seen at 4363/87

“S&P 500 has cleared key near-term resistance from its 13-day exponential average and recent high at 4299 and on increased volume. This maintains thoughts of a lengthier consolidation phase and indeed a deeper recovery, which could still eventually evolve into a bearish ‘triangle’ continuation pattern.” 

“Resistance is seen next at the top of the early March price gap at 4363, then the 38.2% retracement of the 2022 fall and downtrend from early January at 4384/87. Our bias is to try and look for a cap here for now to define the top of the potential “triangle”.” 

“Above 4387 would suggest the recovery can extend further to the 4417 March high, potentially what we would expect to be much tougher resistance at the 200-day average at 4468.” 

“Support is seen at 4323 initially, then the 13-day exponential average at 4288/84. Below 4252 though is needed to see the risk turn lower again for a fall back to the recent lows at 4173/58.”

• Strong US data failed to impact markets and silver continues to trade on the front foot in the $25.40 area.
• That marks a more than 3.5% rebound from this week’s pre-Fed lows in near $24.50.
• Amid continued Russ0-Ukraine uncertainty, it’s not surprising that XAG/USD trades near the middle of its post-invasion $24.00ish to $27.00ish range.

The latest batch of US data, including a stronger than anticipated weekly jobless claims report that suggests labour market turnover remains well within bounds considered “healthy” plus a better-than-expected Philadelphia Fed Manufacturing survey which pointed to an uptick in inflationary pressures in March, has broadly failed to impact the market mood. While the data very much reinforces the hawkish message imparted by Fed Chair Jerome Powell on Wednesday after the Fed lifted rates for the first time in three years, but has not impacted spot silver (XAG/USD) prices, which are trading with a positive bias and looking to challenge $25.50.

At current levels around $25.40, XAG/USD is trading higher by over 1.0% on the day and more than 3.5% up versus Wednesday’s pre-Fed lows in the $24.40s. Facilitating the rebound has been a weakening post-Fed US dollar and a sharp recovery in energy costs (the Bloomberg Energy Index is up over 6.0% on the day), which is keeping demand for inflation-protection (in the form of precious metals) strong. Risk appetite is mixed on Thursday as investors attempt to struggle to keep on top of Russo-Ukraine developments, particularly regarding peace talks.

While Russia and Ukraine both denied a much-circulated FT article on Wednesday that claimed the two sides were near to an agreement on a 15-point peace plan, investors are clinging on to hopes that a deal can be struck to put a swift end to the violence. This is likely to keep a cap on silver’s potential gains for now. Indeed, amid the high degree of uncertainty regarding how events will turn out between Russia and Ukraine, it's perhaps not surprising to see silver trading near the middle of its post-invasion $24.00ish lows and $27.00ish highs.

A dovish hike – the Bank of England has delivered a cautious increase of interest rates. GBP has started to pull away from the intraday highs, reflecting some disappointment with the BoE outlook. Medium-risks favor GBP underperformance versus both USD and EUR, according to economists at TD Securities.

GBP likely to lag EUR and USD over the medium-term

“As expected, the MPC voted to raise Bank Rate by 25bps today. However, the messaging around the hike took a notably softer tone, with the MPC not committing as forcefully to future hikes. We continue to expect a hike in May before a long pause to 2023.”

“We think rallies will be brief and prefer to buy EUR/GBP dips towards 0.83 rather than chasing the rally now.”

“We think that the dovish pivot, and hawkish Fed shift, imply a push below 1.30 for GBP/USD in Q2.” 

“A range of factors (BoE repricing, higher oil, rising stagflation risks, diverging monetary policy and growth expectations) point to a deteriorating backdrop and underperformance against the likes of USD and EUR.”

• EUR/USD pushes higher to weekly peaks around 1.1080.
• Interim barrier comes at the 20-day SMA at 1.1094.

EUR/USD picks up further pace and advances to multi-day tops in the 1.1070/80 band on Thursday.

As long as bulls remain in control, then the pair could attempt a test of the temporary hurdle at the 20-day SMA, today at 1.1094. Further north comes the more relevant weekly top at 1.1121 (March 10) ahead of the interim hurdle at the 55-day SMA at 1.1251. The selling pressure is seen alleviated once the pair clears the 6-month resistance line, today near 1.1280.

An overall negative outlook for EUR/USD, however, remains unchanged so long as it stays below the key 200-day SMA, today at 1.1535.

EUR/USD daily chart

The CAD has extended gains against the USD to probe the mid-1.26s. Price action suggests the pair may consolidate around this area, economists at Scotiabank report.

Upside momentum in the USD/CAD has waned

“USD/CAD may continue to find support in the low/mid 1.26s for now but, at the very least, we see limited scope for USD/CAD gains at present and continue to prefer fading USD rallies.”

“Upside momentum in the USD has waned in the past few session and broader signals suggest solid resistance above the market in the mid-1.28s.” 

“Intraday, we see USD resistance at 1.2700 and 1.2780.”

 “Support is 1.2650 and – key – at 1.2575/85.”

• DXY drops further and approaches the 98.00 mark.
• A potential deeper retracement to the 97.70 area is not ruled out.

DXY loses further the grip and accelerates losses to the 98.15 zone on Thursday.

Considering the recent price action in the dollar, further retracement in DXY now carries the potential to extend to the weekly low at 97.71 (low March 10), where some initial contention is expected to emerge.

The current bullish stance in the index, however, remains supported by the 6-month line, today near 95.90, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 94.47.

DXY daily chart

• USD/JPY was seen consolidated its recent gains to the highest level since February 2016.
• Bulls took a breather amid extremely overbought conditions and modest USD weakness.
• The Fed-BoJ policy divergence supports prospects for an extension of the bullish trend.

The USD/JPY pair seesawed between tepid gains/minor losses through the early North American session and held steady near the 118.80-118.75 region, just a few pips below the multi-year peak.

The pair witnessed subdued/range-bound price move on Thursday and consolidated its recent strong run-up to the highest level since February 2016 amid extremely overbought conditions on short-term charts. A weaker tone around the equity markets drove some haven flows towards the Japanese yen. This, along with modest US dollar weakness, failed to assist the USD/JPY pair to find acceptance above the 119.00 round-figure mark.

That said, the growing Fed-BoJ policy divergence continued acting as a tailwind for the USD/JPY pair. In fact, the Fed on Wednesday announced the start of the policy tightening cycle and indicated that it would raise interest rates at all the six remaining meetings in 2022. Conversely, the Bank of Japan is expected to stick to its accommodative policy stance at the upcoming meeting on Friday, which should favour bullish traders.

Apart from this, hopes for a diplomatic solution to end the war in Ukraine should keep a lid on any meaningful gains for the JPY and adds credence to the constructive outlook for the USD/JPY pair. That said, some repositioning trade ahead of the BoJ decision could infuse some volatility. Any corrective slide, however, might be seen as an opportunity to initiate fresh bullish positions and is likely to remain limited.

The fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside. Hence, some follow-through strength, towards reclaiming the key 120.00 psychological mark, remains a distinct possibility. That said, bulls are likely to wait for sustained strength beyond the 119.00 round figure before placing fresh bets.

Technical levels to watch

• A combination of supporting factors pushed AUD/USD to a fresh weekly high on Thursday.
• Upbeat Australian jobs data underpinned the aussie and extended support amid softer USD.
• Sustained strength beyond the 0.7360-65 region would be seen as a fresh trigger for bulls.

The AUD/USD pair maintained its strong bid tone through the early North American session and was last seen trading near the weekly high, just below mid-0.7300s.

The pair gained traction for the third successive day on Thursday and has now rallied nearly 200 pips from the monthly low, around the 0.7165 region touched earlier this week. The Australian dollar drew support from the upbeat domestic jobs report, which showed that the unemployment rate dropped to its lowest level since August 2008. The data lifted bets for an early interest rate hike by the Reserve Bank of Australia and acted as a tailwind for the Australian dollar.

On the other hand, signs of progress in the Russia-Ukraine ceasefire talks and hopes for a diplomatic solution to end the war continued undermining demand for the safe-haven US dollar. Apart from this, retreating US Treasury bond yields further weighed on the greenback, which, in turn, provided an additional boost to the AUD/USD pair. That said, the Fed's hawkish outlook, along with mostly better-than-expected US macro releases helped limit losses for the buck.

The Fed on Wednesday announced the start of the policy tightening cycle and hiked its target fund rate for the first time since 2018. The Fed also hinted that it would adopt a more aggressive policy stance to combat high inflation. The so-called dot plot indicated that the Fed could raise interest rates at all the six remaining meetings in 2022. Fed Chair Jerome Powell added that the US central bank could start shrinking its balance sheet as soon as the next meeting in May.

On the economic data front, the US Weekly Initial Jobless Claims fell more than expected to 214K from the previous upwardly revised reading of 229K and pointed to strong demand for workers. Adding to this, the Philly Fed Manufacturing Index jumped to 27.4 for March as against expectations for a dip to 15 from 16 in the previous month. Apart from this, an intraday pullback in the equity markets extended some support to the greenback and might cap gains for the AUD/USD pair.

The mixed fundamental backdrop warrants some caution for aggressive traders and before positioning for any further appreciating move for the AUD/USD pair. Hence, bulls are likely to wait for some follow-through buying beyond the 0.7360-0.7365 region before placing fresh bets. This should pave the way for a move back towards reclaiming the 0.7400 mark en-route the YTD peak, around the 0.7440 region touched earlier this month.

Technical levels to watch

• A dovish BoE hike saw EUR/GBP surge into the 84.30s, a strong rebound from previous lows in the 0.8360s.
• The pair is now eyeing a test of weekly/monthly highs in the 0.8450s.
• Though the bank hiked as expected, one rate-setter voted to hold and guidance for future hikes wasn’t as convincing.

In wake of a dovish hike from the Bank of England, sterling weakness has pushed EUR/GBP to session highs in the 0.8430s and the pair is now eyeing a test of earlier weekly highs just above the 0.8350 level. That marks a substantial turnaround from earlier session lows in the 0.8360s. A break above weekly highs just above 0.8450 would see EUR/GBP hit its highest level since early February and would open the door to a test of annual highs in the 0.8480 region printed back on February 7.

The BoE hiked interest rates by 25bps to 0.75% as markets had been expected, but one of the bank’s nine rate-setters (Jon Cunliffe) voted to leave rates unchanged, while the bank’s guidance on the need for further rate hikes sounded a little more unsure than back in February. Meanwhile, the bank’s near-term inflation forecast was given another hefty upgrade and is now seen peaking at around 8.0% YoY in Q2. That means deeply negative short-term interest rates aren’t going anywhere any time soon. This, when coupled with dampened expectations for further tightening this year, has been a toxic combination for GBP.

Sterling is unsurprisingly now the worst performing G10 currency on the day. Ahead this week, there isn’t much else on the economic calendar for EUR/GBP traders to focus on, meaning geopolitics and its broader impact on risk appetite will likely return to the forefront as the main driver of the pair. The theme of a potential Russo-Ukraine peace deal amid mixed/confusing reporting on the topic is a key investor focus right now.

European Central Bank Executive Board Member Isabel Schnabel said on Thursday that only a de-anchoring of medium to long-term inflation expectations from our 2.0% target would justify a more forceful policy response to inflation, reported Reuters. The indirect effects of higher energy prices can be a persistent source of upward pressure on underlying inflation, she noted. The fight against climate change is not a reason to raise our inflation target, she noted. 

• GBP/JPY retreated over 120 pips from the four-week high in a knee-jerk reaction to the BoE decision.
• The BoE raised rates by 25 bps and disappointed some investors anticipating a more aggressive hike.
• Hopes for diplomacy in Ukraine undermined the safe-haven JPY and extended support ahead of BoJ.

The GBP/JPY cross witnessed aggressive selling around the Bank of England announced its policy decision and dived to a fresh daily low, around the 155.45 region during the mid-European session.

The British pound weakened across the board in reaction to the BoE's decision to raise interest rates by 25 bps, which disappointed some investors expecting a more aggressive increase in borrowing costs. Moreover, the 8-1 MPC vote distribution was seen as another factor that contributed to the GBP/JPY pair's dramatic intraday turnaround from the four-week high, around the 156.70 region.

Barring the knee-jerk fall, the GBP/JPY cross lacked follow-through selling amid hopes for a diplomatic solution to end the war in Ukraine, which continued undermining the safe-haven Japanese yen. This, along with expectations that the Bank of Japan (BoJ) will stick to its accommodative policy stance at the upcoming meeting on Friday, weighed on the JPY and extended support to the GBP/JPY cross.

Nevertheless, the pair, for now, seems to have snapped four successive days of the winning streak as traders start repositioning for the BoJ event risk. Apart from this, fresh developments surrounding the Russia-Ukraine saga, will influence the broader market risk sentiment and drive demand for traditional safe-haven assets. This, in turn, should produce some trading opportunities around the GBP/JPY cross.

Technical levels to watch

• The headline Philly Fed Manufacturing Index rose to 27.4 in March from 16.0 in February versus an expected decline. 
• FX markets did not see much of a reaction to the latest batch of US data.

According to a report from the Federal Reserve Bank of Philadelphia released on Thursday, the headline Manufacturing Activity Index of the Manufacturing Business Outlook Survey rose to 27.4 in March from 16.0 in February. That was significantly better than the expected decline to 15.0.

Subindices:

• The Business Conditions Index fell to 22.7 from 28.1. 
• The CAPEX Index rose to 24.8 from 21.50. 
• The Employment Index rose to 38.9 from 32.3, a new record high. 
• The New Orders Index rose to 25.8 from 14.2.
• The Prices Paid Index rose sharply to 81.0 from 69.3, its highest level since 1979.

Market Reaction

FX markets did not see much of a reaction to the latest batch of US data, which was broadly stronger than expected, but won't change much for the Fed. 

• There were 214,000 initial jobless claims in the US in the week ending on 12 March, less than the 220,000 expected. 
• FX markets did not see much of a reaction to the latest batch of US data. 

There were 214,000 initial jobless claims in the US in the week ending on 12 March, less than the 220,000 expected and below the week prior, when there were 229,000 claims (revised up from 227,000), data published by the US Department of Labor (DOL) revealed on Thursday. The four-week moving average of initial claims thus fell to 223,000 from 231,750 the week before. 

Continued claims in the week ending on 5 March fell to 1.419M, larger than the expected drop to 1.485M from 1.49M the week prior (which was revised down from 1.494M). The Insured Unemployment rate in the week ending on 5 March thus fell to 1.0% from 1.1% the week before.

Market Reaction

FX markets did not see much of a reaction to the latest batch of US data, which was broadly stronger than expected, but won't change much for the Fed. 

European Central Bank Governing Council Member and Dutch central bank head Klass Knot said on Thursday that a rate hike in Q4 this year is still a realistic expectation, but is by no means a certainty, reported Reuters. Knot added that two rate hikes this year can't be excluded but that would require a further upward revision of inflation expectations. 

Asset buys should be reduced to EUR 10B in July and ended by the end of July, he continued, noting that September should be available for a rate hike, "not that I expect rates will have to go up in September". A delay in a rate hike to January would require strong negative demand effects because of the war in Ukraine, Knot outlined. 

Market Reaction

FX markets did not react to the latest comments from ECB's Knot. 

• GBP/USD witnessed a dramatic turnaround after the BoE announced its policy decision.
• The 8-1 vote distribution to hike rate disappointed investors and weighed on sterling.
• Hopes for diplomacy in Ukraine undermined the safe-haven USD and might limit losses.

The GBP/USD pair plunged over 100 pips from a near two-week high and refreshed daily low, around the 1.3100 mark after the Bank of England announced its policy decision.

As was widely expected, the UK central bank raised its key rate by 25 bps to 0.75% at the end of the March policy meeting this Thursday. This marked the third straight hike in as many meetings, though the 8-1 vote distribution disappointed investors and prompted aggressive selling around the GBP/USD pair.

Moreover, the markets had priced in 40% chances of a 50 bps rate hike. This, along with the uncertain outlook in the wake of Russia's invasion of Ukraine and growth concerns, further weighed on the British pound. This, in turn, was seen as a key factor behind the GBP/USD pair dramatic intraday turnaround.

That said, the optimism over a possible diplomatic solution to end the war in Ukraine continued weighing on the safe-haven US dollar. This should hold back bearish traders from placing aggressive bets around the GBP/USD pair, warranting caution before confirming that the recent bounce from the YTD low has run its course.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Industrial Production data. This, along with the broader market risk sentiment, might influence the USD price dynamics and provide some impetus to the GBP/USD pair.

Technical levels to watch

In its latest monetary policy announcement, the Bank of England (BoE) opted to raise the benchmark UK interest rate by a further 25bps to 0.75% from 0.50%, as had been widely expected. GBP's kneejerk reaction was to drop sharply as a result of only eight on nine Monetary Policy Committee (MPC) members voting to raise interest rates (versus expectations for nine). MPC member John Cunliffe voted to leave rates unchanged at 0.50%. 

In its new statement on monetary policy, the BoE said that it judges that "some further modest tightening might be appropriate in the coming months", a slightly more dovish wording than that in the February statement when the BoE said further modest tightening "is likely to be appropriate". The BoE also said that there are risks on both sides of its policy judgment depending on how inflation prospects evolve (which some may view as opening the door to an easing bias).

The bank said it sees CPI inflation peaking at around 8.0% in Q2 2022, though it could go higher later in the year. The bank upgraded slightly its view of GDP growth in Q1 2022 to 0.75% from flat in February. The majority of the MPC said policy should be tightened to reduce the risk that pay trends and inflation become embedded. Global inflation pressures will strengthen considerably in the coming months, the BoE warned, stating that Russia's invasion of Ukraine is likely to exacerbate supply chain snags. 

Growth in the economies of net energy importers like the UK will slow, the BoE statement added and the bank will act to ensure stability in longer-term inflation expectations. The BoE said it judges that inflation expectations remain well-anchored at present, though the bank will be monitoring them closely. The squeeze on household finances is likely to be significantly larger than expected as recently as February, the statement warned, adding that a new BoE agents survey showed that companies expect 2022 pay increases of 4-6%. 

Market Reaction

GBP has dumped in wake of the latest BoE policy announcement given the fact that one MPC member dissented against a 25bps rate hike and the slightly more dovish wording to the language regarding future rate hikes. GBP/USD dropped from close to 1.3200 prior to the data release to test 1.3100 and at current levels in the 1.3110 area, is now down 0.3% on the day. EUR/GBP lept sharply from under 0.8370 to current levels in the 0.8420s where it now trades higher by over 0.4% on the day. 

• USD/TRY picks up upside traction to the vicinity of 14.80.
• The CBRT kept the policy rate unchanged at its meeting.
• The central bank’s “liraization” strategy remains in place.

The Turkish lira sheds some ground and motivates USD/TRY to advance to 2-day peaks near 14.80 on Thursday.

USD/TRY up on steady CBRT

The lira surrenders part of the gains recorded in the last four sessions after the Turkish central bank (CBRT) left the One-Week Repo Rate unchanged at 14.00% at its event on Thursday, in line with market expectations.

Indeed, the CBRT left no room for surprises at Thursday’s meeting despite the war in Ukraine put energy prices under further upside pressure against the domestic backdrop of an already rampant inflation.

It is worth recalling that inflation in Turkey rose beyond 50% in the year to February largely reflecting the collapse of the lira. However, soaring energy prices in the current context does nothing but exert extra pressure on consumer prices while undermining at the same time the morale among households.

In its statement, the CBRT reinforced the “liraization” strategy, all eventually aiming at achieving the medium-term inflation goal at a very optimistic 5%

What to look for around TRY

The lira regained some poise in past sessions and abandoned the area of YTD lows vs. the US dollar around the 15.00 zone (March 11). In the very near term, price action in the Turkish currency is expected to gyrate around the performance of energy prices, the broad risk appetite trends, the Fed’s rate path and the progress of the peace talks in the Russia-Ukraine front. Extra risks facing TRY also come from the domestic backyard, as inflation gives no signs of easing, real interest rates remain negative and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent.

Key events in Turkey this week: CBRT Meeting (Thursday).

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

USD/TRY key levels

So far, the pair is gaining 1.50% at 14.7950 and a drop below 14.5217 (weekly low Mar.15) would expose 13.7063 (low Feb.28) and finally 13.5091 (low Feb.18). On the other hand, the next up barrier lines up at 14.9889 (2022 high Mar.11) seconded by 18.2582 (all-time high Dec.20) and then 19.00 (round level).

• A combination of factors dragged USD/CAD lower for the third successive day on Thursday.
• A pickup in oil prices, stronger Canadian CPI underpinned the loonie and exerted pressure.
• Hopes for diplomacy in Ukraine, retreating US bond yields weighed on the safe-haven USD.

The USD/CAD pair continued drifting lower through the mid-European session and dropped to a fresh two-week low, around mid-1.2600s in the last hour.

The pair prolonged this week's sharp retracement slide from the 1.2870 area and witnessed some follow-through selling for the third successive day on Thursday. A goodish pickup in crude oil prices underpinned the commodity-linked loonie and dragged the USD/CAD pair lowest amid modest US dollar weakness.

Crude oil prices rallied over 4% after the International Energy Agency (IEA) said that markets could lose three million barrels per day of Russian crude and refined products from April. This comes on the back of hotter-than-expected Canadian CPI print released on Wednesday and boosted demand for the Canadian dollar.

On the other hand, the latest optimism over the possibility of a diplomatic solution to end the war in Ukraine, along with retreating US Treasury bond yields weighed on the safe-haven USD. This further contributed to the USD/CAD pair's intraday slide from the 1.2700 mark, confirming a near-term bearish breakdown.

The USD price action suggests that the USD bulls seemed rather unimpressed by the outcome of a two-day FOMC monetary policy meeting on Wednesday. In fact, the Fed decided to hike interest rates for the first time since 2018 and indicated that it would adopt a more aggressive policy response to combat stubbornly high inflation.

Fed Chair Jerome Powell emphasised that the economy was strong enough to withstand tighter monetary policy. Powell added that the Fed could start shrinking its near $9 trillion balance sheet as soon as the next meeting in May. This, however, was more or less in line with market expectations and failed to lift the USD.

The fundamental backdrop now seems tilted in favour of bearish traders and supports prospects for a further near-term depreciating move, towards testing the 1.2600 mark. The said handle coincides with the 200-day SMA and is followed by the monthly low, around the 1.2585 region, which should now act as the pivotal point.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Industrial Production data. This, along with the broader risk sentiment and oil price dynamics, should provide some impetus to the USD/CAD pair.

Technical levels to watch

UOB Group’s FX Strategists noted USD/CNH could have now embarked on a consolidative phase likely between 6.3300 and 6.3900 in the near term.

Key Quotes

24-hour view: “The sharp drop in USD came as a surprise (we were expecting USD to trade sideways). There is room for the decline to extend but any weakness is likely limited to a test of 6.3450. The major support at 6.3300 is unlikely to come into the picture. Resistance is at 6.3750 followed by 6.3850.”

Next 1-3 weeks: “We have expected a stronger USD since Monday (14 Mar, spot at 6.3620). As USD surged to our target at 6.4100, we highlighted yesterday (16 Mar, spot at 6.3895) that while risk is still on the upside, the next major resistance at 6.4300 may not come into the picture so soon. We did anticipate the abrupt and sharp sell-off that sent USD plunging to a low of 6.3530. The breach of our ‘strong support’ level at 6.3600 indicates that upward pressure has eased. The current movement is likely part a consolidation and in view of the recent outsized moves, USD could trade sideways within a broad range of 6.3300/6.3900 for now.”

• EUR/JPY advances further north of the 200-day SMA.
• The continuation of the uptrend now targets the 131.90 level.

EUR/JPY gathers extra pace and extends the rally above 131.00 the figure on Thursday.

A convincing move above the 200-day SMA (129.98) should pave the way for extra gains with the immediate target at the weekly high at 131.90 (February 16) prior to the 2022 peak at 133.15 (February 10).

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

EUR/JPY daily chart

Following the March policy meeting, The Central Bank of the Republic of Turkey (CBRT) announced on Thursday that it left its policy (one-week repo) rate unchanged at 14% as expected.

Market reaction

USD/TRY edged higher with the initial market reaction and was last seen gaining 1% on the day at 14.7550.

Key takeaways from policy statement

"Temporary effects of pricing formations that are not supported by economic fundamentals."

"Disinflation process expected to start on the back of measures taken."

"Will pursue disinflation decisively."

"Cumulative impact of the recent policy decisions is being monitored."

"Comprehensive review of the policy framework continues with the aim of encouraging permanent and strengthened liraization."

"Increase in inflation in the recent period has been driven by rising energy costs resulting from the heightened regional conflict."

BoE Monetary Policy Decision – Overview

The Bank of England (BoE) is scheduled to announce its monetary policy decision this Thursday at 12:00 GMT. The UK central bank is widely expected to hike interest rates for the third straight meeting, though market participants remain divided over the possibility of a 50 bps rise. The UK consumer prices rose at the fastest annual pace in nearly 30 years last month and the war in Ukraine means that inflation is going to stay higher for longer, prompting the BoE to act further. That said, an uncertain outlook in the wake of Russia's invasion of Ukraine and concerns over growth could see policymakers adopt a more flexible approach.

As analysts at ING explain: “We suspect the BoE will opt for another 25bp rate rise, rather than a larger 50bp move. Markets are once again pricing six rate rises this year, and comments from officials have offered some modest pushback against these expectations. Our own view is that after a couple more hikes, the committee is likely to pause and put greater emphasis on the deteriorating growth backdrop. After all, such a sharp rise in oil and gas prices is more likely to be medium-term disinflationary, even if it keeps headline inflation rates higher this year.”

How could it affect GBP/USD?

Heading into the key central bank event risk, the GBP/USD pair climbed to the 1.3200 neighbourhood, or a one-week low amid the prevalent US dollar selling bias. A more hawkish shift would be enough to provide an additional boost to the British pound and set the stage for an extension of the pair's recent bounce from the key 1.3000 psychological mark. Conversely, a 25 bps rate hike could disappoint bullish traders, though the optimistic market mood should continue to undermine the safe-haven buck and lend support to the major.

Meanwhile, Eren Sengezer, Editor at FXStreet, offered a brief technical outlook for the GBP/USD pair: “The technical picture suggests that the pair remains bullish in the near term with the Relative Strength Index (RSI) indicator on the four-hour chart staying near 60. Additionally, GBP/USD trades above the 20-period and the 50-period SMAs on the same chart.”

Eren also outlined important technical levels to trade the major: “On the upside, 1.3200 (psychological level, Fibonacci 50% retracement of the latest downtrend) aligns as the first technical resistance. In case a four-hour candle closes above that level on a hawkish BOE hike, the next bullish target is located at 1.3250 (100-period SMA, Fibonacci 61.8% retracement) before 1.3300 (former support).”

“Supports could be seen at 1.3150 (Fibonacci 38.2% retracement), 1.3100 (psychological level, Fibonacci 23.6% retracement, 50-period SMA) and 1.3075 (20-period SMA),” Eren added further.

Key Notes

  •  BOE Interest Rate Decision Preview: A hat-trick and a difficult balancing act

  •  GBP/USD Forecast: Can a 25 bps BOE hike lift the pound?

  •  GBP/USD justifies falling wedge breakout to cross 1.3150 with eyes on BOE, Ukraine

About the BoE interest rate decision

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

Further gains in USD/JPY are expected to face the next barrier of note around 119.70, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “While we expected USD to strengthen yesterday, we were of the view that ‘a break of 118.65 is unlikely’. However, USD blew past 118.65 and popped to a high of 119.12. Conditions are deeply overbought and USD is unlikely to strengthen much further. For today, USD is more likely to trade sideways at these higher levels, expected to be within a range of 118.45/119.10.”

Next 1-3 weeks: “We have expected a stronger USD since last Thursday (10 Mar, spot at 115.90). As USD soared, in our latest narrative from Tuesday (15 Mar, spot at 118.25), we highlighted that USD strength could continue for a while more. We added, a break of 118.65 would shift the focus to 119.10. Yesterday (16 Mar), USD cracked 118.65 and soared to 119.12. Further USD strength is not ruled out but overbought conditions suggest that the current rally may take a pause first. Looking ahead, the next resistance above 119.10 is at 119.70. On the downside, a breach of 117.90 (‘strong support’ level was at 117.30 yesterday) would indicate that the current strong upward pressure has eased.”

European Central Bank chief economist Philip Lane said on Thursday there are reasons to believe that core inflation will fade even though it holds above 2% for now, per Reuters.

"One percentage point of goods inflation might be attributable to factors we think are temporary," Lane explained. "Core inflation is above 2% now but there are reasons to expect it would fade because of those level effects."

Market reaction

EUR/USD continues to fluctuate in a very tight range around mid-1.1000s after these comments.

The global economic growth will be more than 1% lower this year due to the Ukraine crisis, the Organisation for Economic Cooperation and Development (OECD) said in a recently published report, per Reuters.

Key takeaways

"Central banks should remain focused on policy normalisation to keep inflation expectations well-anchored."

"Additional government spending of 0.5% of GDP could reduce the economic impact of conflict by half."

"Crisis could add 2.5% to global inflation."

"Central banks should be prepared to intervene if needed to ensure smooth functioning of financial markets."

Market reaction

Investors stay cautious after this report with US stock index futures falling between 0.55% and 0.8%. 

Gold price has risen to the $1,940 area despite the US Federal Reserve rate hike. Six more hikes are expected this year. The course is thus set for the coming months, so why is XAU/USD climbing today nonetheless? A glance at previous rate hike cycles shows that gold tended to gain once the cycle began, economists at Commerzbank report.

War in Ukraine points to increased demand for gold

“Fed increased the key rate by 25 basis points. Fed Chair Powell also raised the prospect of further rate hikes. The projections of Fed members point to seven rate hikes by year’s end, including yesterday’s.”

“A glance at previous rate hike cycles shows that gold tended to gain once the cycle began. The same appears to be happening this time too, though comparisons with past rate hike cycles are difficult in view of the war in Ukraine. After all, this is an additional factor that points to increased demand for gold. ”

An adviser for Ukrainian President Volodymyr Zelenskyy said on Thursday that Ukraine's position in negotiations with Russia hasn't changed, per Reuters. "Ukraine's borders as of 1991 must be recognised," the adviser added.

Meanwhile, commenting on the Financials Times report on progress in peace talks, "it is not right - there are elements that are correct but on the whole, it is not true," a Kremlin spokesperson said.

Market reaction

There is a negative shift in market mood following these remarks. As of writing, Euro Stoxx 600 Index was posting small daily losses and US stock index futures were down between 0.5% and 0.8%. 

• Euro area annual HICP rose to 5.9% in February.
• EUR/USD continues to fluctuate above 1.1000 after the data.

Annual inflation in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP), rose to 5.9% in February, Eurostat announced on Thursday. This print came in higher than the flash estimate and the market expectation of 5.8%.

Further details of the publication revealed that the Core HICP, which excludes volatile food and energy prices, was 2.7% on a yearly basis in February as initially estimated. 

Market reaction

EUR/USD edged slightly lower after this data and was last seen trading flat on the day at 1.1033.

GBP/USD has extended rebound toward 1.32. Can a 25 bps Bank of England (BoE) hike lift the pound? A dovish hike could cause the British pound to weaken against its rivals, FXStreet’s Eren Sengezer reports.

Holding policy rate unchanged at 0.5% would be a nightmare scenario for the GBP 

“In case the BoE's policy statement suggests that the bank will take a cautious stance with regards to rate hikes moving forward, the pound could come under renewed bearish pressure.”

“If the BoE holds the policy rate unchanged at 0.5%, that would be a nightmare scenario for the GBP and trigger a sharp decline in GBP/USD.”

“A surprise 50 bps hike in March should open the door for a decisive rally in GBP/USD. The bank could also adopt a hawkish tone by opening the door for one more rate hike in the upcoming meeting even if it goes for a 25 bps hike this time around.”

See – BoE​​​​​​​ Preview: Forecasts from 10 major banks, eyeing a hat-trick caught between a rock and a hard place

"Inflation is increasingly likely to stabilise at our 2% target over the medium term," European Central Bank President Christine Lagarde said on Thursday, as reported by Reuters.

Additional takeaways

"If wages were to notably and persistently exceed that benchmark even as growth was slowing, it could be an indication that household inflation expectations are drifting upwards."

"If wages were to fail to catch up sufficiently – for instance, because uncertainty leads to unions being more cautious – households would be exposed to an even stronger squeeze in real income."

"We have scope to adjust policy in a timely fashion should we see risks of excess inflation extending into the medium term."

"We are keeping open the option to take any necessary measures should the economic consequences of the war escalate and stifle the current recovery path."

"We are ready to use a wide range of instruments to address fragmentation, including the reinvestment of our portfolio held under the pandemic emergency purchase programme."

"We can design and deploy new instruments to secure monetary policy transmission as we move along the path of policy normalisation, as we have shown on many occasions in the past."

Market reaction

EUR/USD's reaction to these comments was largely muted. The pair was last seen posting small daily gains near 1.1050.

• AUD/USD gained traction for the third straight day and was supported by a combination of factors.
• The risk-on impulse weighed on the safe-haven USD and benefitted the perceived riskier aussie.
• Upbeat Australian jobs data further underpinned the domestic currency and remained supportive.
• The Fed's more hawkish outlook could act as a tailwind for the USD and cap the upside for the pair.

The AUD/USD pair extended its steady intraday ascent through the first half of the European session and climbed to a fresh weekly high, around the 0.7330-0.7335 region in the last hour.

A combination of supporting factors assisted the AUD/USD pair to build on this week's goodish rebound from the monthly low and gain positive traction for the third successive day on Thursday. The prevalent risk-on mood weighed on the safe-haven US dollar and benefitted the perceived riskier aussie, which further benefitted from upbeat Australian employment data.

Signs of progress in the Russia-Ukraine ceasefire talks raised hopes about a diplomatic solution to end the war. In fact, Ukrainian President Volodymyr Zelensky said negotiations were becoming more realistic while Russia noted that proposals under discussion were close to an agreement. This boosted investors' confidence and undermined traditional safe-haven assets.

The Australian dollar drew additional support from better-than-expected domestic data, which showed that the Unemployment Rate dropped to 4.0% in February from 4.2% in the previous month. Adding to this, the number of employed people rose by 77.4K during the reported month as compared to consensus estimates pointing to a rise to 37K from the 12.9K in January.

That said, the Fed's hawkish outlook, indicating that it could raise interest rates at all the six remaining meetings in 2022, should act as a tailwind for the buck. Moreover, Fed Chair Jerome Powell hinted that the US central bank could start shrinking its near $9 trillion balance sheet as soon as the next meeting in May. This might cap gains for the AUD/USD pair.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Industrial Production data. This, along with the fresh developments surrounding the Russia-Ukraine saga, the broader risk sentiment, will influence the USD and provide some impetus to the AUD/USD pair.

Technical levels to watch

Extra gains in NZD/USD are likely although there is a strong hurdle around 0.6875, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “The strong surge in NZD has gathered momentum and it could test the major resistance at 0.6875. In view of the overbought conditions, a clear break of this level is unlikely. The next resistance is at 0.6900. O the downside, a breach of 0.6795 (minor support is at 0.6815) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “NZD soared yesterday and easily took out our ‘strong resistance’ level at 0.6810 (high of 0.6845). The break of 0.6810 indicates that our view for NZD to trade with a downward bias was incorrect. The rapid build-up in momentum has shifted the risk to the upside. That said, any advance is expected to face solid resistance at 0.6875. On the downside, a breach of 0.6765 would indicate that the current upward pressure has eased.”

• USD/JPY was seen consolidating its recent strong gains to the highest level since February 2016.
• Retreating US bond yields kept the USD bulls on the defensive and capped the upside for the pair.
• The risk-on mood undermined the safe-haven JPY and continued lending support to the major.
• Investors also preferred to wait for the BoJ decision on Friday before placing fresh bullish bets.

The USD/JPY pair oscillated in a range through the first half of the European session and was last seen trading around the 118.70 region, nearly unchanged for the day.

The pair struggled to find acceptance above the 119.00 mark and for now, seems to have stalled its recent strong bullish run-up to the highest level since February 2016. As investors digested the much-awaited FOMC policy decision, modest pullback in the US Treasury bond yields kept the US dollar bulls on the defensive. This, in turn, was seen as a key factor that acted as a headwind for the USD/JPY pair amid extremely overbought conditions on short-term charts.

As was widely expected, the Fed on Wednesday announced the start of the policy tightening cycle and hiked its target fund rate by 25 bps for the first time since 2018. The Fed also hinted to adopt a more aggressive policy to combat stubbornly high inflation. In fact, the so-called dot-plot indicated that the US central bank could raise rates at all the six remaining meetings in 2022. The decision, however, was in-line with expectations and failed to impress bulls.

In the post-meeting press conference, Fed Chair Jerome Powell sounded more hawkish and emphasised that the economy was strong enough to withstand tighter monetary policy. Powell further added that the US central bank could start shrinking its near $9 trillion balance sheet as soon as the next meeting in May. Conversely, the Bank of Japan (BoJ) is anticipated to maintain the current accommodative policy stance at its upcoming policy meeting on Friday.

The divergence in the BoJ-Fed policy outlooks, along with the optimism over the possibility of a diplomatic solution to end the war in Ukraine could undermine the safe-haven Japanese yen. This, in turn, favours bullish traders and supports prospects for an extension of the recent strong upward trajectory witnessed over the past two weeks or so. Traders, however, preferred to wait for the BoJ policy decision before placing fresh bullish bets.

In the meantime, the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Industrial Production data will be looked upon for some impetus. Apart from this, fresh developments surrounding the Russia-Ukraine saga, the broader risk sentiment and the US bond yields should produce some short-term trading opportunities around the USD/JPY pair.

Technical levels to watch

• EUR/USD adds to the weekly rebound beyond 1.1050.
• EMU Final February CPI next on tap in the domestic docket.
• Initial Claims, housing data, Philly Fed index due next in the NA session.

The optimism around the single currency remains well on the rise and lifts EUR/USD to new weekly peaks past the 1.1050 level on Thursday.

EUR/USD stronger on risk appetite, geopolitics

EUR/USD advances uninterruptedly since Monday and manages to retake the psychological 1.1000 mark and above against the backdrop of the continuation of the selloff in the greenback and persistent hopes of a positive outcome from the Russia-Ukraine peace talks.

In the meantime, German 10y benchmark yields correct lower from recent tops, in line with the rest of the global yields and reflecting some recovery in bond prices in the wake of the FOMC event on Wednesday.

In the euro docket, the final EMU CPI for the month of February will be the only release of significance along with speeches by Chairwoman C.Lagarde and Board member P.Lane.

Across the Atlantic, usual Initial Claims are due seconded by the Philly Fed manufacturing gauge and results from the housing sector.

What to look for around EUR

The European currency keeps the bid bias unchanged and surpasses the 1.1000 barrier once again, always on the back of the renewed optimism in the risk-linked universe and the intense downtrend in the dollar. Pockets of strength in the euro should appear propped up by the speculation of the start of the hiking cycle by the ECB at some point by year end, 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 firmer currency for the time being.

Key events in the euro area this week: ECB Lagarde, EMU Final CPI (Thursday) – EMU Balance of Trade (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Presidential elections in France in April. Impact of the geopolitical conflict in Ukraine.

EUR/USD levels to watch

So far, spot is gaining 0.18% at 1.1053 and faces the next up barrier at 1.1067 (weekly high Mar.17) followed by 1.1121 (weekly high Mar.10) and finally 1.1251 (55-day SMA). On the other hand, a drop below 1.0900 (weekly low Mar.14) would target 1.0805 (2022 low Mar.7) en route to 1.0766 (monthly low May 7 2020).

FX Strategists at UOB Group suggested the upside momentum in GBP/USD could extend to the 1.3220 area in the next weeks.

Key Quotes

24-hour view: “Our expectations for GBP consolidate yesterday were incorrect as it soared to 1.3156 before closing on a firm note at 1.3146 (+0.77%). The rapidly improving momentum is likely to lead to further GBP strength. In view of the overbought conditions, any advance in GBP is unlikely to challenge the major resistance at 1.3220 (minor resistance is at 1.3180). Support is at 1.3125 followed by 1.3090.”

Next 1-3 weeks: “The weak phase in GBP that started about 3 weeks ago has ended as GBP rose above our ‘strong resistance’ level of 1.3140. The strong rebound has room to extend to 1.3220. A break of 1.3220 is not ruled out but at this stage, the odds for a sustained rise above this level are not high. Overall, GBP is expected to trade on a firm footing as long as it does not move below 1.3040 within these few days.”

• DXY sheds further ground and trades in multi-day lows.
• US yields correct lower following recent fresh tops.
• Weekly Claims, Philly Fed Index, housing data next of relevance.

The greenback, in terms of the US Dollar Index (DXY), maintains the weekly leg lower well in place and probes the area of multi-day lows around 98.20 on Thursday.

US Dollar Index looks to geopolitics, data

The index intensifies the decline and drops for the fourth consecutive session, as market participants continue to digest Wednesday’s FOMC event and hopes of a diplomatic end to the war in Ukraine also sustains the bias towards the risk complex.

Following the sharp upside and further flattening of the curve post-FOMC event, US yields seem to be taking a breather on Thursday although they manage well to keep business in the upper end of the range nonetheless.

It is worth recalling that the Fed raised the Fed Funds Target Range by 25 bps for the first time since 2018 and the updated dots plot suggests six more rate hikes throughout this year. Powell suggested that the balance sheet runoff could start as soon as in May.

In the US data space, usual weekly Claims are due along with the always relevant Philly Fed Index, Housing Starts and Building Permits.

What to look for around USD

The index corrects further south following the start of the tightening cycle by the Federal Reserve at its meeting on Wednesday. Hopeful news from the geopolitical landscape could be weighing on the buck along with the better tone in the risk-associated complex, all putting DXY under extra pressure. Looking at the broader picture, bouts of risk aversion – exclusively emanating from Ukraine - should prop up inflows into the safe havens and lent legs to the dollar at a time when its constructive outlook remains propped up by the current elevated inflation narrative, the Fed’s lift-off and the solid performance of the US economy.

Key events in the US this week: Building Permits, Housing Starts, Philly Fed Index, Initial Claims, Industrial Production (Thursday) – CB Leading Index, Existing Home Sales (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Futures of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is losing 0.17% at 98.23 and a break above 99.29 (high Mar.14) would open the door to 99.41 (2022 high Mar.7) and finally 99.97 (high May 25 2020). On the flip side, the next down barrier emerges at 98.15 (weekly low Mar.17) followed by 97.71 (weekly low Mar.10) and then 97.44 (monthly high Jan.28).

The war in Ukraine has fueled demand for the Swiss franc as a safe-haven. If the situation in Ukraine eases, the CHF should weaken somewhat again. However, economists at Commerzbank do not see much depreciation potential for the franc.

USD/CHF seen at higher levels again next year

“In our base scenario, we assume that there will be a solution to the Ukraine war in the coming weeks. Against this background, we expect a moderate recovery of EUR/CHF.”

“We do not see much scope for significantly higher levels in EUR/CHF. This is because, from a market perspective, the ECB is likely to act too hesitantly in view of high inflation. In addition, the Swiss National Bank is also likely to raise its key interest rate from September, in line with the ECB.”

“Next year, the disappointment that the ECB has already reached the end of its rate hike cycle is likely to weigh on the EUR. While we do not think the SNB will raise its key rate further either, moderate inflation and solid growth should make the franc look more attractive.”

“Against the USD, the franc should appreciate somewhat in the course of the year, when it becomes clear that the SNB is also initiating the turnaround in monetary policy. However, since the Fed will probably act much more actively, we see USD/CHF at higher levels again next year.”

• Gold gained traction for the second successive day and recovered further from the monthly low.
• Retreating US bond yields weighed on the USD and benefitted the non-yielding yellow metal.
• The risk-on mood, Fed’s hawkish outlook should keep a lid on further gains for the XAU/USD.

Gold built on the previous day's post-FOMC bounce from sub-$1,900 levels, or the fresh monthly low and gained some follow-through traction for the second successive day on Thursday. The XAU/USD held on to its modest intraday gains through the early part of the European session and was last seen trading near the daily high, around the $1,935 region. As investors looked past the highly-anticipated Fed decision, retreating US Treasury bond yields kept the US dollar bulls on the defensive and acted as a tailwind for the dollar-denominated commodity. Apart from this, the uptick lacked any obvious fundamental catalyst and runs the risk of fizzling out rather quickly.

The Fed on Wednesday announced the start of the policy tightening cycle and hiked its target fund rate by 25 bps for the first time since 2018. The Fed also hinted that it would adopt a more aggressive policy response to combat stubbornly high inflation. In fact, the so-called dot plot indicated that the Fed could raise interest rates at all six remaining meetings in 2022. In the post-meeting press conference, Fed Chair Jerome Powell added that the US central bank could start shrinking its near $9 trillion balance sheet as soon as the next meeting in May. This, in turn, should keep a lid on any meaningful gains for the non-yielding gold.

Bulls might further refrain from placing aggressive bets amid signs of progress in the Russia-Ukraine ceasefire talks. Ukrainian President Volodymyr Zelensky said negotiations were becoming more realistic while Russia noted that proposals under discussion were close to an agreement. The optimism over a diplomatic solution to end the war in Ukraine remained supportive of the positive risk tone, which might further contribute to capping gains for the safe-haven gold. Hence, it will be prudent to wait for strong follow-through buying before confirming that the sharp pullback from the $2,070 region, or the highest level since August 2020 is over.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Industrial Production data. This, along with the US bond yields, might influence the USD price dynamics. Apart from this, traders will take cues from fresh developments surrounding the Russia-Ukraine saga and the broader market risk sentiment, to grab some short-term opportunities around gold.

Technical outlook

From a technical perspective, gold showed some resilience below the $1,900 mark and stage a goodish rebound from the 61.8% Fibonacci retracement level of the $1,780-$2,070 strong move up. The subsequent strength favours bullish traders and supports prospects for additional gains. That said, neutral technical indicators on the daily chart are yet to confirm the constructive outlook. Hence, any further move up is more likely to confront stiff resistance near the $1,948-$1,950 region, which is followed by the 38.2% Fibo. level, around the $1,960 area. Sustained strength beyond has the potential to push gold back towards the key $2,000 psychological mark, which coincides with the 23.6% Fibo. level.

On the flip side, the 50% Fibo. level, around the $1,925 region, now seems to protect the immediate downside. Some follow-through selling could drag gold prices back towards testing the 61.8% Fibo. level, around the $1,895 region. The next relevant support is pegged near the $1,875-$1,870 region, which if broken decisively should pave the way for a further near-term depreciating move. The XAU/USD might then turn vulnerable and drop to the $1,850 intermediate support en-route the very important 200-day SMA, currently around the $1,815 region.

Gold daily chart

Key levels to watch

The Bank of England (BoE) is set to announce its rate decision on Thursday at 12:00 GMT. The clear majority of analysts expect the “Old Lady” to hike its key rate by 25bp. But a possible 50 bp hike could lift the pound, economists at Commerzbank report. 

Sterling might temporarily ease if there is no hawkish surprise

“If the BoE were to surprise with a 50bp step after all that would be positive for sterling, just as a hawkish smaller step would be.”

“If there is no hawkish surprise sterling might temporarily ease, in particular against the euro losses are likely to be limited though. An active BoE and a hesitant ECB support sterling for now.”

See – BoE Preview: Forecasts from 10 major banks, eyeing a hat-trick caught between a rock and a hard place

Risk flows dominated the financial markets in the second half of the day on Wednesday despite the US Federal Reserve's hawkish policy outlook. Still, economists at ING favour continued dollar strength against the low yielders and commodity FX to outperform.

DXY to push towards 100 near-term

“A risk-on environment is generally seen as a mild dollar negative – as cash leaves from the safety of dollar deposits to be put to work. If this is the case, we would continue to favour the commodity currencies which are enjoying strong terms of trade gains.”

“An aggressive Fed should continue to see the dollar perform relatively well too. Dollar gains, however, should be concentrated against the low-yielders.”

“The clearest trend will be a higher USD/JPY, where a dovish Bank of Japan and Japan's large negative income shock from the fossil fuel rally will send USD/JPY to 120 and possibly 125 later this year. We also think the dollar can hold/build on gains against European FX too.”

“DXY is consolidating near the highs and we would still favour a push to 100 near-term.”

The US Dollar Index (DXY) is flatlining around 99. DXY could test lower levels near term if momentum toward de-escalation in Ukraine continues, but weakness should prove fleeting with the Federal Reserve sticking resolutely to a hawkish path. 

A move above 100 is on the cards in coming weeks

“A front-loaded Fed hike cycle should provide sustained tailwinds for DXY through 2022 though past Fed hike cycles caution that a sustained Fed-driven appreciation profile might take time to develop.”

“There’s more near term DXY downside to be had if momentum toward a de-escalation in Eastern Europe builds, possibly as low as 97.0-95.70, but with the US curve flattening aggressively and short end yield support continuing to build, DXY still looks headed to 100+ in coming weeks.”

The Bank of England (BoE) is expected to hike its policy rate by 25 basis points later in the session. Economists at ING expect the pound to remain resilient throughout the first half of the year. Subsequently, the EUR/GBP pair is set to hover around the 0.83 level.

Another 25bp from the BoE

“The BoE is widely expected to hike the Bank Rate to 0.75%. The market prices the Bank Rate close to 2.25%, yes 2.25%, by the end of this year. GBP pricing will be driven by when the BoE feels the need to disabuse the market of this notion. There are many thinking that this will come today and have probably positioned for a GBP sell-off.”

“Should the BoE continue to prefer a strong GBP to insulate against higher natural gas prices and the run-up in CPI to 8% this April, it could choose to delay a rate protest until later in the year.”

“Our preference is for GBP holding gains through the first half of this year – and EUR/GBP continuing to trade near 0.83. If we are wrong and the rate protest comes today, EUR/GBP could spike to the 0.8480/8500 area.”

See – BoE Preview: Forecasts from 10 major banks, eyeing a hat-trick caught between a rock and a hard place

EUR/USD closed the second straight day in positive territory on Wednesday but struggled to clear 1.1050. Economists at ING expect the pair to remain capped at the 1.1100/1120 region.

Let's hear from the ECB

“After the Fed's success with a hawkish message and some suggestion from sourced reports that the ECB was unhappy with EUR/USD sub 1.10, ECB speakers may be happy to support expectations that the deposit rate is raised 35-50bp by the end of the year.”

“EUR/USD could nudge a little firmer on a risk-on day, but we favour gains to stall ahead of the 1.1100/1120 area.” 

“We are not in the camp looking for an immediate snap back to pre-war 1.13-1.15 levels and prefer a move back to 1.08 this summer.”

WTI crude oil continued to extend losses on Wednesday to trade at just below $96.50. Any news suggesting a potential new supply disruption could easily move WTI prices back into the $120s or higher again, strategists at TD Securities report.

Deficit risks remain

“Russian oil output may drop by a quarter next month and stay there, or perhaps drop further in the coming months. Similarly, Saudi Arabia and the UAE are not promising more crude oil despite UK prime minister's trip to petition for supply increases.”

“Any unanticipated supply interruption could easily see prices surge back to recent highs above $120/b, as the market prices H2-2022 deficits with little inventories to fill the shortfalls.”

“There is limited ability to replace or fully redirect Russian crude in the near-term, and in the medium term too due to geography and lack of infrastructure to bring supply to markets which are willing to take that crude.”

Japan's former top currency diplomat Hiroshi Watanabe said on Thursday, the recent depreciation of the yen is unlikely to be reversed by tightening monetary policy or intervening in the currency market.

Key quotes

“The yen, now hovering around 118.90 yen may fall below 120 to the dollar and add pressure on Japan's resource-poor, import-reliant economy.”

"The Bank of Japan continues to say a weak yen is good for the economy. But if crude oil prices keep rising, it's uncertain whether it can keep saying so."

Still, there were little policymakers can do to arrest yen declines.”

"Intervention (to stop yen falls) won't work given the huge size of the global currency market.”

USD/JPY reaction

The pair was last seen trading modestly flat on the day at 118.75.

European Central Bank's (ECB) hawkish taper twist suggests that it will act on a “whatever it takes” basis to contain inflation and so EUR may find sound support if the Ukraine conflict is contained. However, a spike towards 2020’s 1.0635/40 low cannot be ruled out, economists at Westpac report.

The shift in EU and ECB coordination is likely to provide EUR support

“ECB President Lagarde stated that greater ‘optionality’, or flexibility, was needed to deal with rising risks (of stagflation). This clear hawkish tilt reflects an equally dramatic, if less overt, shift in EU and Eurozone finance ministers. They are now open to coordinated regional fiscal support to support households deal with surging energy prices, accelerate energy transition, lift security spending and support regional economies. This ‘whatever it takes’ approach from EU/Eurozone if conflict is contained, may have put a floor under the vulnerable EUR.”

“Even if flash PMI and IFO data reflect the ZEW surveys, the shift in EU and ECB coordination is likely to provide EUR support.”

“EUR/USD remains vulnerable to a retest of 1.08 and a spike towards the 2020’s 1.0635/40 low cannot be ruled out, but risks appear more balanced and a close above 1.11 could establish a firmer range for EUR/USD.”

The Turkish lira exchange rate has temporarily stabilised after the government and central bank launched rescue measures. After a brief pause, analysts at Commerzbank anticipate the next big move in USD/TRY.

Turkey has the deepest negative real interest rate in decades

“There is very little chance that CBT can raise rates, no matter what the inflation rate accelerates to. Hence, we now have the deepest negative real interest rate we have observed for Turkey in decades, with essentially no upper-bound – because no inflation targeting in place. This is a disaster for the exchange rate outlook.”

“We think that the significant rise of long-term inflation expectations over the past month, relative to the unchanging central bank rate, has opened the door for the next big decline in coming months.”

• USD/CAD struggled to preserve its modest intraday gains to the 1.2700 neighbourhood.
• An uptick in crude oil prices underpinned the loonie and capped gains amid softer USD.
• The Fed’s hawkish outlook should limit the USD downtick and warrants caution for bears.

The USD/CAD pair surrendered its modest intraday gains and retreated closer to the two-week low, around the 1.2675 region during the early European session.

The pair gained some positive traction during the first half of the trading on Thursday, though the uptick lacked bullish conviction and ran out of steam near the 1.2700 round-figure mark. A combination of factors underpinned the Canadian dollar and acted as a headwind for the USD/CAD pair. On the other hand, the prevalent risk-on mood continued weighing on the safe-haven US dollar and attracted fresh selling around the major.

Crude oil prices edged higher after the International Energy Agency (IEA) said that markets could lose three million barrels per day of Russian crude and refined products from April. This, along with hotter-than-expected Canadian CPI, benefitted the commodity-linked loonie. In fact, Canada's annual inflation accelerated in February and reached its highest level since August 1991, adding pressure on the Bank of Canada to accelerate rate hikes.

That said, the resurgence of COVID-19 cases in China has raised concerns about reduced fuel demand. Apart from this, hopes for a diplomatic solution to end the war in Ukraine should keep a lid on any meaningful gains for the black liquid. Moreover, the Fed's hawkish outlook should limit the downside for the buck. This, in turn, should extend support to the USD/CAD pair, warranting some caution before placing aggressive bearish bets.

It is worth recalling that the Fed on Wednesday hiked interest rate for the first time since 2018 and also hinted to adopt a more aggressive policy response to combat high inflation. The so-called dot plot indicated that the Fed could raise interest rates at all the six remaining meetings in 2022. Hence, it will be prudent to wait for some follow-through selling before positioning for an extension of the two-day-old bearish trend.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Industrial Production data. Apart from this, fresh developments surrounding the Russia-Ukraine saga and the broader market risk sentiment would influence the USD. Traders will further take cues from oil price dynamics to grab some opportunities around the USD/CAD pair.

Technical levels to watch

USD/JPY reached its highest level in six years above 119.00 on Wednesday. In the view of economists at Westpac, the speed of the move through 117 is beginning to feel excessive, but it looks like the pair could extend all the way to 121 before any sign of pause.

USD/JPY remains the preferred way for the market to play long USD trades

“It’s pretty clear that USD/JPY remains the preferred way for the market to play long USD trades given the Fed has begun an aggressive tightening campaign and the BoJ appears to be pretty unfazed by the fact that the yen on a real effective basis is at lows back to 1971.”

“The speed with which we have broken above 117 does feel like we may start to see additional commentary from the MoF that they are ‘watching moves in the yen closely’ and that ‘stability in FX is important’ in the days ahead.” 

“Risks that the move extends towards 121 if, as we hope, we move to a formal ceasefire in Ukraine.”

The forint has recovered substantially from the initial shock of the Russia-Ukraine conflict. EUR/HUF is set to hover around  370 in the near-term. Looking ahead, economist at Commerzbank do not anticipate further HUF strength.

EUR/HUF can calm down as conflict subsides

“Our EUR/HUF forecast of 370 for end-2022 remains unchanged, but the path has changed somewhat. Recently, the pair spiked sharply, to beyond 400, as the Russia-Ukraine conflict broke out. From those levels, we now expect a gradual calming, followed by sideways movement at 370.”

“We forecast forint volatility to remain high for now because the conflict has not gone away. What is more, the market is pricing in more monetary tightening by the Fed in coming quarters.”

“As geopolitical risk calms down in the medium-term and the energy and commodity price shock also passes its peak, we see limited recovery of the forint, taking EUR/HUF back towards 365 levels during 2023.”

Ukraine war will lead to higher inflation and smaller growth.

Ukraine war does not justify a return to "whatever it takes"-style policies.

Energy prices have started to decline but very volatile.

Ukraine war will cost French economy around 1%of growth.

Latest French government measures address rise in energy prices, but we need to reduce long-term exposure in energy sector.  

Russian credit default would have very limited consequences for global finance.

developing story ...

Following a brief dip during the past few days, NZD/USD retains upward momentum for the week ahead, targeting 0.6925, helped by NZ commodity price outlook, economists at Westpac report.

NZ’s key product, whole milk powder, should have further to run

“NZD/USD retains upward momentum and is poised to test 0.6875 and then 0.6925 during the week ahead.”

“While geopolitical risks will restrain the NZD during the weeks ahead, by year-end we target 0.7100+.”

“The global commodity inflation surge is a major source of support. Energy and metal commodities have attracted much attention, but agricultural commodities have also been strong. NZ’s key product – whole milk powder – has risen around 25% this year, and should have further to run.”

• EUR/USD cheers renewed optimism over the Russia-Ukraine war.
• Risk-on mood weighs negatively on the safe-haven US dollar.
• EUR bulls need to recapture 100-SMA on the 4H chart for further upside.

EUR/USD is heading back towards the weekly highs of 1.1053, as the US dollar comes under fresh selling pressure amid a renewed risk-on wave.

The market sentiment received a fresh boost after the UK military intelligence sources reportedly said that the Russian invasion of Ukraine has largely stalled on all fronts.

The greenback also remains pressured by the falling Treasury yields, despite the Fed’s hawkish pivot, suggesting six more rate hikes this year. The Fed outcome indicated that the world’s most powerful central bank remains on track to curb inflation even though the world battles uncertainty due to the Russia-Ukraine war.

The geopolitical developments will continue to impact the market’s risk perception ahead of the second-tier US economic releases due later on Thursday.

EUR/USD: Technical outlook

As observed on the four-hour chart, EUR/USD is challenging the downward-sloping 100-Simple Moving Average (SMA) at 1.1052.

A sustained break above the latter is needed to extend the recovery momentum towards the 1.1100 round level.

The Relative Strength Index (RSI) is inching slightly higher above the midline, justifying the renewed uptick in the price.

If bulls manage to extend their control, then the main currency pair could move further to retest the March 10 high of 1.1121.

EUR/USD: Four-hour chart

On the other side, strong support is seen around 1.0970, where the 21 and 50-SMAs align.

Bears could accelerate the pullback towards the previous day’s low of 1.0949 should the abovementioned support give way.

The last line of defense for buyers is seen at 1.0900, the psychological level.

EUR/USD: Additional levels to consider

The BoE could raise the policy rate at the August meeting, suggested Economist Lee Sue Ann at UOB Group.

Key Quotes

“The BoE, in Feb, imposed back-to-back interest rate hikes for the first time since 2004 and began the process of quantitative tightening.”

“We had pencilled in two rate hikes in 2022, including Feb’s 25 bps hike. Subsequently, we are expecting another 25 bps hike in Aug, which would bring the Bank Rate to 0.75% by end-2022.”

“Although we think that market expectations of rate hikes are overdone, we acknowledge the risk of more hikes this year.”

The UK military intelligence sources reportedly said on Thursday, the Russian invasion of Ukraine has largely stalled on all fronts.

Additional headlines

Market reaction

Risk sentiment got a fresh lift on the above headlines, as the S&P 500 futures spiked to daily highs of 4,366. The US dollar index turned south once again while AUD/USD consolidates the latest upside above 0.7300.

Gold stages a decent comeback after finding strong bids under $1,900. Acceptance above 21-Daily Moving Average (DMA) at $1,940 is critical for XAU/USD for additional recovery gains, FXStreet’s Dhwani Mehta reports.

Daily technical setup turns in favor of bulls

“The road to recovery needs acceptance above the upward-sloping 21-DMA at $1,940 on a closing basis. Recapturing the latter will trigger a fresh upswing towards Monday’s high of $1,955, above which bulls will target the February 24 highs of $1,975.”

“If bears take out the daily lows of $1,923, then the correction from 19-month highs could resume, opening floors for a retest of $1,895. The additional declines will call for a test of the ascending 50-DMA at $1,873. Ahead of that, the February 24 lows of $1,878 will challenge the bullish commitments.”

FX option expiries for March 17 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0885 261m
• 1.0910-15 325m
• 1.0970-80 603m
• 1.1000 1b
• 1.1075-85 690m
• 1.1100 398m

- GBP/USD: GBP amounts        

• 1.3200 236m

- USD/JPY: USD amounts                     

• 117.00 471m
• 117.50 200m
• 117.75 230m
• 118.00 205m
• 118.50 229m

- AUD/USD: AUD amounts

• 0.7150-55 2.2b

- USD/CAD: USD amounts       

• 1.2530 330m
• 1.2560 745m
• 1.2625-35 426m
• 1.2680-90 496m

- EUR/GBP: EUR amounts

• 0.8375 558m
• 0.8490 300m

• EUR/GBP remains on the back foot for the third consecutive day.
• Bull cross contradicts bearish MACD signals, SMA convergence acts as short-term important support.
• Three-week-old ascending trend line challenges buyers expecting disappointment from BOE.

EUR/GBP takes offers to refresh intraday low near 0.8380, down 0.20% on a day heading into Thursday’s European session.

In doing so, the pair defies the bull cross, a condition in which 50-SMA crosses above the 200-SMA and suggests short-term upside momentum.

The bullish moving average crossover contradicts the bearish MACD signals ahead of the Bank of England’s (BOE) monetary policy decision.

Read: BOE Interest Rate Decision Preview: A hat-trick and a difficult balancing act

That said, the quote’s latest weakness may find it difficult to break a convergence of the stated SMA, near 0.8370-65.

Following that, the late February’s low around the 0.8300 threshold should return on the chart.

On the contrary, recovery moves will aim for an ascending resistance line from February 25, around 0.8450 at the latest.

In a case where EUR/GBP buyers remain dominant past 0.8450, the previous month’s top surrounding 0.8480 will be in focus.

EUR/GBP: Four-hour chart

Trend: Further weakness expected

• NZD/USD reversed softer NZ GDP-led early downtick and climbed to a fresh weekly high.
• The risk-on mood undermined the safe-haven USD and benefitted the perceived riskier kiwi.
• The Fed’s hawkish outlook should limit losses for the buck and cap the upside for the major.

The NZD/USD pair traded with a mild positive bias heading into the European session and was last seen hovering near the weekly high, just below mid-0.6800s.

The pair edged lower during the early part of the trading on Thursday after Statistics New Zealand announced that the economy expanded by 3.0% in Q4 2021 as against 3.2% expected. This, however, marked strong rebound from the 3.6% contraction reported in the previous quarter. Apart from this, modest US dollar weakness assisted the NZD/USD to attract some dip-buying around the 0.6820 region.

Investors remain optimistic about the possibility of a diplomatic solution to end the war in Ukraine. In fact, Russian Foreign Minister Sergey Lavrov said that there were hopes for compromises and some formulations of agreements with Ukraine are close to being agreed. This underpinned the risk sentiment, which continued weighing on the safe-haven buck and benefitted the perceived riskier kiwi.

Apart from this, retreating US Treasury bond yields turned out to be another factor that kept the USD bulls on the defensive. That said, the fact that the Fed on Wednesday hinted to adopt a more aggressive policy response to combat high inflation should act as a tailwind for the buck. The so-called dot plot indicated that the Fed could raise interest rates at all the six remaining meetings in 2022.

This, in turn, held back traders from placing aggressive bullish bets around the NZD/USD pair and kept a lid on any further gains, at least for the time being. Nevertheless, the major, so far, has managed to maintain its bid tone for the third successive day and remains at the mercy of the USD price dynamics. Traders now look forward to the US macro releases for some short-term opportunities.

Thursday's US economic docket features the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Industrial Production data, due later during the early North American session. Apart from this, fresh development surrounding the Russia-Ukraine saga will drive the broader market risk sentiment and influence the USD price dynamics, providing some impetus to the NZD/USD pair.

Technical levels to watch

Here is what you need to know on Thursday, March 17:

Risk flows dominated the financial markets in the second half of the day on Wednesday despite the US Federal Reserve's hawkish policy outlook. The US Dollar Index, which fell 0.6% on Wednesday, stays relatively quiet early Thursday as investors await EU inflation report, Bank of England's (BOE) rate decision and mid-tier data releases from the US. Meanwhile, the market mood remains mixed amid contradicting headlines on the Russia-Ukraine conflict.

The Fed increased its policy rate by 25 basis points following its two-day meeting in a widely expected decision. The Summary of Economic Projections, the so-called dot-plot, revealed that policymakers were expecting six more hikes this year with the policy rate hitting 1.9% by the end of 2022 before rising to 2.8% by the end-2023. Although the initial market reaction caused US T-bond yields to push higher and helped the dollar gather strength against its rivals, FOMC Chairman Jerome Powell's remarks soothed markets.

Powell said they were still expecting inflation to come down in the second half of the year despite heightened uncertainty and reassured markets that they will tackle inflation without hurting the economic activity. "We are strongly committed to not allowing high inflation to become entrenched," Powell noted. "The good news is that the economy and labor market is quite strong, can handle interest rate increases."

Federal Reserve hikes 0.25%, cautious on balance sheet and economic growth.

The Financial Times reported late Wednesday that Ukraine and Russia had made significant progress towards a potential peace plan. This headline revived optimism for a ceasefire but the Ukrainian side has reportedly rejected the proposed neutrality. Moreover, several reporters noted that Ukraine saw the positive shift in Russia's tone as an attempt to ease the sanctions' pressure.

EUR/USD closed the second straight day in positive territory on Wednesday but struggled to clear 1.1050. The pair trades in a relatively tight range near 1.1030 early Thursday.

GBP/USD extended its recovery after breaking above 1.3100 and clings to small daily gains above 1.3150 in the European morning. The BOE is expected to hike its policy rate by 25 basis points later in the session.

BOE Interest Rate Decision Preview: A hat-trick and a difficult balancing act.

Fueled by surging US Treasury bond yields, USD/JPY reached its highest level in six years above 119.00 on Wednesday. The pair retreated during the Asian trading hours but seems to have settled above 118.50. 

Gold dropped below $1,900 for the first time in May with the immediate reaction to the Fed's policy statement on Wednesday. XAU/USD, however, managed to reverse its direction during Powell's presser and continued to push higher during the Asian session. The pair was last seen clinging to modest daily gains above $1,930.

Bitcoin capitalized on the risk-positive market environment and reclaimed $40,000 late Wednesday. BTC/USD stays in a consolidation phase near $41,000 early Thursday. Ethereum gained nearly 6% on Wednesday and was last seen fluctuating in a tight range above $2,700.

CME Group’s flash data for natural gas futures markets noted traders added just 45 contracts to their open interest positions on Wednesday. Volume too went up for the second straight session, this time by around 19.7K contracts.

Natural Gas: Initial hurdle aligns at $5.00

Wednesday’s uptick in prices of natural gas was accompanied by increasing open interest and volume, allowing for the continuation of the uptrend in the very near term and with the next target at the $5.00 mark per MMBtu.

In the view of analysts at Scotiabank, the Bank of England (BOE) monetary policy decision this Thursday is expected to result in another 0.25% bank rate hike to 0.75%.

Read: BOE Interest Rate Decision Preview: A hat-trick and a difficult balancing act 

Key quotes

“We may see some more hawkish dissent in favur of a larger move.”

“Guidance will be key as upward pressure upon inflation that is already exceeding targets will be weighed against uncertainty stemming from the impact of the war in Ukraine.“

“That might be enough to tamp down reference to “some modest further tightening” being required given the BoE’s closer proximity to the war’s effects, but the BoE’s higher rate of core inflation (4.4% y/y) than the ECB’s, its continued rise, and the likelihood of further upward pressure have me thinking they’ll deliver a hawkish surprise to markets.”

According to preliminary readings from CME Group, open interest in crude oil futures markets went down for the fourth session in a row on Wednesday, now by around 21.6K contracts. In the same line, volume resumed the downside and shrank by around 345.5K contracts.

WTI meets support around $94.00

Prices of the WTI charted an inconclusive session on Wednesday amidst diminishing open interest and volume, which could be indicative that further decline would not be favoured in the very near term at least. In the meantime, the $94.00/$95.00 region emerges as a decent initial contention area.

Although prices of silver (XAG/USD) rebound in the last two days, the options market is up for posting the biggest weekly fall since early December 2021. Not only that, but the one-month risk reversal (RR) figure also snaps the five-week uptrend by the press time of Thursday’s early European morning.

That said, the gauge of calls to puts prints -0.925 figure for the week while flashing -0.325 daily RR, down for the second consecutive day, at the latest.

It’s worth noting that the XAG/USD prices also snap a six-week winning streak while bracing for the first negative weekly closing, up 0.44% intraday around $25.20 by the press time.

Given the downbeat option market signals, as well as the Fed’s rate-hike and indecision over the Ukraine-Russia peace plan, silver prices are likely to extend the weekly loss moving forward.

Read: Silver Price Forecast: XAG/USD recovery remains elusive below $25.20

In opinion of FX Strategists at UOB Group, the current upside momentum carries the potential to push EUR/USD to the 1.1080 zone in the short-term horizon.

Key Quotes

24-hour view: “EUR traded in a choppy manner yesterday before closing higher at 1.1032 (+0.74%). The underlying tone has firmed and EUR could edge higher from here. That said, a break of the major resistance at 1.1080 appears unlikely. Support is at 1.1005 followed by 1.0980.”

Next 1-3 weeks: “We have expected EUR to trade sideways since the start of the week. After trading sideways for several days, EUR is approaching the top of our expected range of 1.0870/1.1080. Shorter-term upward momentum has improved somewhat and EUR could rise above 1.1080. Looking ahead, EUR has to break 1.1120 before a sustained advance is likely. At this stage, the chance for EUR to break 1.1120 is not high but it would remain intact as long as EUR does not move below the ‘strong support’ level, currently at 1.0920.”

• Palladium prices retreat from intraday high, stay above the key support line.
• Bearish MACD hints at further downside, 200-DMA also challenges sellers.
• Fortnight-old horizontal area restricts short-term recovery moves, 50% Fibonacci retracement guards immediate upside.

Palladium (XPD/USD) prices remain sidelined around $2,425, up 0.90% intraday heading into Thursday’s European session.

The precious metal dropped to the lowest levels in a month on Monday but an upward sloping trend line from mid-December 2021 restricts the quote’s downside afterward.

However, bearish MACD signals and the bullion’s ability to cross the 50% Fibonacci retracement (Fibo.) of December-March upside, around $2,480, keeps XPD/USD sellers hopeful.

Even if palladium buyers manage to cross the $2,480 immediate hurdle, a fortnight-long horizontal region surrounding $2,740 will act as the last defense for the bears before highlighting the monthly peak of $3,411 on the chart.

Meanwhile, a daily closing below the stated support line, around $2,410 by the press time, will need validation from the $2,400 round figure to convince XPD/USD sellers.

Following that, the metal’s downward trajectory towards the 61.8% Fibo. and the 200-DMA, respectively near $2,260 and $2,160, can’t be ruled out.

Palladium: Daily chart

Trend: Further weakness expected

Open interest in gold futures markets shrank for the third session in a row on Wednesday, this time by around 3.6K contracts considering advanced figures from CME Group. Volume followed suit and dropped by around 34.2K contracts, resuming the downtrend following the previous daily build.

Gold appears supported around $1900

Gold prices rebounded from the $1900 region and ended the session with modest gains on Fed’s day. The bounce, however, was amidst shrinking open interest and volume, hinting at the idea that the rebound might be short-lived in the very near term.

Lee Sue Ann, Economist at UOB Group, sees the Bank Indonesia (BI) keeping the policy rate unchanged in March.

Key Quotes

“We reiterate our view for BI to continue keeping its benchmark rate unchanged in 1H22.”

“Nevertheless, we are of the view that the rate hike cycle will begin soon, with our forecast that BI will start to hike its benchmark interest rates in the latter half of 2022.”

“Our forecast is for two 25 bps hikes in 3Q22 to 4.00%, followed by another ywo 25 bps hikes in 4Q22 to 4.50%.”

• USD/TRY continues to oscillate in a range of 14.52-14.76.
• The RSI (14) is trading in a 60.00-80.00 range, which indicates that a bullish setup is intact.
• Bears may dictate asset prices if it slips below the 20-period EMA at 14.34.

The USD/TRY pair is continued to trade back and forth in a narrow range of 14.52-14.76 from Tuesday. The asset is displaying a balanced auction after a consecutive nine positive ticks. On Thursday, the pair is trading 0.43% above Wednesday’s closing price.

On the daily scale, USD/TRY has extended its gains after overstepping the 50% Fibonacci retracement (placed from 20 December 2021 high at 18.37 to 23 December low at 10.25) at 14.34. The major is auctioning in a flat channel whose upper end is placed from January 3 high at 13.94 and the lower end is marked from January 31 low at 13.27.

The pair is firmly holding above 20-period and 50-period Exponential Moving Averages (EMAs), which are trading at 14.34 and 13.83 respectively.

The Relative Strength Index (RSI) (14) is oscillating in the range 60.00-80.00, which signals more gains ahead.

For an upside, bulls are required to overstep Wednesday’s high at 14.76, which will drift the greenback bulls towards Friday’s high at 15.07 and 16 December 2021 high at 15.75.

On the flip side, bulls may lose their control if the major slip below the 20-period EMA at 14.34. This will send the pair towards the 50-period EMA at 13.83 and further to 38.2% Fibo retracement at 13.38.

USD/TRY daily chart

• USD/RUB drops for the sixth consecutive day, pressured around 12-day low of late.
• Russia-Ukraine talks stumble upon ‘neutrality’ demand, Moscow hits theatre shelter.
• ICJ orders Russia to dump Ukraine invasion, Kyiv Leader Zelenskyy pushes allies for Moscow’s airspace ban.
• Fed’s rate-hike couldn’t recall bulls, second-tier US data and China’s covid updates will act as additional catalysts for fresh impulse.

USD/RUB remains on the back foot around the monthly low during the six-day losing streak, down 2.58% around 96.50 heading into Thursday’s European session.

The Russian ruble (RUB) pair’s latest losses could be linked to the US dollar’s broad weakness, as well as cautious optimism surrounding the Ukraine-Russia peace talks.

On Wednesday, global markets turned optimistic over a peace agreement between Moscow and Kyiv as both discussed a 15-point peace plan. However, Kyiv’s rejection of proposed neutrality and the International Court of Justice’s order to Russia to suspend the invasion of Ukraine challenged the risk-on mood afterward.

Recently, Ukrainian President Volodymyr Zelenskyy pushed allies for an airspace ban for Russian planes over Kyiv after they hit a theatre shelter.

Other than the geopolitical issues at home, receding covid fears from China and Beijing’s readiness for more action to propel the national growth also weigh on the US dollar’s safe-haven demand. In doing so, the greenback ignores the Fed’s 0.25% rate-hike and hints at six such moves in 2022.

Looking forward, the second-tier US data relating to housing, jobs and manufacturing will join headlines over the peace talks to direct short-term USD/RUB moves. Should the tensions ease further, the pair has more downside to witness.

Technical analysis

Multiple lows marked in the last 13 days around 96.30 become a tough nut to crack for the USD/RUB bears before directing them to the 90.00 threshold. Alternatively, the 200-SMA on the four-hour chart restricts the quote’s immediate upside near 109.50.

Marc Riversat, Chief Financial Officer (CFO) at New Zealand's Fonterra Co-operative Group said on Thursday, China’s demand for dairy products remains intact despite concerns over economic slowdown, in the face of the COVID-19 outbreaks.

Key quotes

“If lockdowns to contain COVID-19 in China, Fonterra's biggest export market, hurt demand, the co-op could switch its product mix toward consumer goods from the food-service sector.”

"It's early days. We're live monitoring the situation.”

A bigger challenge was whether Fonterra would be able to pass on significantly higher wholesale dairy prices, which were squeezing its margins”.

"But we've not seen that as a problem yet.”

These comments come a month after New Zealand’s dairy giant lifted its forecast range for what it will pay farmers for milk in the 2021/22 season, passing on the benefit of strong global milk prices.

Market reaction

NZD/USD is holding the higher ground just below 0.6850, as it remains underpinned by the rebound in New Zealand’s GDP in Q4 and the overall upbeat market mood.

The spot is now trading at 0.6840, up 0.10% so far.

• Gold price extends rebound amid weaker Treasury yields, DXY and firmer stocks.
• Traders digest the hawkish Fed outcome amid ongoing Russia-Ukraine peace talks.
• Gold Price: Acceptance above 21-DMA is critical for additional recovery gains.

Gold price remains in the hands of buyers this Thursday, following a decent comeback amidst a hawkish Fed and worries over the Russia-Ukraine peace talks. Concerns over risks to global economic growth play out and influence gold price, in the aftermath of the Fed decision, as the focus remains on the ongoing Russia-Ukraine peace talks. The extended correction in the US Treasury yields and the dollar is lending support to gold price.

Read: Gold reversal from 2022 yearly Pivot

Gold Price: Key levels to watch

The Technical Confluences Detector shows that gold price is looking to regain the upside moment to test powerful resistance at $1,940, which is the convergence of the pivot point one-day R1, pivot point one-week S1 and Bollinger Band one-day Middle.

The next bullish target is envisioned at $1,950, which is the psychological barrier as well as the SMA100 four-hour.

Further up, the pivot point one-day R2 at $1,952 will get tested, above which the SMA5 one-day at $1,955 will be on bulls’ radars.

The confluence of the previous week’s low and the previous year’s high around $1,960 is the level to beat for gold optimists.

Alternatively, the immediate support is seen at $1,931, the intersection of the Fibonacci 23.6% one-month and the previous day’s high.

Fresh selling opportunities will arise below the latter, exposing critical support at $1,922, where the Fibonacci 23.6% one-day and SMA10 four-hour coincide.

The line in sand for gold buyers is the Fibonacci 38.2% one-day at $1,917.

Here is how it looks on the tool

About Technical Confluences Detector

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

• GBP/USD refreshes weekly high during three-day uptrend, confirmed bullish chart formation the previous day.
• BOE is up for the third consecutive rate-hike to tame inflation.
• Fed began the rate-lift journey with hints of six stops moving forward, Powell disappointed bulls.
• As the rate-hike is already given, a positive surprise is necessary for the bulls to keep reins.

GBP/USD buyers flirt with the weekly top, up 0.07% intraday around 1.3160 as traders await the Bank of England’s (BOE) interest rate decision on early Thursday.

The cable pair cheered broad US dollar weakness to print a bullish breakout of the short-term falling wedge. However, mixed sentiment in the market and anxiety ahead of the BOE seems to probe the quote’s further upside of late.

The US Dollar Index (DXY) dropped the most in a week the previous day, inactive around 98.40 at the latest, despite the Federal Reserve’s (Fed) 0.25% increase to the benchmark rate. The Fed also signaled six such moves during this year but comments suggesting downside risk to inflation going forward by Chairman Jerome Powell seem to have weighed on the greenback.

That said, Kyiv’s rejection of proposed neutrality in the 15-point peace plan and the International Court of Justice’s order to Russia to suspend the invasion of Ukraine challenge sentiment but the continuation of talks and recently easy tone of Moscow keeps markets hopeful. China, on the other hand, offers good support to the sentiment in Asia-Pacific markets due to easy covid numbers and push for more measures to boost the economy in the first quarter (Q1).

Amid these plays, the S&P 500 Futures drops 0.13% intraday whereas the Asia-Pacific equities track Wall Street gains. Further, the US 10-year Treasury yields decline 4.5 basis points (bps) to 2.14% while reversing from the highest levels since May 2019.

Looking forward, the “Old Lady” is up for a hat-trick of a 0.25% increase in the key rate to tame inflation. Earlier in the week, the UK jobs report also favored bulls and hence GBP/USD has further upside to track. However, all this news are mostly priced in and hence a major positive surprise need to keep the buyers on the table.

Read: BOE Interest Rate Decision Preview: A hat-trick and a difficult balancing act

Other than the BOE, the second-tier US data relating to housing, jobs and manufacturing will join the risk catalysts to direct short-term GBP/USD moves.

Technical analysis

GBP/USD confirmed a falling wedge bullish formation the previous day, also crossed the 50-SMA, which in turn allows the cable pair to renew weekly high on Thursday.

That said, the 1.3200 threshold will challenge the immediate upside ahead of late February’s low and the 200-SMA, respectively near 1.3275 and 1.3400.

In a case where GBP/USD rises past 1.3400, the theoretical target of 1.3720 will be in focus. However, multiple tops marked during February around 1.3640-45 will act as an additional filter to the north.

Alternatively, pullback moves may initially aim for the 50-SMA level of 1.3100 before testing the aforementioned wedge’s resistance line, now support around 1.3080.

During the quote’s weakness past 1.3080, a three-day-old rising support line and the latest multi-month low, close to 1.3057 and 1.3000 will be in focus.

GBP/USD: Four-hour chart

Trend: Further upside expected

• Asian markets are trading strongly as Fed unveiled its monetary policy having a 25 bps rate hike.
• Investors have cheered the headline of stimulus from the Chinese administration.
• Russia and Ukraine are progressing positively towards a ceasefire.

Markets in the Asian domain are trading strong on Thursday. Asian equities are following the footprints of US markets as the latter performed well after the Federal Reserve (Fed) pushed the interest rates higher by 25 basis points (bps).

At the press time, Japan’s Nikkei 225 surges 3.38%, China A50 jumps 3.58%, Nifty 50 climbs 1.70%, and Hang Seng outperforms with gains of 5.70%

The declaration of the monetary policy by the Fed has improved the sentiment in the market. Risk-perceived assets are trading firmer while the US dollar index (DXY) has tumbled near 98.00. The interest rate hike by the Fed is in line with the market expectations; however, the roadmap of curtailing inflation dictated by the Fed is a bit challenging for the assets in the Asian markets. Fed Chair Jerome Powell has stated that the labor market is rock solid ‘loud and clear, which has injected an adrenaline rush into the Asian equities.

Meanwhile, strong restrictive measures taken by the Chinese administration to corner the spread of Covid-19 have been cheered by the market participants. Moreover, China’s Vice Premier Liu He has signaled more stimulus to support markets. This has brought a resurgence in the optimism for the Chinese markets.

Apart from that, Russia and Ukraine are progressing positively towards a ceasefire.  The nations have drafted a tentative 15-point peace plan, which consists ceasefire clause and withdrawal of Russian rebels from Ukraine.

• AUD/USD remains on the front foot after defying weekly falling channel.
• Bullish MACD signals, firmer RSI adds to the upside bias.
• Latest swing high could test the bulls before directing them to 0.7460.
• 200-SMA, ascending trend line from late January offer extra challenge for sellers.

AUD/USD grinds higher around the weekly top, up 0.35% intraday near 0.7315 during Thursday’s Asian session.

The Aussie pair’s latest gains could be linked to the firmer employment report for February, which in turn propelled the quote to defy a one-week-old descending trend channel formation.

Read: AUD/USD pierces 0.7300 on upbeat Australia Employment, Ukraine-led risk-on mood

The channel break also gains support from the upbeat MACD and RSI to direct AUD/USD buyers towards the latest swing high of 0.7370.

However, the RSI line might turn overbought following the 0.7370, if not then the monthly high of 0.7441 and 61.8% Fibonacci Expansion of January-March moves, near 0.7460-65, will challenge the pair’s advances.

On the contrary, pullback moves remain elusive beyond the upper line of the aforementioned channel, close to 0.7290.

Following that, the 200-SMA and the seven-week-old rising support line, respectively near 0.7210 and 0.7190, will challenge AUD/USD bears.

AUD/USD: Four-hour chart

Trend: Further upside expected

In an exclusive interview with MNI, the head of labor data at the Australian Bureau of Statistics (ABS), Bjorn Jarvis, said that the country's jobs market was "strong and tightening" after February recorded the lowest unemployment rate since 2008.

Additional quotes

February unemployment was 4.0%, equal to the rate in both February and August 2008, while the participation rate of 66.2% was the highest on record for the whole market, and for women at 62.4%.

'If you want to find unemployment at lower than 4.0% you must go back before the monthly series, and back to 1974.”

'The participation rate is now 0.6pps higher than at the start the pandemic for all persons, and 1.2pps higher for women.”

“The February labor force data was also significant because of the rise in full-time employment, with 122,000 positions added, while part-time work fell by 44,000.”

"There was also an 8.9% rebound in hours worked and that underpins the stronger full-time result,' he said.

'The remarkable thing through the pandemic is how quickly the labor market has rebounded and restrictions and we are still seeing that."

Read: Australian Employment data is solid and offering support to AUD

Market reaction

AUD/USD is consolidating post-Australian employment data-led gains above 0.7300. The pair is trading at 0.7311, up 0.31% on the day, as of writing.

• USD/CHF has tumbles after recording a fresh 11-month high at 0.9460.
• A possible ceasefire between Moscow and Kyiv has boosted market sentiment.
• The 15-point peace plan between Russia and Ukraine inculcates a ceasefire stipulation.

The USD/CHF pair has attracted some significant offers after printing a fresh 11-month high at 0.9460. The asset has witnessed a sell-off as the US dollar index (DXY) lost grounds after the Federal Reserve (Fed) revealed March’s monetary policy on Wednesday.

The Fed announced an interest rate hike by 25 basis points (bps) after Fed Chair Jerome Powell and its colleagues decided to increase the interest rates gradually. The Federal Open Market Committee (FOMC) announced seven rate hikes for 2022 to contain the soaring inflation. This brought some offers in the DXY counter as a 25 bps rate hike was already discounted in price by the market. Also, the street was expecting a 50 bps rate hike amid the multi-decade high inflation in the US.

Meanwhile, the risk-on impulse has been underpinned as investors are eyeing a ceasefire between Russia and Ukraine soon. The nations are getting out of their resources and are looking for a truce with a tentative 15-point peace plan that inculcates a ceasefire stipulation and withdrawal of Russian forces from the Ukrainian land. Moreover, Ukraine will cease its NATO membership application and will accept limits on its armed forces, as per Financial Times.

Post the hangover of the Fed’s monetary policy, investors will focus on US Initial Jobless Claims, which will be reported by the Department of Labor on Thursday. A preliminary estimate for the Initial Jobless Claims is 220k lower than the previous print of 227k.

• EUR/USD treads water around weekly top, pauses three-day recovery.
• DXY, yields can’t cheer Fed’s rate-hike, hawkish dot-plot as Chairman Powell expects inflation to ease post 2022.
• Softer US Retail Sales, mixed clues on Ukraine’s peace talks and upbeat news from China trouble pair traders.
• ECB President Lagarde, second-tier US data may entertain traders but risk catalysts are more important for clearer directions.

EUR/USD remains as a dull affair around 1.1030-35, after refreshing the weekly top to 1.1052 during the early Asian session on Thursday.

The major currency pair portrays the sluggish markets amid mixed concerns over the Moscow-Kyiv talks. In doing so, the quote ignores upbeat headlines from China, suggesting fewer covid-linked challenges to the world’s second-largest economy. Also challenging the pair’s moves could be the market’s anxiety ahead of a speech from the European Central Bank (ECB) President Christine Lagarde, up for speaking at the Institute for Monetary and Financial Stability (IMFS) in Frankfurt.

On Wednesday, the US Federal Reserve (Fed) matched wide market expectations of a 0.25% rate-hike and also offered six consecutive lifts during the year. However, Chairman Jerome Powell poured cold water on the face of the USD hawks by expecting softer inflation going forward.

Read: Federal Reserve hikes 0.25%, cautious on balance sheet and economic growth

Additionally, the US Retail Sales figures for February eased below the forecasts and prior whereas the Control Group figures also turned negative, which in turn challenged the US dollar bulls before the latest consolidation of the US Dollar Index (DXY) around 98.40.

Elsewhere, Kyiv’s rejection of proposed neutrality in the 15-point peace plan and the International Court of Justice’s order to Russia to suspend the invasion of Ukraine challenge sentiment but the continuation of talks and recently easy tone of Moscow keeps markets hopeful.

Also acting as the key risk catalyst is China’s second day of easy covid numbers after refreshing the record numbers during the weekend. “China reports 1,317 confirmed COVID cases on March 16 versus 1,952 a day earlier,” per Reuters.  Recently, China’s local government official said, “Henzhen, China's covid-hit city, will allow businesses to resume work and manufacturing in a timely way.” Furthermore, China Vice Premier Liu He’s push for the measures to boost the economy in the first quarter (Q1) also keeps the risk-appetite firmer.

Against this backdrop, the US stock futures print mild losses whereas the Asia-Pacific equities track Wall Street gains. Further, the US 10-year Treasury yields decline 5.4 basis points (bps) to 2.13% while reversing from the highest levels since May 2019.

Looking forward, the second-tier US data relating to housing, jobs and manufacturing may entertain EUR/USD traders but major attention will be given to Ukraine headlines and ECB’s Lagarde. Should the ECB Boss refrain from further tightening the latest weakness may extend.

Technical analysis

A clear upside break of the 10-DMA, around 1.0965 by the press time, directs EUR/USD towards January’s low of 1.1121.

As the MACD teases a bull cross and the RSI remains steady on the daily chart, the latest rebound is likely to extend.

• USD/CAD prints mild gains while keeping bounce off two-week low.
• Global markets remain mostly sluggish, eyes more developments on Ukraine-Russia talks.
• Canadian inflation data signal eased BOC’s path to follow the Fed, oil cheers headlines from China.
• Second-tier US data, risk catalysts are important for fresh impetus.

USD/CAD grinds lower around 1.2685, up 0.06% near the three-week bottom during the mid-Asian session on Thursday.

The loonie pair’s latest gains contrast the upbeat performance of Canada’s main export item, namely WTI crude oil. In doing so, the quote also fails to justify the previous day’s upbeat inflation data from Ottawa. The reason could be linked to the US Federal Reserve’s (Fed) 0.25% rate-hike and signal for six more lifts during 2022.

That said, the WTI crude oil prints the first positive day of the week while taking a U-turn from the late February levels tested the previous day. With this, the black gold rises to $96.67, up 1.62% intraday at the latest.

It’s worth noting that the US stock futures print mild losses whereas the Asia-Pacific equities track Wall Street gains. Further, the US 10-year Treasury yields decline 5.4 basis points (bps) to 2.13% while reversing from the highest levels since May 2019.

Behind the market’s indecision could be the lack of clearance over the Ukraine-Russia peace talks. Kyiv’s rejection of proposed neutrality in the 15-point peace plan and the International Court of Justice’s order to Russia to suspend the invasion of Ukraine challenge sentiment. However, the continuation of talks and the recently easy tone of Moscow keeps markets hopeful.

On the other hand, China reported a second day of easy covid numbers after refreshing the record numbers during the weekend. “China reports 1,317 confirmed COVID cases on March 16 versus 1,952 a day earlier,” per Reuters. Additionally, China Vice Premier Liu He’s push for the measures to boost the economy in the first quarter (Q1) also keeps the risk-appetite firmer.

Talking about data, the US Retail Sales figures for February eased below the forecasts and prior whereas the Control Group figures also turned negative. At home, Canada’s Consumer Price Index (CPI) rise past the 5.5% forecast and 5.1% prior to 5.7% YoY, which in turn paves the way for the Bank of Canada’s (BOC) rate hike and the USD/CAD weakness. Though, risk catalysts are more important for short-term directions.

Technical analysis

A convergence of the 100-DMA and the 50-DMA challenge the USD/CAD pair’s immediate upside, around 1.2685-90, amid bearish MACD signals.

On the flip side, an upward sloping support line from January 20, near 1.2630 by the press time, lures the USD/CAD bears.

• USD/INR has slipped near 76.00 on falling oil prices.
• The risk-on impulse has underpinned the Indian rupee against the greenback.
• The Fed has raised the interest rates by 25 bps and is determined to increase further gradually.

The USD/INR pair continues to plunge further backed by plunging oil prices and weak performance from the US dollar index (DXY) amid risk-on impulse. The major has continued its two-day losing streak and has tumbled near 76.00.

Oil prices slip near $95.00

West Texas Intermediate (WTI), futures on NYMEX, has slipped near $95.00 after the US Energy Information Administration (EIA) reported an uptick in oil stockpiles on Wednesday. The EIA reported oil stockpiles at 4.345 million barrels outperformed the market consensus and previous figure of -1.375M and -1.863M. Positive oil stockpiles sent the oil prices lower overnight, which has appreciated the Indian rupee. India, being a major oil importer is negatively sensitive to oil prices.

Fed’s interest rate policy

The announcement of the interest rate decision by the Federal Reserve (Fed) on Wednesday has brought weakness in the DXY. Fed Chair Jerome Powell featured an interest rate hike by 25 basis points (bps), which weighed pressure on the elevated DXY and eventually underpinned the Indian rupee. The Fed has announced seven interest rate hikes for 2022 to contain the inflation mess.

Apart from the weak oil prices and subdued DXY, Foreign Institutional Investors (FIIs) have returned to the Indian markets after a steep sell-off. The Indian equities plunged heavily in February amid escalating tensions between Russia and Ukraine. Therefore, FII’s capital is returning to Indian markets and eventually is appreciating the Indian rupee.

• USD/JPY snaps eight-day uptrend while easing from the highest levels since February 2016.
• Overbought RSI, bearish MACD signals hint at extended pullback.
• Two-week-old ascending trend channel keeps buyers hopeful, 50-SMA offers extra barrier for sellers.

USD/JPY bulls take a breather around a six-year high, down 0.08% intraday around 118.65 during Thursday’s Asian session.

In doing so, the yen pair prints the intraday loss for the first time in nine days while stepping back from a resistance line of a two-day-old rising channel.

Given the overbought RSI and downbeat MACD signals, USD/JPY is likely to remain in the bearish consolidation mode.

However, the support line of the immediate channel and Tuesday’s top restricts the quote’s nearby declines of around 118.40.

Following that, the lower line of a broad rising channel from March 03, close to 117.30, will test the USD/JPY bears. It’s worth noting that the 50-SMA level of 116.83 acts as the last defense for the short-term buyers of the pair.

On the contrary, the upper line of the aforementioned channels will limit the immediate upside of USD/JPY near 119.10 and 119.25.

In a case where USD/JPY remains firmer past 119.25, the 120.00 psychological magnet holds the gate for a rally targeting the January 2016 peak of 121.68.

USD/JPY: Four-hour chart

Trend: Further pullback expected

• XPT/USD is oscillating around 23.6% Fibo retracement at $1,031.34.
• The 20 and 50-period EMAs are on the verge of a bullish crossover.
• The RSI (14) has crossed 60.00 after multiple failed attempts, which adds to the upside filters.

Platinum (XPT/USD) has attracted some significant bids after registering fresh monthly lows at $984.35 on Tuesday. The precious metal has surpassed Wednesday’s high at $1,023.89 in the Asian session.

On an hourly scale, Platinum is trading near 23.6% Fibonacci retracement (placed from March 8 high at $1,182.49 to Tuesday’s low at $984.35) at $1,031.34. The precious metal has decisively violated 20-period and 50-period Exponential Moving Averages (EMAs), which are trading around $1,019.00 (on the verge of a bullish crossover) and is holding above the same. The trendline placed from March 10 high at $1,103.96 adjoining Friday’s high at $1,087.06, will continue to act as a barricade for the precious metal.

After multiple failed attempts, the Relative Strength Index (RSI) (14) has finally breached the 60.00 level, which adds to the upside filters. The oscillator is not showing any kind of divergence and an overbought situation.

For more upside, Platinum needs to violate the above-mentioned trendline at $1,034.30, which will push the asset higher towards 200-period EMA at $1,054.63. Breach of the latter will send the precious metal to 50% Fibo retracement $1,083.65.

On the contrary, bulls can lose their grip if Platinum slips below 20-period EMA at $1,019.00, which will send the asset towards Tuesday’s low and Jan 17 low at $984.35 and $971.00 respectively.

Platinum (XPT/USD) hourly chart

Jeffrey Gundlach, Wall Street's bond king and Founder and Chief Executive Officer of DoubleLine Capital, believes that a US economic recession is likely in 2023, as the US Federal Reserve (Fed) may fail to provide a soft landing.

Key quotes

“The Fed’s Wednesday announcement of an interest rate hike is merely them “following” the two-year Treasury, adding that they were “way behind.” 

“We have an incredibly flat yield curve given where we are in terms of the absolute rate level and the inflation level.” 

“Stocks are oversold and will go higher in the immediate term but will roll over once a couple more rate hikes are in place.”

“See 2022 inflation coming in lower from a year ago in the “high 5%” but not at the level the Fed is forecasting.“

Related reads

• US economy risks a recession in 2023 – Goldman Sachs
• US Dollar Index slips near 98.40 on expected interest rate hike by the Fed

The initial wage hikes at major firms are cheered by the Bank of Japan (BOJ) officials but they remain skeptical if higher wages will filter to smaller firms, MNI reports, citing people familiar with the BOJ thinking.

Key takeaways

“Now the focus for the BOJ is whether wages hikes at smaller firms go above the 1.86% level seen in 2021, which was the first time in eight years that wages fell below 2%. Higher wages are vital for the BOJ's target of stable 2% inflation and to trigger a virtuous economic cycle.”

“The BOJ estimates household "forced savings" of JPY20 trillion on a cumulative basis for 2020 (excluding the amount of special cash payments put aside for savings), for around 7% of potential disposable income that were used as some lockdown conditions were eased in the fourth quarter.”

“The BOJ said when new restrictions are lifted this year, spending from these funds may again be used, but not have the same potential impact as other prices have gained.

The BOJ is scheduled to announce its latest policy decision on Friday.

• BOJ’s Kuroda: Too early to debate specifics on how to exit easy policy

Bank of Japan (BOJ) Governor Haruhiko Kuroda said on Thursday, its “too early to debate specifics on how to exit easy policy.”

Additional quotes

Market reaction

USD/JPY was last seen trading at 118.77, up 0.05% on the day. Falling yields, the US dollar and negative S&P 500 futures weigh on the major.

• USD/IDR extends early-week pullback from the 200-DMA ahead of the key central bank announcement.
• Bank Indonesia is expected to keep benchmark rate unchanged at 3.5%.
• Three-month-old ascending trend line holds the gate for further downside.
• Bulls have multiple hurdles even if they manage to cross the key DMA.

USD/IDR remains on the back foot for the third consecutive day, around $14,300 during Thursday’s Asian session.

In doing so, the Indonesia rupiah (IDR) pair extend the previous U-turn from the 200-DMA towards an ascending support line from December 2021 ahead of the Bank Indonesia (BI) Rate.

Although the BI isn’t expected to alter the monetary policy, Finance Minister (FinMin) Sri Mulyani Indrawati’s readiness to take measures to defend the domestic economy from the Ukraine-Russia crisis can keep USD/IDR moving ahead. The bearish bias also takes clues from the downbeat MACD signals.

That said, a three-month-old upward sloping support line near $14,300 becomes crucial as a break of which will direct the quote towards another key trend line support, from November 2021 around $14,255 by the press time.

In a case where the USD/IDR prices drop below $14,255, a December 2021 low of $14,220 will gain the market’s attention.

Meanwhile, recovery moves need to provide a daily closing beyond the 200-DMA level of $14,330 to retake controls.

Even so, multiple hurdles around $14,390 and $14,400 will challenge the USD/IDR bulls ahead of the monthly peak of $14,414.

USD/IDR: Daily chart

Trend: Further weakness expected

• USD/CNH prints three-day downtrend amid sluggish Asian session.
• China reports lower daily infections for the second consecutive day, Vice Premier He’s comments also favor bears.
• Fed matched wide forecasts of 0.25% but dot-plot and Chairman Powell’s speech were confusing factors.
• Risk catalysts are the key, second-tier US data may entertain traders.

USD/CNH remains on the back foot for the third consecutive day, following its reversal from a five-month high and the 200-DMA. That said, the quote prints mild losses around 6.3600 level during Thursday’s Asian session.

The offshore Chinese yuan (CNH) currency pair takes clues from the hopes of market-friendly measures from Beijing, as well as easing COVID-19 fears.

On Wednesday, China Vice Premier Liu He pushed for the measures to boost the economy in the first quarter (Q1). His comments offered notable upside push to the domestic markets and offered strength to the commodities, as well as Antipodeans.

Additionally, China reported a second day of easy covid numbers after refreshing the record numbers during the weekend. “China reports 1,317 confirmed COVID cases on March 16 versus 1,952 a day earlier,” per Reuters.

Elsewhere, Kyiv’s rejection of proposed neutrality in the 15-point peace plan and the International Court of Justice’s order to Russia to suspend the Ukraine invasion test sentiment but the continuation of talks and recently easy tone of Moscow keeps markets hopeful.

It’s worth noting that the Fed’s rate hike and hawkish dot-plot joins uncertainty over the Russia-Ukraine peace to challenge the pair seller of late.

Amid these plays, stocks in China and Japan lead Asia-Pacific bulls whereas the US 10-year Treasury yields decline 3.5 basis points (bps) to 2.15% while reversing from the highest levels since May 2019.

Looking forward, USD/CNH traders will pay attention to the risk catalysts for fresh impulse while second-tier US data relating to housing, jobs and manufacturing may entertain traders as well.

Technical analysis

A clear U-turn from the 200-DMA, around 6.4115 at the latest, directs USD/CNH bears towards January’s low surrounding 6.3235. However, the 50-DMA may offer an immediate rest-point to the sellers around 6.3480.

• Russian ruble firming on hopes of peace between Russia and Ukraine. 
• Analysts warn that Putin is not looking to deescalate.

At the lows of 96.657, the Russian ruble printed the strongest level on Thursday since the lows of March 2 at 96.399 vs the US dollar. USD/RUB is currently trading at 106.429 and is down some 12.5% at the time of writing.

Russia was due to make $117m in interest payments to investors on two dollar-denominated bonds on Wednesday and as such, credit ratings agencies have warned that a debt default is "imminent".

However Russia's finance minister said the interest owed had now been paid and was waiting clearance in the US banking system, the BBC reported.

Anton Siluanov said: "We have the money, we have made the payment, now the ball is in the court, primarily, of the American authorities."

So, for now, it remains unclear whether today's deadline for making the interest payments has been met or not.

However, while payments totaling $117m may not occur immediately (a technical default would still leave the issuer with a 30-day grace period to rectify), the government has anticipated that they mean to pay in rubles in substitution of dollars, analysts at TD Securities explained.

''Also, it is not clear whether the money will be made available on local Russian accounts, or paid directly to foreign custodians' accounts, an exemption from a ban on RUB payments abroad. A missed payment and risk of a fully-fledged Russia default would likely worsen market sentiment, and possibly spill over into other markets.''

Meanwhile, there are some signs of a compromise between Ukraine and Russian negotiators, despite no signs of de-escalation, which has lifted the risk appetite in global financial markets and the ruble. 

The Financial Times published a ‘15-point plan’ that was allegedly close to being agreed upon that included Ukraine being a neutral state like Switzerland or Austria and having security guarantees from the US, UK, and Turkey.

However, as analysts at Rabobank said, ''this was then almost immediately rejected by Ukraine. Indeed, a spokesperson said that plan reflected only the Russian position.''

Moreover, the analysts highlighted troubling tones and rhetoric from Russia's president, Vladimir Putin, who gave a national speech.

''He claimed Russia was ‘being cancelled’ and spoke of “fifth columns”  and “national traitors” who “cannot do without oysters, foie gras, and gender freedoms,” who “by their very nature are located exactly there, not here, not with our people, not with Russia. This is, in their opinion, a sign of belonging to a higher caste, a higher race. Such people are ready to sell their own mother… The collective West is trying to split our society, speculating on the combat losses, on the socio-economic sanctions… and there is only one goal… the destruction of Russia. But I am convinced that… the Russian people will be able to distinguish true patriots from scum and traitors and simply spit them out like a midge that accidentally flew into their mouths. Spit them out on the pavement. I am convinced that such a natural and necessary self-purification of society will only strengthen our country, our solidarity, cohesion, and readiness to respond to any challenges.”''

''Does this sound like a man looking to deescalate, or one who is going to double down to get better terms?,'' Rabobank questioned, pointing to darker days to come for both the ruble, financial markets and world peace in general. 

• GBP/JPY takes offers to refresh intraday low, reverses from multi-day high.
• 50-DMA defends intraday buyers, bullish MACD signals, upbeat RSI favor upside momentum too.
• Five-month-old resistance line lures the bulls, 200-DMA adds to the downside filters.

GBP/JPY consolidates the biggest daily gains in a fortnight around 156.00 during Thursday’s Asian session.

In doing so, the cross-currency pair portrays the market’s cautious mood ahead of the Bank of England (BOE) monetary policy decision as the quote snaps a four-day uptrend to reverse from the highest levels since late February of late.

Read: BOE Interest Rate Decision Preview: A hat-trick and a difficult balancing act

Even so, bullish MACD signals and above 50 RSI (14), not overbought, keeps GBP/JPY buyers hopeful. Also favoring the pair bulls is the sustained trading above 200-DMA and 50-DMA.

That said, the latest pullback may aim for the 50-DMA level of 155.12 before eyeing the 200-DMA level of 153.35.

However, the quote’s declines past 200-DMA will be challenged by the 23.6% Fibonacci retracement (Fibo.) of October-December 2021 downside, around 151.15.

Alternatively, GBP/JPY bulls may wait for the fresh high of the month, currently around 156.57 to take new entries.

Following that, a descending trend line from October 2021 and February’s peak, respectively near 157.35 and 158.10, will challenge the upside moves.

GBP/JPY: Daily chart

Trend: Bullish

In the opinion of France's Foreign Minister Jean Yves Le Drian, Russia is only pretending to negotiate with Ukraine.

This comment comes after Ukrainian President Volodymyr Zelenskyy said earlier on, “negotiations between Russia and Ukraine are challenging.”

Market reaction

The market mood remains mixed, with stocks cheering Fed Chair Jerome Powell’s confidence in the economy, despite raging inflation and the Ukraine uncertainty. Meanwhile, concerns over the Russia-Ukraine peace talks is keeping the investors’ sentiment in check, reflective of the drop in the S&P 500 futures.

Japanese Prime Minister Kishida made some comments on the country’s inflation outlook, in his appearance on Thursday.

Additional quotes

Mindful that there is public concern about rising prices.

Prices are rising but causing some problems such as hurting small firms.

If inflation were to pick up, wages must rise too.

Mindful that there are concerns among public about rising prices.

Market reaction

USD/JPY is extending it s retreat from six-year highs of 119.03, currently testing daily lows near 118.75, still up 0.04% on the day.

• Market sentiment remains firmer amid hopes of Ukraine-Russia peace, easing covid woes in China.
• Fed matched 0.25% rate-hike expectations, also signalled six more such lifts.
• S&P 500 Futures print three-day uptrend, Nikkei pokes two-week high with +3.5% daily gains.
• US 10-year Treasury yields snap eight-day uptrend while easing from two-year high.

Although the Fed announced a hawkish hike the previous day, global markets keep the risk-on mood during Thursday’s Asian session. The reason could be linked to the upbeat headlines from Ukraine-Russia peace talks and receding virus woes in China, not to forget Beijing’s push for more economic measures.

While portraying the mood, S&P 500 Futures and Nikkei 225 poke two-week high while the US 10-year Treasury yields drop for the first time in nine days.

That said, S&P 500 Futures rise 0.10% daily around 4,365 whereas Nikkei 225 prints 3.60% intraday gains while picking up bids around 26,660. Further, the US 10-year Treasury yields decline 3.5 basis points (bps) to 2.15% while reversing from the highest levels since May 2019.

Talking about the main catalysts, Kyiv’s rejection of proposed neutrality in the 15-point peace plan and the International Court of Justice’s order to Russia to suspend the invasion of Ukraine challenge sentiment but the continuation of talks and recently easy tone of Moscow keeps markets hopeful.

It should be noted that China reported a second day of easy covid numbers after refreshing the record numbers during the weekend. “China reports 1,317 confirmed COVID cases on March 16 versus 1,952 a day earlier,” per Reuters. Additionally, China Vice Premier Liu He’s push for the measures to boost the economy in the first quarter (Q1) also keeps the risk-appetite firmer.

Alternatively, Fed’s 0.25% rate hike and expectations of seven more such rate lifts during 2022, coupled with upwardly revised inflation forecast, should have challenged the market sentiment but Fed Chairman Jerome Powell’s comments defend the optimists.

Having witnessed the Fed-rate-hike and its market reaction, investors will pay attention to today’s Bank of England (BOE) interest rate announcement with hopes of a 0.25% rate hike. Also important will be the headlines concerning Ukraine-Russia peace talks and the second-tier US data.

Read: Fed hawkish, but cease-fire trades are the rage

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3406 vs. the estimated 6.3298 and the previous 6.3800.

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.

• AUD/NZD bulls will be keen to see an eventual break of 1.0720.
• There will be prospects towards the highs this year near 1.08 the figure. 

As per the prior analysis, AUD/NZD Price Analysis: Bulls testing a critical area of daily resistance, AUD/NZD has reached the downside target area but has since rallied in a firm rejection of the area. This leads to the prospects of a contained price for the foreseeable future with prospects of a firmer test of the 1.0720s for the days ahead. 

Prior analysis, AUD/NZD daily chart

The price had left an M-formation on the daily chart and the neckline aligned with the recent highs of the correction.  A move down to retest support towards 1.0620 has been expected for the coming days. 

AUD/NZD live market

As illustrated, the price met the downside target area and is now moving back into the familiar ranges towards 1.07 the figure. It would be expected to be contained around here which could lead to some sideways consolidation for the remainder of the week and into next week also. However, the bulls will be keen to see an eventual break of 1.0720 for prospects towards the highs this year near 1.08 the figure. 

• GBP/USD is eyeing 1.3200 as DXY weakens post the Fed’s policy announcement.
• The BOE is expected to raise its interest rates for the third time consecutively.
• This risk-on impulse has improved the demand for risk-sensitive currencies.

The GBP/USD pair has witnessed a sharp upside move after forming a base in a narrow range of 1.3000-1.3082. The cable was vulnerable in the past few trading sessions, however, the major has rebounded sharply on the announcement of the interest rate policy by the Federal Reserve (Fed).

The subdued performance of the greenback post the interest rate hike by the Fed has underpinned the pound. The Fed has raised its borrowing rates by 25 basis points (bps) to contain the galloping inflation. Apart from that, the Fed has announced seven interest rate hikes for 2022 to clean to inflation mess.

Bank of England (BOE) monetary policy on Thursday

Well, the hangover of the Fed’s monetary policy is getting over and investors are shifting their focus on the announcement of an interest rate decision by the BOE. It is worth noting that the BOE has elevated its interest rates consecutively to 50 basis points in the last two monetary policy announcements. The BOE was the first central bank that raised its interest rates after the Covid-19 pandemic. The BOE is expected to accelerate its borrowing rates further by 25 basis points to control the soaring inflation. The UK’s inflation is near a 30-year high of 5.5%, recorded in January, and is likely to rise further in wake of the war between Russia and Ukraine.

Meanwhile, the US dollar index (DXY) is eyeing more downside as the index is hovering around Wednesday’s low at 98.30 amid squeezing appeal for the safe-haven assets.

• AUD/JPY prints three-day uptrend, picks up bids to refresh multi-day top.
• Australia Employment Change rallies by 77.4K, Unemployment Rate drops to 4.0% in February.
• Global markets remain hopeful of peace between Russia and Ukraine, Chinese headlines also contribute to the risk-on mood.
• Risk catalysts remain in the driver’s seat with eyes on 2018 peak.

AUD/JPY cheers upbeat Australia employment data by rising to the fresh high since February 2018, taking the bids around 87.00 by the press time of Thursday’s Asian session. Also contributing to the pair’s upside momentum is the risk-on mood that weighs on the Japanese yen’s safe-haven demand.

Australia Unemployment Rate dropped to 4.0%, below 4.1% expected and 4.2% prior, whereas the Employment Change rose past 37K market forecast and 12.9K previous readings to 77.4K. Further, the Participation Rate also crossed the 66.2% prior and 66.3% consensus to 66.4% in February.

Read: Australian Employment data is solid and offering support to AUD

On the other hand, the US stock futures and Asia-Pacific equities portray brighter sentiment while the US 10-year Treasury yields retreat from the highest levels in 2019 to 2.147% at the latest.

Although Kyiv’s rejection of proposed neutrality in the 15-point peace plan and the International Court of Justice’s order to Russia to suspend the invasion of Ukraine challenge sentiment of late, the continuation of the peace talks and recently easy tone of Moscow keeps markets hopeful. Elsewhere, the receding COVID-19 woes in China, due to Wednesday’s easing in daily infections, join China Vice Premier Liu He’s push for the measures to boost the economy in the first quarter (Q1) to keep the risk-appetite firmer.

It’s worth noting that Japan’s softer-than-expected YoY growth in Machinery Orders to 5.1% also propel the AUD/JPY prices.

That said, headlines concerning Russia-Ukraine and China may entertain AUD/JPY buyers looking forward.

Technical analysis

AUD/JPY remains on the way to challenge the year 2018 high of 89.07 unless providing a daily close below a 10-month-old resistance-turned-support near 86.65.

• AUD/USD extends the biggest daily rise in 16 months after Australia jobs report.
• Australia Employment Change, Unemployment Rate both flashed welcome numbers for February.
• Risk appetite remains mostly positive amid progress in Ukraine-Russia peace talks, Kyiv’s rejection to neutrality acted as a speed-breaker.
• Recovery in China’s covid conditions, push for measures to boost economy also favors Aussie buyers.

AUD/USD refreshed intraday high to 0.7305 following the strong beat of the Aussie jobs report for February during Thursday’s Asian session. Also supporting the risk-barometer pair is the mildly positive sentiment in the market, mainly due to the headlines from Ukraine and China.

Australia’s headline Unemployment Rate dropped to 4.0%, below 4.1% expected and 4.2% prior, whereas the Employment Change rose past 37K market forecast and 12.9K previous readings to 77.4K.

Read: Australian Employment data is solid and offering support to AUD

Other than the upbeat Aussie jobs report, cautious optimism in the market and recently positive signals from the latest customer China also underpin the AUD/USD upside.

On Wednesday, talks of a diplomatic compromise between Russia and Ukraine initially triggered the risk-on mood before news suggesting a deadlock on the proposed neutrality of Kyiv. The International Court of Justice’s order to Russia to suspend the invasion of Ukraine added to the risk of challenges for the peace talks, as well as market sentiment. Recently, Ukrainian President Volodymyr Zelenskyy hoped for the allies' assistance on control of air traffic for Russian military planes.

It’s worth noting that receding COVID-19 woes in China, due to Wednesday’s easing in daily infections, join China Vice Premier Liu He’s push for the measures to boost the economy in the first quarter (Q1) to keep the risk-appetite firmer.

Alternatively, the US Federal Reserve’s (Fed) 0.25% rate hike and expectations of seven more such rate lifts during 2022, coupled with upwardly revised inflation forecast, challenge the market sentiment and the AUD/USD prices.

Against this backdrop, Wall Street marked another positive day whereas the US 10-year Treasury yields refreshed the highest levels in two years before retreating to 2.172% at the latest. That said, the S&P 500 Futures print 0.20% intraday gains while flashing 4,365 as a quote by the press time.

Moving on, fresh covid updates from China will offer immediate direction to the Aussie pair while second-tier data from the US will entertain the pair traders afterward. Above all, headlines from Ukraine are crucial for the short-term trend forecast.

Technical analysis

A convergence of the weekly resistance line and the 200-DMA challenges the AUD/USD pair’s immediate upside around 0.7300-05, a break of which will quickly propel the quote towards the 0.7370 level.

Australia’s February labour force survey has been released with strong headline numbers which is supporting the outlook for the Australian dollar for the day ahead. 

• Australian Employment Change Feb: 77.4K vs (est 37.0K; prev 12.9K).
• Australian Unemployment Rate Feb: 4.0% vs (est 4.1%; prev 4.2%).
• Full-Time Employment Change: +121.9K vs (prior -17K).
• Participation Rate: 66.4% vs (expected 66.3% and prior 66.2%)

''Australian employment sped past expectations in February as activity recovered surprisingly quickly from an Omicron outbreak, driving unemployment down to lows not seen since 2008 and adding to pressure for an early rate hike,'' Ruetrrs reported. 

Given that the recent floods in NSW and QLD have come after the February reference period,  Employment was expected to lift by 37k for the month.  A lift in participation to 66.4% should boost the impact of the fall in the Unemployment Rate in the eyes of the market. 

Meanwhile, however, AUD/USD is moving higher by a handful of pips on the outcome of the report. 

AUD/USD is trading within a range of 0.7282 and 0.7311 on the day with highs being struck on the day.

About the Unemployment Rate

The Unemployment Rate released by the Australian Bureau of Statistics is the number of unemployed workers divided by the total civilian labour force. If the rate hikes, this indicates a lack of expansion within the Australian labour market. As a result, a rise leads to weakening the Australian economy. A decrease of the figure is seen as positive (or bullish) for the AUD, while an increase is seen as negative (or bearish).

• EUR/USD bulls are taking on the 15-min resistance.
• Fresh impulsive highs could be on the cards for the day ahead. 

EUR/USD is on the verge of a break higher as it continues on the momentum iofthe aftermath of the Federal Reserve meeting on Wednesday. The following illustrates the recent price action from both an hourly and shorter-term time, showing market structure and perspective trajectory in price. 

EUR/USD H1 chart

The price ran to a 38.2% Fibonacci correction level from where the bulls engaged and intend on taking the price on for a higher high. 

EUR/USD 15-min chart

From a 15-minute perspective, the price is running into what could be resistance and for which might force the bulls back a notch. If the bulls commit, however, at the prior resistance that would be expected to act as a support, then there will be prospects of r a surge higher in the coming hours. 

• Gold prices snapped three-day downtrend to bounce off 13-day low before the bulls took a breather.
• Russia-Ukraine talks continue even if a 15-point peace plan challenges the progress.
• Fed’s rate-hike could only stop the gold buyers but not beat them.
• Bull cross on MACD, clear bounce off 200-SMA and weekly resistance breakout keep gold buyers hopeful.

Gold (XAU/USD) pauses the recovery moves from a fortnight low, marked the previous day, as it takes rounds to $1,925-30 during Thursday’s initial Asian session. The yellow metal’s latest inaction could be linked to the market’s doubts over the Ukraine- Russia peace, as well as a reassessment of Fed’s hawkish rate-hike that couldn’t entertain the yellow metal traders much.

The talks of a diplomatic compromise between Russia and Ukraine initially triggered the risk-on mood during Wednesday’s North American session before news suggesting a deadlock on the proposed neutrality of Kyiv. Also, Russia is ordered by the International Court of Justice in The Hague to suspend the invasion of Ukraine, which in turn may raise barriers for successful talks. Recently, Ukrainian President Volodymyr Zelenskyy hoped for the allies' assistance on control of air traffic for Russian military planes.

Elsewhere, a softer COVID-19 daily count from China tames virus woes from the dragon nation and adds to the upbeat sentiment. On the same line were headlines suggesting the government’s readiness to propel economic growth, by China Vice Premier Liu He.

It should, however, be noted that the US Federal Reserve’s (Fed) 0.25% rate hike and expectations of seven more such rate lifts during 2022, coupled with upwardly revised inflation forecast, challenge the risk-on mood.

Read: Fed Quick Analysis: Dovish hike? Powell to push the dollar even higher with a big bazooka

Amid these plays, Wall Street marked another positive day whereas the US 10-year Treasury yields refreshed the highest levels in two years before retreating to 2.172% at the latest.

Moving on, gold traders will pay major attention to the headlines from China and Ukraine for fresh directions.

Technical analysis

Gold prices hold onto the previous day’s rebound from the 200-SMA, as well as break of the one-week-old descending trend line, to keep buyers hopeful.

Also favoring the bullish bias is the MACD line that teases a bull cross over the signal line and the RSI that recovers from oversold territory.

That said, gold buyers presently eye 100-SMA level near $1,950 before the previous support line from early February, close to $1,962 by the press time, will challenge the XAU/USD upside.

In a case where gold rises past $1,962, a three-week-old horizontal area surrounding $1,970-75 will act as the last defense for bulls.

On the contrary, the previous resistance line from March 08 and the 200-SMA, around $1,912 and $1,897 in that order, will challenge the short-term downside of gold.

Should the yellow metal drop below $1,897, the odds of witnessing further downside towards the mid-February high near $1,880 can’t be ruled out.

Gold: Four-hour chart

Trend: Further recovery expected

• USD/JPY has printed a fresh six-year high at 119.10.
• Seven out of eight Fed members favored a 25 bps interest rate hike.
• The Fed announced seven interest rate hikes for 2022.

The USD/JPY pair has recorded a fresh six-year high at 119.12 after the Federal Reserve (Fed) pushed their interest rates higher by 25 basis points (bps). The decision was very much on cards as the Fed was left with no other option than to feature a rate hike to contain the soaring inflation.

Considering the ongoing Russia-Ukraine war and eventually fear of stagflation, seven out of eight Fed’s monetary policy committee (MPC) members raised their palms in favor of a gradual interest rate elevation. The Fed has announced seven interest rate hikes this year.  It seems that the greenback is underpinned against the Japanese yen on the announcement of seven interest rate hikes in 2022 as a 25 bps rate hike was already announced by Fed Chair Jerome Powell in his March testimony. Also, an aggressive hawkish stance for the remaining monetary policies of 2022 was expected by the street but seven rate hikes in 2022 are far from the expectation.

Meanwhile, the US dollar index (DXY) is hovering around 98.50, awaits fresh impetus from the Russia-Ukraine war. The 10-year US Treasury yields have climbed near 2.19% post the aggressive tightening stance from the Fed.

Now investors will focus on peace talks between Russia and Ukraine. The nations are inching towards a ceasefire but the market participants await more clarity. Apart from that, the Bank of Japan (BOJ) will announce its interest rate decision on Friday. The BOJ is likely to maintain the status quo by keeping the interest rates unchanged at 0.1%.