CFD Markets News and Forecasts — 19-04-2022

• A rising channel formation is advocating for the greenback bulls to dictate the prices.
• The 20- and 50-EMAs are scaling higher, adding to the upside filters.
• The RSI (14) is not displaying any sign of divergence and an overbought situation.

The USD/CHF pair is advancing higher sharply after violating March’s high at 0.9460. The asset has continued its six-day winning streak on Wednesday and is expected to extend gains after sustaining above Tuesday’s high at 0.9524.

The formation of a rising channel chart pattern on the daily scale is claiming a restricted movement with an upside bias. The lower boundary of the rising channel is plotted from the fiscal year 2021’s low 0.8758 while the upper boundary is placed from July 2021 high at 0.9272.

The 50- and 200-period Exponential Moving Averages (EMAs) at 0.9315 and 0.9237 respectively are advancing, which signals more gains ahead. Meanwhile, the Relative Strength Index (RSI) (14) has registered a fresh high at 76.30, which indicates a firmer upside move. The momentum oscillator RSI (14) is not displaying any sign of divergence and the overbought situation.

Violation of Wednesday’s high at 0.9523 will send the asset towards the rising channel high at 0.9570, followed by the round level resistance at 0.9600.

However, a slippage below Friday’s low at 0.9411 will drag the asset towards April 1 high at 0.9374. A breach of the latter will send the asset towards the 50-EMA at 0.9315.

USD/CHF daily chart

• The AUD/JPY reached a seven-year-old new high at 95.66, but it retraced some as the Asian Pacific session began.
• Despite verbal intervention by the Japanese Minister of Finance, most crosses rose against the battered Japanese yen.
• AUD/JPY Price Forecast: Upward biased, but oscillators approach overbought conditions.

The Australian dollar extends its rally against the Japanese yen, taking advantage of a dovish Bank of Japan (BoJ), despite comments from the Japanese Finance Minister Suzuki. At the time of writing, the AUD/JPY is trading at 95.48.

On Tuesday, the Minister of Finance Suzuki said that a weaker yen brought more demerit than merit and emphasized that they would continue monitoring the FX market with a sense of vigilance. Nevertheless, market participants widely ignored his comments, as the USD/JPY rose 1.49%, the EUR/JPY gained 1.55%, and the AUD/JPY rallied 1.83%.

AUD/JPY Price Forecast: Technical outlook

The AUD/JPY monthly chart depicts the pair as upward biased, further confirmed by the break of a nine-year-old downslope trendline in March. Nevertheless, the steepness of the rally is beginning to show on oscillators indicators, like the Relative Strength Index (RSI), which illustrates an almost vertical move towards overbought conditions, though still short at 68.87.

To the upside, the AUD/JPY’s first resistance would be May 2015 highs around 97.30. Once cleared, the next resistance would be the 100.00 mark, and then the November 2014 highs near 102.84. On the flip side, the AUD/JPY first support would be the abovementioned downslope trendline around the 90.50-70 area. A breach of the latter would pave the way for further losses. The following support would be the October 2021 highs around 86.25 and then the 200-month simple moving average (SMA) at 84.84.

Key technical levels

• USD/JPY is likely to reclaim a two-decade high at 130.67 as higher US yields battered yen.
• The 10-year US Treasury yields are on the verge of kissing the psychological resistance of 3%.
• A battered yen is not a serious problem for the BOJ but higher commodity prices are.

The USD/JPY pair is marching towards its two-decade high at 130.67 as rising US Treasury yields are punishing the already battered Japanese yen. The asset is continued with its five-day winning streak on Wednesday and is not displaying any signs of exhaustion despite the extreme overbought situation from the momentum oscillators.

The immense hawkish comments from the St. Louis Federal Reserve (Fed) President James Bullard on Monday have sent the US Treasury yields on fire.  The 10-year US Treasury yields are near 3% for the very first time in the last three years. Federal Open Market Committee (FOMC) member James Bullard dictated that investors can brace for a 75 basis point (bps) interest rate hike by the Fed. All-time-high inflation is demanding tight screws to get handled by the Fed policymakers. Also, the Fed’s Bullard dictated a herculean target of pushing interest rates to 3.5% by the end of this year.

Meanwhile, the determination by the Bank of Japan (BOJ) to keep an ultra-loose monetary policy till the achievement of pre-pandemic growth levels has frail the Japanese yen. A sluggish yen is likely to fetch political intervention however, the BOJ is not worried about the falling yen as it will improve their exporting business. The BOJ is facing the headwinds of higher commodity prices that are reducing the households’ real income due to higher energy bills. Also, investors are keeping an eye on Japan’s yearly National Consumer Price Index (CPI), which is expected to land at 1.3% on Friday.

• EUR/GBP is oscillating in a 21-pip range ahead of speeches from BOE’s Bailey and ECB’s Lagarde.
• The BOE is preparing to announce one more rate hike to corner the galloping inflation.
• The ECB may announce a rate hike for the first time in the last quarter of 2022.

The EUR/GBP pair has attracted a few bids to near 0.8288 but still balancing in a narrow range of 0.8279-0.8300 from Tuesday. The cross seems unable to fetch attention from the market participants as investors are awaiting the speeches from Bank of England (BOE) Governor Andrew Bailey and European Central Bank (ECB) President Christine Lagarde.

Earlier, the asset bounces sharply from April’s low at 0.8250 after the European Central Bank (ECB) chose a neutral status in its monetary policy announcement. After scrutinizing a tepid growth rate, ECB’s Lagarde preferred to keep the policy rates unchanged. Also, the ECB policymakers dictated neutral guidance till the conclusion of the Asset Purchase Program (APP), which is expected to conclude in the third quarter of the fiscal year 2022.

Meanwhile, BOE’s Bailey and his colleagues are planning one more rate hike to contain the inflation mess. A print of 7% by the UK’s Consumer Price Index (CPI) is indicative for a fourth consecutive interest rate hike by the BOE. Currently, the interest rate has increased to 0.75% and is expected to elevate further amid soaring inflation. The speech from BOE’s Bailey will provide cues for the likely monetary policy action by the BOE in May

This week, investors will also focus on Euro’s Consumer Confidence, which will release on Thursday. A preliminary estimate shows the landing of Consumer Confidence at -20 against the previous print of -18.7.

• Silver Price plummeted more than 2.5% as the US 10-year yield closed to the 2.95% threshold.
• US Real Yields turned positive for the first time since March 2020, a headwind for silver.
• Silver Price Forecast (XAG/USD): Further correction lies below $25.81.

Silver (XAG/USD) records its most significant daily loss since March 29, plunging 2.68% during the day, amidst surging US Treasury yields led by the short-end and a firm US dollar. At the time of writing, XAG/USD is trading at $25.17

Fed speaking and an upbeat sentiment weighed on precious metals

As reflected by US equities ending the day with gains, a risk-on market mood kept investors turning towards riskier assets. Consequently, the precious metals complex suffered, on the back of Fed speaking, which triggered a jump in US Treasury yields.

On Monday, St. Louis Federal Reserve President James Bullard reiterated his case for increasing interest rates to 3.5% by the end of 22 to slow 40-year-high inflation readings, as he said that US inflation is “far too high.”

Additionally to St. Louis Fed Bullard, on Tuesday, Chicago’s Fed President Charles Evans said that the US economy “will do very well even as rates rise.” Evans added that he supports a “couple” of 50 bps increases, which could lift rates to the 1.25%-2.50% neutral rate.

In the meantime, money market futures expect the Federal Funds Rates to rise to 1.31% in June and 2.76% next February, from 0.33% now.

It is worth noting that the 10-year TIPS broke above negative territory during the day, up to 0.005%, for the first time since March 2020, a headwind for the white metal. The Treasury Inflation-Protected Securities (TIPS) are also called real yields because they subtract projected inflation from the nominal yield on Treasury securities.

Silver Price Forecast (XAG/USD): Technical outlook

Silver (XAG/USD) is still upward biased, despite Tuesday’s fall. However, failure at the 78.60% Fibonacci level at $26.31 opened the door that exacerbated the break to the downside of the 61.80% and 50% Fibonacci retracement, but the 38.20% Fibonacci level at $25.10, capped XAG/USD’s nosedive.

In the scenario of XAG/USD extending its correction, the first support would be $25.10, the 38.20% Fibonacci retracement. A breach of the latter would expose the $25.00 figure, followed by the 50-day moving average (DMA) at $24.83 and then April’s six cycle low at $24.12.

On the flip side, if XAG/USD’s are to regain control, they need a break above $25.81, the 61.80% Fibonacci level. That said, the XAG/USD first resistance would be $26.00, followed by the 78.60% Fibonacci retracement at $26.31.

• The 200-EMA is providing a cushion to the asset.
• A re-test of the descending triangle chart pattern will put forward a bargain buy for investors.
• The RSI (14) seems to tumble near the oversold trajectory.

West Texas Intermediate (WTI), futures on NYMEX, has witnessed a steep fall since Monday after failing to sustain above the barricade of $108.00 on Monday. The asset has experienced a sheer downside and is balancing near the 200-period Exponential Moving Average (EMA), which is at $101.48.

On a four-hour scale, the oil prices are facing selling pressure after a strong rally post the breakout of the descending triangle formation. The horizontal support of the chart pattern is placed from March 15 low at $92.37 while the descending trendline is plotted from March 8 high at $126.51. The asset has slipped below the 20-EMA at $104.20, which signals a short-lived downside move.

The Relative Strength Index (RSI) (14) has slipped back to near 40.00 after oscillating in a bullish range of 60.00-80.00. This reflects a best-case scenario of entering into a bullish asset at oversold levels. The momentum oscillator is more likely to find support near the 30.00-40.00 range.

A pullback towards the psychological support of $100.00 will be a bargain buy for the market participants, which will send the asset towards April 13 high at $104.02, followed by Monday’s high at $109.13.

On the flip side, the asset may lose strength if it drops below April 8 high at $98.26. This will drag oil prices to March 15 low and February 25 low at $92.37 and $89.59 respectively.

WTI four-hour chart

• On Tuesday, the AUD/USD gained 0.32% but recorded a daily close below March’s 21 low, which opened the door for further losses.
• Geopolitics and Fed speaking capped the AUD/USD upside
• St. Louis Fed President Bullard opens the door for 75 bps rate hikes.
• AUD/USD Price Forecast: It is upward biased, but failure at 0.7400 paved the way for a downward move

The Australian dollar advances in the day but struggles around 0.7400 as the New York session winds down amidst a buoyant US dollar and a risk-on market mood. At 0.7375, the AUD/USD reflects the appetite for risk-sensitive currencies in the FX complex, though capped by a firm US dollar.

Tuesday’s session witnessed a mixed market mood throughout the day. However, the sentiment improved late in the US session, as reflected by US equities recording gains between 1.45% and 2.15%, and the greenback rose. The 10-year benchmark note rose to 2.940%, gaining eight basis points.

Geopolitics and Fed speaking capped the AUD/USD upside

Geopolitics dominates news headlines. The Russian offensive in Eastern Ukraine and the lack of peace talks at the ministry level keep investors hopeless of a cease-fire. So investors have shifted towards Fed speaking led by the Fed “hawk” James Bullard, St. Louis Fed President. On Monday, he said that inflation is “far too high for comfort,” Fed officials want to get to neutral rates expeditiously and opened the door for 75 bps increases to the Federal Funds Rate (FFR).

On Tuesday, the Chicago Fed President Charles Evan crossed the wires. Evans said that the US economy “will do very well even as rates rise.” He noted that he supports a “couple” of 50 bps increases, which could lift rates to the 1.25%-2.50% neutral rate.

In the meantime, the US Dollar Index, a gauge of the greenback’s value against a basket of six peers, is rising 0.17%, sitting at 100.989, a headwind for the AUD/USD.

Data-wise, the US economic docket featured Building Starts and Permits, which came more robust than expected. Meanwhile, the Australian economic docket would feature the Westpac-MI Leading Index. According to Westpac analysts, it is expected to “pop higher as last year’s delta disruptions cycle out of the six-month measure; other positive updates around equities, commodities, and dwelling approvals will also be included.”

AUD/USD Price Forecast: Technical outlook

AUD/USD failure at 0.7400 has left the AUD/USD adrift to some selling pressure, despite recording gains on Tuesday. Also, the pair is shy of breaking below March’s 21 daily low at 0.7373. If the AUD/USD records a daily close under the latter, it will give way for further selling pressure on the AUD/USD.

The Relative Strength Index (RSI), an oscillator sitting at 45.47 in bearish territory, gives an additional selling signal to the abovementioned.

That said, the AUD/USD first support would be the 50-day moving average (DMA) at 0..7346. A breach of the latter would expose the confluence of the mid-parallel Pitchfork’s line between the central and bottom lines and the 200-DMA around the 0.7293-0.7305 range, followed by the 100-DMA at 0.7255.

• NZD/USD bears are moving in during the latter part of Tuesday. 
• the US dollar remains in the driver's seat as the US yields rally again. 

NZD/USD was pressured into the final stages of Wall Street trade on Tuesday. At 0.6730, the bird is losing flight from a high of 0.6763 and trades close to the lows of the day, 0.6720. The US dollar was on fire this week and DXY index is up for the fourth straight day, marking a fresh cycle high near 101.023. 

''The Kiwi tried to rally yesterday as local rates moved up and markets digested Governor Orr’s frank and on balance, hawkish speech yesterday morning,'' analysts at ANZ Bank said.

''Having held key support (with 0.6723 being the 61.8% Fibo of the January-April rally), it looked like the Kiwi’s four-day losing streak might end. However, it is now back at that key level amid a surge in US bond yields (10yr yields are at a new cycle high) and a fall in milk prices at last night’s GDT auction. But the big threat seems to simply be that the local market is fully priced, but that’s not the case elsewhere.''

All eyes on the Fed and USD

Meanwhile, US rates have made a further push higher on Monday-Tuesday as the Fed's Jim Bullard didn't rule out a 75bps hike by the Fed. The US benchmark 10-year Treasury yields hit 2.928% on Tuesday, the highest since December 2018 and are on track to test the October 2018 high near 3.26%. This is supporting flows into the greenback ahead of next month's Fed meeting. 

''With inflation expectations remaining fairly steady, the real 10-year yield traded near -0.04% today, the highest since March 2020 and poised to move into positive territory for the first time since the pandemic began,'' analysts at Brown Brothers Harriman explained. ''The 2-year is still lagging a bit but traded at 2.47% today, not yet matching the 2.60% cycle high from earlier this month but still on track to test the November 2018 high near 2.97%.'' 

Bullard reiterated that he wants to get rates up to 3.5% quickly, noting “You can’t do it all at once, but I think it behoves us to get to that level by the end of the year.” 

Also, Charles Evans, Chicago Fed President spoke on Tuesday and said that there is good reason to think the US economy will do very well even as rates rise. He added that the Fed needs to be mindful of a possible wage-price spiral when noting that Fed needs to monitor this. 

• GBP/USD is on the verge of a bearish breakout, but support could be firm. 
• The bulls will monitor for accumulation at this juncture. 

GBP/USD is stalling at a critical level of daily support and the following is an analysis of the markets structure and potential hypothetical outcomes from both a bearish and bullish point of view. 

GBP/USD daily chart 

GBP/USD daily chart prospects

From a bullish perspective, following a phase of accumulation, the price would ideally break the prior highs and on a retest of that old resistance, the bulls would be expected to engage at a discount protected by a support structure.

Meanwhile, from a bearish perspective, the price could break the current support structure and bears could well be inclined to engage on a restest of the old support that would be expected to act as resistance. 

The above scenario presumes a downside continuation and a correction of that impulse, to say, a 38.2% Fibonacci retracement from where the confluence of the old support will act as a firm resistance. Thus a continuation could be traded from within the next bearish impulse and downside continuation. 

What you need to know on Wednesday 19 April:

The Japanese yen was battered on Tuesday as further upside in global bond yields exerted further upwards pressure on G10/Japan interest rate differentials, dampening the low-yielding safe-haven currency’s investment appeal. Needless to say, the yen was the worst-performing major G10 currency, with USD/JPY surging nearly 1.4% to the upper 128.00s, its highest levels since early 2002.

EUR/JPY, GBP/JPY and other major G10/JPY pairs also unsurprisingly saw sharp upside, with the former two rallying 1.5% and 1.3% respectively to multi-year highs in the upper-138.00s and mid-167.00s. Japanese politicians have been jawboning more and more in recent days about the negative impact of yen weakness, but until the BoJ budges from its ultra-dovish policy stance, the yen remains vulnerable to further losses. Remarks from BoJ Governor Haruhiko Kuroda earlier in the week suggested that the bank won’t be looking to change its policy stance any time soon.

Strength in USD/JPY helped lift the US Dollar Index above 101.00 for the first time since March 2020. Fed speak remained in the spotlight, with traders digesting the latest commentary from hawkish Fed’s James Bullard and more neutral Fed’s Charles Evans ahead of pivotal remarks from Fed Chair Jerome Powell later in the week.

EUR/USD and GBP/USD both traded broadly flat just under the 1.0800 level and near 1.3000 respectively, despite the return of normal European flows on the reopen of markets there after Monday’s closures for Easter holidays. Relevant fundamental updates, as well as updates relating to the Russo-Ukraine war, were few and far between on Tuesday, making for slow trading conditions.

Decent US housing data and in line with expected Canadian Housing Starts figures didn’t give the buck or loonie much to go off of. USD/CAD was modestly supported, however, by a sharp pullback in crude oil prices, reversing an earlier dip under 1.2600 to end the day closer to 1.2620. Ahead, loonie traders are bracing for the release of March Canadian Consumer Price Inflation figures on Wednesday.

Finally, the antipodes didn’t see too much excitement. The Aussie is a modest G10 outperformer in wake of Tuesday’s slightly hawkish RBA minutes release - the bank noted high expected inflationary pressures and said recent developments suggest an earlier rate lift-off. AUD/USD rebounded about 0.4% to the 0.7375 area, having bounced at its 50-Day Moving Average in the 0.7340s. NZD/USD, meanwhile, traded flat in the 0.6730 area and remained close to the more than one-month lows it struck on Monday just above 0.6700.

Focus during the upcoming Asia Pacific session will centre on the ongoing Covid-19 outbreak and lockdowns in China, as well as the Chinese fiscal and monetary response to the new disruptions to its economy.

Atlanta Fed President and FOMC member Raphael Bostic on Tuesday reiterated the important of getting rates to neutral territory "expeditiously", though cautioned that a 75 bps rate hike is "not on the radar", reported Reuters. Bostic said he estimates the neutral rate to be around 2.5% and feels the US economy is strong enough to stand on its own.

Some improvements on inflation will come from non-monetary developments, he noted. However, Bostic cautioned that cuts to global growth forecasts (a reference to Tuesday's IMF World Economic Outlook release) are a sign that the Fed needs to be cautious and is a reason not to rush beyond neutral regarding rate hikes. 

Additional Takeaways:

Bostic estimates GDP growth of around 3% for the US economy this year and said "there is momentum" to avoid recession. 

There are some signs that inflation has "capped off" though fertilizer and other input costs may continue adding pressure. 

As long as markets continue to function well, the Fed should continue to reduce its balance sheet. 

• NZD/JPY rode a wave of yen weakness on Tuesday, surging roughly 1.5% to the upper 86.00s.
• The pair came close to printing fresh highs for the year, as rising global yields kept the yen under pressure.
• Another catalyst for further NZD/JPY upside could be this Thursday’s NZ CPI data release.

NZD/JPY rode a wave of yen weakness on Tuesday, surging roughly 1.5% to come within a few pips of testing annual highs printed last month in the 86.90s. For now, the pair is struggling to hold above last week’s 86.66 highs and is currently trading in the 86.60s. A further rise in global yields amid further bets on global central bank tightening was the major driver of the latest rally in NZD/JPY.

Japanese politicians have been jawboning more and more in recent days about the negative impact of yen weakness, but until the BoJ budges from its ultra-dovish policy stance, the yen remains vulnerable to further losses. Remarks from BoJ Governor Haruhiko Kuroda earlier in the week suggested that the bank won’t be looking to change its policy stance any time soon.

That suggests risks remain tilted to the upside and a bullish breakout into the 87.00s and further push towards the 2014 highs in the 94.00s remains on the cards. Further adding to these upside risks is New Zealand Consumer Price Inflation data for Q1 2022 scheduled for release on Thursday. The YoY rate of inflation is seen jumping to 7.1% and the QoQ rate of price gain is seen hitting 2.0%.

After the RBNZ lifted interest rates by 50 bps to 1.50% last week, a few more 50 bps rate hikes might well be in store, maintaining NZD’s massive rate advantage over the yen. If profit-taking on yen shorts does see the pair drop back again, traders should not support in the form of recent lows and the 21-Day Moving Average in the low 85.00s.

• The shared currency prints a 200 plus pip gains vs. the Japanese yen.
• The verbal “intervention” by the Japanese Minister of Finance Suzuki and BoJ Governor Kuroda was ignored by market players.
• EUR/JPY Price Forecast: The break above 137.50 opened the door towards 141.05.

The EUR/JPY skyrockets more than 200-pips on Tuesday, amidst broad Japanese yen weakness and a risk-on market mood, which keeps US equities trading in the green. At the time of writing, the EUR/JPY is trading at 138.95, some pips below fresh seven-year highs.

The day’s main story is the Japanese yen, weakening against most G8 currencies throughout the day. Minimal efforts of verbal intervention in the FX market by the Japanese Minister of Finance Suzuki and BoJ Governor Kuroda were mainly ignored by market players, as the EUR/JPY soars more than 200-pips.

On Tuesday, the Japanese Government Bond (JGB) of 10-years reached a daily high of 0.276%, two basis points above the yield curve control (YCC) imposed by the BoJ. Nevertheless, it sits at 0.239% at the time of writing, just below the 0.25% BoJ target.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY monthly chart depicts the pair as upward biased. The Relative Strength Index (RSI), a momentum oscillator at 66.95, has enough room to spare if the EUR/JPY aims toward higher prices.

Now that the EUR/JPY left February’s 2018 swing highs at 137.50 behind, the EUR/JPY following target would be the June 2015 swing highs at 141.05. Once cleared, the next resistance would be the December 2014 cycle high at 149.78.

However, if the EUR/JPY fails to record a daily close above 137.50, it might open the door for further downside pressure. The first support would be the 137.00 mark, followed by June 2021 cycle highs at 134.12, followed by a seven-year-old downslope trendline turned resistance around 132.00.

Technical levels to watch

Chicago Fed President and FOMC member Charles Evans on Tuesday pushed back against the idea of larger than 50 bps rate hikes at upcoming Fed meetings, saying that he doesn't see the need for them, reported Reuters. Moreover, Evans said he is comfortable with a rate hike path this year that would see two 50 bps rate rises and get rates to 2.25-2.50% by the end of the year. 

The Fed won't be able to make a judgment on whether or not inflationary pressures are easing until the end of the year, he continued. Earlier in the day, Evans had said that there is good reason to think the US economy will do very well even as rates rise. 

• EUR/USD bears are in charge and are taking on the monthly support.
• The weekly chart, however, has left a reversion pattern, so some mitigation could be in order.

The US dollar rose this week to a fresh 20-year high against a basket of currencies but the euro has still managed to come up for air on Tuesday, trading around flat for the day at the time of writing. The high came in at 1.0814 but the price is sticking to a narrow range with the low at 1.0761.

Nevertheless, there are bullish prospects for the longer-term charts, so long as the bulls can commit at monthly support, at least for the meanwhile. The following illustrates the weekly and monthly structures that lean with a bullish bias. 

EUR/USD weekly chart

The M-formation on the weekly chart is compelling as it is a reversion pattern. The price would be expected to move in towards the neckline ner a 38.2% Fibonacci retracement level in the weeks to come. 

EUR/USD monthly chart

The monthly chart, on the other hand, shows that the price is meeting a demand area. There is scope for further downside to testing deeper into this area, but some meanwhile mitigation of the bearish impulse's imbalance in price could be in order first. 

• GBP/JPY lept more than 200 pips on Tuesday from the low 165.00s to the mid-167.00s as the yen battering continued.
• The yen remains highly vulnerable to rising global yields so long as the BoJ maintains its ultra-dovish stance.

GBP/JPY lept more than 200 pips on Tuesday from the low 165.00s to the mid-167.00s, as a broad sell-off in the yen as a result of rising global bond yields (excluding in Japan) deepened. At current levels in the 167.30s, the pair is trading with on-the-day gains of about 1.3% and is trading at its highest since February 2016.

Commentary from BoJ officials this week suggests a shift away from the bank’s flagship negative interest rate and yield curve control (YCC) policies remain premature to think about, hence the relentless yen sell-off. Given that the Japanese 10-year yield is capped in the 0.25% area (where it currently trades), the yen is vulnerable from a rate-differential perspective to rising yields in the US, UK, Eurozone and in other developed markets.

Given that politicians in Japan do seem to be getting increasingly nervous about the impact of yen weakness, the BoJ’s tolerance for a weaker yen is not without limit. Some have speculated that if the current sell-off continues, they might tweak either their rate guidance or YCC. At current levels, yen weakness has not gone far enough to trigger such a shift.

That suggests that, for now, the yen bears have a green light to continue shorting. At 168.00 is a low from late 2014 that could provide some resistance. The next key area of support turned resistance is at 175.00 (the 2015 low and a February 2016 high). That’s a further nearly 5.0% rally from current levels – such a move might be enough to spur some policy movement from the BoJ.

The greenback will rise versus the Canadian dollar in the coming months according to analysts at Danske Bank. They forecast USD/CAD at 1.30 in three months and at 1.32 in six months and 1.32 in twelve months. 

Key Quotes: 

“We believe that CAD on a longer-term strategic basis will face support from elevated commodity prices and rising demand for buying inflation protection – which Canadian markets deliver. Meanwhile, short-term we are still worried that global recession risks could lead to a setback to risk and by extension also deliver a hit to risk sensitive assets incl. CAD. Given CAD’s close connection to the USD and the US economy, the Canadian currency is better protected than most other growth-sensitive currencies – yet we still see topside to USD/CAD in our base case.”

“Bank of Canada continuing its tightening cycle will in isolation act as a supportive factor for CAD vs most other currencies but not vs the USD as we expect the Fed to deliver more tightening. We now forecast USD/CAD at 1.26 in 1M (from 1.28), 1.30 in 3M (from 1.31), 1.32 in 6M (1.35) and 1.32 in 12M (1.35).”

• The Swiss franc extends its weekly losses in the week, as the USD/CHF is up by 0.87%.
• Russo-Ukraine jitters and Fed speaking dominate the headlines.
• USD/CHF Price Forecast: The break of 0.9500 might open the door towards 0.9600.

The USD/CHF is soaring and recorded a fresh 22-month-high around 0.9506 during the North American session, courtesy of a firm US dollar, amidst a mixed market mood. At the time of writing, the USD/CHF is trading at 0.9503.

As portrayed by US equities trading in the green, the market sentiment is positive. The Russia-Ukraine conflict continues to dominate the headlines, as the White House said there could be new sanctions on Russia this week. Meanwhile, the US dollar remains buoyant in the session, propelled by St. Louis Fed’s Bullard, who said that inflation is “far too high” and reiterated that the Fed needs to go above neutral, around 3.50%.

On Tuesday, Chicago’s Fed President Charles Evans said that the US economy “will do very well even as rates rise.” Evans added that he supports a “couple” of 50 bps increases, which could lift rates to the 1.25%-2.50% neutral rate.

Later in the day, the Swiss National Bank (SNB) Chairman Thomas Jordan said that inflation expectations are well anchored, but there could be some risk to price stability in Switzerland. He commented that energy prices and supply chain disruptions would significantly impact Switzerland’s price stability.

Aside from this, the USD/CHF remained upwards, opening near the 0.9440 area and is pushing towards the 0.9500 mark, as the safe-haven peer’s Swiss franc and Japanese yen remain battered in the day.

USD/CHF Price Forecast: Technical outlook

The USD/CHF daily chart depicts the pair as upward biased. Given that the USD/CHF broke above the YTD high at 0.9460 and April’s 1, 2021 cycle high at 0.9472, it opened the door for a move towards 0.9500 and beyond.

That said, the USD/CHF first resistance would be June 30, 2020, cycle high at 0.9533. A breach of the latter would expose the 0.9600 mark, followed by June 5, 2020, a daily high at 0.9650.

• So far, 0.74 the figure is blocking progress following the RBA minutes.
• The Aussie has succumbed to higher US yields and a strong US dollar.

At 0.7378, AUD/USD is up 0.43% on the day and has travelled between a high of 0.7399, (peaking here following the Reserve Bank of Australia minutes), and a low of 0.7343. 

The Aussie, however, has succumbed to the mighty US dollar that remains firm as US rates continue to rise. The DXY index is up for the fourth straight day and made a new cycle high near 101.023. The March 2020 high near 103 is the next big target. This index measures the greenback against six other currencies and is being supported by the divergence in monetary policy between a Federal Reserve determined to keep a lid on soaring inflation and major counterpart central banks such as the Bank of Japan and the European Central Bank. 

US yields are lit

Meanwhile, the US benchmark 10-year Treasury yields hit 2.928% on Tuesday, the highest since December 2018 and are on track to test the October 2018 high near 3.26%. ''With inflation expectations remaining fairly steady, the real 10-year yield traded near -0.04% today, the highest since March 2020 and poised to move into positive territory for the first time since the pandemic began,'' analysts at Brown Brothers Harriman explained. ''The 2-year is still lagging a bit but traded at 2.47% today, not yet matching the 2.60% cycle high from earlier this month but still on track to test the November 2018 high near 2.97%.'' 

US rates have made a further push higher on Monday-Tuesday as the Fed's Jim Bullard didn't rule out a 75bps hike by the Fed. He reiterated that he wants to get rates up to 3.5% quickly, noting “You can’t do it all at once, but I think it behoves us to get to that level by the end of the year.” 

He added that “more than 50 bp is not my base case at this point.  I wouldn’t rule it out, but it is not my base case here.”  Additionally, he said, “we want to get to neutral expeditiously, I guess is the word of the day.  I’ve even said we want to get above neutral as early as the third quarter and try to put further downward pressure on inflation at that point.” 

''While it’s easy to dismiss Bullard as excessively hawkish, we should all remember that he was the first to push for aggressive tightening and the rest of the Fed eventually came around to his view,'' analysts at BBh said.

Meanwhile, Charles Evans, Chicago Fed President spoke on Tuesday and said that there is good reason to think the US economy will do very well even as rates rise. He added that the Fed needs to be mindful of a possible wage-price spiral when noting that Fed needs to monitor this. 

RBA minutes fail to send AUD through the 0.74 barrier

While the RBA minutes confirmed the bank’s hawkish pivot, AUD peaked a pip away from 0.74 the figure after the currency  succumbed to broad-based USD gains

Two things stand out from the April RBA Minutes, analysts at ANZ Bank said as being the following:

Meanwhile, analysts at BBH argued that the ''odds of liftoff at the May 3 meeting are less than 20% but liftoff at the June 7 meeting is fully priced in.''

AUD/USD technical analysis

AUD/USD was meeting a dynamic trendline support line and the bulls were eyeing a 38.2% Fibonacci retracement and a higher 50% mean reversion towards 0.7420. So far, 0.74 the figure is blocking that progress. In any case, the downside is eyed if there are continued failures between here and 0.7420 and a break of the trendline and horizontal support could be on the cards for the days ahead. 

The Bank of Japan (BoJ) will face increasing political pressure if the Japanese yen slides further, say analysts from Danske Bank. They forecast the USD/JPY pair at 126 in one month, 125 in three months, 123 in six months and 119 in a year. 

Key Quotes: 

“Bank of Japan (BoJ) has fiercely defended its yield curve control as the global pressure for higher yields has also reached Japan. Within a short period of time, the BoJ has twice deemed it necessary to step in and buy JGBs to keep the 25bp ceiling on the 10- year yield. The additional supply of JPY to the market adds to JPY headwinds. The BoJ has continuously communicated it does not see a weak JPY as a problem. On the contrary, it boosts exporting businesses’ profits. The BoJ blames rising living costs on high energy prices and not FX. That said, JPY at its weakest since the early 1970’s could become a political issue with upper house elections this summer. BoJ will face increasing political pressure, if JPY slides further.”

“Higher long US yields have been the most important driver of USD/JPY for a while now. The increasing divergence between US treasury yields and JGBs has kept increasing as the BoJ has defended its yield curve control. As one of the world’s biggest energy importers, high energy prices add to the pressure. In the short run, the global pressure for higher yields and the global energy crunch will keep weighing on JPY. Looking further ahead, we do expect the pressure on JPY will wear off as the US curve inverts. We forecast the cross at 126 in 1M, 125 in 3M, 123 in 6M and 119 in 12M.”

“Upside risks to USD/JPY comes from a continued high pressure on commodities driving inflation and global yields higher. USD/JPY close to 130 will trigger more speculation on Tokyo interference, though. With the short speculative positions in JPY in mind, indications of a global inflation peak can on the other hand quickly trigger a drop in USD/JPY.”

• The Loonie gives back some Monday gains, as the USD/CAD gains 0.13%.
• Eastern Europe conflict weighs on global energy prices, capping the USD/CAD upside.
• USD/CAD Price Forecast: A break above the 200-DMA opens the door towards 1.2676.

The USD/CAD trims Monday’s losses and stages a comeback, soaring in the North American session above the 1.2600 mark, approaching the 50-day moving average (DMA) at 1.2651. The USD/CAD is trading at 1.2625 at the time of writing.

Market sentiment and hawkish Fed lifted the USD/CAD above 1.2600

The market sentiment remains mixed. European equities are about to end in the red, while US stocks record gains between 1.29% and 2.33%. The greenback remains firmly bid, underpinned by US Treasury yields, while oil prices fell, so all those factors dragged the Loonie towards negative territory.

Factors like the Ukraine – Russia conflict, the lack of advancement in peace talks, and Russia’s offensive in Eastern Ukraine maintain global inflationary pressures high, including energy. That capped the greenback’s upside action, supported by a hawkish St. Louis Fed’s Bullard, who said that inflation is “far too high” and reiterated that the Fed needs to go above neutral, around 3.50%.

In the meantime, the US docket featured Chicago’s Fed President Charles Evans, who said that the US economy “will do very well even as rates rise.” Evans added that he supports a “couple” of 50 bps increases, which could lift rates to the 1.25%-2.50% neutral rate.

Aside from this, the US economic docket featured Home Sales statistics, which analysts mainly ignored. Regarding the Canadian economic docket, inflation figures on Wednesday would shed some light after the Bank’s of Canada first 50-bps rate increase, which pushed rates to the 1% threshold.

TD Analysts wrote on a note that “We look for CPI to firm to 6.1% y/y in March, with prices up 0.9% m/m. Energy will provide the main driver, led by an 11% increase in gasoline, alongside another significant contribution from food. Motor vehicles, clothing, and shelter should help drive strength in the ex. food/energy aggregate, while the BoC’s core inflation measures should firm to 3.6% y/y on average.”

USD/CAD Price Forecast: Technical outlook

The USD/CAD is trading above the 200-DMA, the first sign that the pair could be turning bullish and is preparing to jump towards the 50-DMA at 1.2651. Furthermore, oscillators support a bullish scenario and have enough room before reaching overbought conditions, opening the door for further USD/CAD upside.

With that said, the USD/CAD first resistance would be the 50-DMA at 1.2651. A breach of the latter would expose April’s high at 1.2676, followed by the 100-DMA at 1.2680 and then the 1.2700 figure.

The EUR/GBP will likely continue to trade around 0.84 over the next months according to analysts at Danske Bank. They see the cross moving higher if the European Central Bank turns more hawkish. 

Key Quotes: 

“The Bank of England (BoE) hiked the Bank Rate by another 25bp at the March meeting and we expect BoE to hike further over the course of the year. Relative rates have supported GBP vis-àvis EUR over the past six months but we do not expect the channel will support GBP much further. Markets have already priced in a lot of rate hikes and relative rates may start support EUR/GBP if ECB turns even more hawkish.”

“EUR/GBP is once again trading with a 0.83 handle but remains overall range-bound as expected. Looking forward, on one hand, the positive USD environment is usually benefitting GBP relative to EUR. On the other hand, relative rates now seem supportive for EUR relative to GBP. Overall, we keep our 12M target unchanged at 0.84, while we are looking for new trends in EUR/GBP.”

“A hit to global risk sentiment usually weakens GBP but if the war turns worse and/or the West imposes tougher sanctions on Russia, we are likely to see EUR/GBP moving somewhat lower again. EUR/GBP will move higher if ECB turns more hawkish. EU-UK tensions remain a risk.”
 

German Chancellor Olaf Scholz said in a video call with Western leaders on Tuesday that Germany will continue to finance Ukraine militarily and financially, reported Reuters. 

Additional Remarks:

"Western leaders agreed we will give the maximum support to Ukraine but not get involved in the war."

"Our strength is in our unity... (Russian President Vladimir) Putin did not expect it."

"The impact of sanctions is a disaster for Russia."

"We reached the limit of what we can deliver from the German armed force's own stocks."

"We have asked the German armaments industry to tell us what they can deliver quickly."

"They include antitank and air defence weapons that Ukraine has asked for."

"An imposed peace as Putin envisages is unacceptable."

"With our partners, we agree that Russia must not win this war."

Asked if Germany is sending leopard tanks, Scholz said "our partners all agree it's best to send old East European stocks which Ukraine is familiar with."

"We, with our partners, will help provide long-range artillery to Ukraine."

Chicago Fed President Charles Evans on Tuesday said that there is good reason to think the US economy will do very well even as rates rise, reported Reuters. The Fed needs to be mindful of a possible wage-price spiral, he added, noting that Fed needs to monitor for this. 

Additional Takeaways:

• Looking at the composition of inflation, the Fed can take note of some "positive" developments if they continue. 
• It's still too early to think the inflation challenges we are facing now are changing, but they could be. 
• If the Fed were to do a couple of 50 bps increases, it could get interest rates to the 2.25%-2.5% neutral rate by end of the year. 
• If the Fed doesn't see inflation coming down, it is going to raise rates above neutral. 
• If the Fed does see inflation coming down, then neutral rates could be about right. 
• If inflation reaccelerated, that would be a cause of great concern. 
• "My expectation is that we'll need to raise rates above neutral."

Evan's remarks come after St Louis Fed President James Bullard reiterated calls for interest rates to hit 3.5% by the year's end and called inflation "far too high". Bullard also hinted he was open to a 75 bps rate move. His remarks have been attributed as adding fresh impetus to the ongoing global bond sell-off that saw US 30-year yields hit 3.0% for the first time since April 2019 on Tuesday.

• GBP/USD has spent Tuesday flirting with the 1.3000 level and remained just above last week’s annual lows.
• With the BoE increasingly at risk of disappointing hawkish market tightening expectations, a break below 1.3000 soon remains a risk.

GBP/USD flirted with the 1.3000 level on Tuesday, with the bears eyeing but not quite getting a test of last week’s multi-month lows in the 1.2970 area. Despite the return of European flows after market closures for Easter Monday, price action in G10 FX markets has for the most part been quite subdued on Monday, with the notable exception of significant yen weakness as a result of a sharp rise in US and European bond yields.

Traders are looking ahead to remarks from Fed and BoE heads Jerome Powell and Andrew Bailey at this week’s IMF/World Bank meetings on Thursday. The former is expected to solidify expectations for 50 bps rate hikes at the next few Fed meetings as the Fed looks to get US inflation under wraps. Bailey, meanwhile, may strike a more cautious tone on the prospect for further rate hikes, reflecting the recent hawkish shift in BoE language at its last policy announcement.

The IMF released its quarterly World Economic Outlook report on Tuesday and downgraded global growth forecasts for this and next year, as expected. Notably, the UK was forecasted to have the weakest growth prospects over the next two years, chiming with the BoE’s increasing concern about the UK outlook with the country currently in the throes of a historic squeeze on living standards.

Many FX strategists have labelled money market-priced expectations for a further nearly 150 bps in tightening this year from the BoE as overly excessive. Should markets start paring back on this pricing amid dovish BoE speak in the coming weeks, GBP/USD remains at risk of tumbling under 1.3000.

Technicians have noted that the pair has formed a descending triangle (with the 1.3000 level the key support) over the last month or so, another ominous sign that a bearish break is in the offing.

Data released on Tuesday showed better-than-expected numbers on housing starts and building permits for March, also February’s numbers were revised higher. Analysts at Wells Fargo point out that the data puts home building on firmer footing ahead of the recent spike in mortgage rates.

Key Quotes: 

“Single-family construction appears to be losing a little momentum, with starts declining 1.7% in March and permits falling 4.8%. Permits over the past three months are now running slightly below the three-month trend in starts. By contrast, the three-month average of multifamily permits is running 23.8% ahead of starts, suggesting there are still plenty of projects in the pipeline.”

“The strength in housing starts at the start of 2022 likely reflects some easing in supply constraints that have plagued home builders during the pandemic. While shortages still exist, many builders have found workarounds and many firms have stockpiled key materials. Labor is also more plentiful, as evidenced by the recent strength in construction employment. The reopening of economies in the Northeast and West Coast has likely brought out more workers, which has allowed more projects to move forward.”

“In an unusual quirk, the number of single-family homes currently under construction is also 811,000 units on a seasonally-adjusted annual rate basis. The number of single-family homes under construction is the highest it has been since November 2006. While high, the pace of single-family construction appears to be demand-driven, with much of the current pipeline of homes under construction already sold. Inventories of completed single-family homes remain near all-time lows.”

Russia is carrying out the "prelude" to a larger expected offensive operations in eastern Ukraine, a senior US defense official said on Monday according to Reuters. About seven flights of weapons are heading to Europe in the next 24 hours carrying weaponry for Ukraine, the official added. Russian has about 75% of its pre-invasion combat power currently available, the senior official added. 

On Monday, Russian forces tried to break through Ukrainian defenses all along the Donetsk, Luhansk and Kharkiv fronts said the Ukraine Security Council Secretary at the time. The official stated that they think Ukrainian forces in Donetsk and Luhansk can withstand the new Russian assault, but warned that the threat to cities from long-range rocket attacks has become much higher. 

• US Dollar jumps against emerging market currencies amid a decline in commodity prices.
• Higher equity prices not helping the Mexican peso.
• USD/MXN reverses sharply and soars from 19.75, above the 20-day SMA.

The USD/MXN rose sharply during the American session, climbing from 19.75 to 20.07, the highest level in a week on the back of a stronger US dollar.

The greenback gained momentum against emerging market currencies as commodity prices declined. Gold tumbled from $1980 toward $1950, Silver from $25.75 to $25.10 and crude oil prices lost more than 3% during the last four hours.

Higher US yields are also helping the US dollar. The 10-year yield peaked at 2.92% and the 30-year reached levels above 3.00% for the first time since 2019. The DXY is up 0.10%, and climbed above 101.00.

In Mexico, President Andres Manuel Lopez Obrador’s project to restore state control of the electricity sector failed. Regarding economic data, on Friday mid-month inflation data is due. “Headline inflation is expected at 7.51% y/y vs. 7.29% in mid-March.  If so, inflation would continue to move above the 2-4% target range. Banco de Mexico delivered the expected 50 bp hike to 6.5% in March.  Minutes showed a range of views on further tightening but suggested there is a consensus to continue hiking rates at the current 50 bp pace.  Next policy meeting is May 12 and another 50 bp hike to 7.0% seems likely”, wrote analysts at BBH.

Technical outlook

The reversal in USD/MXN from the strong support area of 19.75 deteriorated the outlook for the Mexican peso. If the pair manages to hold above 20.00 (static resistance and 20-day Simple Moving Average), more gains seem likely, targeting 20.20.

A slide back under 20.00 during the next hours, should keep USD/MXN in the range between 19.75 and 20.00, favoring an extension of the consolidation bias.

USD/MXN daily chart

Technical levels

• In the last two months, the greenback has appreciated 12% vs. the Japanese yen.
• Geopolitics, Fed speaking, and Fed-BoJ divergence, a tailwind for the USD/JPY.
• USD/JPY Price Forecast: Upward biased, and a move towards 130.00 is on the cards.

 The USD/JPY extends to 20-year highs and eyes to reach the 130.00 mark, during the North American session, amidst a mixed session, with global equities fluctuating, bond yields rising, and commodities down. At the time of writing, the USD/JPY is trading at 128.71.

Mixed market sentiment and BoJ’s dovish stance weaken the JPY

Geopolitical issues like Ukraine-Russo tussles keep weighing on market mood. Peace talks between both parties are on hold as the Russian Foreign Minister Lavrov said that another stage of the operation is beginning. Meanwhile, Fed speaking maintains the US dollar buoyant. On Monday, St. Louis Fed President Bullard noted that inflation is “far too high for comfort” and added that Fed officials want to get to neutral rates expeditiously.

The market reacted to the headlines, pushing the US 10-year Treasury yield upwards. The 10-year benchmark note sits at 2.917%, up six basis points at the time of writing, while the US Dollar Index, a gauge of the greenback value, trades with gains, up 0.12%, at 100.947.

It’s worth noting that the 10-year Real yield reached -0.04% during the day, its highest level since pre-pandemic levels, and is poised to move into positive territory.

Aside from this, the USD/JPY is underpinned by US Treasury yields. Also, the central bank divergence between the ultra-loose accommodative policy of the Bank of Japan (BoJ), contrarily to the Fed, weakens the JPY. Efforts of verbal intervention by the Minister of Finance Suzuki and BoJ Governor Kuroda were mainly ignored by market players, as the USD/JPY rose almost 200-pips throughout the trading session.

Data-wise, the Japanese docket revealed Industrial Production data, which came better than expected, though it failed to give a fresh impetus to the yen. Meanwhile, housing economic data print was positive in the US, but it remains in the backseat as the Fed is focused on inflation.

USD/JPY Price Forecast: Technical outlook

The USD/JPY monthly chart depicts the pair as upward biased. The break of a 20-year-old downslope resistance trendline opened the door towards February 2002 cycle highs at 135.02, but there would be some hurdles to overcome on its way up.

The USD/JPY’s first resistance would be May 2002 highs at 129.09. A breach of the latter would expose the widely mentioned 130.00 mark by the former top currency diplomat Eisuke Sakakibara, known as "Mr. Yen" who said that “Japan should intervene in the currency market or raise interest rates to defend the yen if it weakens beyond 130.”

• Silver turned lower on Tuesday, dropping to the low $25.00s as rising US yields amid hawkish Fed speak finally weighing.
• XAG/USD has been resilient to rising yields in recent days amid elevated demand for inflation/stagflation protection.

Though the tone of geopolitical updates regarding the Russo-Ukraine war remain downbeat, and despite global growth concerns coming into focus in wake of the IMF releasing its latest World Economic Outlook, precious metals markets finally appear to have succumbed to rising global yields. Spot silver (XAG/USD) was last trading nearly 2.5% lower on the day in the low $25.00s as long-term US bond yields hit fresh multi-year highs, with the 30-year eclipsing 3.0% for the first time since April 2019.

Hawkish comments from Fed policymaker James Bullard, who reiterated a call for rates to hit 3.5% by the year’s end and even suggested his openness towards a 75 bps rate rise have underpinned the latest yield rally. Higher yields raise the opportunity cost of holding non-yielding assets like silver. Looking ahead, a key event this week will be a speech from Fed Chair Jerome Powell on Thursday at the IMF/World Bank meetings.

Powell will likely solidify expectations for a 50 bps rate hikes at next month’s Fed meeting and likely a few more meetings thereafter, suggesting further upside risks for yields and downside risks for silver. XAG/USD bears will be eyeing a test of support in the form of the 21 and 50-Day Moving Averages on either side of the $25.00 per troy ounce level.

Global energy prices turned sharply lower on Tuesday amid profit-taking, with this also weighing on precious metals amid a lessened demand for inflation protection. Whether this is a short-term move that is reversed by dip-buying or the start of a more lasting push lower could be make or break for silver’s near-term prospects.

Up until Tuesday, silver (like other precious metals) had been resilient to upside in US bond yields in recent weeks due to hawkish shifts in Fed tightening expectations and this has largely been as a result of elevated demand for inflation/stagflation protection given the impact of the Russo-Ukraine war and associated sanctions on Russian exports.

Statistics Canada will release March Consumer Price Index (CPI) data on Wednesday, April 20 at 12:30 and as we get closer to the release time, here are the forecasts by the economists and researchers of five major banks regarding the upcoming Canadian inflation data. 

The March Canada inflation rate is expected to rise by +0.9% MoM from +1% MoM, clocking in at +6.1% YoY from +5.7% YoY.

TDS

“We look for CPI to firm to 6.1% YoY in March, with prices up 0.9% MoM. Energy will provide the main driver, led by an 11% increase in gasoline, alongside another significant contribution from food. Motor vehicles, clothing, and shelter should help drive strength in the ex. food/energy aggregate, while the BoC's core inflation measures should firm to 3.6% YoY on average.”

RBC Economics

“Canadian CPI report is expected to show a further acceleration to 6% in March. That would top the 5.7% February reading that was already the highest since 1991. The BoC’s newly-minted forecast shows inflation averaging 5.3% in 2022. With labour markets also looking exceptionally strong, there’s no reason for interest rates to still be at emergency low levels. The BoC already hiked the overnight rate by 75 basis points over the last month and a half. We look for another 100 bps worth of increases to bring the rate to 2.0% by October.”

NBF

“While we expect strong print for CPI ex-food and energy given labor shortages and supply chain issues, the headline number could also have been upwardly impacted by surging gasoline prices. Elsewhere, food inflation should have remained strong, driven by the upward rise in commodity prices. All in all, we expect the headline index to have increased 0.9% MoM before adjustments for seasonality, a result which would allow the annual inflation rate to increase four ticks to 6.1%. The annual rate of the common CPI, meanwhile, could move up from 2.6% to 2.7%.”

CIBC

“March should hopefully be the peak for Canadian inflation, with the price of oil having moved off its highs in recent weeks. However, what a peak it will be, with the 6.3% reading we forecast more than triple the 2% target and the highest since early 1991. Energy, food and housing costs will continue to be the key drivers but look for further signs of a broadening in inflationary pressure, including an upward move in the average of the BoC’s three inflation measures. While goods price inflation decelerated somewhat in the US CPI figures released earlier, that was largely due to a decline in used car prices that aren’t tracked in the Canadian inflation basket.”

Citibank

“Canada CPI NSA MoM (Mar) – Citi: 1.0%, prior: 1.0%, CPI YoY – Citi: 6.2%, prior: 5.7%. We expect headline CPI to rise 1.0% MoM and climb to 6.2% YoY in March, which would be more or less consistent with ~6%YoY inflation in H1’2022 forecast by the BoC in the April MPR.”

Market fears of the war in Ukraine and continued perception of the US central bank as being behind the curve are supporting Gold markets, economists at TD Securities report. 

Protracted war in Ukraine raises both geopolitical uncertainty and inflation risks

“The potential for a protracted war in Ukraine simultaneously raises both geopolitical uncertainty and inflation risks, fueling demand for the yellow metal as a safe haven. This trend has also likely been exacerbated by the concurrent decline in global equity and bond prices, which is consistent with fears that Treasuries may be less potent havens in a higher-inflation regime.” 

“While the Fed is signaling its intent to combat inflation by reaching policy neutrality by year-end, and starting an aggressive QT regime, outflows from gold markets have been scarce as participants are happy to retain some optionality against the Fed's stated plan amid growth concerns.”

• WTI has slumped from near-$110 on Monday to the $102s on Tuesday with growth concerns in focus.
• But further losses are likely to invite dip-buying amid ongoing concerns about the Russo-Ukraine war and OPEC+ supply difficulties.

Oil prices have turned lower again this Tuesday, with front-month WTI futures dropping back from Monday’s highs near $110 per barrel to the low $100s with global growth concerns in focus. At current levels in the $102.00s, WTI is now trading with on-the-day losses of a little over $4.0, with losses exaccerbated in recent trade in wake of the release of the latest International Monetary Fund (IMF) World Economic Outlook report that saw global growth forecasts for 2022 and 2023 downgraded due to rampant inflation and the Russo Ukraine war.

With WTI having slipped back below its 21-Day Moving Average in the $103.40 area, bears are now eyeing a test of the 50DMA just above the $100 level. But commodity strategists have warned that any further dips back to/below $100 may be subject to being bought into. After all, recent developments in the Russo-Ukraine war suggest a rising risk of a protracted conflict with Russia amping up its assault in Ukraine’s east, meaning the outlook for Russian energy exports remains cloudy. French Finance Minister Bruno Le Maire said on Tuesday that an EU-wide embargo on Russian oil imports is being worked on.

Meanwhile, broader OPEC+ supply concerns also remain a key market focus. A Reuters survey released on Tuesday showed that the group missed its oil output target by 1.45M barrels per day (BPD) in March. Granted, 300K BPD of that miss was due to falling Russian output due to sanctions. But the latest survey highlights the ongoing struggles of smaller OPEC+ producers (namely in Africa) to raise output.

These challenges are likely to have worsened in April. As a reminder, Libya’s National Oil Corporation on Monday announced a force majeure at its largest oil field (Al Sharara) and warned of “a painful wave of closures” amid internal political machinations. With Russian output losses expected to have risen to 1.5M BPD in April and 3M BPD in May, and as the group continues to increase output quotas at a very steady pace of about 400K BPD each month, the outlook for a near-term rebound in OPEC+ supply is remote.

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest PBoC meeting.

Key Takeaways

“The People’s Bank of China (PBoC) announced on Fri (15 Apr) that it will lower banks’ reserve requirement ratio (RRR) by 25 bps, effective from 25 Apr.”

“The quantum of RRR cut is much smaller than previous rounds which would typically be 50 to 100 bps. Furthermore, the PBoC left its 1-year medium-term lending facility (MLF) rate unchanged at 2.85% on Fri (15 Apr), against market’s and our expectation of a 10 bps cut to 2.75%.”

“First, this could imply that the PBoC is running into constraint to use the RRR as a monetary policy tool after successive reductions over the years.”

“Second, the overall impression is that the central bank has little appetite for aggressive monetary policy easing. While the PBoC wanted to boost market confidence, it is also aware that the impact of its policy easing may be limited by weak credit demand. As such, policymakers may find it more useful to use measures to address demand side weakness by easing COVID-19 curbs and boost consumption demand.”

“Third, as the RRR is reduced by a smaller than expected quantum and will only take effect from 25 Apr, the immediate impact on lowering banks’ funding cost will be limited. Thus, the 1Y LPR and 5Y LPR are likely to be unchanged at 3.70% and 4.60% respectively at the fixing this month on 20 Apr.”

“We see more pressure for the PBoC to ease its monetary policy further in the upcoming months, likely by direct cuts to the 1Y MLF rate to bring down the LPR and via its relending tool. We maintain our forecast for the benchmark 1Y LPR to fall to 3.55% but see a longer time frame for the easing by the end of 3Q22 instead of 2Q22.”

• DXY alternates gains with losses near 101.00.
• US yields advances to new highs on Tuesday.
• US housing data surprised to the upside in March.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, extends the rally to the area just beyond the 101.00 mark on turnaround Tuesday.

US Dollar Index looks to Fed, inflation, Ukraine

The index remains bid for yet another session, this time managing to briefly surpass the key 101.00 barrier to reach levels last seen more than two years ago.

Another good day in US yields also lends extra wings to the buck in a context where the deterioration of the geopolitical scenario also favours inflows into the US dollar via safe haven demand.

In the US docket, Housing Starts expanded 0.3% MoM, or by 1.793M units, in March while Building Permits also expanded 0.4% inter-month, or 1.873M units.

What to look for around USD

The dollar’s rally surpassed albeit ephemerally the 101.00 mark in the first half of the week. So far, the greenback’s price action continues to be dictated by the likeliness of a tighter rate path by the Fed and geopolitics. In addition, the case for a stronger dollar also remains well propped up by high US yields and the solid performance of the US economy.

Key events in the US this week: Housing Starts, Building Permits, IMF World/Bank Spring Meetings (Tuesday) – IMF World/Bank Spring Meetings, Existing Home Sales, Fed Beige Book (Wednesday) - IMF World/Bank Spring Meetings, Initial Claims, Philly Fed Index, Fed Powell (Thursday) - IMF World/Bank Spring Meetings, Flash Services/Manufacturing PMIs (Friday).

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

US Dollar Index relevant levels

Now, the index is advancing 0.06% at 100.87 and the breakout of 101.02 (2022 high April 19) would open the door to 101.91 (high March 25 2020) and finally 102.99 (2020 high March 20). On the downside, the initial support comes at 99.57 (weekly low April 14) followed by 97.68 (weekly low March 30) and then 97.10 (100-day SMA).

• EUR/USD is trading flat on Tuesday as Eurozone yields play catch-up to recent upside in their US counterparts.
• But the pair remains unable to reclaim the 1.0800 level and bears continue to eye a retest of recent lows.
• Meanwhile, FX strategists continue to cite Fed/ECB policy divergence and geopolitics as weighing on the pair’s near-term prospects.

A comparatively large jump in Eurozone bond yields versus their US counterparts, which are playing catch up given European market closures on Monday, is supporting EUR/USD on Tuesday. The pair currently trades flat on the day, though has again been unable to hold to the north of the 1.0800 level, likely keeping the bears confident that an eventual retest of last week’s annual lows in the 1.0750 area will eventually be retested.

Indeed, most FX strategists and market commentators continue to favour EUR/USD heading lower as a result of a widening divergence between the Fed and ECB’s response elevated inflationary pressures. Whilst the ECB is expected to do little more than end its QE programme and may implement a few rates hikes by the year’s end, some Fed members (James Bullard on Monday) are even now talking about a potential 75 bps rate hike at next month’s meeting.

The Fed/ECB divergence story will be in focus on Thursday when both ECB President Christine Lagarde and Fed Chair Jerome Powell speak at this week’s IMF/World Bank meetings. The EUR/USD bears are eyeing a test of 2020 lows in the 1.0600s, with the backdrop of recent negative developments in the Russo-Ukraine conflict (Russia ramping up its assault in the east) also being cited as supportive of further downside.

Economist at UOB Group Ho Woei Chen, CFA, assesses the latest set of results in Chinese fundamentals.

Key Takeaways

“China’s 1Q22 GDP expanded by 4.8% y/y (1.3% q/q SA) compared with 4.0% (1.5% q/q SA) in 4Q21. This was above consensus and our forecasts (Bloomberg est: 4.2% y/y, 0.7% q/q SA; UOB est: 4.5% y/y, 0.8% q/q) and the strong q/q growth pointed to a fairly resilient economic momentum despite the pandemic outbreak.”

“The moderation in the economic indicators in Mar came as no surprise but the slowdown was largely more contained than expected and 1Q22 growth was buffered by a strong rebound in the first two months of the year.”

“Reflecting the pandemic outbreak, retail sales reversed sharply to a contraction of 3.5% y/y in Mar as catering sales plunged by 16.4% y/y, of which restaurant sales were down 15.6% y/y. Sales of discretionary consumer goods such as jewellery and clothing also suffered a disproportionately larger hit.”

“The surge in the surveyed jobless rate warrants concern as the labour market is likely to worsen further. The 31 major cities jobless rate was at a record high of 6.0% in Mar from 5.4% in Feb, exceeding previous high of 5.9% in May 2020.”

“The impact of the domestic lockdowns and the Russia-Ukraine conflict is still uncertain at this point while the real estate market outlook has remained weak. As such, we maintain our 2022 GDP growth forecast for China at 4.9%.”

• EUR/USD reverses the earlier drop to 1.0760 and regains 1.0800.
• Another visit to the 2022 low near 1.0750 remains in store.

EUR/USD regains the smile somewhat and reverses three consecutive daily drops on Tuesday.

In light of the ongoing price action, extra losses in the pair remain in the pipeline in the short-term horizon. Against that, a break below the so far 2022 low at 1.0757 (April 14) should open the door to a quick visit to 1.0727 (low April 24 2020) before the 2020 low at 1.0635 (March 23).

While below the 200-day SMA, today at 1.1424, the outlook for the pair is expected to remain negative.

EUR/USD daily chart

• Sustained USD buying dragged GBP/USD lower for the fourth successive day on Tuesday.
• The bias seems tilted in favour of bearish traders and supports prospects for further losses.
• Attempted recovery moves might now be seen as a selling opportunity and remain capped.

The GBP/USD pair struggled to capitalize on its modest intraday recovery and met with a fresh supply near the 1.3040 region on Tuesday amid sustained US dollar buying. The pair turned lower for the fourth successive day and weakened further below the 1.3000 psychological mark during the early North American session.

From a technical perspective, the GBP/USD pair's inability to gain any meaningful traction or register any meaningful recovery suggests that the recent bearish trend might still be far from being over. The negative outlook is reinforced by the fact that oscillators on the daily chart are holding deep in bearish territory.

Some follow-through selling below the YTD low, around the 1.2975-1.2970 region, will reaffirm the bias and pave the way for a slide towards testing the 1.2910-1.2900 support zone. The downward trajectory could further get extended towards the next relevant support near mid-1.2800s en-route the 1.2820 area and the 1.2800 mark.

On the flip side, the daily swing high, around the 1.3040 region, now seem to act as immediate resistance. Any subsequent recovery should attract fresh selling near the 1.3100 round-figure mark and remain capped around the 1.3115-1.3120 area. The latter should act as a pivotal point for short-term traders.

Sustained strength beyond might trigger a short-covering move and lift the GBP/USD pair back towards the 1.3150 area. The recovery momentum could allow bulls to aim back to reclaim the 1.3200 mark with some intermediate hurdle near the 1.3180-1.3185 region.

GBP/USD 4-hour chart

Key levels to watch

In its latest quarterly World Economic Outlook released on Tuesday, the International Monetary Fund (IMF) cut its forecasts for global growth in 2022 and 2023 by 0.8% and 0.2% respectively to 3.6%, reported Reuters. 

Key takeaways as summarised by Reuters:

• The IMF warned that rising food and fuel prices could "significantly increase" the risk of social unrest in emerging markets/developing economies. 
• The IMF said its downgrade reflected the Russo-Ukraine war's direct impact on Russia and Ukraine, as well as global spillovers, and the institution now sees inflation remaining elevated "for much longer". 
• Global growth is seen declining to about 3.3% over the medium term. 
• The IMF said war-related supply shortages will amplify existing inflationary pressures, raising the price of food, energy and metals. Shortages are seen lasting into 2023. 
• The war in Ukraine is adding to supply shocks seen during the Covid-19 pandemic and will trigger more shortages beyond the energy and agricultural sectors. 
• The IMF said inflation is projected at 5.7% in advanced economies in 2022, 1.8% higher than in its January forecast, though is seen declining to 2.5% in 2023. 
• The IMF said its growth and inflation forecasts are marked by "high uncertainty" and worsening supply-demand imbalances could lead to persistently higher inflation, as well as slower growth. 
• The IMF sees inflation at 8.7% in emerging markets/developing countries, 2.8% higher than in its January forecast, and then declining to 6.5% in 2023. 
• The IMF lowered its US GDP growth forecast to 3.7% in 2022 and to 2.3% in 2023, a downgrade of 0.3% for both years from its January forecast. 
• The IMF sees a rising risk that inflation expectations become de-anchored, which is prompting more aggressive tightening by central banks. 
• The IMF said that the latest covid lockdowns in China could cause new bottlenecks in global supply chains. 
• The IMF lowered its Euro area growth forecast to 2.8% in 2022 and 2.3% in 2023, down from 3.9% and 2.5% respectively in its January forecast. 
• The IMF sees a contraction of 2.9% in emerging and developing Europe in 2022, a drop of 6.4% from its January forecast. Growth is then seen at 1.3% in 2023, versus the previous forecast of 2.9% growth. 
• The IMF sees GDP growth in China of 4.4% in 2022 and 5.1% in 2023, down 0.4% and 0.1% from the January forecast. 
• The IMF sees the Russian economy contracting by 8.5% in 2022 and by 2.3% in 2023. 
• The IMF said that divergence between advanced and emerging market economies is expected to persist, suggesting some 'permanent scarring' from the pandemic. 
• The IMF said the medium-term outlook had been revised downwards for all groups except commodity exporters who will likely benefit from the surge in energy and food prices. 
• The IMF sees world trade in goods and services expanding by 5% in 2022 and 4.4% in 2023, down 1% and 0.5% from the January forecast. 

• DXY pushes higher and clocks new tops past 101.00
• The 2020 high near 103.00 emerges as the next target of note.

DXY navigates levels last seen more than two years ago in the vicinity of the 101.00 yardstick on Tuesday.

Price action around the index continues to suggest further upside in the near term. That said, if 101.02 is surpassed in the near term, then there are no resistance levels of significance until the 2020 peak at 102.99 recorded on March 2020.

The current bullish stance in the index remains supported by the 7-month line near 96.50, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 95.33.

DXY daily chart

According to Quek Ser Leang at UOB Group’s Global Economics & Markets Research, USD/IDR remains poised to keep trading in a side-lined fashion between 14,335 and 14,385 for the time being.

Key Quotes

“USD/IDR traded sideways and within narrow ranges for the past few weeks and indicators are mostly flat.”

“Further sideway-trading would not be surprising, likely within a range of 14,335/14,385.”

• NZD/USD is attempting to snap a four-day losing streak on Tuesday, having found some composure in the mid-0.6700s.
• The pair has performed poorly recently amid the buoyant buck/weak equities.
• Traders are eyeing an upcoming speech from Fed Chair Powell, as well as NZ CPI this week.

NZD/USD is attempting to snap a four-day losing streak on Tuesday, having found some composure in the mid-0.6700s, though failing to hold above the 0.6750 mark. The pair fell to fresh more than one-month lows on Monday, extending on what has so far been a very poor April, with the pair currently trading nearly 3.0% lower versus the end of last month.

Upside the US dollar/US yields as traders price in a more aggressive Fed tightening cycle in wake of recent hawkish rhetoric from the bank’s policymakers and downside in global equity markets, which remain nervous about central bank tightening, inflation, geopolitics and supply chain disruption amid lockdowns in China have been the main factor weighing on the pair so far this month.

And analysts are flagging a risk that the trends of a stronger buck/higher US yields may yet have further room to run, with Fed Chair Jerome Powell expected to solidify expectations that the Fed will hike interest rates by 50 bps at upcoming meetings. This could well tip NZD/USD below 0.6700.

But kiwi traders should also be aware of the release of key Q1 2022 Consumer Price Inflation figures on Thursday. The YoY rate of inflation is seen jumping to 7.1% and the QoQ rate of price gain is seen hitting 2.0%. After the RBNZ lifted interest rates by 50 bps to 1.50% last week, a few more 50 bps rate hikes might well be in store, maintaining NZD’s rate advantage over the US dollar. This could act to cushion further losses.

Housing Starts rose by 0.3% in March, taking the rolling 12-month number of starts to 1.793M, above expectations for a drop to 1.745M from 1.788M in February, data released by the US Census Bureau on Tuesday showed. Meanwhile, Building Permits rose by 0.4%, taking the rolling 12-month number of permits to 1.873M, above expectations for a drop to 1.825M from 1.865M in February. 

Market Reaction 

FX markets did not react to the latest US housing figures, which are yet to show a substantial slowdown as a result of the recent steep rise in US mortgage rates amid guidance from the Fed towards tighter policy. The DXY for now continues to trade in the upper 100s, supported amid higher US yields and recent hawkish Fed speak. 

• USD/CAD attracted some dip-buying on Tuesday and was supported by a combination of factors.
• Retreating crude oil prices undermined the loonie and extended support amid stronger greenback.
• Rising bets for aggressive Fed rate hikes, elevated US bond yields continued benefitting the buck.

The USD/CAD pair recovered its modest intraday losses and shot to a fresh daily high, around the 1.2630 region heading into the North American session.

A combination of factors assisted the USD/CAD pair to attract some buying near the 1.2570-1.2565 area on Tuesday, with bulls still awaiting sustained strength beyond the very important 200-day SMA. Retreating crude oil prices undermined the commodity-linked loonie. This, along with the underlying bullish sentiment surrounding the US dollar, acted as a tailwind for spot prices.

Crude oil retreated further from the three-week high touched the previous day amid worries over slowing demand in the wake of COVID-19 lockdowns in major centres in China. That said, concerns about tight global supply and a potential European Union (EU) embargo on Russian gas over its invasion of Ukraine, should help limit the downside for the black liquid, at least for now.

On the other hand, the USD climbed to a fresh two-year high and continued drawing support from growing acceptance that the Fed will tighten its monetary policy at a faster pace to curb soaring inflation. In fact, the markets have been pricing in multiple 50 bps rate hikes by the Fed, which, in turn, pushed the US Treasury bond yields to a multi-year peak and underpinned the greenback.

Hence, the market focus will remain on a scheduled speech by Chicago Fed President Charles Evans, due later during the US session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD and provide some impetus. Traders will further take cues from oil price dynamics to grab some short-term trading opportunities around the USD/CAD pair.

Technical levels to watch

• AUD/USD has fallen back into the 0.7360s after probing 0.7400 earlier in the morning.
• The Aussie got some short-lived support from hawkish RBA minutes.
• But the pair fell again as the buck picked up amid further upside in US yields on hawkish Fed bets.

Having failed an earlier attempt to push back to the north of the 0.7400 during early European trade, AUD/USD is back to trading in the 0.7360s, leaving it now just about 0.2% higher on the day. That means the pair has eroded the majority of its post-hawkish RBA minutes' gains. For reference, the minutes revealed that the central bank expects inflation to pick up and that recent developments have brought forward the likely timing of the first-rate hike.

Traders cited resilience in the US dollar in wake of further upside in US yields following hawkish commentary from Fed arch-hawk James Bullard on Monday, who hinted he was open to a 75 bps rate hike at upcoming meetings, as weighing on AUD/USD as it attempted to rally back above 0.7400. Looking ahead, the main event of the week for the pair will be Thursday’s speech at this week's IMF/World Bank meetings by Fed Chair Jerome Powell.

Markets expect Powell to solidify expectation for a 50 bps rate hike from the Fed at the start of next month and will likely be highly sensitive to his rhetoric on the economic outlook and outlook for policy. Tier two US data in the form of housing reports, weekly jobless claims, regional manufacturing surveys and flash PMIs (which are also scheduled for release in Australia) will play second fiddle.

AUD/USD bears are currently eyeing a potential break below the 50-Day Moving Average just below 0.7350, which continues to offer support. This could open the door to a bearish push towards the 200-DMA just under the 0.7300 mark.

• EUR/JPY breaks above the 138.00 mark to clinch new highs.
• The rally now targets the 139.00 mark in the near term.

EUR/JPY has quickly left behind the 138.00 barrier and records new YTD peaks around 138.80 on Tuesday.

Further upside thus appears on the cards with the immediate target at the August 2015 high at 138.99 (August 21) prior to the round level at 140.00. Further up is seen the June 2015 peak at 141.05 (June 4).

In the meantime, while above the 200-day SMA at 130.38, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

Ukrainian Negotiator Mykhailo Podolyak told Reuters on Tuesday that events in Mariupol have made the negotiation process with Russia "even more complicated" and said that it is hard to say when the next direct peace talks will be possible. Russia is "seriously betting" on the second stage of its "special operation", he continued, adding that Russia aims to strengthen its negotiation position through its offensive in eastern Ukraine. 

Podolyak's remarks come after the unofficial start of the second phase of Russia's invasion of Ukraine began on Monday, with the country now focussing its attacking efforts in the east. Ukrainian officials on Monday said that Russian forces tried to break through their defenses along the Donetsk, Luhansk and Kharkiv fronts. 

Chinese President Xi Jinping said on Monday that China plans to step up fiscal support to border and less developed areas, reported Chinese State Media according to Reuters. Xi added that China will step up data security in digital governance and financial support for tech innovations, as well as taking steps to ensure the security and stability of supply chains. 

The President's comments come after the country's National Development and Reform Commission (NDRC) announced that it would "roll out effective measures in a timely way to keep economic operations within a reasonable range". 

Read more here: China’s NDRC: To roll out effective measures to keep economic operations within reasonable range

Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggested the upside momentum could motivate USD/MYR to challenge the 4.2600/4.2650 area in the short term.

Key Quotes

“USD/MYR traded on a strong note today and upward momentum is beginning to build. The risk for this is week on the upside towards 4.2600, possibly 4.2650. Support is at 4.2310 followed by 4.2200.”

“The rising trend-line support and 55-day exponential moving average (both near 4.2050) are not expected to come under threat, at least for these 1 to 2 weeks.”

• Silver struggled to gain any meaningful traction and oscillated in a range on Tuesday.
• The technical set-up favours bullish traders and supports prospects for further gains.
• Sustained break below the ascending channel support would negate the positive bias.

Silver seesawed between tepid gains/minor losses through the first half of the European session and was last seen trading around the $25.85-$25.80 region, nearly unchanged for the day. Given the overnight pullback from a resistance marked by the top boundary of a two-week-old ascending channel, the range-bound price action warrants caution before placing directional bets.

Looking at the broader picture, the XAG/USD now seems to have stabilized around the 61.8% Fibonacci retracement level of the $26.95-$23.97 downfall. Some follow-through buying beyond the $26.00 mark will be seen as a fresh trigger for bulls. This will set the stage for a move back towards challenging the trend channel resistance, currently around the $26.35 region.

The latter coincides with March daily closing high, above which the XAG/USD might aim back to retest the YTD peak, closer to the $27.00 mark and climb further towards the $27.65-$27.70 region. The outlook is reinforced by the fact that technical indicators on the daily chart have been gaining positive traction and are still far from being in overbought territory.

On the flip side, any meaningful slide might now find decent support near the $25.50-$25.45 confluence, comprising the 50% Fibo. level and the lower end of the ascending channel. Sustained weakness below would make the XAG/USD vulnerable to slide further towards the 38.2% Fibo. level, around the $25.00 psychological mark, which should act as a pivotal point.

Silver 4-hour chart

Key levels to watch

• The Fed-BoJ policy divergence pushed USD/JPY to a fresh 20-year high on Tuesday.
• Extremely overbought conditions warrant caution before placing fresh bullish bets.
• Investors now eye US housing market data, Fedspeak for some trading opportunities.

The USD/JPY pair maintained its strong bid tone through the first half of the European session and was last seen trading just a few pips below the mid-128.00s, or the highest level in nearly a two-decades.

A combination of factors assisted the USD/JPY pair to prolong its strong bullish trajectory and gain strong follow-through traction for the 13th successive day on Tuesday. A big divergence in the monetary policy stance adopted by the Bank of Japan and the Fed was seen as a key factor behind the recent surge witnessed since the beginning of this month.

The BoJ has been intervening to keep the yield on Japanese 10-year government bonds below 0.25% and repeatedly said to retain its ultra-loose monetary policy. Conversely, the yield on the benchmark 10-year US government bond surged to its highest level since December 2018 amid expectations that the Fed would tighten its monetary policy at a faster pace.

In fact, the markets have been pricing in multiple 50 bps rate hikes by the Fed in the wake of worries that the worsening Ukraine crisis would put upward pressure on already high inflation. This continued to provide support to the US dollar, which provided an additional boost to the USD/JPY pair and remained supportive of the ongoing positive move.

The momentum could further be attributed to some technical buying following the overnight sustained move above the 127.00 round figure. The subsequent strength took along some short-term trading stops placed near the 128.00 mark, setting the stage for additional gains. That said, a combination of factors might hold back bulls from placing fresh bets.

The prospects for a more aggressive Fed response to combat stubbornly high inflation, along with a protracted Russia-Ukraine war, continued weighing on investors' sentiment. This was evident from a softer tone around the equity markets, which tends to benefit the safe-haven JPY. This, in turn, could cap the USD/JPY pair amid extremely overbought conditions.

Market participants now look forward to the US housing market data and a scheduled speech by Chicago Fed President Charles, due later during the early North American session. Apart from this, the US bond yields will influence the USD and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader risk sentiment to grab some short-term opportunities.

Technical levels to watch

Quek Ser Leang at UOB Group’s Global Economics & Markets Research noted USD/THB could retest the 33.81 level near term.

Key Quotes

“USD/THB traded between 33.46 and 33.72 before closing slightly higher for the week (33.61, +0.12%).”

“While upward momentum is not strong, there is room for USD/THB to test the major resistance at 33.81 before the risk of a pullback would increase. Support is at 33.52 followed by 33.29.”

• WTI price is on a corrective decline from three-week highs.
• WTI bulls ignore the Libyan fuel supply outage and Shanghai reopening news.
• OPEC+ produces 1.45 mil bpd below target last month, API data eyed.

WTI (NYMEX futures) is dropping over 1% so far this Tuesday, snapping a four-day uptrend, as bulls remain weighed down by the recent strength in the US dollar across its main peers.

Despite the latest pullback, the greenback continues to outperform its rivals amid increased odds of a double-dose Fed rate hike in May as well as in June. The US Treasury yields resume their bullish momentum, reviving the bids for the dollar while weighing on the USD-denominated oil.

The black gold fails to draw support from supply disruptions woes, emanating from Libya.  Libya's National Oil Corp closed its largest oil field as forces in the east expanded their blockade of the sector over a political standoff.

Adding to it, Reuters reported that OPEC and its allies (OPEC+) produced 1.45 mil bpd below target last month as Russian output was hit by sanctions.

Meanwhile, WTI bulls also ignored reports that Shanghai is preparing to ease covid lockdown restrictions, as factories reopen. Note that China is the world’s second-largest oil consumer and is currently battling the worst coronavirus outbreak since Wuhan.

Attention now turns towards the private sector weekly crude stocks change report due to be released by the American Petroleum Institute (API) later on Tuesday for fresh trading opportunities in WTI price.

WTI: Technical levels to consider

EUR/USD has staged a modest rebound to the 1.08 area. Unless the pair manages to clear the 1.0830 resistance, sellers are likely to continue to dominate the pair's action, FXStreet’s Eren Sengezer reports.

1.0760 aligns as key near-term support for the euro

“Investors will keep a close on US T-bond yields. In case the 10-year yield rises above 3%, EUR/USD could come under renewed bearish pressure.”

“In order to extend its rebound, EUR/USD needs to clear the static level that seems to have formed at 1.0830. Above that level, the 1.0850/1.0860 area (50-period SMA, static level) aligns as the next hurdle ahead of 1.09 (static level, psychological level).”

“On the downside, key support is located at 1.0760 (static level, post-ECB low). If that level turns into resistance, 1.0730 (April 24, 2020, low) and 1.07 (psychological level) could be seen as the next bearish targets.”

See: EUR/USD set to test the 1.07 mark in the coming days – ING

• GBP/USD staged a goodish intraday bounce from sub-1.3000 levels on Tuesday.
• Softer US bond yields held the USD bulls on the defensive and extended support.
• Bets for a more aggressive Fed should limit losses for the USD and cap the major.

The GBP/USD pair recovered over 50 pips from the early European session low and shot to a fresh daily high, around the 1.3040 region in the last hour.

The pair once again showed some resilience below the 1.3000 psychological mark and staged a goodish intraday bounce from the four-day low touched earlier this Tuesday. The uptick allowed the GBP/USD pair to snap three days of the losing streak and reverse a major part of the previous day's losses. The US dollar eased a bit from a fresh two-year high amid a softer tone surrounding the US Treasury bond yields, which, in turn, offered some support to spot prices.

Apart from this, signs of stability in the equity markets further undermined the safe-haven buck. On the other hand, the British pound drew support from some cross-driven strength stemming from a blowout rally in the GBP/JPY cross. This was seen as another factor that contributed to the GBP/USD pair's modest intraday uptick. That said, any meaningful upside still seems elusive amid expectations that the Fed would tighten its monetary policy at a faster pace.

In fact, the markets seem convinced that the Fed would deliver multiple 50 bps rate hikes to combat stubbornly high inflation. Moreover, St. Louis President James Bullard said on Monday that the US central bank shouldn’t rule out rate increases of 75 bps. This should act as a tailwind for the US bond yields and limit the downside for the buck. This, in turn, suggests that the GBP/USD pair's attempted recovery might still be seen as a selling opportunity.

In the absence of any major market-moving economic releases from the UK, the USD price dynamics will continue to play a key role in influencing the GBP/USD pair. Later during the early North American session, traders will take cues from the US housing market data and a scheduled speech by Chicago Fed President Charles Evans. This, along with the US bond yields and the broader risk sentiment, will drive the USD and produce some trading opportunities around the major.

Technical levels to watch

• Gold Price treads water amid a broad US dollar retreat and cautious market mood.
• US Treasury yields resume the uptrend, keeping XAUUSD bulls on the back foot.
• Gold Price Forecast: $1,961 could emerge as key support for XAUUSD amid firmer USD.

Gold Price remains at the mercy of the price action in the US dollar and the Treasury yields, courtesy of the aggressive Fed’s tightening expectations. Meanwhile, the absence of the first-tier US economic data leaves the attention on the Fed commentary and rising concerns over inflation and growth risks, in the face of a protracted Russia-Ukraine war. Should the market mood worsen, the haven demand for the US dollar will be back in play, limiting the upside in Gold Price. Additionally, the renewed upside in the Treasury yields could also keep a check on XAUUSD.

Also read: Gold technical picture for 2022

Gold Price: Key levels to watch

The Technical Confluences Detector shows that gold price is struggling to take on the recovery above $1,982, the convergence of the Fibonacci 61.8% one-day, the previous week’s high and Bollinger Band one-day Upper.

Acceptance above the latter is critical to resume the uptrend towards the previous day’s high of $1,998.

Ahead of that level, a bunch of stiff resistance levels are seen around $1,991, where the Fibonacci 23.6% one-day, pivot point one-week R1 and pivot point one-day R1 coincide.

On the flip side, the previous day’s low of $1,971 acts as strong support, below which a drop towards the Fibonacci 38.2% one-week at $1,966 will be in the offing.

Further down, XAUUSD sellers could target powerful support at $1,960, the confluence of the previous year’s high and the Fibonacci 61.8% one-month.

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.

Gold remains virtually unchanged amid rising US Treasury bond yields and a firm dollar. The yellow metal also shrugs off the last Fed communications, economists at Commerzbank report.

Gold remains steadfast

“Gold is continuing to hold its own against the firm US dollar and high bond yields. Remarks made by representatives of the US Federal Reserve do not appear to be having any impact on gold at present, either.” 

“ETF investors bought holdings on balance last week. The gold ETFs tracked by Bloomberg registered inflows of nearly 16 tons. This was already the 13th consecutive week to show inflows. Since the beginning of the year, inflows have meanwhile totalled over 273 tons. This makes ETF investors a key driver of the gold price.” 

“The CFTC’s data reveal that speculative financial investors have been betting more heavily on rising gold prices again of late: they expanded their net long positions by 15% in the week to 12 April, thereby bringing a five-week phase of withdrawal to an end.”

Amid the relentless drop in the Japanese yen, the country’s Chief Cabinet secretary, Hirokazu Matsuno said that they are closely watching FX moves and their potential impact on the economy.

Additional quotes

Market reaction

Japanese officials continue with their verbal intervention but it has little to no impact on the USD/JPY pair, which seems out of control for now.

The spot is trading at the highest level in 20 years near 128.40, adding 1.12% on the day.

• USD/CHF climbed to a one-year high during the early part of trading on Tuesday.
• Softer US bond yields capped gains for the USD and prompted some profit-taking.
• Rising bets for a more aggressive Fed favour the USD bulls and should limit losses.

The USD/CHF pair surrendered its intraday gains to the highest level since April 2021 and slipped below the mid-0.9400s during the early part of the European session.

The US dollar eased a bit from a fresh two-year high touched earlier this Tuesday amid a softer tone surrounding the US Treasury bond yields. This, in turn, was seen as a key factor that failed to assist the USD/CHF pair to capitalize on its early positive move and prompted some selling near the 0.9465 area. The downside, however, seems cushioned amid expectations for a more aggressive policy tightening by the Fed.

In fact, the markets have been pricing in multiple 50 bps rate hikes by the Fed amid concerns that the worsening Ukraine crisis would put upward pressure on already high inflation. Moreover, St. Louis Fed President James Bullard said on Monday that the US central bank shouldn’t rule out rate increases of 75 bps. This should act as a tailwind for the US bond yields, which, in turn, should limit losses for the USD/CHF pair.

Apart from this, signs of stability in the equity markets could undermine the safe-haven Swiss franc and offer additional support to spot prices. Even from a technical perspective, acceptance above the 0.9410-0.9415 region favours bulls, suggesting that dips might still be seen as a buying opportunity. This makes it prudent to wait for strong follow-through selling before confirming that the USD/CHF pair has topped out.

Market participants now look forward to the US economic docket, featuring the release of Building Permits and Housing Starts later during the early North American session. This, along with a scheduled speech by Chicago Fed President Charles Evans and the US bond yields, will influence the USD price dynamics. Apart from this, the broader risk sentiment could provide some meaningful trading impetus to the USD/CHF pair.

Technical levels to watch

• EUR/USD leaves behind the initial pessimism and regains 1.0800.
• The dollar sheds ground following earlier new cycle highs.
• Focus will be on the IMF/World Bank Spring Meetings.

The single currency regains the smile and lifts EUR/USD back to the 1.0800 neighbourhood on Tuesday.

EUR/USD looks to USD, geopolitics

EUR/USD manages to regain some upside traction and flirt once again with the 1.0800 mark following three consecutive daily pullbacks, including a drop to levels last seen nearly 2 years ago near 1.0750 (April 14).

The uptick in spot comes in response to the knee-jerk in the buck after the US Dollar Index (DXY) reached new cycle tops past the 101.00 barrier earlier in the session.

Further legs to the pair’s recovery comes from the German cash market, where the 10y bund yields approach the 0.90% level, an area last traded back in July 2015.

There are no data releases in the domestic calendar, whereas the IMF/World Bank Spring Meetings and Economic Outlook will take centre stage throughout the week. in the US docket, housing data and the speech by Chicago Fed C.Evans are all due later in the NA session.

What to look for around EUR

EUR/USD regains some composure and revisits 1.0800 following last week’s new 2022 lows in the mid-1.0700s following the ECB’s dovish tone. Despite the ongoing bounce, the outlook for the pair remains well into the bearish side for the time being, always in response to dollar dynamics and geopolitical concerns. As usual, occasional pockets of strength in the single currency should appear reinforced by speculation the ECB could raise rates before the end of the year, while higher German yields, elevated inflation, the decent pace of the economic recovery and auspicious results from key fundamentals in the region are also supportive of a rebound in the euro.

Key events in the euro area this week: IMF World/Bank Spring Meetings (Monday) – EMU Balance of Trade, Industrial Production, IMF World/Bank Spring Meetings (Wednesday) – IMF World/Bank Spring Meetings, Final EMU Inflation Rate, Flash EMU Consumer Confidence (Thursday) – IMF World/Bank Spring Meetings, EMU, Germany Flash Manufacturing, Services PMIs (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. Second round of the presidential elections in France (April 24). Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is up 0.22% at 1.0803 and faces the next up barrier at 1.0933 (weekly high April 11) seconded by 1.1000 (round level) and finally 1.1096 (55-day SMA). On the other hand, the break below 1.0757 (2022 low April 14) would target 1.0727 (low April 24 2020) en route to 1.0635 (2020 low March 23).

Extra upside is likely if USD/CNH overcomes the 6.4000 level in the next weeks, commented FX Strategists at UOB Group Quek Ser Leang and Lee Sue Ann.

Key Quotes

24-hour view: “We expected USD to ‘trade between 6.3750 and 6.3930’ yesterday. USD subsequently traded within a narrower range than expected (6.3744/6.3899) before closing little changed at 6.3799 (-0.03%). Momentum indicators are mostly neutral and we continue to expect USD to trade between 6.3750 and 6.3930.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (18 Apr, spot at 6.3830). As highlighted, upward momentum appears to have improved somewhat but USD has to close above 6.4000 before a sustained advance is likely. At this stage, the chance for USD to close above 6.4000 is not high but it would remain intact as long as USD does not move below 6.3600 within these few days.”

• DXY now gives away some gains following new peaks.
• US yields trade on a mixed fashion on turnaround Tuesday.
• IMF/World Bank Meetings, housing data next on tap.

The greenback, in terms of the US Dollar Index (DXY), clings to daily gains after hitting new peaks just above 101.00 the figure earlier in the session.

US Dollar Index remains bolstered by Fed speculation

The index advances for the fourth consecutive session and briefly surpassed the 101.00 mark for the first time since late March 2020 during early trade.

The march north in the dollar remains propped up by firmer speculation of a tighter normalization of the Fed’s monetary conditions in the next months, as well as a probable reduction of the balance sheet sooner than anticipated.

By the same token, US yields extend their consolidative mood in the upper end of the range along the curve and remain also underpinned by hawkish Fedspeak. On the latter, St. Louis Fed J.Bullard (voter, hawk) said over the weekend that a 75 bps rate hike is not ruled out, although the base case remains for a 50 bps hike.

In the US data space, Housing Starts and Building Permits are due along with the speech by Chicago Fed C.Evans (2023 voter, centrist). In addition, markets’ attention will be on the IMF/World Bank Spring Meetings and Economic Outlook.

What to look for around USD

The dollar’s rally surpassed albeit ephemerally the 101.00 mark in the first half of the week. So far, the greenback’s price action continues to be dictated by the likeliness of a tighter rate path by the Fed and geopolitics. In addition, the case for a stronger dollar also remains well propped up by high US yields and the solid performance of the US economy.

Key events in the US this week: Housing Starts, Building Permits, IMF World/Bank Spring Meetings (Tuesday) – IMF World/Bank Spring Meetings, Existing Home Sales, Fed Beige Book (Wednesday) - IMF World/Bank Spring Meetings, Initial Claims, Philly Fed Index, Fed Powell (Thursday) - IMF World/Bank Spring Meetings, Flash Services/Manufacturing PMIs (Friday).

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

US Dollar Index relevant levels

Now, the index is advancing 0.02% at 100.84 and the breakout of 101.02 (2022 high April 19) would open the door to 101.91 (high March 25 2020) and finally 102.99 (2020 high March 20). On the downside, the initial support comes at 99.57 (weekly low April 14) followed by 97.68 (weekly low March 30) and then 97.10 (100-day SMA).

• GBP/JPY gained strong follow-through traction on Tuesday and jumped to a fresh multi-year peak.
• The BoJ’s ultra-dovish stance continued undermining the JPY and remained supportive of the move.
• Stronger USD weighed on sterling and capped the upside amid extremely overbought conditions.

The GBP/JPY cross trimmed a part of its strong intraday gains to the multi-year peak and retreated to mid-166.00s during the early European session.

The unprecedented fall in the Japanese yen remained unabated through the first half of trading on Tuesday amid expectations that the Bank of Japan will retain its ultra-loose policy stance. Moreover, the BoJ has repeatedly said that it remains ready to use powerful tools to avoid long-term interest rates from rising too much. It is worth recalling that the Japanese central bank last month offered to buy unlimited 10-year Japanese government bonds to defend the 0.25% yield cap. This, in turn, was seen as a key factor that assisted the GBP/JPY cross to prolong its recent bullish trajectory and gain follow-through traction for the third successive day on Tuesday.

The momentum pushed spot prices to the highest level since February 2016, though stalled ahead of the 167.00 round-figure mark. Expectations for more aggressive Fed rate hikes continued boosting the US dollar. This, in turn, exerted some downward pressure on the British pound and kept a lid on any further gains for the GBP/JPY cross. Traders also seemed reluctant to place fresh bullish bets amid extremely overbought conditions and absent relevant market moving economic releases. That said, the bias remains tilted firmly in favour of bulls, suggesting that any meaningful pullback might still be seen as a buying opportunity and is more likely to remain limited.

Even from a technical perspective, the overnight sustained move beyond the previous YTD high, around the 164.65 region, adds credence to the near-term positive outlook. Some follow-through buying beyond the 167.00 mark will reaffirm the bullish bias and set the stage for a further near-term appreciating move for the GBP/JPY cross.

Technical levels to watch

Here is what you need to know on Tuesday, April 19:

Rising US Treasury bond yields and the cautious market mood allowed the greenback to outperform its rivals at the start of the week. During the Asian trading hours on Tuesday, the US Dollar Index (DXY) reached its highest level since April 2020 101.02 before retreating modestly in the early European session. The US economic docket will feature Housing Starts and Building Permits data for March. Later in the day, Chicago Fed President Charles Evans will be delivering a speech as well.

While speaking at a virtual event held by the Council on Foreign Relations late Monday, St. Louis Fed President James Bullard reiterated that the Fed needs to lift the policy rate to 3.5% by the end of the year to be able to battle inflation. Bullard further added that he is in favour of starting the balance sheet reduction at an upcoming meeting. On the back of these comments, the benchmark 10-year US Treasury bond yield climbed to its highest level since December 2018 and came within a touching distance of 3%.

In the meantime, the Euro Stoxx 600 Index is down 0.9% in the European morning and US stock index futures trade flat on the day, suggesting that markets remain risk-averse early Tuesday.

EUR/USD closed in negative territory on Monday and stays relatively quiet below 1.0800 in the European session. French Finance Minister Bruno Le Maire said earlier in the day that an embargo on Russian oil was in the works and added that they were hoping to convince European partners to ban Russian oil in the coming weeks.

GBP/USD lost nearly 50 pips on Monday but manages to hold above 1.3000 so far in the day. 

Fueled by rising US T-bond yields, USD/JPY jumped to its highest level since May 2002 at 128.32 on Tuesday. The pair was last seen consolidating its gains near 128.00. Commenting on the JPY's devaluation, “excessive weak yen or yen's rapid weakening can have a more negative impact but weak yen is basically positive overall,” said Japanese Finance Minister Shunichi Suzuki.

Gold climbed toward $2,000 on Monday but reversed its direction. At the time of press, XAU/USD was trading flat on the day near $1,980.

Bitcoin staged a rebound and seems to have steadied above $40,000 after having dropped to its weakest level in more than a month at $38,550 on Monday. Ethereum gained more than 2% on Monday and managed to reclaim $3,000. ETH/USD is posting small daily losses near $3,050 early Tuesday.

The US dollar has retained good momentum after the Easter break. Economists at ING expect the US Dollar Index (DXY) to surge above the 101 level.

Further room to strengthen

“We continue to expect the dollar to find some support (especially against the low-yielders) this week.”

“DXY should find more room to appreciate above 101.00.”

USD/JPY is now at 128.00. Economists at ING expect the pair to test 130.00 in the coming days.

More downside risk for the yen

“USD/JPY may soon touch 130, but FX intervention is not assured”

“No intervention at the 130.00 mark could mean that the line in the sand is set at 140.00.”

A drop below 126.10 should be indicative that rally in USD/JPY could lose some momentum, noted FX Strategists at UOB Group Quek Ser Leang and Lee Sue Ann.

Key Quotes

24-hour view: “Our expectations for USD to ‘trade between 126.00 and 126.80’ were incorrect as it rose to 127.00 before extending its advance during early Asian hours. Conditions are overbought but USD could advance further to 127.50. That said, the next resistance at 128.00 is likely out of reach for now. Support 126.85 followed by 126.60.”

Next 1-3 weeks: “We highlighted yesterday that while conditions are deeply overbought, the risk for USD is still on the upside. We added, ‘there is room for the rally to extend to 127.00’. We did not quite expect the rapid manner of the advance as USD rose to 127.00 during NY session before extending its gains. Further USD strength appears likely, the next levels to watch are at 127.50 and 128.00. Overall, only a breach of 126.10 (‘strong support’ level was at 125.60 yesterday) would indicate that the rally in USD is ready to take a breather.”

GBP/USD has seen some dips below the psychological support of 1.30. Economist at ING expect cable to settle below this level in the week ahead.

Time for a decisive move below 1.30?

“The only two releases to keep an eye on in the UK calendar this week are tomorrow’s retail sales and PMIs, as well as speeches by Bank of England Governor Andrew Bailey and Catherine Mann on Thursday.”

“Cable is currently trading around 1.30: breaks below this level have proven to be very short-lived in previous instances (March-April), but we think that a supported dollar and the lack of major drivers for sterling this week could support a more decisive depreciation in GBP/USD.”

Considering advanced figures from CME Group for natural gas futures markets, open interest shrank for the second session in a row, this time by around 5.7K contracts on Monday. Volume followed suit and went down for the second straight session, now by more than 34K contracts.

Natural Gas now looks to $8.30

Prices of natural gas continues to navigate extreme overbought levels. The commodity reached new cycle tops on Monday further north of the $8.00 mark per MMBtu, although the move was against the backdrop of shrinking open interest and volume. That said, a correction is long overdue, while further gains now target the September 2008 high around $8.30.

Policy divergence between the Federal Reserve and the European Central Bank (ECB) continues to argue in favour of USD strength. In the opinion of economists at ING, EUR/USD could test 1.07 soon as the French election run-off draws closer and the situation in Ukraine remains highly volatile

Downside risks persist

“The Fed-ECB gap, which is a major determinant of EUR/USD moves, is set to remain wide for longer. We’ll hear from President Christine Lagarde this week, but we doubt she will make any significant U-turn on the policy rhetoric.”

“The second round of the French elections (24 April) draws nearer. Latest polls seem to suggest a relatively safe lead for President Emmanuel Macron over rival Marine Le Pen, but we suspect appetite for the EUR will remain low into this weekend’s vote.”

“There is growing concern about developments in Ukraine after missiles hit the city of Lviv, which had been considered a relatively safe area – partly due to its proximity to the Polish border.”

“A combination of these factors continues to argue against a recovery in the euro, and EUR/USD may test 1.07 in the coming days.”

The minutes of the Reserve Bank of Australia (RBA) signaled that the first rate hike may not be too far off, as they expect inflation to further increase above target. This should keep the Australian dollar well bid in the coming months, economists at MUFG Bank report.

RBA rate hikes in focus

“The release of the latest RBA policy minutes further highlighted that the RBA is moving close to raising rates providing additional support for the Australian dollar. The minutes highlighted that stronger core inflation in Q1 and wage growth had prompted the RBA to bring forward the timing of the first rate increase.”

“Australian rate market participants have priced in around 11bps of hikes by the next RBA meeting on 3rd May and 33bps of hikes by the following 7th June meeting. The looming prospect of RBA rate hikes should continue to keep the Aussie well bid in the coming months.”

USD/JPY has hit a fresh intra-day high at 128.33. Economists at MUFG Bank expect the pair to near the 130 level.

Speculative yen selling has been ramped up

“St Louis Fed President Bullard stated that the Fed should not rule raising rates by 75bps, but it is not his base case here. He believes the Fed needs to move quickly to raise its key policy rate to around 3.50% this year. The hawkish comments will continue to place upward pressure on US yields in the near-term that in turn are reinforcing the yen sell-off.”

“Governor Kuroda continued to reiterate that a weak yen is still positive for Japan’s economy although very rapid moves fuel negative effects including changes in corporate plans. There was no indication though that the BoJ was ready to tighten policy anytime soon to provide more support for the yen. It leaves the yen vulnerable to further weakness in the near-term with no clear fundamental trigger to prompt a reversal of the current bearish trend.” 

“Market participants will be increasingly targeting the 130.00-level for USD/JPY and then beyond the highs from in early 2002 at just above the 135.00-level.”

“The latest IMM report highlights clearly that speculative yen selling has been ramped up in anticipation of further weakness.”

Jim Bullard, President of the St. Louis Fed, introduced the idea of 75bp rate steps yesterday. The FX market received Bullard’s comment in a USD-positive manner. Nonetheless, economists at Commerzbank consider any USD strength resulting from these comments to be exaggerated.

Risk of a recession increases the more quickly the Fed pulls up its key rate

“The market is not confident that either the US economy or the Fed will be able to cope with 3.5% as Bullard expects, because it is assumed that this would lead to a recession and that at this stage the Fed would give up on a restrictive approach of this scale again.”

“The risk of a recession increases the more quickly the Fed pulls up its key rate. I would not be surprised if the same FX traders who are currently reacting to Bullard’s comments with USD strength would then be the first to sell the dollar again. And that is exactly why I consider any USD strength resulting from these comments to be exaggerated.”

“At least for as long as one cannot be certain that (a) radical rate hikes will lead to a recession or (b) the Fed would end its restrictive monetary policy in case of a recession.”

• AUD/USD staged a goodish recovery from a one-month low in reaction to hawkish RBA minutes.
• Rising bets for more aggressive Fed rate hikes underpinned the USD and might cap the upside.
• Investors now look forward to the US housing market data, Fedspeak for some trading impetus.

The AUD/USD pair built on its steady intraday ascent through the early European session and climbed to a fresh daily high, around the 0.7380-0.7385 region in the last hour.

The pair attracted some buying near the 0.7340 region, or the 50-day SMA support on Tuesday and has now reversed a major part of the overnight slide to a one-month low. The Reserve Bank of Australia, in the minutes of its April board meeting, warned that the rise in inflation has likely brought forward the timing of the first increase in interest rate since 2010. This, in turn, was seen as a key factor that extended some support to the Australian dollar, though sustained US dollar buying might keep a lid on any meaningful gains for the AUD/USD pair.

In fact, the key USD Index shot to its highest level since April 2020 amid expectations that the Fed would tighten its monetary policy at a faster pace to curb the hottest inflation since 1981. Adding to this, St. Louis President James Bullard said on Monday that the US central bank shouldn’t rule out rate increases of 75 bps. This, along with concerns that the worsening Ukraine crisis would put upward pressure on already high inflation, pushed the US Treasury bond yields to a fresh multi-year peak, which should continue to underpin the greenback.

Nevertheless, the AUD/USD pair, for now, seems to have snapped four successive days of the losing streak and remains at the mercy of the USD price dynamics. That said, it will be prudent to wait for strong follow-through selling before confirming that the recent pullback from the 0.7660 area or the YTD peak has run its course and placing aggressive bullish bets. Market participants now look forward to the US economic docket, featuring the release of Building Permits and Housing Starts later during the early North American session.

Traders will further take cues from a scheduled speech by Chicago Fed President Charles Evans, along with the US bond yields, which will drive the USD demand. Apart from this, the broader risk sentiment should allow traders to grab some short-term trading opportunities around the AUD/USD pair.

Technical levels to watch

The USD/JPY has surpassed the 128 level. How much yen weakness is tolerable? According to economists at Commerzbank, the bar for FX interventions is very, very high.

Kuroda is in a catch-22 situation

“Kuroda is in a catch-22 situation. Should he raise interest rate levels despite continued negative core inflation rates? That too would be unhelpful. The instrument of choice would be one that is aiming exactly at the yen exchange rates. And the first instrument one can think of is FX market interventions.”

“I think that for the time being the MoF and BoJ will try ‘verbal’ interventions and will sound continuously more concerned about the yen-weakness. In the hope that the market will end the yen collapse for fear of interventions. In poker, I suppose one would call that ‘bluffing’.”

In the view of economists at Commerzbank, it really is high time for Riksbank to overcome its deflation trauma and change its approach. They see little upside scope in SEK even if the central bank sends out clear restrictive signals in April.

It is high time now

“The small, open economy is unable to decouple from the price drivers, that are causing inflation to rise in other parts of the world above all energy prices and supply chain constraints.”

“Towards year-end the market expects a key rate of 1.25%, with four more regular meetings taking place this year, including April (April, June, September, November). That means the Riksbank would even have to hike by more than 25bp once.”

“A tight approach on the part of the Riksbank seems unlikely to me at this stage. That is why I see little upside scope in SEK even if the Riksbank really were to send out clear restrictive signals in April.”

FX option expiries for April 19 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0800 1.1b
• 1.0850 379m
• 1.0900 1.2b
• 1.0930 832m

- GBP/USD: GBP amounts        

• 1.3000 361m

- USD/JPY: USD amounts                     

• 127.50 250m
• 128.00 300m

- USD/CHF: USD amounts        

• 0.9300 310m

- AUD/USD: AUD amounts

• 0.7400 769m

 - USD/CAD: USD amounts       

• 1.2590 1b
• 1.2625 675m

- EUR/GBP: EUR amounts

• 0.8500 334m
• 0.8650 446m

AUD/JPY has staged an impressive 15% rally since the onset of the Russia-Ukraine conflict. In the view of Benjamin Wong, Strategist at DBS Bank, the pair is poised to reach higher grounds.

Acute JPY weakness is the driver for the ongoing AUD/JPY rally

“Acute JPY weakness has seen the cross gain momentum through the break and validation of the neckline of a bullish and broadening inverse head-and-shoulders pattern at 86.25.”

“The cross’ advance is within a long-term triangle pattern; unless the cross sustains losses under 89.45, it will court higher targets into 96.55-97.30.”

• EUR/GBP is auctioning in a narrow range of 0.8280-0.8292 as investors await BOE’s Bailey speech.
• A higher UK inflation print has strengthened the odds of a fourth consecutive rate hike.
• This week, Europe’s Consumer Confidence and core CPI also hold significant importance.

The EUR/GBP pair is oscillating in a five-pip range in the Asian session as investors are awaiting the speech from the Bank of England (BOE) Governor Andrew Bailey and the release of Europe’s Consumer Confidence this week.

The pound bulls are likely to remain on the sidelines till the speech from BOE’s Bailey. The market participants will get insights into the likely monetary policy action by the BOE in May. Higher-than-expected print of the UK inflation at 7% has bolstered the odds of a fourth consecutive rate hike by the BOE policymakers. The BOE has elevated its interest rates to 0.75% yet to contain the soaring inflation. The unstoppable hurricane of inflation in the pound area is compelling for more rate hikes this year.

Meanwhile, the eurozone seems unable to push its interest rates due to the vulnerable growth rate amid higher energy bills. The Ukraine crisis after Russia’s invasion has increased the risk of stagflation in Europe, which is hurting the shared currency.

Going forward, investors are eyeing the Euro’s Consumer Confidence, which will release on Thursday. A preliminary estimate shows the landing of Consumer Confidence at -20 against the previous print of -18.7. Apart from that, investors will also focus on the core Consumer Price Index (CPI) by Eurostat, which is expected to print at 3%, similar to its previous release.

NZD/USD is now just above a key technical level. The kiwi could sustain a deep fall on a break below the 61.8% Fibonacci level of the January-April rally at 0.6723, economists at ANZ Bank report.

Fundamentally, it’s all a bit messy

“The USD usually does well into rate hikes, but starts to fade early on, but this time it’s maintaining its strength thanks to peculiarities including global geopolitics. Fundamentally then, it’s all a bit messy.”

“Technically, the NZD/USD is now at a key level (0.6723 being the 61.8% Fibo of the January-April rally). A sustained break below could see a deeper trough, but equally, if it holds, that’d likely form a short-term base. Complicated.”

Gold Price is struggling for upside traction. In the view of FXStreet’s Dhwanie Mehta, failure to close Monday above $1,990 hurdle signals caution for gold bulls.

$1,961 could emerge as key support for XAUUSD

“Next of relevance for Gold Price remains the speech from the Chicago Fed President Charles Evans, as a data-dry spell continues for the second straight day this Tuesday. The Fed sentiment will keep the dollar afloat amid incoming updates on the Ukraine crisis.”

“Gold’s daily chart shows that the price failed to find acceptance above the March 14 highs of $1,990. Therefore, unless bulls clear that upside hurdle, gold bears could remain hopeful, with Friday’s low of $1,961 in sight. The bullish 21-Daily Moving Average (DMA) at $1,945 will be the next line of defense should the correction gather steam.”

“The 14-day Relative Strength Index (RSI) is turning lower while holding above the midline, suggesting that any pullback could be quickly bought into. In such a case, Gold Price could retest the key $1,990 hurdle, a sustained break above which would expose the $2,000 level.”

“We always have said with President Macron that we want an embargo on Russian oil,” French Finance Minister Bruno Le Maire said on Tuesday.

He added, “an embargo on Russian oil is in the works.”

Le Maire further said that he hopes “that in the weeks to come we will convince our European partners to stop importing Russian oil.”

• Loonie bulls are strengthened on multiple downside filters.
• The confluence of Doji, 200-EMA, and the lower boundary of ascending triangle has bolstered the signs of weakness.
• A slippage below 20-EMA has also turned the momentum indicators on the downside.

The USD/CAD pair has witnessed a steep fall in the Asian session after slipping below Monday’s low at 1.2603. The asset is dropping firmly despite the strength in the US dollar index (DXY).

The confluence of Doji candlestick formation after a pullback towards the 200-period Exponential Moving Average (EMA) at 1.2640 and the lower boundary of the ascending triangle on the daily scale after a downside break has raised the odds of a dominant performance by the loonie bulls ahead.

The horizontal resistance of the chart pattern is placed from 20 August 2021 high at 1.2950 while the ascending trendline is plotted from June 2021 low at 1.2007.

A slippage below Monday’s low at 1.2603 has activated the formation of the Doji candlestick pattern. The asset has also tumbled below the 20-EMA at 1.2590, which adds to the downside filters. Meanwhile, the Relative Strength Index (RSI) (14) has faced resistance near 60.00, which signals that the greenback bulls lack strength.

Should the asset drop below March’s last traded price at 1.2503, loonie bulls will drag the asset towards January’s low at 1.2451, followed by the round level support of 1.2400.

On the flip side, greenback bulls may take the charge if the asset surpass Wednesday’s high at 1.2676, which will send the asset towards March 17 high at 1.2699. A breach of the March 17 high will drive the asset towards the March 16 high at 1.2778.

USD/CAD daily chart

Rhee Chang-yong designated as the new Bank of Korea Governor said Tuesday that he backs further rate rises to subdue expectations for stronger inflation even though the move can be “unpopular.”

Key quotes

“Policy interest rate differential between the US, South Korea shouldn't be too big.”

“Interest rate hikes are way to go for now unless they hurt growth.”

Market reaction

USD/KRW spiked to five-day highs of 1,237.04, as the South Korean won (KRW) failed to find any inspiration from these hawkish comments. The US dollar remains firmer on the session, driving the pair northwards. The spot is up 0.14% on the day.

Further downside to the 0.7325 level remains on the cards for AUD/USD in the short term, suggested FX Strategists at UOB Group Quek Ser Leang and Lee Sue Ann.

Key Quotes

24-hour view: “Yesterday, we held the view AUD could drift lower to 0.7360 but is unlikely to threaten the major support at 0.7325. AUD subsequently dipped to a low of 0.7343. The decline is approaching oversold territory and this coupled with lackluster downward momentum suggests AUD is unlikely to weaken much further. For today, AUD is more likely to trade between 0.7335 and 0.7385.”

Next 1-3 weeks: “We highlighted yesterday (18 Apr, spot at 0.7390) that the bias for AUD is on the downside but in view of the mild downward pressure, the chance of a break of the strong support at 0.7325 is not high. AUD subsequently dropped to 0.7343 before settling on a soft note at 0.7353 (-0.50%). Downward momentum has improved a tad and the chance for AUD to break 0.7325 has increased. In order to maintain the build-up in momentum, AUD should not move above 0.7420 (‘strong resistance’ level) within these few days. Looking ahead, the next support below 0.7325 is at 0.7280.”

Bank Indonesia (BI) will hold its monthly board meeting on 18-19 April. Here you can find the expectations as forecast by the economists and researchers of four major banks regarding the upcoming central bank's decision. 

The BI is expected to hold its benchmark seven-day reverse repurchase rate unchanged at a record low of 3.50%. Meanwhile, BI is set to closely watch the spillover effects of surging global inflation and faster tightening by the Federal Reserve.

ANZ

“We expect BI to keep its policy rate unchanged but we suspect its policy messaging will turn less dovish. Inflation is set to intensify in April following the VAT rate hike (from 10% to 11%) and the upward adjustment to Pertamax fuel prices. Firming domestic demand will also add to demand-side price pressures. Further out, the government has also hinted that prices for subsidised 3kg LPG and the widely used Pertalite fuel may also be raised, and if materialized, this would further exacerbate price pressures and second-round effects. Coupled with an increasingly hawkish US Fed, we think it is becoming more difficult for BI to remain as patient as it would have liked. We are currently reviewing our forecasts for the central bank to hike its policy rate by 75bps this year, with the risks tilted toward an earlier and more aggressive rate hiking cycle.”

SocGen

“BI seems to believe that the economic scarring endured during the pandemic will continue to need supportive monetary policy, while we expect the much-improved tax revenue collection engendered by high commodity prices to provide an adequate fiscal cushion to the government in its endeavour to protect the poorer sections of society through subsidy schemes without jeopardising fiscal consolidation. With BI’s debt monetisation scheme (along with buoyant exports because of elevated commodity prices) providing support to bond yields and the currency, the central bank has the luxury of being able to retain supportive monetary policy. Despite faster-rising headline inflation – we have revised up our 2022 headline CPI forecast from 2.9% YoY to 3.6% – we expect BI to keep the policy rate (7-day reverse repo rate) at 3.5% at its meeting in April and to announce its first rate hike only in 3Q22.”

ING

“BI has kept policy rates at accommodative levels to support the economy’s recovery from the fallout from Covid. BI Governor Perry Warjiyo hinted that he would consider tightening policy should core inflation become a problem. With recent inflation reports showing a pickup both in headline and core inflation, we can expect Warjiyo to signal a potential rate hike in the near-term, contingent on further acceleration in price pressures.”

Standard Chartered

“We expect BI to keep the policy rate unchanged at 3.5% to anchor IDR stability and inflation expectations. BI’s governor said the central bank will hike policy rates gradually to support growth, despite the Fed indicating a possibility of faster and higher rate hikes. A relatively stable IDR should allow BI to keep interest rates low. BI has indicated that it would hike policy rates only in response to a fundamental increase in inflation, while likely using liquidity measures and open-market operations to stabilise the market in the near-term. We continue to expect the first rate hike in Q3, as inflation pressure has started to build due to improving demand, higher global commodity prices, the VAT hike, and domestic energy price adjustments. We expect inflation to exceed BI’s inflation target of 2-4% in Q3, from 2.6% YoY in March.”

New Zealand’s Finance Minister Grant Robertson told a news conference on Tuesday, the government should monitor its spending and hinted at the introduction of new fiscal rules in the budget next month.

Key quotes

"It's really important that we use fiscal policy sensibly to be able to make sure New Zealand not only keeps a lid on debt but that we invest in the right things."

“New fiscal rules would be introduced at this year's budget in May after some fiscal targets were previously suspended as the government responded to the COVID-19 pandemic.”

"It is important that we don't cut our nose off to spite our face and take away funding.”

• USD/JPY has climbed above 128.20 as a broader weakness in the Japanese yen deepens.
• Fed’s James Bullard sounded more hawkish than earlier on guidance for this fiscal year.
• Japan’s National CPI is seen at 1.3%, higher than the prior print of 0.9%.

The USD/JPY pair has displayed a strong upside move after the hangover of the holidays. The asset is witnessing a sheer upside and has touched an intraday high of 128.23 in the Asian session. A divergence in the respective roadmap of interest rate adjustment by the Federal Reserve (Fed) and the Bank of Japan (BOJ) is strengthening the greenback against the Japanese yen.

The greenback is performing strongly as the market participants have started discounting an aggressive rate hike along with hawkish guidance for the rest of the year. St. Louis Fed President James Bullard on Monday stated that the Fed needs to elevate the interest rates to 3.5% and that too by the end of the year. A higher-than-expected hawkish gesture by the Federal Open Market Committee (FOMC) member James Bullard has made the US dollar index (DXY) unstoppable. The DXY has climbed above 101.00 and is attempting to establish above the same.

Meanwhile, the Japanese yen is awaiting the release of the National Consumer Price Index (CPI) later this week. Market consensus is seeing Japan’s inflation at 1.3% against the prior print of 0.9%. Despite, rising inflation, the Bank of Japan (BOJ) will prefer an ultra-loose monetary policy as the economy has yet not reached the pre-Covid-19 levels.

Going forward, investors will monitor the speech from Fed chair Jerome Powell which will provide clues for the likely monetary policy action by the Fed in its May monetary policy.

CME Group’s flash data for crude oil futures markets noted traded scaled back their open interest positions by around 6.6K contracts at the beginning of the week, extending the downtrend in place since April 7. In the same line, volume dropped for the third consecutive session, now by around 203.8K contracts.

WTI faces the next hurdle at $116.00

Monday’s uptick in prices of the WTI was fuelled by short covering, as noted by shrinking open interest and volume. That said, further upside looks unlikely in the very near term at least, while bulls are expected to meet the next resistance of note at the late March peaks around the $116.00 mark per barrel (March 24).

In opinion of FX Strategists at UOB Group Quek Ser Leang and Lee Sue Ann, GBP/USD could extend the downtrend further on a close below 1.2940.

Key Quotes

24-hour view: “We expected GBP to weaken yesterday but we were of the view that ‘any weakness is not expected to challenge last week’s low near 1.2975’. GBP subsequently dropped to 1.3005 before settling at 1.3011 (-0.36%). Downward momentum is beginning to build and GBP could break the 1.2975 level today. That said, a sustained decline below this level appears unlikely (the next support at 1.2940 is not expected to come into the picture). Resistance is at 1.3030 followed by 1.3055.”

Next 1-3 weeks: “Our latest narrative was from yesterday (18 Apr, spot at 1.3060) where GBP is likely to trade between 1.2975 and 1.3150. Shorter-term downward momentum is beginning to build and GBP could dip below 1.2975. However, GBP has to break the next support at 1.2940 before a sustained decline is likely. On the upside, a break of 1.3075 (‘strong resistance’ level) would indicate that the build-up in momentum has fizzled out.”

Open interest in gold futures markets resumed the uptrend and rose by around 4.3K contracts on Monday, according to preliminary readings from CME Group. On the other hand, volume shrank for the fourth consecutive session, now by nearly 3K contracts.

Gold remains capped by $2000

Gold prices briefly tested the boundaries of the key $2000 mark on Monday, retreating afterwards and ending the session with modest gains. The move was on the back of rising open interest, which opens the door to a corrective move in the very near term. In the meantime, the $2000 zone remains the key target for the precious metal for the time being.

• USD/INR is marching towards 76.40 as DXY strengthens on jumbo rate hike expectations.
• Shanghai’s reopening and supply concerns in Libya have pushed the oil prices higher.
• The political crisis in Libya has seized up the oil exports.

The USD/INR pair has been bounced modestly in its early trade on Monday from 76.26. The major is scaling higher after printing a low of 75.24 on April 5. Surging oil prices and DXY have brought a slump in the demand for the Indian rupee.

Oil prices are advancing firmly as China has prepared to eradicate lockdown restrictions in Shanghai and supply concerns renew. After an almost three-week lockdown due to the Covid-19 resurgence, Shanghai is re-allowing economic activities in its region. This has cheered the oil bulls as the reopening of the world’s largest oil importer will support the aggregate demand. On the supply front, Libya could not deliver oil from its biggest oil field and shut another field due to political protests as per Reuters. An expected rebound in the aggregate demand along with renewed supply concerns has infused fresh blood in the oil counter.

Meanwhile, the US dollar index (DXY) is hovering around 101.00 backed by higher expectations of a jumbo rate hike by the Federal Reserve (Fed) in May. Federal Open Market Committee (FOMC) member James Bullard in his speech on Monday has bolstered the odds of aggressive guidance by the Fed. The FOMC member advocates a reversion of interest rates to 3.5% and that too by the end of the year. This has underpinned the greenback against the Indian rupee.

FX Strategists at UOB Group Quek Ser Leang and Lee Sue Ann noted EUR/USD could still drop further in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday that EUR ‘could drift lower to 1.0780’. We added, ‘last week’s low near 1.0755 is unlikely to come into the picture’. Our view was not wrong as EUR dropped to 1.0768 before closing at 1.0780. While downward momentum has not improved by much, EUR could weaken further to 1.0755. For today, a sustained decline below this level is unlikely (next support is at 1.0725). Resistance is at 1.0800 followed by 1.0820.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (18 Apr, spot at 1.0805). As highlighted, risk for EUR is on the downside even though it may trade above the solid support at 1.0755 for a couple of days first. Looking ahead, a breach of 1.0755 would shift the focus to 1.0725 followed by 1.0700. Overall, only a break of 1.0845 (‘strong resistance’ level was at 1.0885 yesterday) would indicate that the downside risk has dissipated.”

• GBP/JPY has surpassed the resistance of 166.00 as the pound strengthens on higher CPI.
• Higher energy bills are widening Japan's fiscal deficit.
• Japan's National CPI is seen at 1.3% against the prior print of 0.9%.

The GBP/JPY pair is witnessing a bullish open test-drive session on Tuesday amid broader weakness in the Japanese yen. The pair is advancing firmly in Tuesday’s session and has overstepped the round level resistance of 166.00. Although the momentum oscillators have turned extremely overbought, the pound bulls have shown no signs of exhaustion yet.

The Japanese yen is displaying broader weakness in the Fx domain as the rising oil prices have started widening the fiscal deficit in Japan’s economy. Japan is a leading importer of oil and other necessary commodities. Therefore, a serious jump in the prices of fossil fuels is hurting the yen. This week, the release of Japan’s National Consumer Prices Index (CPI) will be a major trigger for the cross. The Statistics Bureau of Japan is expected to release the yearly CPI at 1.3%, higher than the prior print of 0.9%. Despite, higher inflation expectations, the Bank of Japan (BOJ) is likely to keep the policy rates unchanged as the growth rate of Japan has yet not reached its pre-pandemic levels.

Meanwhile, the pound bulls are dominating amid the rising odds of a fourth-rate hike by the Bank of England (BOE) in May. A higher UK inflation print at 7% is compelling for more interest rate hikes. This week, UK’s GfK Group Consumer Confidence will remain in focus. A preliminary estimate for the Consumer Confidence is -33 against the prior print of -31.

• AUD/USD is meeting a firm support area following the RBA minutes. 
• Bears lurking near a presumed resistance area through 0.74 the figure. 

AUD/USD is meeting a dynamic trendline support line and the bulls are eyeing a 38.2% Fibonacci retracement and a higher 50% mean reversion towards 0.7420. 

AUD/USD daily chart

As illustrated, there is a heavily bearish cycle but there has been bid that could equate to a leg higher. 

AUD/USD H1 chart

For the price to continue correcting, we have immediate resistance that will need to be cleared, however, the W-formation would be expected to hamstring the price at this juncture.

According to the analysts at Goldman Sachs, the People’s Bank of China (PBOC) will refrain from cutting the one-year and five-year Loan Prime Rates (LPR) on Wednesday.

Key quotes

“The PBOC seems concerned about "spillover effects" as other countries raised interest rates. For example, capital outflow from China.”

“Also, the PBOC is concerned that cutting interest rates would not have much effect on an economy in which credit demand was weak and the outlook for inflation uncertain.”

On Friday, China's central bank kept the rates on the medium-term lending facility (MLF) unchanged although slashed the Reserve Requirement Ratio (RRR) by 25 bps, effective as of April 25.

• EUR/USD bears are in control into fresh long-term lows. 
• There are meanwhile bullish prospects to consider. 

EUR/USD has been pressured by a strong US dollar at the start of this week and the price is making fresh lows in the bear cycle. The following illustrates the current markets structure from an hourly perspective and all the way out to a weekly chart as it moves in on a long term support structure. 

EUR/USD H1 chart

The hourly chart is seeing the price under pressure but the M-formation offers a prospect of a correction in the meanwhile prior to further downside. 

EUR/USD weekly chart

The weekly chart is in a similar position with the M-formation expected to bring in the bulls to test the old support and neckline of the pattern. 

World Bank Chief Economist Carmen Reinhart said on Tuesday, further downgrades to the growth outlook remain on the table, as the global economy passes through a period of “exceptional uncertainty,” per Bloomberg.

Her comments come a day after the Washington-based lender slashed its estimate for global growth in 2022 to 3.2% from a January prediction of 4.1%, in the face of a protracted Russia-Ukraine war.

World Bank President David Malpass said on Monday, the bank is preparing a new 15-month crisis response financing target of $170B, with $50B committed for use in the next three months.

Related reads

• World Bank President Malpass: Reducing global growth forecast for 2022 to 3.2% from 4.1%
• Gold Price Forecast: XAUUSD drifts lower but is faring well considering USD fresh highs

• GBP/USD is auctioning below 1.3000 amid rising odds of a tight Fed policy.
• FOMC member James Bullard sees interest rates at 3.5% by the end of 2022.
• The UK’s CPI at 7% has dented the demand for the pound.

The GBP/USD pair has plunged below the psychological support of 1.3000 amid an improvement in the demand for the safe-haven assets. Risk-on impulse has dented the demand for the risk-perceived assets, which is continuing the three-day losing streak of the asset on Tuesday.

The cable is witnessing an extreme sell-off as the US dollar index (DXY) has been strengthened on getting some bets over a 75 basis point (bps) interest rate hike by the Federal Reserve (Fed). Federal Open Market Committee (FOMC) member James Bullard in his speech on Monday cited that the Fed is open to a 75 bps rate hike, however, a rate hike not more than 50 bps will be appropriate. St. Louis Fed President James Bullard sees interest rates to 3.5% by the end of this fiscal year. This has triggered the greenback bulls, which has pushed the DXY marginally above 101.00 at the press time.

Meanwhile, the pound bulls have also been hammered by a higher Consumer Price Index (CPI) figure. The UK’s yearly Consumer Price Index (CPI) landed at 7%, higher than the preliminary estimate of 6.7% and the previous print of 6.2%. This raised the expectations for a fourth-rate hike by the Bank of England (BOE). Apart from that, Core CPI landed higher at 5.7%, which hinted that the UK households are facing the heat of higher energy bills and food prices.

For further guidance, investors will keep an eye over the speech from the Fed chair Jerome Powell, which is due on Thursday. While the sterling docket will release the Retail Sales data on Friday. A preliminary estimate for the UK’s Retail Sales is 2.8% against the prior print of 7%.

• The Gold Price firms in a key support area, despite fresh highs in DXY.
• The Russia-Ukraine war continues to attract a safe-haven bid.
• Fed Chair Jerome Powell will be eyed for further clues and USD will be the focus. 

Gold price is flat for the day so far as markets move into a consolidation of the uptrend. At the time of writing, the gold price is trading at $1,978 and has stuck to a tight $1,974.93 and $1,979.01 range, so far. The US dollar was also firm against most currencies, notably the yen. The DXY index was at 100.953, for a fresh two-year high.

The benchmark US 10-year Treasury yield on Tuesday was hovering just off its three-year high of 2.884% hit Monday, while the Bank of Japan has been intervening to keep the yield on Japanese 10-year government bonds around 0% and no higher than 0.25%. This is fulling support for the greenback and likely capping the advance in gold prices. 

All eyes on the Fed and US dollar

More hawkish comments from Federal Reserve officials have reinforced expectations for faster US policy tightening. They started to flow in from New York Fed President John Williams who said last week that a half-point rate rise next month was "a very reasonable option," in a further sign that even more cautious policymakers are on board with faster monetary tightening.

Meanwhile, Fed member James Bullard spoke on Monday and offered further insight on the outlook for Fed policy. Bullard is one of the bank's most hawkish and has called for interest rates to reach 3.0% this year.

US inflation is "far too high," he said on Monday, repeating his case for increasing interest rates to 3.5% by the end of the year to rein in inflation expectations and slow what are now 40-year-high inflation readings.

"What we need to do right now is get expeditiously to neutral and then go from there," Bullard said at a virtual event held by the Council on Foreign Relations, adding that he doesn't expect to need to raise rates by more than half a percentage point at any meeting.

He said that the Unemployment Rate can continue to fall even with aggressive rate hikes, repeating his view that unemployment, now at 3.6%, will go below 3% this year.

This all comes ahead of the Fed Chair Jerome Powell later this week, where he is expected to solidify expectations for a 50 bps rate hike at the coming Fed policy meeting.

As a consequence of such sentiment, the US rate futures market has priced in a 96% chance of a 50 basis-point tightening at next month's Fed policy meeting, and about 215 basis points in cumulative rate increases in 2022, providing ample support for the dollar.

As for positioning, speculators' net long bets on the US dollar fell for a second straight week, according to calculations by Reuters and US Commodity Futures Trading Commission data released on Friday. The value of the net long dollar position was $13.22 billion for the week ended April 12.

Also read: Gold Price Forecast: XAUUSD needs to crack this level to take on the $2,000 mark

Meanwhile, gold price climbed to a five-week high dispute USD strength amid fears of more sanctions. ''Increasing likelihood of a European Union embargo on Russian gas could see inflation staying high, supporting gold demand as an inflation hedge,'' analysts at ANZ Bank said. ''ETF flows continued to be strong, with total holdings rising to a 14-month high of 106.6 million ounces.''

Gold technical analysis

The price had moved in on a firm area of hourly support:

The price was expected to reset the prior lows as resistance and then mitigate the remainder of the price imbalance below targeting the $1,970s.

The price is making progress:

The price was rejected near the old lows and has since crumbled, drifting lower and now meeting a freshly established resistance made up of a confluence of the dynamic trendline and horizontal highs. 

China will “roll out effective measures in a timely way to keep economic operations within a reasonable range,” the country’s National Development and Reform Commission (NDRC) said on Tuesday.

Additional takeaways

Market reaction

AUD/USD is back to test the monthly lows below 0.7350, little impressed by the RBA minutes amid a broadly stronger US dollar.

The spot is almost unchanged on the day, currently trading at 0.7348.

• USD/JPY keeps rallying to hit fresh 20-year highs above 127.50.
• Fed/BOJ divergence bolsters the sentiment around the US Treasury yields.
• Daily RSI is extremely overbought but bulls refuse to give up yet.

USD/JPY is trading close to fresh 20-year highs above 127.50, as the mixed market mood underpins the haven demand for the US dollar while the Treasury yields take a breather.

Despite the pullback in the US rates from three-year peaks, the buying interest around USD/JPY remains unabated, as the divergent monetary policy outlooks between the Fed and the Bank of Japan (BOJ) continue to favor the dollar bulls.

Further, the verbal intervention by the Japanese officials fail to offer any comfort to the domestic currency, as they had conflicting views on the implications of the ongoing decline in the yen on the overall economy.

Also read: Japan’s Suzuki: Yen's rapid weakening can have more negative impact

Looking ahead, the speech from the Chicago Fed President Charles Evans will be eyed, in absence of top-tier US economic data.

Technically, USD/JPY’s daily chart shows that the price remains poised to regain further ground northwards, especially after bulls took out the rising trendline resistance at 126.67 a day before.

That said, the pair could extend the advance to retest the 128.00 mark.

Although the 14-day Relative Strength Index (RSI) lies in extremely overbought territory, warranting caution for bulls.

USD/JPY: Daily chart

In case bulls give in to the overbought conditions, then a pullback towards the previous trendline resistance now support at 126.77 cannot be ruled out.

Further down, the 126.50 psychological level could come to the rescue of buyers.

USD/JPY: Additional levels to consider

The minutes of the Reserve Bank of Australia are being drip-fed through the wires adding more colour surrounding the Board’s views and are so far supporting AUD/USD that was already correcting an hourly bearish impulse.

RBA minutes

Inflation had picked up and a further increase was expected.

Australian economy had remained resilient and spending was picking up following the setback caused by the outbreak of the omicron variant.

Measures of underlying inflation in the March quarter are expected to be above 3%.

Wages growth had also picked up but, in aggregate terms, had been below rates likely to be consistent with inflation being sustainably at the target.

The strength of the Australian economy was evident in the labour market

These developments have brought forward the likely timing of the first increase in interest rates.

Over coming months, important additional evidence will be available on both inflation and the evolution of labour costs.

Members noted that higher prices for petrol and other commodities would result in a further lift in inflation over coming quarters.

Members agreed that financial conditions in Australia remained highly accommodative

About the RBA minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

• AUD/USD has bounced back sharply from 0.7350 on the release of the RBA April’s minutes.
• The RBA kept its interest rates unchanged in April and dictated neutral guidance.
• A minor correction in the US Treasury yields has pressured the DXY.

The AUD/USD pair has rebounded firmly after hitting a low of 0.7350 in the Tokyo session as the Reserve Bank of Australia (RBA) has released the minutes of the monetary policy announced in the first week of April.

Earlier, the announcements made in April’s monetary policy brought an intense sell-off in the asset as RBA chair Philip Lowe adopted a neutral stance. An unchanged interest rate policy was announced by the RBA along with a wait and watch guidance. The RBA believes that current price pressures are still not compelling for a rate hike sooner.

Last week’s release of a hike in the Unemployment Rate by the Australian Bureau of Statistics is not demanding any rate hike sooner. The Unemployment rate landed at 4% against the estimate of 3.9%. Also, the vulnerable Employment Change trimmed the chances of a rate hike by the RBA. The Australian administration added only 17.9k jobs against the consensus of 40k.

Meanwhile, the US dollar index (DXY) is facing some long liquidation on its way to 101.00. The DXY is experiencing minor resistance amid a slight correction in the US Treasury yields. The 10-year US Treasury yields have tumbled to 8.5% after printing a fresh three-year high of 2.88%.

Japanese Finance Minister Shunichi Suzuki expresses concerns about the sharp drop in the yen recently, in his appearance on Tuesday.

Key quotes

“The yen dropping brings more demerits than merits.”

“Excessive weak yen or yen's rapid weakening can have a more negative impact but weak yen is basically positive overall.”

Market reaction

USD/JPY is trading around 127.50, fresh 20-year highs, as the monetary policy divergence between the Fed and the BOJ widens the yield differential, weighing heavily on the yen. The spot is up 0.42% on the day.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3720 vs. the estimate of 6.3744 and the previous 6.3734.

About the fix

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

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

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

The minutes of the Reserve Bank of Australia will be published from the monetary policy meeting from two weeks before when the central bank raised interest rates. They will be expected to provide more colour surrounding the Board’s views. The statement on the day indicated new urgency to raise the cash rate from the record low 0.1%, but not as soon as May.

These minutes will be out at the top of the hour and there will be considerable interest in these considering the removal of “patient” from the post-meeting statement.

''In particular, the focus will be on how committed the Board is to waiting for “important additional evidence…on both [our emphasis] inflation and the evolution of labour costs” before it makes a decision to lift the cash rate,'' analysts at ANZ Bank said. ''The stronger the commitment the lower the prospect of a move in May despite the prospect of a very strong Consumer Price Print.''

How might the minutes affect AUD/USD?

AUD/USD is already correcting an hourly bearish impulse, so anything that is less than hawkish could be the catalyst for a downside extension. 

About the RBA minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

• USD/CHF inches higher on firmer DXY as doors are open for a 75 bps interest rate hike.
• The speeches from the SNB’s Jordan and Fed’s Powell will remain in focus.
• Inflation has picked up in the Swiss docket amid higher energy and commodity prices.

The USD/CHF pair is continuing its five-day winning streak on Tuesday as the negative market sentiment is appealing to the safe-haven assets. The asset is hovering around Monday’s high at 0.9454 and is expected to extend gains after breaching the former.

Rising hopes of a jumbo rate hike by the Federal Reserve (Fed) is backing the rally in the US dollar index (DXY). The DXY is approaching 101.00 as the Fed has left with no other alternative than paddling up the interest rates at a faster pace. The greenback has got an adrenaline rush after the hawkish comments from the Federal Open Market Committee (FOMC) member James Bullard.  Fed’s Bullard sees interest rates at 3.5% this year and claims that doors are open for a 75 basis points (bps) interest rate too.

For further guidance, the speech from Fed chair Jerome Powell will remain in focus, which is due on Thursday. The dictation from Fed’s Powell will provide a clear path to the lowest rates reversion to neutral rates.

On the Swiss docket, investors are focusing on Tuesday’s speech from Swiss National Bank (SNB) Chair Thomas J. Jordan, which will provide insights about the likely monetary policy action in June. The SNB is holding its interest rates to the lowest at -0.75% despite the inflation print of a 13-year high at 2.2%. Inflation has been picked up recently in Switzerland backed by higher commodity and fossil fuel prices.

• USD/CAD is being forced back by the rise of oil prices. 
• Traders will now look to the Canadian inflation report this week. 

USD/CAD is a touch heavy in the Tokyo open, turning red on the day so far and testing 1.26 the figure at the time of writing, sliding from a high of 1.2634 scored on the rollover between New York and early Asia.  

Overall, it's been a US dollar story at the start of the week which is starting to give back some ground. In the case of CAD, oil prices have steadied as well which is providing support to the loonie as investors await inflation data due this Wednesday.

Investors will be looking to the Consumer Price Index for March that could help guide expectations for further tightening from the Bank of Canada following last week's half of a percentage point increase to 1%. This was its biggest single hike in more than two decades and done in an effort to try to limit inflation.

''We look for CPI to firm to 6.1% YoY in March, with prices up 0.9% MoM,'' analysts at TD Securities explained.   ''Energy will provide the main driver, led by an 11% increase in gasoline, alongside another significant contribution from food. Motor vehicles, clothing, and shelter should help drive strength in the ex. food/energy aggregate, while the BoC's core inflation measures should firm to 3.6% y/y on average,'' the analysts at TDS said. 

US oil higher

Meanwhile, West Texas Intermediate (WTI) crude settled higher on Monday as supply disruptions in Libya offset concerns over Chinese demand amid Covid-19 lockdowns. Futures settled +1.2% higher at $108.21 a barrel due to the outages in Libya that have deepened concern over tight global supply. The country's National Oil Corp declared force majeure at an export port after protests over cancelled elections shut down its largest oil field.

As for the greenback, the dollar rose to a fresh two-year high, tracking higher US Treasury yields in thin trade. Investors are moving into the greenback and are bracing for multiple half a percentage-point rate hikes from the Federal Reserve.

US rate futures market has priced in a 96% chance of a 50 basis-point tightening at the start of May when the Federal Reserve meets and about 215 basis points in cumulative rate increases in 2022, providing plenty of speculative positioning into the greenback. The benchmark U.S. 10-year Treasury yield, meanwhile, touched a three-year high of 2.884%

• An establishment above the descending triangle breakout is favoring bulls for dominance.
• The RSI (14) has firmly shifted into a bullish range of 60.00-80.00.
• A bull cross, represented by the 20- and 100-EMAs signal more gains ahead.

West Texas Intermediate (WTI), futures on NYMEX, is advancing higher after printing a low of $92.65 on April 11. The oil prices are galloping higher after establishing above the psychological resistance of 100.00.

The breakout of the descending triangle chart formation whose horizontal support is placed from the March 15 low at $92.37 while the descending trendline is plotted from the March 8 high at 126.51, has unleashed the bulls. The trendline placed from March 15 low at $92.37 will remain a minor cushion for the oil counter.

A bull cross that has been represented by the 20- and 200-period Exponential Moving Averages (EMAs) at $101.25 is advocating more upside going forward.

The Relative Strength Index (RSI) (14) has shifted into a bullish range of 60.00-80.00 from the consolidation area of 40.00-60.00, which signals a continuation of a bullish trend in the upcoming sessions.

After scrutinizing the establishment of the oil prices above the descending triangle formation, a breach of Monday’s high at $109.13 will send the asset towards the round levels resistances at $115.00 and $125.00 respectively.

However, a slippage below the 100-EMA at $101.25 will drag the asset towards the April 1 low at $96.94, followed by March 15 low at $92.37.

WTI four-hour chart