CFD Markets News and Forecasts — 20-04-2022

• AUD/NZD climbs above 1.0990 swiftly after the kiwi CPI misses estimates.
• A minor fall in the NZ inflation will not scale down the hawkish tone of the RBNZ.
• Investors will keep an eye over the S&P Global Manufacturing PMI.

The AUD/NZD pair is experiencing a juggernaut demand as the Statistic New Zealand has reported the yearly inflation print at 6.9%. The numbers have arrived a little lower than the expectation of 7%, which are still keeping the odds of one more hike in the Official Cash Rate (OCR) of the Reserve Bank of New Zealand (RBNZ). Along with this, the quarterly kiwi Consumer Price Index (CPI) figure has dropped to 1.8% against the preliminary reading of 2%.

Last week, RBNZ Governor Adrian Orr elevated its OCR by 50 basis points (bps). This was the fourth consecutive rate hike by the RBNZ, which took its OCR to 1.5%. In a statement, the central bank dictated that this was the biggest rate hike in more than 20 years, whose sole purpose was to reduce the risks of inflation at best. A larger than expected move by the RBNZ will provide flexibility to the central bank in further interest rate decisions. It is worth noting that the RBNZ has been one of the most aggressive central banks, which is bringing the grounded rates to the neutral one quickly.

On the Aussie front, rate hikes by the Reserve Bank of Australia (RBA) are not seen yet as RBA policymakers have not found any price pressures that could force the agency to bring rate hikes on the table. Meanwhile, investors are focusing on S&P Global Manufacturing PMI, which will release on Friday. A preliminary estimate is seen at 57.8 against the prior print of 57.7.

• The lower inflation print at 6.9% has strongly pushed the kiwi pair below 0.6780.
• A tad lower inflation print may sustain the odds of one more rate hike by the RBNZ.
• The announcement of balance sheet reduction along with a rate hike will bring immense bids for the DXY.

The NZD/USD pair has witnessed a sheer fall to near 0.6776 after the release of the NZ Consumer Price Index (CPI) at 6.9%. Statistics New Zealand has reported the yearly NZ inflation lower than the market consensus of 7.1% but significantly higher than the prior print of 5.9%. While the quarterly NZ CPI print has landed at 1.8%. A preliminary reading was seen at 2% and the previous figure was 1.4%.

This has still advanced the odds that the Reserve bank of New Zealand (RBNZ) will continue with the spree of raising the Official Cash Rate (OCR) further. In its last monetary policy announcement, the RBNZ raised its OCR by a whopping figure of 50 basis points (bps) to reduce the risks of inflation. After doing so, the OCR has reached 1.5%. The RBNZ clearly mentioned in its last monetary announcement that the elevation of this quantitative measure is the only way to contain the inflation mess. Rising household bills of energy are hurting the economy and henceforth may reduce the confidence of the consumers in the economy.

Meanwhile, the US dollar index (DXY) is facing headwinds of profit-booking, which has dragged the asset lower by 0.80% from its recent high of 101.03 on Wednesday. The elevated levels of the DXY resulted in long-liquidations, however, it should not be considered a reversal by the market participants yet.

San Francisco Fed President and FOMC member Mary Daly on Wednesday said that the case for a 50 bps rate hike in May is now "complete" and that the Fed can also make an announcement on the reduction of its balance sheet at the next meeting, reported Reuters. This is going to fetch bids for the mighty greenback in case of the announcement of balance sheet reduction along with a jumbo rate hike.

New Zealand Consumer Price Index, released by the Statistics New Zealand, has missed expectations and is weighing on NZD/USD as follows:

• CPI (QoQ) Q1 1.8% (est 2.0%; prev 1.4%).
• CPI (YoY) Q1 6.9% (est 7.1%; prev 5.9%).

NZD/USD is falling from 0.6806 to a low of 0.6783 so far:

The price jetted from the daily resistance as per the 5-min chart reaction above and is now on the verge of taking on hourly support near 0.6770:

As for the daily chart:

The bears are engaged and should support break, then the outlook is bearish thereafter:

About Consumer Price Index

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

New Zealand Consumer Price Index is coming up and the data is expected to that show consumer prices rose 7.4% YoY – the fastest increase since 1990 (in the wake of the July 1989 GST increase from 10 to 12.5%).

''Consensus expectations are for a slightly lower 7.1% print, and the RBNZ in the April Monetary Policy Review said they expected inflation would “peak around 7 percent in the first half of 2022”, '' analysts at ANZ Bank said. 

Key quotes

''Whatever the headline inflation number, we suspect it’ll be the details of the release that will concern the RBNZ the most. Key measures of core inflation are already above the RBNZ’s 1-3% target band – and it’s likely underlying inflation pressures only continued to increase in Q1.''

''The data are likely to add further pressure to the RBNZ to rapidly remove monetary stimulus – including we think by lifting the OCR by 50bps to 2% at the May MPS.''

How might it affect NZD/USD?

NZD/USD has been firmly bid and was just over 1% higher for the day on Wednesday as Wall Street draws to a close. The US dollar was sliding as US yields corrected which gave a boost to risk apatite and the commodity complex. 

The technical outlook for the data is as follows:

If there is anything short of expectations, the Bird could come under a lot of selling pressure, in line with the illustration above considering the resistance. On the other hand, there could also be a sell the fact scenario considering how far the bird has rallied already overnight. Otherwise, it it could be a matter of a deeper test of resistance from the get-go. 

Why it matters to traders?

With the Reserve Bank of New Zealand's (RBNZ) inflation target being around the midpoint of 2%, Statistics New Zealand’s quarterly Consumer Price Index (CPI) publication is of high significance. The trend in consumer prices tends to influence RBNZ’s interest rates decision, which in turn, heavily impacts the NZD valuation. Acceleration in inflation could lead to faster tightening of the rates by the RBNZ and vice-versa. Actual figures beating forecasts render NZD bullish.

• GBP/JPY has rebounded from 166.43 as investors are gung-ho on a minor correction.
• A higher UK inflation print has bolstered the expectations of one more rate hike by the BOE.
• Sheer weakness in the Japanese yen may hurt the economy more than its attached benefits.

The GBP/JPY pair is displaying a modest bounce in early Tokyo after a correction to near 166.43 on Wednesday. The cross lost strength after hitting a multi-year high of 168.43 amid broader weakness in the Japanese yen.

The pound bulls are performing strongly against yen from a longer-term perspective led by higher expectations of a tight policy stance by the Bank of England (BOE) in May. A significant jump in the UK’s inflation has bolstered the odds of one more rate hike by the BOE in May. The UK’s yearly Consumer Price Index (CPI) landed at 7%, which may elevate the interest rates from their current levels at 0.75%. In today’s session, pound bulls may remain on the sidelines as investors are awaiting the speech from BOE Governor Andrew Bailey. The speech is likely to be the last appearance from BOE’s Bailey till the announcement of the interest rate decision in May. Therefore, it will have a significant impact on the sterling.

Meanwhile, the Japanese yen is resisting further downside after the verbal intervention from the Japanese Finance Minister Shunichi Suzuki. He warned that the impact of a weaker yen could be more on the Japanese economy than its benefits to the exporters. However, the Bank of Japan (BOJ) is still keeping a dovish tone and citing the threats of sheer decline in yen.

• On Wednesday, the EUR/JPY recovered some of its previous day’s losses, down 0.21%.
• Mixed market sentiment could keep the EUR/JPY range-bound.
• EUR/JPY Price Forecast: It is upward biased and could challenge the YTD high around 139.60s.

The Japanese yen trims some of Tuesday’s losses and forms an inverted hammer in an uptrend, usually a signal that means price exhaustion, after a 210-pip steeper rally. As the Asian Pacific session begins, the EUR/JPY is trading at 139.03 at the time of writing.

The market sentiment is mixed as the Asian session begins

The market sentiment is mixed. Most US equities finished Wednesday session with gains while Asian stock futures point to a lower open. The Japanese yen recovered some ground against most of the G8 majors, but in the case of the EUR/JPY, its gains amounted to 0.21%.

On Wednesday, the EUR/JPY opened near the YTD highs around 139.50s, to then fall on the back of profit-taking due to the slight decline in the price, which pulled the EUR/JPY to record a daily low at 138.39.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY daily chart depicts the pair as upward biased. The daily moving averages (DMAs) below the spot price confirm the aforementioned, but oscillators suggest a correction dip might lie ahead. The Relative Strength Index (RSI) signals the pair as overbought at 71.64, and unless RSI drops below 70, the chances of resuming upwards decrease.

Meanwhile, the EUR/JPY 1-hour chart depicts the pair as upward biased and sits near Thursday’s daily pivot at 138.94. Furthermore, it broke a trendline, 10-pips above the 50-hour simple moving average (SMA) at 132.62, paving the way for further gains.

With that said, the EUR/JPY’s first resistance would be the daily pivot at 138.94. A break above would expose 139.28, followed by the R1 daily pivot at 139.50 and then the YTD high at 139.67

• WTI spot pressured on Wednesday while futures rose marginally. 
• Political standoff in Libya has highlighted the fragility of oil supply.

West Texas Intermediate (WTI) crude oil is down in late North American trade by some 1.28% and has fallen from a high of $103.92 to a low of $99.93 into the close. It posted a small gain on Wednesday in the figures markets, however, after day-prior losses following a report showing US inventories unexpectedly dropped last week. WTI crude for May delivery closed up US$0.14 to US$102.19 per barrel, Marketwatch reported. 

The Energy Information Administration reported an unexpected 8-million barrel drop in US oil inventories last week, the largest since January 2021. nevertheless, it is far from recovering from Tuesday's collapse of more than 5%. Chinese demand-side weakens pertaining to the Covid-19 lockdowns partly forced the International Monetary Fund to cut its global growth forecast to 3.6% from 4.4% when also weighing the disruption of Russia's war on Ukraine and higher inflation.

Meanwhile, the political standoff in Libya has highlighted the fragility of oil supply, as analysts at TD Securities explained. The analysts particularly noted how the global inventories are depleted and offer little buffer.

''The latest hiccup on the supply side also comes at a time when demand for energy products is firming once more, driving a tightening in crude oil timespreads and cracks, and informing our decision to re-engage upside in far-dated Brent,'' the analysts said. 

''Indeed, our tracking of traffic conditions for the 15 largest cities by vehicle registrations suggests that the impact of China's "dynamic" Zero-Covid strategy may already be easing, after catalyzing a sharp drop in energy demand. We also expect that Chinese demand headwinds will soon morph into tailwinds as officials call for additional economic support.''

• USD/CAD bulls are moving in at a discount to target a correction. 
• The Daily M-formation is compelling in this regard.

The price has fallen below the trendline support, met horizontal support, rallied into a test of the old lows and has left behind an M-formation in the subsequent drop into the demand area again.

USD/CAD daily chart

The M-formation is a reversion pattern so the price would now be expected to revert back to at least the neckline of the pattern:

USD/CAD H1 chart

From an hourly perspective, the bulls will be on the lookout for a correction higher to the neckline and for a bullish structure from which to engage. The price is starting to carve out a bullish structure in the form of accumulation. The 61.8% ratio has a confluence of an area of liquidity that would be expected to draw in the price in order to mitigate the imbalance of the price drop. This could serve as an area of resistance on the way to the neckline target. 

• The USD/CHF fell on the back of US dollar weakness, losing 0.34% on Wednesday.
• Most G8 currencies printed gains against the greenback in the FX complex, as the DXY dropped 0.65%.
• USD/CHF Price Forecast: The dip towards 0.9460 found some buying pressure as bulls prepare for a renewed 0.9500 test.

The Swiss franc recovered some ground against the greenback, as the latter suffered losses dragged down by US Treasury yields, which also fell some nine basis points to 2.840%. At 0.9485, the USD/CHF portrays the aforementioned, down some 0.33%, back below the 0.9500 figure.

The market sentiment improved in the North American session. US equities rose, except for the Nasdaq Composite, which fell 1.22% on the drop of Netflix. In the FX complex, risk-sensitive currencies rose while safe-haven peers, like the CHF and the JPY, trimmed losses.

In the meantime, the US Dollar Index, a gauge of the greenback’s value against a basket of six currencies, edged down 0.65% and was last seen at 100.337.

During the day in the Asian session, the USD/CHF opened near 0.9530s yearly highs but dropped on what appears to be a profit-taking move by USD bulls, which triggered losses of the greenback against most G8 currencies across the board. In the case of the USD/CHF, it reached support some pips near the S1 daily pivot at 0.9460, then pushed towards the daily pivot around 0.9490.

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. Furthermore, it’s worth noting that Wednesday’s dip found some buying pressure near the 0.9460 area, which lifted the pairs towards 0.9490, opening the door for further USD/CHF upside.

With that said, the USD/CHF first resistance would be the figure at 0.9500. A break above would pave the way towards June 30, 2020, a 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.

Key Technical Levels

• NZD/USD bulls come up for air and US dollar sinks. 
• US yields have corrected and the market gives a sigh of relief. 

Trading at 0.6804, NZD/USD is firmly bid just over 1% higher on the day as Wall Street draws to a close. The US dollar was sliding as US yields corrected which gave a boost to risk apatite and the commodity complex. 

''But moves in US bond markets have been swift and brutal, and while markets typically do correct, such moves often turn out to be just that – corrections, rather than direction changes,'' analysts at ANZ bank said. 

''Commodity currencies also rode the coattails of the CAD, which got a boost from significantly stronger CPI data there. We also have CPI data here today, and ANZ is top-of-market, expecting a +2.2% QoQ print that would see annual inflation rise to 7.4% YoY.''

''If it is strong, the knee-jerk reaction in NZD is likely to be higher, but amid a potentially extended period of USD strength as Ukraine weighs on EUR, BoJ policy weighs on JPY, and still rising Fed policy (and QT) expectations give the USD a tailwind, markets might fade the move quickly. Other central banks have a lot of catching up to do and QT still a big threat to US long bonds.''

Meanwhile, as for data on the day, the latest data point on the Federal Reserve's monetary policy tightening plans, its "Beige Book", showed its economy expanded at a moderate pace from February through early April and there was little respite for businesses from high inflation and worker shortages. 

Looking ahead, Fed chair Powell takes part in an IMF panel tomorrow with ECB President Lagarde on the global economy. This will be the last we hear from the chairman until his post-decision press conference on the afternoon of May 4.  It is worth noting also that at midnight Friday, the media blackout ahead of the FOMC meeting takes effect and there will be no Fed speakers the rate decision has been announced. 

• The Australian dollar stages a recovery and rallies more than 1%.
• Falling US Treasury yields and a weaker US dollar are a tailwind for the AUD/USD.
• Hawkish RBA minutes lifted the AUD/USD, despite an incumbent 50-bps increase by the Fed.
• AUD/USD Price Forecast: To probe the 0.7500 figure and beyond.

The Australian dollar is soaring in the North American session and reclaims the 0.7400 figure, courtesy of a weaker US dollar and a risk-on market mood, as portrayed by US equities recording gains. At the time of writing, the AUD/USD is trading at 0.7449, up 0.96% though shy of the March 7 swing high.

The market sentiment is upbeat, and in the FX space, that triggered an appetite for commodity-linked currencies. The AUD, the CAD, and the NZD rose, while the greenback remains on the back foot, down some 0.62%, sitting at 100.362, undermined by falling US Treasury yields. The 10-year benchmark note drops to 2.849%, losing nine basis points.

Meanwhile, the AUD/USD finally reflected the “hawkish” tone of the Reserve Bank of Australia (RBA) last meeting minutes. The RBA’s Board reported that it is more focused on global events, meaning higher inflation and actions of other central banks. The RBA recognized that the timing of the first-rate hike had moved forward, citing extraordinary evidence on inflation and wages.

Of late, Fed officials continue to cross wires ahead of the blackout period on April 23. Monday’s words of St. Louis Fed President James Bullard continue resounding in the financial markets, as he opened the door for a 75 bps rate hike and emphasized that Fed officials want to get to neutral (rates) expeditiously.

On Wednesday, the San Francisco Fed President Mary Daly said that the case for a 50bps rate hike in May is now complete so that the Fed can announce a reduction of its balance sheet as soon as May. Daly added that increasing rates up t0 2.5% is not abrupt or surprising and added that the consensus view about it is appropriate.

Earlier in the week, 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 geopolitics backdrop, the Ukraine-Russia conflict continues on different fronts. Once a port of 400,000, Mariupol will be seized by Russian troops, while the Kremlin said Kyiv was delaying peace talks. At the same time, Ukraine accuses Moscow of blocking discussions by refusing humanitarian cease-fires.

AUD/USD Price Forecast: Technical outlook

With the AUD/USD reclaiming the 0.7400 figure, it could exacerbate the rally towards 0.7500 and beyond. Now that the Relative Strength Index (RSI) is back in the bullish territory (53.61), the prospects of higher AUD/USD prices increased.

That said, the AUD/USD first resistance would be the mid-parallel Pitchfork’s line between the central and top-parallel lines near 0.7500. A breach of the latter would expose the confluence of October 2021 and March 28 cycle high around the 0.7430-60 area, followed by a test of 0.7600.

Key technical levels

• EUR/USD is higher by some 0.6% in a corrective phase.
• The bulls are noting the weekly M-formation. 

EUR/USD has been in a downward spiral since the end of May 2021, moving below the 200 DMA late to mid-June of last year. The price has fallen to as low as 1.07573, or around the 2020 April supporting area. This is an important area of demand as it led to the May 2020-Jan 2021 rally:

EUR/USD daily chart

Given this level of support, a correction would be expected and we are starting to see that in today's price action. 

EUR/USD's Doji candle followed by a bullish engulfing candle is a bullish candlestick formation that has taken out the prior support on a closing basis. 

Meanwhile, from a weekly perspective, the M-formation is another bullish feature on the charts. 

This is a reversion pattern and the price would be expected to revert back to test the old lows, (the neckline). In this scenario, the neckline is the 50% mean reversion level. 

Here is what you need to know on Thursday, April 21:

The US dollar succumbed to profit-taking on Wednesday as US yields pared back from multi-year highs, burnishing the buck’s investment appeal somewhat. The US Dollar Index (DXY) slid back 0.6% to the low 100.00s having hit its highest levels since March 2020 above 101.00 on Tuesday, weighed primarily by downside in USD/JPY as the yen received some overdue respite.

USD/JPY dropped just over 0.8% on the day to back under the 128.00 level, more than 1.2% below intra-day multi-decade highs at 129.40 hit earlier in the session. But at current levels near 127.75, the pair still trades over 1.0% higher on the week and over 5.0% higher on the month, with little sign of a more meaningful yen rebound least the BoJ signals some sort of policy stance shift.

The non-US dollars were notable outperformers on Wednesday. AUD/USD jumped about 1.0% to near 0.7450, NZD/USD gained about 1.0% to reclaim 0.6800 and test its 50-Day Moving Average at 0.6813 and USD/CAD dropped to two-week lows under 1.2500.

The hawkish tone to the RBA minutes released earlier in the week plus spicey Canadian Consumer Price Inflation (CPI) figures released on Wednesday likely helped lift the Aussie and loonie. Meanwhile, kiwi traders are bracing for the release of Q1 2022 CPI figures in the upcoming Asia Pacific session.

Elsewhere, the euro and sterling also gained some ground against the US dollar counterpart, with decent Eurozone Industrial Production figures and hawkish ECB chatter about a potential July hike potentially helping the euro. But in truth, the main driver of EUR/USD’s 0.6% recovery to the 1.0850 area and GBP/USD 0.5% rebound to above 1.3050 came from the dollar side of the equation.

FX strategists noted that while some more profit-taking in the US dollar was certainly possible, with the Fed now very much on autopilot to taking rates to neutral by the end of the year, recent weakness likely won’t be long-lasting. That suggests, at the very least, the recent drop in USD/JPY and rallies in EUR/USD and GBP/USD might not have much further room to run.

Fed Chair Jerome Powell’s remarks on Thursday will be closely scrutinised and are being flagged as having the potential to reignite the buck’s recent bull run. ECB President Christine Lagarde and BoE Governor Andrew Bailey will both also be speaking, so central bank policy divergence will be an important FX market theme for the rest of the week.

• US equities were mixed on Wednesday, with the Nasdaq 100 weighed by over 35% drop in Netflix shares post-earnings.
• The S&P 500 was flat above 4,450 and the Dow advanced back above 35,000 amid strong earnings elsewhere.
• The weaker US dollar and lower long-term yields also made for a more favourable backdrop for equities.

US equity markets were mixed on Wednesday, with a steep more than 35% drop in Netflix shares weighing on the Nasdaq 100 index and tech stocks more broadly after the company reported a surprise drop in subscribers. The company blamed its first decline in subscribers in decades on the Russo-Ukraine war and competition from rivals such as Disney+, though analysts also noted the global post-pandemic “reopening” effect also taking its toll.

The Nasdaq 100 index was last trading lower by about 1.4% and flirting with the 14,000 level, with the 50-Day Moving Average at 14,250 having acted as a ceiling to the price action throughout this week. In terms of the other major US indices; the S&P 500 was last trading flat just above the 4,450 level, having failed an earlier attempt to test its 21DMA in the 4,490s, while the Dow was last up about 0.6%, and trading above its 200DMA just above 35,000.

Decent earnings from consumer staples giant Procter & Gamble and IT giant IBM helped lift cyclical and value equity market sectors which are disproportionately represented in the Dow. The S&P 500 GICS Consumer Staples sector was last up 1.4%, Real Estate was last up 1.8% and Health Care was last up 1.2%.

Profit-taking induced weakness in the US dollar and a retracement back from recent highs in US yields, particularly at the long end of the curve, made for a positive backdrop for equity markets. Fed speak on Wednesday was hawkish, but this is what markets have come to expect at this point. The latest Fed’s Beige Book also pointed to still very elevated inflationary pressures, but this didn’t unnerve investors.

Looking ahead, the main focus for investors on Thursday will be on remarks from Fed Chair Jerome Powell, who is expected to signal 50 bps rates hikes at the next few Fed meetings (as other policymakers have given the nod to in recent days). There will also be some tier two economic data releases, including weekly jobless claims and the April Philly Fed Manufacturing survey.

Most immediately, however, Tesla is scheduled to post earnings after the bell on Wednesday and investors will be praying that there isn't a repeat of what happened to Netflix’s share price.

San Francisco Fed President and FOMC member Mary Daly on Wednesday said that the case for a 50 bps rate hike in May is now "complete" and that the Fed can also make an announcement on the reduction of its balance sheet at the next meeting, reported Reuters.  

Daly said that since the March meeting, she had seen new evidence that the economic expansion in the US is self-sustaining. Raising interest rates to 2.5% this year is not abrupt or surprising, she noted, and there is broad understanding that it is appropriate. 

The Fed expects US economic growth to slow below trend, but not tip into recession, and even if it did, it would be mild and short, she noted. Moreover, Daly said that its premature to decide on how restrictive policy may need to get and the Fed will need to evaluate inflation and supply chains. 

Finally, Daly called the US labour market "frothy". 

• USD/CAD slid to two-week lows on Wednesday, falling roughly 1.0% from near its 200DMA above 1.2600 to under 1.2500.
• The USD underperformed, driving much of the move, though spicey Canadian CPI figures also helped weigh on the pair.

USD/CAD slid to two-week lows on Wednesday, falling roughly 1.0% on the day from near its 200-Day Moving Average just above 1.2600 to just under the 1.2500 level, with bears now eyeing a test of this month’s annual lows near 1.2400. The pair was weighed primarily as a result of USD underperformance, with the Aussie and kiwi both also gaining more than 1.0% on the day versus the buck.

Another catalyst for USD/CAD downside on Wednesday was hotter than expected Canadian Consumer Price Inflation figures for March, which saw the YoY rate of headline price growth accelerate to 6.7% from 5.7% in February. Core measures all also saw larger than expected MoM and YoY jumps. The spicey numbers helped fuel expectations that the BoC will follow up last week’s 50 bps rate hike with more hikes of a similar margin at upcoming meetings.

Indeed, the BoC is expected to maintain its lead regarding monetary tightening over the Fed this year, making the loonie less vulnerable than some of its other G10 counterparts to buck strength as a result of hawkish Fed expectations. Should global commodity prices remain elevated in the coming weeks and months as a result of the ongoing Russo-Ukraine war, this should strengthen the case for an eventual break below 1.2400.

In the more immediate future, USD/CAD focus now switches to remarks from Fed Chair Jerome Powell on Thursday, who is expected to solidify expectations for 50 bps rate hikes at the upcoming Fed meetings, which could support the buck. Attention then turns to Canadian Retail Sales figures for March and US flash April PMI survey results on Friday.

• The British pound is gaining in the New York session, up some 0.54%.
• GBP/USD gains were attributed to falling US Treasury yields which undermined the greenback.
• Scotiabank and BBBH expect further downside on the GBP/USD.
• GBP/USD Price Forecast: The pair remains downward biased unless GBP bulls lift the price above 1.3160.

The British pound recovers from weekly lows near the 1.3000 figure amidst a weaker US dollar, spurred by falling US Treasury yields and upbeat market sentiment around the financial markets. At 1.3067, the GBP/USD portrays the aforementioned, poised for a re-test of the 1.3100 mark.

US equities remain trading in the green, except for the tech-heavy Nasdaq, which is losing 0.79%, blamed on a worse than expected Netflix earnings report. In the FX complex, risk-sensitive currencies remain in the driver’s seat, led by the high beta currencies and the GBP, contrarily to the greenback, which is losing 0.63%, as portrayed by the US Dollar Index, at 100.352, down from YTD high at 101.035.

Scotiabank and Brown Brothers Harriman (BBH) expect the pound to fall further

Meanwhile, the GBP/USD took advantage of a weaker greenback, pushing towards April’s 18 daily highs at 1.3064, in which case, the pair would resume its upward trajectory towards 1.3100 in what appears to be a corrective rally. Analysts at Scotiabank wrote on a note that they expect GBP/USD to fall over the coming months, as the Bank of England is set not to deliver rate hike expectations.

Furthermore, they added that “the IMF noted yesterday in its outlook review that the UK will see the highest rate of inflation this year among G7 countries, and it revised its GDP growth projections for the UK by roughly 1ppt in each of 2022 and 2023 amid the cost-of-living crisis.”

Also read: GBP/USD to tumble under the 1.30 level over the next few months – Scotiabank

In tone with what Scotiabank analysts expressed, analysts at Brown Brothers Harriman (BBH) wrote on a note that “Sterling is seeing a bounce after support near 1.30 held. Here too, we remain negative and look for an eventual test last week’s new cycle low 1.2975. Break below would set up a test of the November 2020 low near 1.2855 and then possibly the September 2020 low near 1.2675.”

GBP/USD Price Forecast: Technical outlook

The GBP/USD remains in a downtrend. If the GBP/USD is about to shift neutral, it would need to reclaim December’s 31 cycle high at 1.3160. Unless GBP bulls push prices through the latter, Wednesday’s rally would be seen as an opportunity for GBP/USD bears to open fresh bets at a better level.

With that said, the GBP/USD first support would be the 1.3000 figure. A breach of the latter would expose April 19 daily low at 1.2980. Once cleared, it would open the door for further tests downwards. First, the YTD low at 1.2971, followed by November 2020 low near 1.2855.

Inflationary pressures in the US remained strong since mid-February, with firms continuing to pass swiftly rising input costs through to consumers, the latest Fed's Beige Book released by the Minneapolis Fed on Wednesday said, according to Reuters. The latest Beige Book is based on information collected before 11 April. 

Additional Takeaways:

Inflation...

In multiple districts, contacts reported spikes in prices for energy, metals, and agricultural commodities.

Strong demand allowed firms to pass through input costs to customers. 

Contacts in a few districts noted negative sales from rising prices. 

Agricultural conditions were mixed across regions. Farmers were supported by surging crop prices, but drought conditions were a challenge in some districts and increasing input costs were squeezing producer margins across the nation. 

Firms in most districts expected inflationary pressures to continue over the coming months. 

Labour market...

Several districts reported moderate employment gains despite hiring and retention challenges in the labor market.

Some contacts reported early signs that the strong pace of wage growth had begun to slow. 

 Firms reported inflationary pressures were contributing to higher wages. 

Hiring was held back by a lack of available workers, though several districts reported a modest improvement. 

Labor demand continued to fuel strong wage growth, particularly for 'footloose' workers. 

Economic activity/conditions...

Economic activity expanded at a moderate pace since mid-February.

The outlook for future growth was clouded by the uncertainty created by recent geopolitical developments and rising prices.

Consumer spending accelerated among retail and non-financial service firms, as Covid-19 cases tapered across the country. 

Manufacturing activity was solid overall across most districts, but supply chain backlogs, labor market tightness, and elevated input costs continued to pose challenges to firms' abilities to meet demand. 

Several districts noted China's covid-19 lockdowns had worsened supply chain disruptions. 

Vehicle sales remained largely constrained by low inventories. 

Commercial real estate activity accelerated modestly as office occupancy and retail activity increased. 

Districts' contacts reported continued strong demand for residential real estate but limited supply. 

• The USD/JPY trimmed Tuesday’s gains, down some 0.88%.
• An upbeat market mood, Japanese Government intervention, and falling US T-bond yields weighed the USD/JPY.
• USD/JPY Price Forecast: Negative divergence in the daily chart to trigger a fall towards the 125.00 area.

The USD/JPY retreats from 20-year highs reached around 129.40, in what appears to be a profit-taking move by investors, as Japanese government officials expressed concerns about the value of the Japanese yen. Furthermore, the fall of US Treasury yields caused a drop of 170-pips. At the time of writing, the USD/JPY is trading at 127.75.

A positive market mood keeps US Treasury yields under pressure, as the appetite for riskier assets has US equities rising. Meanwhile, the greenback is down 0.68%, as shown by the US Dollar Index, which was last at 100.294.

Japanese Government officials expressed concerns about a “weaker” yen, US Treasury yields dropped

Meanwhile, Japanese officials’ efforts of verbal intervention finally came to fruition. On Tuesday, the Japanese Finance Minister Shunichi Suzuki made the most explicit warning yet that the damage to the economy from a weakening yen at present is greater than the benefits from it. Additionally, the Bank of Japan (BoJ) Governor Haruhiko Kuroda also commented that the speed of the yen’s decline could hurt the economy, though he kept its dovish stance.

The market’s reaction triggered an almost 200-pip reversal, which was also spurred by the US 10-year Treasury yield, falling from three-year highs to 2.863%, down eight basis points, a headwind for the USD/JPY. Nevertheless, despite the negative factors, the dip appears to be a corrective move due to central bank policy divergence between the Federal Reserve and the BoJ, which committed to buying 10-year Japanese Government Bonds (JGBs) at 0.25% as it advances its yield curve control (YCC).

On the US front, the US central bank is determined to keep a lid on soaring inflation and tighten its monetary policy faster. The markets have been pricing in multiple 50 bps rate hikes, as expressed by influential FOMC members - St. Louis President James Bullard, Chicago Fed President Charles Evans, and Minneapolis Fed President Neel Kashkari.

USD/JPY Price Forecast: Technical outlook

The USD/JPY illustrates the formation of a negative divergence between the price action and the Relative Strength Index (RSI) at 76.52. As the USD/JPY edged higher, the RSI peaks failed to push above the previous ones, meaning that the bullish momentum is waning.

With that said, the USD/JPY first support would be the 127.00 mark. Once cleared, it would expose April 2001 cycle high at 126.85, followed by 126.00, and then the June 2015 cycle high at 125.85.

Data released on Wednesday showed a larger than expected increase in inflation during March in Canada. According to analysts at CIBC, the upside surprise in inflation will likely be followed by another 50 bp rate hike from the Bank of Canada at the next monetary policy meeting. 

Key Quotes: 

“Inflation surged beyond everyone's expectations in March, including crucially the Bank of Canada's recent Monetary Policy Report (MPR) estimates. The 1.4% increase on the month, and annual rate of 6.7%, were well in advance of the consensus forecast (1.0% m/m, 6.1% y/y), and meant the average for Q1 was two ticks higher than the Bank's MPR projections. That will likely mean interest rates rise by another 50bp at the next policy meeting.”

“Inflation continues to run well ahead of expectations from earlier in the year, linked not just to commodity price spikes but also to stronger underlying price pressures as well. The upside surprise is likely to bring another non-standard 50bp hike from the Bank of Canada at it's next meeting. While March should represent the peak in inflation due to the slight pullback in energy prices from their highest point, any easing in the next few months will likely be fairly gradual due to continued supply disruptions emanating from the war in Ukraine and lockdown measures in China. A more meaningful deceleration in inflationary pressure will likely wait until the second half of this year and into 2023.”

Analysts at MUFG Bank dropped their bullish bias for USD/JPY and turn neutral expecting greater two-way flows at these elevated levels and taking account of the extent of monetary tightening now priced in the US rates market. They see the pair trading in the 121.00/131.00 range. 

Key Quotes:

“We still believe there is a reluctance to intervene directly in the FX market. But if the speed of the move continues and we see levels over 130.00 quickly, action is possible especially if around the time of a shift in policy from the BoJ. Rising energy prices in Japan has political implications too, just like elsewhere, and the government will not want to be seen as indifferent to this energy price squeeze being exacerbated by yen weakness ahead of the Upper House elections in July.”

“Given we have turned neutral on the outlook for USD/JPY, there are risks in both directions to consider. A more dovish outcome to the BoJ meeting on 28th April and further move higher in US yields could see USD/JPY breach the upside range we assume from here. Equally, the risks of BoJ action and intervention is no longer a negligible risk and that could result in a more abrupt decline in USD/JPY than we are assuming. We have widened the range in USD/JPY given the scale of the move in recent months.”

San Francisco Fed President and FOMC member Mary Daly on Wednesday said that she is busy thinking about "inflation, inflation, inflation" and that it is unlikely to get inflation back to 2.0% this year, reported Reuters. "I think inflation will start coming down this year," Daly added, noting that she sees inflation at 2.0% in five years. Consumers rebalancing spending from goods to services should help on inflation, she said. 

Earlier, Daly said it would be "prudent" for the Fed to raise the federal funds rate to 2.5% by the end of the year. 

• US dollar corrects to the downside across the board on Wednesday.
• Euro gains amid comments from ECB officials and data.
• EUR/USD is up for the second day in a row, alleviating bearish pressure.

The EUR/USD is holding onto gains and is testing daily highs around 1.0860 on American hours, supported by a correction of the US dollar across the board.

Dollar finally drops

Comments from European Central Bank officials on Wednesday mentioned the possibility of a rate hike during the fourth quarter, undermining partially Lagarde’s message of last week. German inflation data for March came in above expectations and Industrial Production increased in the Eurozone in February. The comments and the numbers helped the euro.

A new poll suggests a victory for French President Macron against Marie Le Pen, but it warned about voters unwilling to admit their preference for Le Pen. A debate between both candidates is today.

A weaker US dollar also contributes to boosting EUR/USD. A recovery in Treasuries weighed on the dollar. The US 10-year yield dropped to 2.87%, moving away from multi-year highs. Data from the US showed home prices in the US reached a record high in March, although, Existing Home Sales dropped again, showing signs of a slowdown in the sector. Later on Wednesday, the Federal Reserve will release the Beige Book.

The EUR/USD peaked on Wednesday at 1.0866, the highest level in almost a week. It then pulled back, finding support above 1.0820. It remains near the top, with a bullish intraday bias.

Technical outlook

San Fransisco Fed President and FOMC member Mary Daly on Wednesday noted that it would be "prudent" for the Fed to raise the Federal funds rate to 2.5% by the end of the year, reported Reuters. 

• Oil prices are back to trading near session lows in the upper $101.00s despite a bullish EIA inventory release.
• Growth concerns have been in focus this week and have weighed on crude oil.
• But geopolitics and OPEC+ supply concerns continue to act as a source of support.

A much larger than expected draw in US crude oil inventories of over 8M barrels, according to the latest weekly US EIA report which also showed US Strategic Petroleum Reserve stockpiles falling to their lowest since February 2002, helped crude oil prices momentarily recover earlier session lows, though most of these gains have now faded. Front-month WTI futures are back to trading in the upper $101.00s per barrel and eyeing earlier session lows at $101.50, having been as high as $103.00 in the immediate aftermath of the inventory data release.

WTI prices were unable to break back above the 21-Day Moving Average in the mid-$103.00s and trade over $7.50 below earlier weekly peaks near $110. The majority of this week’s pullback took place on Tuesday after the release of a downbeat International Monetary Fund (IMF) World Economic Outlook report, which warned of prolonged inflation and forecasted weaker global growth.

As traders digest a worsening outlook for global growth and, thus, crude oil demand growth, a move back above $110 and a push towards late March highs in the $116 area seems to be off the cards in the short-term. But equally, against the backdrop of stil very elevated geopolitical tensions as the Russo-Ukraine war rumbles on and as the US/NATO accelerate arms deliveries into Ukraine and look to further tighten sanctions on Russia, strategists argue that WTI above/around $100 continues to make sense.

Indeed, Russian oil output is expected to decline by as much as 3M barrels per day (BPD) by May (roughly 3.0% of global supply), with this shortfall coming at a time when OPEC+ was already struggling to meet its output quotas. A March survey released by Reuters earlier in the week showed the group undershot its output target by nearly 1.5M BPD last month, primarily as a result of the struggles of smaller African producers to keep up with output hikes.

April will show a further large drop as Russian output declines, but Libya is also a concern, with its National Oil Corporation saying 550K BPD in output has been shuttered this week amid a wave of blockades of its major oilfields. OPEC+ output struggles suggest global oil markets will remain tight for the foreseeable future, with only the massive release of crude oil reserves by IEA nations (240M barrels in the next few months) and lockdowns in China keeping the market in balance for now.

European Council President Charles Michel on Wednesday said during his visit to Kyiv that the EU will give a further EUR 1.5B in military aid to Ukraine, reported Reuters, as the country attempts to fend of a more focused Russian assault in its eastern Donbas oblast.  

His remarks come after German Chancellor Olaf Scholz said in a video call with Western leaders on Tuesday that Germany will continue to finance Ukraine militarily and financially.

A senior US defense official on Tuesday said that Russia is carrying out the "prelude" to a larger expected offensive operations in eastern Ukraine. 

EUR/GBP has moved back down to 0.83 after a short spell up at 0.85 back in late March. As economists at Nordea expect the Bank of England (BoE) to lift its key rate to 1.75% by end-2022, EUR/GBP should plunge to 0.81.

Rate hikes from the BoE to support sterling

“We expect the BoE to move its key rate to 1.75% by the end of the year (currently at 0.75%) and that should support the sterling going forward.”

“We expect EUR/GBP at 0.81 at the end of the year – a level not seen since before the Brexit vote in June 2016.”

Chicago Fed President Charles Evans on Wednesday said that its not the case that inflation will fall back to 2.0% next year, reported Reuters. However, there is good reason to think that special factors that are causing high inflation will stop going up, he noted. The timing for monetary policy can be sensible in dealing with inflation, he added before reiterating that the Fed will lift interest rates to neutral by the end of the year and will probably thereafter end up with a restrictive stance. 

His comments on Wednesday come after he pushed back against the idea of a 75 bps rate hike on Tuesday. 

USD/JPY has moved from 115 to 129 within less than two months. Economists at Nordea expect the pair to rise above 130, however, USD/JPY should shift back lower in the second half of 2022.

USD/JPY to turn and move lower during H2

“Entering a period of FX intervention is a possibility but the impact on the yen is unlikely to leave a lasting impact on the yen if the Bank of Japan (BoJ) continues to purchase JGBs at the same time.”

“Back in 2002, USD/JPY topped at 135 and we expect USD/JPY to move above 130 during the next couple of months. But we expect USD/JPY to turn and move lower during the second half of the year.”

Gold remains extremely resilient in the face of hawkish Federal Reserve rhetoric. Strategists at TD Securities expect the yellow metal to remain in demand as a safe-haven asset.

Fed speak may remain a focus in the near-term

“Fed speak may remain a focus in the near-term, with the rates market proving sensitive to hawkish signals recently, but safe-haven flows continue to provide an impressive offset.” 

“Precious metal investors still see compelling reasons to hold on to the shiny metal. 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.”

GBP/USD bounces off 1.30. Economists at Scotiabank expect the cable to drop substantially below 1.30 over the coming months as the Bank of England (BoE) is set to not meet rate hike expectations.

IMF cut the 2023 UK growth outlook

“The rates, economic, and political picture point to losses firming under the figure in the near-term. 

“The IMF noted yesterday in its outlook review that the UK will see the highest rate of inflation this year among G7 countries and it revised its GDP growth projections for the UK by roughly 1ppt in each of 2022 and 2023 amid the cost-of-living crisis.”

“Weak growth and the cost-of-living crisis are likely to keep the BoE from hiking by as much as markets expect this year, which risks GBP losses extending well beyond 1.30 over the next few months.”

• Silver has been unable to take advantage of Wednesday’s weaker USD and lower US yields.
• XAG/USD is currently trading just above $25.00 and eyeing a break below it as more Fed speak looms.

A pullback in the US dollar and retracement lower from fresh multi-year highs in yields across the US curve has offered spot silver (XAG/USD) prices little by way of respite on Wednesday. XAG/USD continues to trade with small on-the-day losses just above the $25.00 per troy ounce mark, having admittedly fended off earlier session pressure that saw the metal dip as low as the $24.89 and eye a test of its 50-Day Moving Average at $24.83.

Trade is understandably cautious ahead of more rhetoric from Fed policymakers later this session, and ahead of remarks from Fed Chair Jerome Powell on Thursday. Policymakers have for the most part conveyed a consistently hawkish message that rates will be lifted “expeditiously” to at least the neutral area in the coming quarters, including in 50 bps intervals at the next few policy meetings.

Meanwhile, Fed policymakers are sounding increasingly open to the prospect of taking interest rates above neutral in order to tackle rampant inflation. If Powell’s remarks on Thursday strike a hawkish tone, recent upside in the US dollar and US yields could be reignited, presenting further downside risks for silver. A stronger US dollar makes USD-denominated commodities more expensive for foreign buyers, while higher yields represent a rise in the “opportunity cost” of holding non-yielding assets (like silver).

A dip back below $25.00 is certainly on the cards for the second half of this week. However, with geopolitical tensions still very high as the US/NATO ups weapons shipments to Ukraine as Russia escalates its assault in the eastern Donbas oblast and sanctions only likely to be tightened from here, stagflationary risks to the global economy remain elevated. This should mean good demand for silver it slips back towards the low $24.00s.

EUR/USD gains to mid-1.08s. Nonetheless, economists at Scotiabank expect the pair to move below he 1.08 level.

Downward pressure remains in place

“The EUR’s solid rebound off sub 1.08 levels, to trade as low as 1.0761 yesterday, to the mid-figure zone is giving the impression that the EUR’s decline may have neared an end. Still, though the EUR broke the trendline from its late-March high, downward pressure remains in place that points to firmer losses under 1.08 – with the close under the figure yesterday augmenting the bearish outlook.” 

“Support is ~1.0820 followed by the figure zone, ~1.0780, and ~1.0760.”

“Resistance is ~1.0865 followed by the 1.09 zone.”

The US Existing Homes Sales unit rate fell by 2.7% MoM in March, the latest data release by the National Association of Realtors revealed on Wednesday. That meant the 12-month rolling number of sales (the unit rate) fell to 5.77M in March, below the economist consensus for 5.8M, marking a decline from February's unit rate of 5.93M. 

The median house price continued to rise and came in at $375.3K in March. The number of units available rose a little to 0.95M in March from 0.85M a month earlier. 

Market Reaction

FX markets did not react to the latest broadly as expected US home price data. 

• A combination of factors assisted AUD/USD to gain strong positive traction on Wednesday.
• Hawkish RBA minutes extended support to the aussie amid a sharp USD corrective pullback.
• Bets for aggressive Fed rate hikes should limit the USD losses and cap the upside for the pair.

The AUD/USD pair maintained its bid tone through the early North American session and was last seen trading around the 0.7430 region, just a few pips below the weekly high.

The Reserve Bank of Australia (RBA), through its minutes from the April Board meeting, sent a hawkish message and provided a strong hint that a rate hike is coming sooner than expected. The RBA said that quicker inflation and a pickup in wages growth have moved up the likely timing of the first interest-rate increase since 2010. This, in turn, acted as a tailwind for the Australian dollar, which, along with broad-based US dollar weakness, assisted the AUD/USD pair to gain strong positive traction on Wednesday.

A sharp corrective slide in the USD/JPY pair and a softer tone surrounding the US Treasury bond yields prompted some USD profit-taking following the recent runup to the highest level since March 2020. Apart from this, the risk-on impulse - as depicted by the strong opening in the US equity markets - further underpinned demand for the safe-haven greenback and benefitted the perceived riskier aussie. The combination of factors pushed the AUD/USD pair beyond the 0.7400 mark, further away from the one-month low touched on Tuesday.

It, however, remains to be seen if bulls are able to capitalize on the move amid expectations for a more aggressive policy tightening by the Fed. In fact, the markets seem convinced that the Fed would raise interest rates at a faster pace to curb soaring inflation and have been pricing in multiple 50 bps hikes. This should act as a tailwind for the US bond yields, which supports prospects for the emergence of some USD dip-buying. Hence, it will be prudent to wait for strong follow-through buying before positioning for a further appreciating move for the AUD/USD pair and confirming that the recent corrective slide from the YTD peak has run its course.

Technical levels to watch

• USD profit-taking and localised strength in the antipodean currencies has helped NZD/USD recovery into the upper 0.6700s on Wednesday.
• Traders eye upcoming key risk events on Thursday, including Q1 NZ CPI and Fed Chair Powell’s speech.

Profit-taking on increasingly stretched USD long positioning, plus localised strength in the two antipodean currencies has seen NZD/USD post an impressive recovery on Wednesday. The pair was last trading higher by about 0.8% in the 0.6780s, up from earlier weekly lows in the 0.6720s and eyeing a test of its 50-Day Moving Average which currently resides just above 0.6810.

Key New Zealand Q1 2022 Consumer Price Inflation figures are scheduled for release at the start of Thursday’s Asia Pacific session and, if they come in as spicey as the just-released Canadian numbers, could ignite a further recovery in the pair. Short-term NZD/USD bulls will be eyeing a potential push back into the 0.6800s and a recovery back towards key resistance at 0.6900, where the 200DMA resides.

However, whilst the USD bears are in control on Wednesday, this goes against the recent trend towards a stronger buck as traders price in a more aggressive Fed tightening cycle, and could thus prove short-lived. Fed Chair Jerome Powell, if he comes across as sufficiently hawkish in his speech on Thursday, could reignite US dollar upside. NZD/USD traders should be prepared for the pair to fall back to test March/April lows in the low 0.6700s one again.  

• EUR/USD adds to Tuesday’s advance beyond the 1.0800 mark.
• Another visit to the YTD low at 1.0757 should not be ruled out.

EUR/USD extends the upside momentum to the vicinity of 1.0870 on Wednesday.

If the recovery picks up extra pace, the pair might attempt a move to the weekly high at 1.0933 (April 11). Once cleared, there are no resistance levels of importance until the 55-day SMA, today at 1.1087.

While below the 200-day SMA, today at 1.1419, the outlook for the pair is expected to remain negative.

EUR/USD daily chart

• USD/JPY stalled its intraday corrective pullback from the 20-year peak near the 23.6% Fibo. level.
• The Fed-BoJ policy divergence favours bullish traders and supports prospects for additional gains.
• A convincing break below the 126.35 confluence support is needed to confirm a near-term top.

The USD/JPY pair trimmed a part of its heavy intraday losses and was seen trading near the 128.00 mark during the early North American session, still down around 0.70% for the day.

The sharp intraday corrective pullback from a fresh 20-year high touched earlier this Wednesday found some support near the 23.6% Fibonacci retracement level of the 121.28-129.41 parabolic rise. The mentioned support, around the 127.50-127.45 region should now act as a pivotal point for short-term traders.

A convincing break below should pave the way for further losses and drag the USD/JPY pair towards the 127.00 mark. This is closely followed by support near the 126.80 region, or an ascending trend-line extending from the monthly low, below which spot prices could accelerate the slide towards the 126.35 confluence.

The latter comprises the 38.2% Fibo. level and the 50-period SMA on the 4-hour chart. Against the backdrop of a big divergence in the monetary policy stance adopted by the Fed and the Bank of Japan, the fall towards the said support could be seen as a buying opportunity. This should help limit losses for the USD/JPY pair.

On the flip side, the 128.45-128.50 region now seems to act as an immediate resistance ahead of the 1.2880 zone. A subsequent move beyond the 129.00 mark will suggest that the corrective pullback has run its course and lift the USD/JPY pair back towards retesting the two-decade peak, around the 129.40 region.

USD/JPY 4-hour chart

Key levels to watch

• DXY corrects lower and revisits the 100.30 region on Wednesday.
• Occasional bearish moves should be deemed as buying chances.

DXY sheds some ground following fresh cycle peaks past the 101.00 hurdle on Wednesday.

Price action around the index continues to suggest further upside in the near/medium terms. That said, if the YTD high at 101.03 is surpassed, then there are no resistance levels of significance until the 2020 peak at 102.99 recorded on March 20.

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 95.37.

DXY daily chart

Bundesbank President and ECB governing council member Joachim Nagel said on Wednesday that he expects the ECB's first rate hike to come in Q3 of this year, though he also said he is against hasty rate hikes, reported Reuters. Nagel warned that getting inflation back to the ECB's 2.0% target is looking ever less likely, and that the IMF's forecast for global economic growth could be cut further in the quarters ahead. 

His remarks chime with commentary from ECB's Martin Kazaks earlier in the day, who also said an ECB rate hike in Q3 of this year was a possibility. 

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the latest Exports data in Malaysia.

Key Takeaways

“Gross export growth strengthened to 25.4% y/y in Mar (from +16.8% in Feb), higher than our estimate (9.0%) and Bloomberg consensus (10.4%). Gross import growth also accelerated to 29.9% y/y (from +18.3% in Feb). This brought the trade surplus to MYR26.7bn (from +MYR19.8bn in Feb).”

“Exports were lifted by robust growth for electrical & electronics and commodity-based products in particular palm oil, palm-oil based products, petroleum products, LNG, and crude petroleum.  In 1Q22, exports gained 22.2% (4Q21: +29.0%) while imports advanced 25.2% (4Q21: +29.6%). Higher imports over exports led to a narrower trade surplus of MYR65.1bn (4Q21: +MYR76.2bn) which we expect to translate into a current account surplus of MYR16.0bn in 1Q22 (4Q21: +MYR15.2bn).”

“Given the export strength to date, we have raised our full-year export growth forecast to 8.0% (from 2.0% previously; BNM est: +10.9%; 2021: +26.0%) albeit mindful of prevailing risks from geopolitical risks, China’s zero-COVID policy, ongoing supply chain disruptions, and tighter global financial conditions. The risk of second order impact on Malaysia from the Russia-Ukraine conflict has emerged following the expansion of sanctions on Russia and potential escalation of Ukraine conflict.”

A key market guage of long-term Eurozone inflation expectations rose to its highest level since 2012 at over 2.42% on Wednesday, reported Reuters citing the Eurozone 5-year 5-year forward inflation swap. This swap is a gauge for the market's inflation expectation for a period that starts five years from now and ends ten years from now.   

As long-term Eurozone inflation expectations depart further from the ECB's 2.0% target to the upside, this could be a key determinant that pushes the central bank to bring forward the timeline of its monetary tightening plans. Indeed, ECB policymaker Martins Kazaks said on Wednesday that “a rate hike is possible as soon as July”. 

• A combination of factors prompted aggressive selling around USD/CAD on Wednesday.
• An uptick in crude oil prices, stronger Canadian inflation figures underpinned the loonie.
• Modest USD pullback from the two-year peak also contributed to the intraday selling bias.

The USD/CAD pair continued losing ground through the early North American session and dropped to a two-week low in reaction to a stronger Canadian CPI report, though recovered a few pips thereafter. The pair was last seen trading just a few pips above the 1.2525-1.2530 region, still down over 0.70% for the day.

Having failed to find acceptance above the very important 200-day SMA, the USD/CAD pair witnessed aggressive selling on Wednesday and finally broke down below a three-day-old consolidation phase. An uptick in crude oil prices underpinned the commodity-linked loonie and exerted downward pressure on spot prices amid modest US dollar corrective pullback from the two-year peak.

Concerns about tight global supply and a potential European Union (EU) embargo on Russian gas, assisted crude oil prices to recover a part of the previous day's heavy losses. Apart from this, hotter-than-expected Canadian consumer inflation figures provided an additional boost to the domestic currency and further contributed to the heavily offered tone surrounding the USD/CAD pair.

Statistics Canada reported that the headline CPI jumped to the highest level since January 1991 and rose 6.7% YoY in May, surpassing expectations for a reading of 6.1% and 5.7% previous. Adding to this, the Bank of Canada's core CPI, which excludes the eight most volatile items, rose by 1% MoM in March and accelerated to 5.5% on yearly basis, both beating consensus estimates.

On the other hand, the USD witnessed some profit-taking amid a sharp decline in the USD/JPY pair and retreating US Treasury bond yields. That said, the prospects for a more aggressive policy tightening by the Fed should act as a tailwind for the buck. This makes it prudent to wait for a break below the 1.2500 psychological mark before placing fresh bearish bets around the USD/CAD pair.

Technical levels to watch

• The YoY rate of headline CPI jumped to 6.7% in March from 5.7%, well above expected. 
• Core measures were also spicey and the loonie saw some initial knee-jerk strength on the data. 
• The figures will solidify expectations for aggressive tightening from the BoC.  

Annual headline inflation in Canada jumped to 6.7% in March, according to the latest Consumer Price Index (CPI) figures released by Statistics Canada on Wednesday. That was well above the median economist forecast for a rise to 6.1% from 5.7% YoY in February. The larger than expected jump in the YoY rate was powered by a larger than expected 1.4% rise in prices, as per the CPI, on a MoM basis. Expectations were for a 1.0% MoM rise in prices, following a 1.0% rise in February. 

The Core inflation numbers were also spicey. The YoY rate of inflation as per the Core CPI came in at 5.5%, a surprise jump from February's 4.8% reading. Median expectations had been for a fall to 4.2%. That was powered by a surprise rise in the MoM rate of Core inflation to 1.0%, versus an expected fall to 0.5% from 0.8% in February. 

The BoC's Median CPI measure came in at 3.8%, up from 3.5% in February, the BoC's Trimmed measure came in at 4.7%, up from 4.3% in February and the BoC's Common measure came in at 2.8%, up from 2.6%. That meant the mean of the BoC's measures of Core Canadian inflation rose to 3.77% from 3.47% in February. 

Market Reaction

With the latest spicey Canadian inflation figures bolstering the case for continued aggressive BoC monetary tightening (the central bank lifted interest rate by 50 bps last week), the loonie was initially stronger in wake of the data release. USD/CAD dipped briefly below 1.2520, but has since recovered back to pre-data release levels in the 1.2530s. 

The current sentiment in the FX markets remains very positive for the US dollar. Economists at Nordea see EUR/USD falling further before rebounding later this year to end 2022 around 1.10.

Dollar maintains the upper hand

“The euro will remain vulnerable as long as there is no change for the better in the war in Ukraine. The tension between Europe and Russia is leaving high uncertainty for the economic outlook in the Euro area and for the euro.”

“We see EUR/USD move down to 1.05 within the next three months. But the tide will turn for the dollar later this year. Sharply lower purchasing power among US households will slow the economic growth in the US and the Fed’s aggressive monetary tightening will bite as well. At the same time, we’ll have the ECB beginning its tightening cycle and hopefully, there will be better news from the war in Ukraine. Hence, the outlook for the European economy and the euro should improve. We expect EUR/USD to end 2022 around 1.10.”

“In 2023 the Fed will be approaching the peak of its hiking cycle and the focus will shift towards the timing of the first potential cut from the American central bank. At the same time the ECB will continue its tightening cycle, although, at a slower pace, but it should continue supporting the euro, and we’re looking for EUR/USD moving towards 1.16 during 2023.”

• EUR/GBP is trading just under 0.8300, after pulling back from earlier highs near the 21 and 50DMAs at 0.8350.
• ING and MUFG warn against betting on further downside with the BoE likely to underwhelm tightening expectations this year.

EUR/GBP is trading flat just beneath the 0.8300 level, having erased earlier gains that saw it rally as high as the 0.8330s and eye a test of the 21 and 50-Day Moving Averages in the 0.8350 area. The themes of BoE/ECB policy divergence are being monitored by traders ahead of remarks from the respective central bank heads Christine Lagarde and Andrew Bailey at the IMF meetings on Thursday, after some hawkish chatter from ECB’s Martin Kazaks on Wednesday, who talked about a rate hike as soon as July.

In a note to clients on Tuesday, ING points out that money markets are only pricing in 30 bps worth of BoE tightening at its upcoming meeting. “The fact that expectations have not shifted towards the 50bp area despite higher inflation is probably down to the same concerns expressed by the IMF yesterday when it cut the 2023 UK growth outlook to 1.2% from 2.3%,” the bank notes.

ING continues to argue that market expectations for BoE tightening this year are excessive. “Money markets continue to price in 150bp of BoE rate hikes by year-end, while our economics team thinks that it will be closer to 50bp,” the bank explains. “Any dips in EUR/GBP to the 0.8250 area could be the low point of the year” they warn.

MUFG agree. “We are not convinced the BoE will be in a position to deliver what is priced into the market with growth likely to be very weak through the remainder of this year,” they remark. “We assume two further 25bp rate hikes by the BoE and then a pause… It’s one reason why we see limited downside for EUR/GBP from current levels just below 0.8300.”

• GBP/USD staged a solid recovery from sub-1.3000 levels amid broad-based USD weakness.
• The fundamental backdrop favours the USD bulls and should cap the upside for the major.
• Sustained strength beyond the 1.3100 is needed to support prospects for any further gains.

The GBP/USD pair gained strong positive traction on Wednesday and snapped a four-day losing streak back closer to the YTD low. The momentum extended through the mid-European session and pushed spot prices to a fresh weekly high, around the 1.3065 region in the last hour.

From a technical perspective, repeated failures to find acceptance below the 1.3000 psychological mark prompted some short-covering around the GBP/USD pair amid broad-based US dollar weakness. That said, any meaningful recovery seems elusive amid hawkish Fed expectations. The markets seem convinced that the US central bank would tighten its monetary policy at a faster pace to curb soaring inflation and have been pricing in multiple 50 bps rate hikes. This supports prospects for the emergence of some USD dip-buying, which should cap the GBP/USD pair.

Hence, any subsequent move up is more likely to confront stiff resistance and faltered near the 1.3100 confluence hurdle, comprising 200-period SMA on the 4-hour chart and a descending trend-line. The said handle should act as a pivotal point and help determine the near-term trajectory. A convincing breakthrough would suggest that the GBP/USD pair has formed strong base just below the 1.3000 mark and pave the way for additional gains. The next relevant hurdle is pegged near the 1.3145-1.3150 area, above which bulls might aim to reclaim the 1.3200 round figure.

On the flip side, the 1.3000-1.2990 area might continue to act as immediate support. Some follow-through selling below the YTD low, around the 1.2975-1.2970 region, would make the GBP/USD pair vulnerable to accelerate the slide towards testing the 1.2910-1.2900 support zone. The downward trajectory could further get extended towards the next relevant support near the mid-1.2800s before the GBP/USD pair eventually drops to the 1.2820 area.

GBP/USD 4-hour chart

Key levels to watch

As soon as the COVID-19 pandemic started to recede, as soon as rumors of a diplomatic settlement of the war in Ukraine emerged, equity markets rallied. Analysts at Natixis seek to determine why equity investors react so positively to good news, even if it is only of small significance.

Why do equity markets react so strongly to good news?

“Real interest rates are very negative, in an environment of high inflation. This makes holding cash or bonds very detrimental, and therefore encourages investors to return to equities as quickly as possible.”

“Companies’ financial situation improved rapidly after the COVID-19 crisis and was good at the start of the war in Ukraine: earnings picked up, debt net of cash holdings fell.”

“Investors do not expect a sharp rise in interest rates and expect real interest rates to remain negative, as expected long-term interest rates remain lower than inflation. Investors do not, therefore, expect that bonds will become attractive again and that rising interest rates will cause share prices to fall.”

“As long as real interest rates remain negative, holding shares protect against inflation, since negative real interest rates boost share prices and companies’ earnings normally follow inflation.”

• EUR/JPY sees some downside pressure after hitting new highs.
• The continuation of the uptrend could see 140.00 retested.

EUR/JPY clinched new tops around 139.70 earlier in the session, although it lost some momentum since then.

Further upside thus appears on the cards with the immediate target at the fresh peak at 139.69 (April 20). The surpass of this level is expected to motivate the cross to put the round level at 140.00 back on the radar in the short-term horizon. Further up is seen the June 2015 peak at 141.05 (June 4).

In the meantime, while above the 200-day SMA at 130.43, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

Junior Economist Yari Mayaseti at UOB Group reviews the latest tarde balance results in the Indonesian economy.

Key Takeaways

“Indonesia’s trade surplus widened in March 2022 and reached USD4.5bn vs. USD3.8bn in February 2022.”

“Indonesia's exports in March were valued at USD26.5bn, with the non-oil and gas exports amounting to USD25.1bn (March’s 43.8% y/y vs. February’s 35.2% y/y).”

“Indonesia’s imports in March were valued at USD21.9bn, with the non-oil and gas imports amounting to USD18.5bn (March’s 27.3% y/y vs. February’s 14.8% y/y).”

• USD/JPY retreated sharply from a fresh 20-year peak touched earlier this Wednesday.
• Speculation that officials will intervene to curb the JPY slump prompted long-unwinding.
• The Fed-BoJ policy divergence should act as a tailwind and help limit any further losses.

The USD/JPY pair continued losing ground through the mid-European session and plunged to a fresh daily low, around the 127.60 region in the last hour, albeit recovered a few pips thereafter.

The pair witnessed an intraday turnaround from a fresh 20-year high touched earlier this Wednesday and has now retreated around 180 pips from the 129.40 region. Speculation that officials were uncomfortable and would respond to the Japanese yen's recent slump prompted traders to take some profits off the table following the recent parabolic rise in the USD/JPY pair.

In fact, Japanese Finance Minister Shunichi Suzuki made the most explicit warning yet on Tuesday that the damage to the economy from a weakening yen at present is greater than the benefits from it. Adding to this, Bank of Japan Governor Haruhiko Kuroda, who is usually a firm advocate of a weaker currency, also acknowledged that a sharp yen decline could hurt the economy.

Bearish traders further took cues from modest pullback in the US Treasury bond yields, which trigger a US dollar corrective slide from its highest level since March 2020. Despite the negative factors, the downside seems cushioned amid policy divergence between the Fed and the Bank of Japan, which again intervened in the market to check the rise in Japanese 10-year yields.

The BoJ offered to buy unlimited amounts of Japanese government bonds on Wednesday to defend the 0.25% yield cap. Moreover, the BoJ has repeatedly said that it remains ready to use powerful tools to avoid long-term interest rates from rising too much and sustain the current powerful monetary easing to support economic recovery.

On the other hand, the US central bank is determined to keep a lid on soaring inflation and tighten its monetary policy at a faster pace. The markets have been pricing in multiple 50 bps rate hikes and the bets were reaffirmed by influential FOMC members - St. Louis President James Bullard, Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari.

The fundamental backdrop favours the USD bulls and supports prospects for the emergence of some dip-buying at lower levels. Hence, it will be prudent to wait for strong follow-through selling before confirming that the USD/JPY pair has topped out in the near term and positioning for any meaningful corrective slide.

Technical levels to watch

• Silver added to the previous day’s losses and edged lower for the second straight day.
• The overnight break through an ascending channel supports prospects for further losses.
• Sustained strength beyond the $25.70 region is needed to negate the bearish outlook.

Silver witnessed some follow-through selling for the second successive day on Wednesday and retreated further from the six-week high touched on the first day of the current week.

From a technical perspective, the overnight sustained break through the lower end of an upward sloping channel extending from the monthly low was seen as a fresh trigger for bearish traders. A subsequent slide below the 200-period SMA on the 4-hour chart adds credence to the negative outlook.

That said, technical indicators on the daily chart - though have been losing traction - are yet to confirm the bearish bias. Moreover, RSI on hourly charts is hovering near oversold territory. This makes it prudent to wait for some intraday consolidation before positioning for additional losses.

Nevertheless, the XAG/USD seems vulnerable to weaken further below the $24.70 intermediate support and accelerate the slide towards testing the next relevant support near the $24.25 region. The downward trajectory could get extended towards testing sub-$24.00 levels, or the 200-day SMA.

On the flip side, attempted recovery might now confront resistance near the $25.30-$25.35 region. Any further move up is more likely to attract fresh selling and remain capped near the aforementioned ascending channel support breakpoint, now turned resistance, around the $25.70 region.

The latter should act as a key pivotal point for short-term traders, which if cleared decisively will negate prospects for any further losses. The XAG/USD could then aim to surpass the $26.00 round-figure mark and climb back to the overnight swing high, around the $26.20 region.

Silver 4-hour chart

Key levels to watch

Yari Mayaseti, Junior Economist at UOB Group, assesses the latest BI monetary policy meeting.

Key Takeaways

“Bank Indonesia (BI) kept its benchmark rate (7-Day Reverse Repo) unchanged at 3.50% at its April MPC meeting. Consequently, BI maintained the Deposit Facility rate at 2.75% as well as the Lending Facility rate at 4.25%.”

“We keep our view for BI to start hiking in mid-2022 to reach 4.5% by the end of 2022.”

• Gold Price sees a tepid bounce but the downside remains favored.
• Gold Price eyes $1,931, as US real yields turn positive for first time since 2020.
• $1,960 is the level to beat for XAUUSD bulls should the rebound extend.

Gold Price is licking its wounds after Tuesday’s extended correction from six-week highs of $1,998. XAUUSD seems to be benefiting from the retreat in the US dollar alongside the Treasury yields. However, the risks appear skewed to the downside for Gold Price, as the US  10-year Treasury Inflation-Protected Securities (TIPS) yields hit the highest in two years on Wednesday, extending into positive territory for the second straight day. Surging US real returns on faster Fed rate hikes expectations will continue to remain a headwind for Gold Price. Gold traders now look forward to the upcoming Fed commentary and the Beige Book for fresh trading impetus.

Also read: Gold technical picture for 2022

Gold Price: Key levels to watch

The Technical Confluences Detector shows that gold price tested the Fibonacci 23.6% one-day at $1,951 on its minor recovery mode.

The next relevant resistance is aligned at the SMA10 one-day at $1,954, above which the Fibonacci 61.8% one-week at $1,956 could come into play.

The confluence of the previous year’s high, Fibonacci 61.8% one-month and the Fibonacci 38.2% one-day at $1,960 will be the level to beat for Gold buyers.

On the flip side, the SMA100 four-hour around $1,943 will offer initial support, below which the previous week’ low at $1,940 could be probed.

The last line of defense for gold bulls is seen at the pivot point one-day S1 at $1,935.

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.

Commenting on the European Central Bank’s (ECB) monetary policy outlook on Wednesday, policymaker Martins Kazaks said that “a rate hike is possible as soon as July.”

Additional quotes

Market reaction

The shared currency jumped nearly 30-pips against the US dollar on these hawkish remarks, driving EUR/USD to fresh daily highs of 1.0867.

The spot is currently trading at 1.0859, still up 0.67% on the day.

• EUR/USD adds to Tuesday’s gains and tests 1.0840.
• The dollar trims gains after following recent cycle peaks.
• Germany Producer Prices rose more than expected in March.

The single currency keeps enjoying the renewed optimism and now pushes EUR/USD to new multi-day highs in the vicinity of 1.0850 on Wednesday.

EUR/USD looks to yields, USD

EUR/USD advances for the second session in a row and extends the recent breakout of the 1.0800 barrier midweek.

Further gains in spot come on the back of the renewed offered bias in the buck along with the corrective move in US yields. On the latter, the German 10y benchmark yields give away some gains after trading near the psychological 1.00% hurdle on Tuesday, an area last visited back in mid-July 2015.

In the domestic calendar, Germany’s Producer Prices rose at a monthly 4.9% in March and 30.9% over the last twelve months. In addition, the trade deficit in the broader Euroland shrank to €7.6B in February and Industrial Production expanded 2.0% YoY also in the same period.

Later in the session, Mortgage Applications and Existing Home Sales are due across the pond, while FOMC’s Evans and Daly are also due to speak.

What to look for around EUR

EUR/USD regains some composure and trespasses 1.0800, putting further distance from last week’s new 2022 lows in the mid-1.0700s in the wake of the ECB event. 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: EMU Balance of Trade, Industrial Production, IMF World/Bank Spring Meetings (Wednesday) – Final EMU Inflation Rate, Flash EMU Consumer Confidence (Thursday) – 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 0.46% at 1.0836 and faces the next up barrier at 1.0933 (weekly high April 11) seconded by 1.1000 (round level) and finally 1.1087 (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).

Further upside in USD/CNH is expected to meet strong resistance around 6.4500, commented FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “The sudden lift-off in USD that sent it soaring to a high of 6.4230 came as a surprise (we were expecting sideway-trading). While the rally appears to be overdone, there is scope for USD to test 6.4350 first before easing off. The major resistance at 6.4500 is unlikely to come under threat for now. Support is at 6.4100 followed by 6.4030.”

Next 1-3 weeks: “Two days ago (18 Apr, spot at 6.3830), we highlighted that upward momentum appears to have improved somewhat but USD has to close above 6.4000 before a sustained advance is likely. That said, we did not the strong surge yesterday as USD closed sharply higher by 0.60% (NY close of 6.4183), its largest 1-day advance in nine months. While the rally appears to be running ahead of itself, further USD strength would not be surprising. However, any advance is expected to face strong resistance at 6.4500. On the downside, a breach of 6.3900 (‘strong support’ level was at 6.3600 yesterday) would indicate that the current upward pressure has eased.”

Despite the ongoing war in Ukraine, the Polish zloty strengthened against the euro. However, economists at Danske Bank expect EUR/PLN to edge higher and forecast the pair at 4.70 in six months.

EUR/PLN to move higher as the war in Ukraine will linger on

“We are still expecting EUR/PLN to move higher as the war in Ukraine will linger on, the slowdown in the global economy from the central bank tightening by notably the Fed and the headwinds it will create for the Polish economy, which will temper the rate hike commitment of the central bank.” 

“Our path for EUR/PLN is 4.68 in 1M, 4.68 in 3M, 4.70 in 6M and 4.74 in 12M.”

Economists at MUFG Bank expect the Bank of England (BoE) to disappoint markets. Consequently, they see little room for dips below 0.83 in the EUR/GBP pair.

Two further 25bp rate hikes by the BoE and then a pause

“We are not convinced the BoE will be in a position to deliver what is priced into the market with growth likely to be very weak through the remainder of this year.”

“We assume two further 25bp rate hikes by the BoE and then a pause. It’s one reason why we see limited downside for EUR/GBP from current levels just below 0.8300.”

See – EUR/GBP: Any dips to the 0.8250 area could be the low point of the year – ING

• AUD/USD gained strong positive traction on Wednesday and moved away from the one-month low.
• Tuesday’s hawkish RBA minutes extended support to the aussie amid modest USD profit-taking slide.
• Sustained weakness below the 0.7345 confluence support is needed to confirm a fresh bearish break.

The AUD/USD pair maintained its strong bid tone through the first half of the European session and was last seen trading the four-day high, around the 0.7430-0.7435 region.

The Australian dollar drew some support from the hawkish minutes of the Reserve Bank of Australia April Board meeting released on Tuesday. This, along with modest US dollar pullback from the highest level since March 2020, assisted the AUD/USD pair to gain strong positive traction on Wednesday.

From a technical perspective, bulls on Tuesday defended confluence support comprising of an ascending trend-line extending from the YTD low and the 50-day SMA. The subsequent move beyond the 23.6% Fibonacci retracement level of the 0.7662-0.7342 sharp corrective fall favours bullish traders. The constructive outlook is reinforced by the fact that oscillators on hourly charts have been gaining positive traction and recovered from the bearish territory on the daily chart. Hence, some follow-through strength towards the 38.2% Fibo. level, around the 0.7465 area, remains a distinct possibility.

On the flip side, the 0.7400 round-figure mark now seems to protect the immediate downside. Any further decline might continue to find decent support near the aforementioned confluence, currently around the 0.7345 region, which if broken will be seen as a fresh trigger for bearish traders. The AUD/USD pair could then accelerate the fall towards testing the next relevant support near the 0.7300 mark. The downward trajectory could further get extended towards the 0.7255-0.7250 support zone.

AUD/USD daily chart

Key levels to watch

• WTI price is resuming the uptrend after correcting sharply on Tuesday.
• Weaker US dollar, lower inventories offer support to the US oil.
• Acceptance above 21-DMA at $103.24 is critical for resuming the uptrend.

WTI (NYMEX futures) is looking to extend the rebound above the $103 mark, having found strong bids below the $102 region.

The renewed upside in the US oil comes after the black gold tumbled roughly 5% on global growth concerns, which stoked fears over the demand for oil and its product. The International Monetary Fund (IMF) cut the 2022 global growth forecast by nearly 1 percentage point on Tuesday.

Investors seem to have looked past the IMF forecasts, as a 4.5 million barrels drawdown in the US API weekly crude stockpiles, Libyan fuel outage and lower OPEC+ output flare-up supply-side concerns and offer the much-needed support to the price of WTI.

Further, oil price also finds support from the gradual reopening of Shanghai city from the covid lockdown. Meanwhile, a broad-based retreat in the US dollar also remains one of the key reasons behind the rebound in the USD-sensitive oil.

From a near-term technical perspective, WTI’s corrective pullback saw the price close below the flattish 21-Daily Moving Average (DMA) at $103.24 for the first time this week.

With the 14-day Relative Strength Index (RSI), however, still holding above the midline, buyers remain hopeful for a meaningful recovery.

Therefore, daily closing above the latter is needed to trigger a sustained move higher towards the previous day’s high of $108.23. Ahead of that, the $105 round number will emerge as a tough nut to crack for bulls.

WTI: Daily chart

On the other side, if bulls fail to find a foothold above the 21-DMA, then a test of the 50-DMA support at $100.85 will be inevitable.

The next significant downside target will be then envisioned at the $100.00 psychological level.   

WTI: Additional levels to watch

GBP/USD remains heavy, flexing against the 1.30 support. The pair is set to remain under pressure while below 1.3150, economists at OCBC Bank report.

Support at 1.2980-1.30 still looks firm

“The support at 1.2980-1.30 still looks firm. Note that the pair has failed multiple times at 1.2980-1.30 since mid-March.” 

“Underlying prospects still negative for now, and that bias should persist so long as the pair remains below 1.3150.”

Eurozone’s Industrial Production rebounded in February, the official data published by Eurostat showed on Wednesday, suggesting that the recovery in the manufacturing sector is regathering steam.

The industrial output in the bloc arrived at 0.7% MoM vs. a 0.7% increase expected and -0.7% last.

On an annualized basis, the industrial output rose by 2.0% in February versus a 1.5% rise expected and January’s -1.5%.

FX implications

The shared currency remains firmer on the upbeat industrial figures.

At the time of writing, EUR/USD gains 0.51% on the day to now trade at 1.0840, near fresh daily highs.

About Eurozone Industrial Production

Industrial Production is released by Eurostat. It shows the volume of production of Industries such as factories and manufacturing. Uptrend is regarded as inflationary which may anticipate interest rates to rise. Usually, if high industrial production growth comes out, this may generate a positive sentiment (or bullish) for the EUR, while low industrial production is seen as a negative sentiment (or bearish).

Gold Price has fallen to $1,940 as rising bond yields put the yellow metal under pressure.  Strategists at Commerzbank would not overestimate the setback as ETF inflows are sill ongoing, showing that investors remain loyal to gold.

Rising bond yields and real interest rates make gold less attractive as an alternative investment

“Gold’s fall is probably due to the continued rise in bond yields. Yields on ten-year US Treasuries have meanwhile climbed to just shy of 3%, their highest level since December 2018. As a result, real interest rates have likewise risen further and reached zero.”

“Rising bond yields and real interest rates make gold less attractive as an alternative investment because it does not yield any interest itself.”

“So far, gold has been holding its own pretty well against the increased yields and interest rates/rate expectations. Demand for gold as a safe-haven amid the Ukraine war and as a store of value in view of the high inflation has been and remains solid. This is also reflected in the ongoing (considerable) ETF inflows. For as long as this group of investors remains loyal to gold, we would not overestimate the setback.”

USD/JPY touched its highest level in nearly two decades above 129.00 before losing its traction and retreating toward the mid-128.00s. Bias is for a test of the 130.00 resistance, although a profit-taking retracement is also in order after the rapid ascent, economists at OCBC Bank report.

BoJ will conduct an unlimited fixed-rate purchase operation for Japanese Government Bonds

“The Bank of Japan (BoJ) continues with its unlimited bond-buying in line with YCC targets. This reemphasizes the Fed-BoJ divergence and leaves any jawboning by Kuroda and FM Suzuki ringing hollow.”

“The language is stepped up compared to last week, but so long as there is no threat of direct intervention, the market will likely not give it much regard at this stage.”

“Going forward, stay positive, and do not rule out a firmer test of 130.00. However, perhaps we should not be too quick in expecting a breach of that resistance. A profit-taking retracement may be in order.”

• USD/CHF witnessed a turnaround from the highest level since June 2020 touched on Wednesday.
• The pullback was exclusively sponsored by modest USD retracement slide from the two-year peak.
• Hawkish Fed expectations, elevated US bond yields should limit losses for the buck and the major.

The USD/CHF pair retreated further from the YTD high set earlier this Wednesday and slipped below the 0.9500 psychological mark during the first half of the European session.

Having touched its highest level since June 2020, the USD/CHF pair witnessed an intraday turnaround from the 0.9535 region and was pressured by modest US dollar pullback from the two-year peak. The USD downtick could be solely attributed to some profit-taking and is more likely to remain limited amid expectations for a more aggressive policy tightening by the Fed.

In fact, the markets seem convinced that the Fed would deliver multiple 50 bps rate hikes by the Fed to keep a lid on soaring inflation. The bets were reaffirmed by hawkish comments by influential FOMC members - St. Louis Fed President James Bullard, Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari - one of the more dovish policymakers.

This, along with concerns over rising inflationary pressures, pushed the yield on the benchmark 10-year US government bond to a level not seen since late 2018. The fundamental backdrop seems tilted firmly in favour of the USD bulls and supports prospects for the emergence of some dip-buying around the USD/CHF pair, warranting caution before positioning for deeper losses.

Market participants now look forward to the US economic docket, featuring the release of Existing Home Sales. This, along with the US bond yields, should influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment, which will drive demand for the safe-haven Swiss franc and provide some impetus to the USD/CHF pair.

Technical levels to watch

Equity markets have faced pressure from rising yields. Economists at UBS forecast earnings per share growth of 10% for 2022 overall and 7% for 2023, with the S&P 500 Index trading at 4,700 by end-2022.

US earnings should prove resilient

“We forecast earnings per share growth for S&P 500 companies of 10% this year and 7% next.”

“In our base case, we expect the S&P 500 to end the year at 4,700 versus around 4,390 at present.”

FX option expiries for April 20 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0790 333m
• 1.0850 658m
• 1.0810 370m
• 1.0875 395m

- GBP/USD: GBP amounts        

• 1.2900 310m
• 1.3100 311m

- USD/JPY: USD amounts                     

• 127.00 313m

- AUD/USD: AUD amounts

• 0.7300 276m
• 0.7400 294m

- USD/CAD: USD amounts       

• 1.2475 555m
• 1.2500 390m
• 1.2600 360m

- EUR/GBP: EUR amounts

• 0.8250 250m
• 0.8355 261m

• DXY corrects lower following recent tops above 101.00.
• US yields also recede from earlier highs and trade on the defensive.
• Fedspeak, housing data next on the US calendar on Wednesday.

The greenback, when tracked by the US Dollar Index (DXY), extends the corrective downside to the 100.70 region midweek.

US Dollar Index capped by the 101.00 area

The index comes under pressure and trades in the negative territory following four consecutive daily advances on Wednesday.

The corrective move in the buck comes amidst the equally negative performance in US yields on the back of a tepid recovery in the bonds market. Furthermore, yields along the curve ease some upside momentum after hitting fresh cycle highs on Tuesday.

No news from the war in Ukraine should leave the downside in the dollar somewhat contained for the time being.

In the US docket, usual weekly Mortgage Applications tracked by MBA are due seconded by Existing Home Sales and speeches by San Francisco Fed M.Daly (2024 voter, hawk) and Chicago Fed C.Evans (2023 voter, centrist).

What to look for around USD

The dollar’s rally surpassed albeit ephemerally the 101.00 mark in the first half of the week, although it came under some selling pressure afterwards. 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: 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 retreating 0.29% at 100.70 and faces initial contention at 99.57 (weekly low April 14) followed by 97.68 (weekly low March 30) and then 97.15 (100-day SMA). On the flip side, 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).

The rally in USD/JPY looks unabated and could visit the 129.50/130.00 region in the near term, according to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “While we expected USD to strengthen yesterday, we were of the view that ‘127.80 is likely out of reach’. In other words, we underestimated USD strength as it jumped by a whopping 1.52% (NY close of 128.90). USD extended its advance after NY close and further USD strength is not ruled out. Only a breach of 1.28.30 (minor support 128.60) would indicate that the current strong upward pressure has eased. On the upside, resistance is at 129.50 followed by the major level of 130.00.”

Next 1-3 weeks: “We highlighted yesterday (19 Apr, spot at 127.10) that further USD strength appears likely and the next levels to watch are at 127.50 and 128.00. We did not expect the subsequent sharp rally as USD eclipsed both 127.50 and 128.00 and rocketed to 128.97. USD extended its advance during early Asian hours and there is no end in sight to the current relentless rally. Next resistance levels of note are at 129.50 and 130.00. Overall, only a breach of 127.70 (‘strong support’ level was at 126.10 yesterday) would indicate that the rally in USD is ready to take a breather.”

• NZD/USD attracted some buying on Wednesday and reversed its weekly losses.
• Modest USD pullback from the two-year peak extended some support to the pair.
• Bets for aggressive Fed rate hikes should limit the USD losses and cap the major.

The NZD/USD pair maintained its bid tone through the early European session and was last seen trading near the top end of its weekly range, around the 0.6765-0.6770 region.

Following the previous day's two-way/directionless price move, the NZD/USD pair gained edged higher on Wednesday and moved away from its lowest level since late February touched earlier this week. Modest US dollar profit-taking slide from the two-year peak was seen as a key factor that offered support to spot prices, though any meaningful recovery still seems elusive.

Growing acceptance that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation should continue to act as a tailwind for the buck and cap the upside for the NZD/USD pair. In fact, the markets have been pricing in multiple 50 bps rate hikes by the Fed and the bets were reaffirmed by hawkish remarks by several influential FOMC members.

Chicago Fed President Charles Evans said on Tuesday that he is "comfortable" with a round of rate hikes this year that includes two 50 bps increases. Adding to this, Minneapolis Fed President Neel Kashkari - one of the more dovish FOMC members - noted that policymakers will need to take even more aggressive action to bring down inflation.

This, along with inflation fears, pushed the yield on the benchmark 10-year US government bond to a level not seen since late 2018, which should underpin the greenback. Apart from this, the prevalent cautious market mood could drive some haven flows towards the USD and further collaborate to keep a lid on any further gains for the perceived riskier kiwi.

Market participants now look forward to the US economic docket, featuring the release of Existing Home Sales. This, along with the US bond yields, should influence the USD price dynamics and provide some impetus to the NZD/USD pair. The focus would then shift to the latest consumer inflation figures from New Zealand, due during the Asian session on Thursday.

Technical levels to watch

The Bank of Japan (BOJ) said in a statement on Wednesday, it will consecutive unlimited fixed-rate purchase operations for 10-year Japanese Government Bonds (JGBs) at 0.25% from April 21 to 26.

The BOJ announced consecutive unlimited fixed-rate purchase operations to achieve policy to anchor 10-year JGB yields around 0%, in the face of the recent yield movements.

Earlier in the Asian session, the central bank conducted an unlimited fixed-rate purchase operation for JGBs for the first time this month after the 10-year JGB hit the 0.25% cap.

Market reaction

USD/JPY is consolidating the volatile moves around 128.60, down 0.23% on the day. The spot refreshed a 20-year peak at 129.40 before tumbling to 128.07 before reversing to the 128.70 price zone, where it now wavers.

Economists at Credit Suisse expect a more balanced Chilean peso price action now that pension withdrawal risk is reduced. They target 800 in USD/CLP.

Price action should be more balanced in the near-term

“Market concerns around a potential new pension withdrawal was one of the main forces driving CLP depreciation this month. With the tail risk of a new pension withdrawal removed, at least for now, CLP price action should be more balanced in the near-term.” 

“We expect high (and increasing) carry, potential inflows and attractive valuations to support the peso. More hawkish Fed rhetoric and a potential further deceleration in Chinese growth remain key risks for the currency.” 

“With USD/CLP trading around 820, we think the cross has the potential to fall to around 800.”

Having enjoyed the benefits of the commodity rally, the South African rand is starting to soften. Economists at ING expect USD/ZAR to trade around 15.50 if USD/CNH moves higher to 6.50.

Rand one of the most exposed to higher US yields

“As a high beta emerging market currency, it will be one of the most exposed to higher US yields. But it is also one of the most highly correlated currencies with the Chinese renminbi.”

“Were USD/CNH to start trading up to the 6.50 area, we could see USD/ZAR trading to 15.50.”

Economists at Credit Suisse review measures adopted by Turkish authorities to de-dollarize the corporate sector. The latest stability in USD/TRY looks likely to continue for a while.

In the absence of an obvious trigger, peg-like stability is likely to persist

“Over the past week, Turkish authorities adopted a series of measures aiming to de-dollarize the corporate sector and boost central bank reserves. These measures are consistent with the idea that USD/TRY is set to stabilize in a peg-like manner below the 15.00 mark for longer than we previously envisioned.”

“In the absence of an external shock (such as another substantial rally in oil prices), we now expect a re-pricing in USD/TRY towards 16.00 to happen only in the late part of Q2.”

Economists at ING believe that the pound is set to weaken in the second half of 2022 as markets are too aggressive in pricing Bank of England’s (BoE) rate hikes. Subsequently, the 0.8250 level is the lowest the EUR/GBP pair could fall.

Money markets continue to price in 150bp of BoE rate hikes by year-end

“Markets currently price in a 30bp hike at the 5 May Bank of England meeting. The fact that expectations have not shifted towards the 50bp area despite higher inflation is probably down to the same concerns expressed by the IMF yesterday when it cut the 2023 UK growth outlook to 1.2% from 2.3%.” 

“Money markets continue to price in 150bp of BoE rate hikes by year-end, while our economics team thinks that it will be closer to 50bp. That would leave GBP vulnerable in the second half of this year and suggests any dips in EUR/GBP to the 0.8250 area could be the low point of the year.”

Strategists at Credit Suisse raise their expected range for USD/ZAR slightly to 14.50-15.50 and like to buy dips around 14.40.

USD/ZAR downside is limited

“We raise our expected range for USDZAR slightly to 14.50-15.50 (from 14.00-15.00) and drop our short-term target of 14.30.”

“A few factors suggest that USD/ZAR downside is limited: the current account surplus is narrowing, the scope for repatriation flows looks limited and carry support is not large enough to trigger substantial inflows.”

“We now see value in buying USD/ZAR on dips below recent lows of 14.40.”

EUR/USD continues to consolidate at lower levels. Wednesday’s focus will be tonight's TV debate between Macron and Le Pen. The pair is unlikely to stage a significant move higher even if Macron ‘wins’ the debate, economists at ING report.

Polls currently show quite a strong lead for Macron

“Polls currently show quite a strong lead (56% vs 44%) for Macron, while Le Pen will be hoping to improve on her poor TV debate performance back in 2017.” 

“We doubt EUR/USD will rally too far were Macron to 'win' the TV debate, but avoiding any slip-ups could see EUR/USD continue to hold above the 1.08 level despite a broadly stronger dollar.”

EUR/CHF has continued to move lower. Economists at Danske Bank expect this trend to continue and forecast the pair at parity level in six months.

Franc to appreciate against the euro on the back of fundamentals

“We continue to expect CHF to appreciate against the EUR on the back of fundamentals and a move towards a global investment environment characterised by tighter economic policy and global liquidity conditions.”

“We forecast the cross at 1.02 in 1M (1.04), 1.01 in 3M (1.02), 1.00 in 6M (1.01) and 0.99 in 12M (1.00).”

The People’s Bank of China (PBoC) hawkish surprise suggests a prioritization of CNY stability now that 10y CGB yields no longer offer a premium over 10y UST yields. Analysts at Credit Suisse now expect USD/CNH to trade in a 6.35-6.50 range.

Upper range of 6.35-6.55 looks unlikely in the short-term

“Despite the grim economic outlook, the PBoC surprised on the hawkish side on 15 April by declining to cut the MLF rate and cutting the RRR by only 25 bps (vs expectations of 50 bps). We think the hawkish surprise shows that the PBoC is prioritizing CNY stability now that onshore 10y CGB yields no longer offer a premium over 10y UST yields..” 

“We now expect USD/CNH to trade in a range of 6.35-6.50 for the remainder of the quarter as US yields rise, with the pair eventually trading above 6.50 in Q3.” 

“The upper range of our previous Q2 USD/CNH forecast of 6.35-6.55 looks unlikely in the short term while the PBoC suppresses FX volatility.”

The USD remains strong, and yields spreads are likely to weigh on the NZD near-term. Nevertheless, economists at Westpac remain upbeat multi-month, seeing potential for a move above 0.70 in the second half. 

Strong commodity price trend to dominate again in H2

“Expect further weakness during the month ahead, potentially as low as 0.6500, weighed down by further gains in the USD, with the Fed’s May meeting likely to affirm its more hawkish stance.”

“In H2, the Fed story should be fully priced, and commodities will again dominate, pushing the NZD above 0.7000.”

Has the euro bottomed now? In the view of analysts at Commerzbank, we cannot necessarily assume that.

Downside risks dominate 

“First of all, the risk of an energy crisis putting pressure on the euro zone economy has not yet been overcome. Secondly, the market might react to the ECB’s hesitant approach towards fighting inflation and put pressure on the euro accordingly.”

“At some point in time, the market can presumably be certain that the ECB is likely to hike its key rate in the autumn. However, the euro will only be able to recover once there is increasing certainty. At the moment the market does not have this certainty so downside risks dominate in the euro.”

Here is what you need to know on Wednesday, April 20:

The global bond selloff continued on Tuesday and the yield on the benchmark 10-year US Treasury bond climbed to its strongest level since late-2018 near 3%. After posting its highest daily close in nearly two years at 101.00, however, the US Dollar Index (DXY) turned south during the Asian trading hours on Wednesday. The European economic docket will feature Industrial Production and Trade Balance data for February. Later in the day, the March inflation report from Canada, Existing Home Sales data from the US and the US Federal Reserve's Beige Book will be looked upon for fresh impetus. Investors will keep a close eye on Fedspeak as well.

Major equity indexes in the US registered impressive gains on Tuesday as investors shifted their attention to earnings figures. In the early European session on Wednesday, US stock index futures are down between 0.3% and 0.9%, pointing to a souring market mood. The latest intelligence reports from Ukraine suggest that Russia is preparing to increase its military aggression in eastern Ukraine in the coming days. On a positive note, authorities in Shanghai city announced earlier in the day that the coronavirus situation had shown a downtrend in recent days with two city districts having achieved zero infections at the community level.

Meanwhile, Atlanta Fed President Raphael Bostic noted that a 75 basis points rate hike was not on his radar. Reflecting the same sentiment, Chicago Fed President Charles Evans pushed back against the idea of larger than 50 bps rate increases at upcoming policy meetings. Nevertheless, the recent weakness seen in the DXY looks more like a technical correction rather than the beginning of a downtrend as the 10-year US T-bond yield stays flat on the day near 2.95%.

EUR/USD fluctuated in a tight range on Tuesday as rising eurozone bond yields helped the shared currency stay resilient against its rivals. The pair is posting modest daily gains above 1.0800 early Wednesday.

GBP/USD closed the fourth straight trading day in negative territory on Tuesday but managed to stage a rebound toward 1.3050 in the European morning.

USD/JPY touched its highest level in nearly two decades above 129.00 during the Asian session on Wednesday before losing its traction and retreating toward the mid-128.00s. The Bank of Japan (BOJ) announced earlier in the day that it will conduct an unlimited fixed-rate purchase operation for Japanese Government Bonds after the yields opened near 0.25%, threatening the central bank’s upper cap.

The improving market mood and surging US yields caused gold to suffer heavy losses. After falling nearly 1.5% on Tuesday, XAU/USD continues to edge lower on Wednesday and was last seen losing 0.5% at $1,940.

Fueled by risk flows, Bitcoin gained 1.7% on Tuesday and advanced toward $42,000 before going into a consolidation phase near $41,500 on Wednesday. Ethereum managed to build on Monday's gains and touched a five-day high of $3,132 on Tuesday. At the time of press, ETH/USD was moving sideways at around $3,100.

• GBP/USD staged a goodish recovery from sub-1.3000 levels and snapped a four-day losing streak.
• Modest USD profit-taking slide turned out to be a key factor that extended support to spot prices.
• The Fed's hawkish outlook, elevated US bond yields should limit the USD losses and cap the pair.

The GBP/USD pair maintained its bid tone through the early European session and was last seen trading just a few pips below the daily high, around the 1.3030 region.

Having shown some resilience below the 1.3000 psychological mark, the GBP/USD pair staged an intraday recovery from the vicinity of the YTD low and was supported by modest US dollar pullback. The uptick allowed spot prices to snap a four-day losing streak, though lacked bullish conviction. Expectations that the Fed will tighten its policy at a faster pace to keep a lid on soaring inflation acted as a tailwind for the USD and capped gains for the major.

The markets have been pricing in multiple 50 bps rate hikes by the Fed and the bets were reaffirmed by hawkish comments from several FOMC members. Chicago Fed President Charles Evans said on Tuesday that he is comfortable with a round of rate hikes this year that includes two 50 bps increases. Adding to this, Minneapolis Fed President Neel Kashkari - one of the more dovish FOMC members - said that policymakers will need to take even more aggressive action to bring down inflation.

This, along with inflation fears, pushed the yield on the benchmark 10-year US government bond to a level not seen since late 2018. Investors remain worried that the worsening Ukraine crisis would put upward pressure on already high inflation. This was evident from the prevalent cautious market mood, which was seen as another factor that underpinned the greenback. Hence, it will be prudent to wait for strong follow-through buying before confirming that the GBP/USD pair has bottomed out.

There isn't any major market-moving economic data due for release from the UK, while the US economic docket features the release of Existing Home Sales. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the GBP/USD pair. Traders will further take cues from developments surrounding the Russia-Ukraine saga, which would drive the broader market risk sentiment and further contribute to producing short-term opportunities around the pair.

Technical levels to watch

Economists at Credit Suisse continue to see the French election runoff vote on 24 April as an important risk event for EUR/USD. A Le Pen win would most likely push the pair through the 1.0750 mark.

A Macron win could allow EUR/USD to rally as far as the late March lows around 1.0950

“A Le Pen win could easily push EUR/USD through the low end of our target range at 1.0750, setting the immediate target on the March 2020 lows at 1.0636, and likely on 1.0500 below it. A substantial rethinking of our EUR views would likely ensue.”

“A Macron win, while mostly expected, could likely generate some relief, allowing EUR/USD to rally as far as the late March lows around 1.0950. Still, in that scenario, it is unlikely that we would rush to revise our bearish EURUSD views, especially in light of last week’s more dovish than expected ECB rate decision.”

According to the investors and strategists interviewed by Bloomberg, the European stocks, as well as, the euro will suffer on Monday on nationalist Marine Le Pen’s surprise victory in the French general election.

Also Read: French Elections Preview: EUR/USD buy opportunity? Macron lead is underestimated, three scenarios

Key takeaways

“Macron leads Le Pen by 55.5% to 44.5% heading into the sole debate Wednesday night, a polling average shows.”

“If nationalist Marine Le Pen upsets the incumbent, European stocks are likely to slump Monday, while French bonds would underperform German securities and the euro could even trade at parity with the dollar in coming months.”

“The full consequences wouldn’t be visible until after legislative elections in June, they said, when it would be clear whether she has a majority to back her proposals to review free trade agreements and re-establish border controls.”

“A Le Pen victory arguably would be an even bigger shock to investors, since the polls show a larger lead for Macron than they did for the UK.’s remain vote in 2016.”

With the combination of rising global recession risks and elevated commodity prices the outcome space for the Norwegian krone remains very wide as opposing forces are at play. Strategists at Danske Bank expect EUR/NOK to move higher in the near-term on rising global recession risks but forecast a secular weakening trend amid the outlook for elevated inflation and commodity prices in the years ahead.

EUR/NOK is in a secular weakening trend

“We think EUR/NOK is in a secular weakening trend amid the outlook for elevated inflation and commodity prices in the years ahead. Also, relative unit labour costs is no longer the NOK-headwind it used to be. Meanwhile, near-term we still think risks are skewed to the topside amid rising global recession risks as central banks rapidly tighten policy at a time of supply shocks (COVID-19, war in Ukraine).”

“While NOK is likely to be better protected against weaker global growth than in the 2010s we still think NOK will suffer in our base case.” 

“We forecast EUR/NOK at 9.50 in 1M (from 9.90), 9.80 in 3M (from 10.00), and 10.00 in 6M (10.00) and 9.80 in 12M (10.00).”

The Bank of Canada (BoC) is expected to raise rates by 75bp. Subsequently, the loonie is set to strengthen against the euro but weaken against the US dollar due to the stance of the European Central Bank (ECB) and the Federal Reserve (Fed), respectively, economists at Commerzbank report.

Further CAD gains against the euro seem possible

“On the market more than 75bp are already priced in for the OIS-based rate expectations over the 3-month horizon – i.e. the next two BoC meetings. Depending on whether the US central bank or the ECB is used as a benchmark this seems rather disappointing or quite attractive.”

“The loonie will continue to struggle to make significant gains against the USD even if the market increasingly expects one or more 50bp BoC steps. On the other hand, further CAD-gains against the euro seem possible, in particular in view of the continued war in Ukraine.”

The Swedish krona has seen support from a repricing of the Riksbank. With the outlook for Riksbank rate hikes, analysts at Danske Bank expect EUR/SEK to move lower forecasting the cross at 10.10 in six months.

Monetary policy in the driver’s seat

“Eyes are now on the Riksbank’s 28 April decision. We expect the first hike at the June meeting (previously September). Such an outcome should be relatively neutral (slightly positive) for SEK. April is possible though less likely in our view: if materialised, it should send EUR/SEK sharply lower.” 

“A baby step revision to 2023 seems even more unlikely. If so, EUR/SEK should move sharply higher – it is hard to see that would be in the RB’s interest given the already strong upward pressure on import prices. Markets would probably not buy into that scenario, i.e. pricing will continue to be ‘ahead of’ the RB, which at the end of the day puts a cap on the upside in EUR/SEK.”

“Medium-term, a bleaker growth outlook and risk of US/global recession, puts a cap on the downside – as does already aggressive RB pricing.”

“Forecast: 10.30 (1M), 10.20 (3M), 10.10 (6M), 10.20 (12M).”

USD/CNY has jumped above 6.40. The Chinese yuan is set to continue struggling amid a big policy divergency between the People’s Bank of China and the US Federal Reserve, economists at Commerzbank report.

Big policy divergence

“The Chinese central bank is facing a complicated situation, and my opinion is that the easing bias still remains, which implies a big policy divergence between China and the US.”

“The policy divergence suggests that the Chinese currency is facing depreciation pressure.”

• USD/CAD drops back below 1.2600, tracking the pullback in the US dollar.
• The oil price rebound also lends support to the major.
• USD/CAD turns lower towards 21-DMA after rejection above 200-DMA.

USD/CAD is holding lower ground below 1.2600, undermined by the renewed downside in the US dollar against its major peers.

The pullback in the dollar from two-year peaks could be mainly attributed to the steep correction in the USD/JPY pair after it faced rejection just below the 129.50 psychological barrier.

Meanwhile, the rebound in the price of WTI on lower US inventories and OPEC+ production levels also added to the weight on the major.

All eyes now remain on the Canadian Consumer Price Index (CPI) data and the Fed’s Beige Book to indicate the further direction in the pair.

Technically, USD/CAD is turning lower towards the horizontal 21-Daily Moving Average (DMA) support at 1.2554 after having failed to find acceptance above the mildly bullish 200-DMA over the past five trading days. The 200-DMA currently stands at 1.2628.

The 14-day Relative Strength Index (RSI) is pointing lower, moving further below the midline, allowing room for more declines.

A sustained move below the 21-DMA level could expose the April 14 lows of 1.2521, below which the 1.2500 round level could be put to test.

USD/CAD: Daily chart

Only a daily closing above the 200-DMA will help initiate a fresh advance to challenge the descending 50-DMA at 1.2652.

Further up, the 100-DMA at 1.2681 will come into play should the recovery momentum gather steam.

USD/CAD: Additional levels to consider

Economists at Danske Bank keep theirr current forecast on EUR/USD unchanged at 1.05 in 12 months. They see policymakers increasingly committed to curtailing global inflation by tightening financial conditions despite global manufacturing slowing.

Key risk to shift EUR/USD towards 1.20 is seeing global inflation pressures fade and industrial production increase

“We keep our EUR/USD forecast largely unchanged. Global manufacturing is slowing, valuations shows risks are to the downside for spot and the near-term consequences of the war in Ukraine will likely be a further strengthening of the USD. We thus continue to expect EUR/USD can drop further in this environment.” 

“The key risk to shift EUR/USD towards 1.20 is seeing global inflation pressures fade and industrial production increase. However, ‘transitory’ has substantially lost credibility and European industrial production continues to be weak. This will continue in coming months. The upside risk also include a renewed focus on easing Chinese credit policy and a global capex uptick and the latter two have increased in probability over recent weeks.”

Open interest in natural gas futures markets shrank for the third session in a row on Tuesday, this time by around 22.3K contracts considering preliminary readings from CME Group. Volume, in the meantime, increased by around 118.6K contracts following two daily drops in a row.

Natural Gas appears contained around $7.00

Prices of natural gas extended the leg lower on Tuesday amidst diminishing open interest, which is supportive of a near-term rebound. That said, the $7.00 mark per MMBtu now emerges as quite a decent contention zone for the time being.

• Inventory distribution at multi-year high levels has brought a pullback in the asset.
• Advancing 100-EMA is still supporting the prolonged uptrend.
• A pullback towards the trendline will fetch potential bids for the major.

The USD/JPY pair drags on profit-booking after printing a multi-year high of 129.41. The asset has witnessed a dream run in the previous few weeks after overstepping the prolonged consolidation range of 113.48-116.35 in the mid of March. The asset has tumbled as the momentum oscillators turned extremely overbought, which has brought a mild correction in the asset.

On an hourly scale, USD/JPY has tumbled after observing an inventory distribution in a narrow range of 128.97-129.41. An inventory distribution at multi-year high levels indicates a shift in inventory from institutional investors to retail participants. The trendline placed from Thursday’s low at 125.09, adjoining to near Monday’s low at 126.44, will act as major support going forward.

The asset has slipped below the 20-period Exponential Moving Average (EMA) at 128.66, which indicates a weakness in the short term. While, the 100-period EMA at 127.50 is scaling higher, which signals that the long-term uptrend is still intact.

The Relative Strength Index (RSI) (14) has tumbled into a 40.00-60.00 range from the bullish range of 40.00-60.00, which advocates a pullback.

A drop to near trendline support at 127.50 will activate greenback bulls, which will drive the asset towards Tuesday’s high at 129.41, followed by a two-decade high at 130.67.

On the contrary, a reversal can be witnessed if the asset plunge below Monday’s low at 126.24, which will send the major to Thursday’s low at 125.09. A breach of the latter will drag the pair to April 10 low at 124.04.

USD/JPY hourly chart

Gold Price is looking to extend the previous sell-off on Wednesday. XAUUSD eyes $1,931 as US real yields turn positive for the first time since 2020, FXStreet’s Dhwani Mehta reports.

Daily technical picture is turning in favor of bears

“Risk sentiment remains in a weak spot and should it worsen going forward, the US dollar is likely to see the renewed safe-haven demand, which could prompt the yellow metal to resume the downside.”

“A sustained break below the critical 21-Daily Moving Average (DMA) at $1,944 is needed to extend the correction towards the ascending 50-DMA at $1,931. Failure to resist above the latter could open floors towards the April lows of $1,915.”

“The $1,950 psychological barrier could challenge the road to recovery in XAUUSD. Friday’s low of $1,961 could offer stiff resistance if the recovery sustains. Acceptance above that barrier could revive hopes for another upswing towards the key $2,000 level.”

In an interview with Reuters, Japanese Deputy Chief Cabinet Secretary Seiji Kihara voiced a similar opinion to that of his colleagues, citing that the government would closely watch the impact of a softer yen on the economy.

Key quotes

Market reaction

USD/PY was last seen trading at 128.61, down 0.20% on the day, having witnessed a volatile Asian session.

In opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, the downside bias could drag NZD/USD to retest the 0.6700 area in the next weeks.

Key Quotes

24-hour view: “We expected NZD to ‘consolidate and trade sideways within a range of 0.6720/0.6765’ yesterday. Our view turned out to be correct as NZD traded between 0.6720 and 0.6764. Further sideway-trading would not be surprising even though the slighted firmed underlying tone suggests a higher range of 0.6725/0.6775.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (19 Apr, spot at 0.6735). As highlighted, while downward momentum has not improved by much, there is scope for NZD to weaken further to 0.6700. Looking ahead, the next support below 0.6700 is at 0.6675. The downside risk is deemed intact as long as NZD does not move above the ‘strong resistance’ at 0.6795 (no change in level from yesterday).”

According to advanced figures from CME Group for crude oil futures markets, investors trimmed their open interest positions by around 15.1K contracts on Wednesday, extending the downtrend for yet another session. On the other hand, volume reversed three daily drops in a row and went up by around 268.2K contracts.

WTI appears supported by the $92.60 area

Prices of the WTI dropped moderately on Wednesday in tandem with shrinking open interest. Against that, the continuation of the leg lower appears limited and should meet decent contention in the area of recent lows near the $92.00 mark per barrel. On the upside, Monday’s high past $109.00 emerges as the immediate hurdle.

The downside momentum is expected to pick up pace if GBP/USD breaks below the 1.2940 level in the next weeks, suggested FX Strategists at UOB Group Lee Sue Ann and Quek Ser.

Key Quotes

24-hour view: “Our expectations for GBP to ‘to break 1.2975’ did not materialize as it traded between 1.2981 and 1.3040 before ending the day little changed at 1.3001 (-0.08%). Downward pressure appears to have eased and GBP is likely to consolidate for today, expected to be within a range of 1.2985/1.3050.”

Next 1-3 weeks: “There is no change in our view from yesterday (19 Apr, spot at 1.3005). As highlighted, downward momentum is beginning to build but GBP has to break 1.2940 before a sustained decline is likely. On the upside, a breach of 1.3075 (no change in ‘strong resistance’ level from yesterday) would indicate that GBP is not ready to head lower (and could trade sideways for a period of time).”

CME Group’s flash data for gold futures markets noted open interest shrank by more than 4K contracts on Tuesday, reversing the previous daily build. Volume, instead, went up by nearly 50K contracts after four consecutive daily retracements.

Gold remains capped by $2000

Wednesday’s moderate drop in gold prices was on the back of shrinking open interest, indicative that further downside is not favoured in the very near term. On the upside, prices of the yellow metal remain limited by the $2000 mark per ounce troy so far.

• Asian markets are recovering after a decent correction, following a revival in the US markets.
• Chinese indices are trading lower as the PBOC kept LPR unchanged.
• Risk-on impulse has dented the demand for the DXY, yields fall.

Markets in the Asian domain rebound sharply on Wednesday after remaining vulnerable in the last few trading sessions. Asian indices are experiencing a decent bounce back led by a strong revival in the US indices. It seems that the risk-off impulse, which arises from the uncertainty over the likely aggressive interest rate decision by the Federal Reserve (Fed), is fading away.

At the press time, Nikkie225 jumped 0.90%, Hang Seng added 0.70%, and Nifty50 gained 0.95%. However, Chinese indices are trading lower.

Indices in China are subdued on Wednesday after the People’s Bank of China (PBOC) surprisingly left interest rates unchanged. The PBOC kept its one-year loan prime rate (LPR) unchanged at 3.70% and its five-year loan prime rate unchanged at 4.60%. A reduction in the borrowing rates was highly expected by the market participants, which has resulted in a sell-off in the Shanghai and SZSE Component.

Meanwhile, the US dollar index (DXY) has displayed a decent pullback in the Asian session after failing to cross the barricade of 101.00. The DXY has tumbled to near 100.70 as investors shrug off the fears of a tight policy environment. Also, the 10-year US Treasury yields are facing resistance while kissing the 3% figure. Going forward, markets will dance to the tunes of insights from the speech of Federal Reserve (Fed)’s Jerome Powell, which is due on Thursday.

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang noted EUR/USD could still attempt a move to 1.0725 ahead of 1.0700 in the next weeks.

Key Quotes

24-hour view: “Yesterday, we highlighted that EUR ‘could weaken further to 1.0755 but a sustained decline below this level is unlikely’. EUR subsequently dipped to 1.0759 before rebounding to close little changed at 1.0786 (+0.06%). Downward pressure has eased and the current movement is likely part of a consolidation phase. In other words, EUR is likely to trade sideways for today, expected to be within a range of 1.0770/1.0820.”

Next 1-3 weeks: “Our update from Monday (18 Apr, spot at 1.0805) still stands. As highlighted, the 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 (note that EUR dipped to 1.0759 yesterday before rebounding). 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 (no change in ‘strong resistance’ level from yesterday) would indicate that the downside risk has dissipated.”

• AUD/USD holds the higher ground above 0.7400 amid USD pullback.
• Hawkish RBA Minutes, Shanghai reopening news offset PBOC’s inaction.
• Higher yields, cautious market mood could cap the aussie’s rebound.

AUD/USD is consolidating gains above 0.7400, having staged a decent comeback on a broad-based US dollar retreat.

The US dollar index corrects sharply from two-year highs, as the greenback tracks the profit-taking slide in the USD/JPY pair after it refreshed 20-year highs at 129.40.

The aussie also cheers some encouraging news coming out of Shanghai after the officials said Wednesday that “the epidemic situation in the city has shown a downtrend in recent days.” The city is set to reopen, with some factories returning to production in closed-loop systems.

Additionally, the hawkish Reserve Bank of Australia (RBA) April meeting’s Minutes also keep the sentiment around the aussie dollar afloat. The RBA minutes showed that the central bank is prepared to begin its rate-hike cycle as early this June, as they expect inflation to increase further.

Read: RBA: Further evidence that the beginning of the rate hike cycle is close – Westpac

Earlier on, the major dipped to session lows of 0.7373 after the People’s Bank of China (PBOC) surprised markets to the downside by leaving the Loan Prime Rates (LPR) unchanged in April.

Looking ahead, the market’s perception of risk sentiment and the US dollar price action will have a significant influence on the higher-yielding aussie. The Fed’s Beige Book could likely offer fresh legs to the dollar’s rally.

AUD/USD: Technical levels to consider

• EUR/USD has climbed above to near 1.0820 as investors shrug off Fed-ECB divergence.
• The DXY has been dragged sharply after multiple failed attempts of establishment above 101.00.
• In the European session, Euro’s Industrial Production and Germany’s PPI will remain in focus.

The EUR/USD pair has witnessed a decent upside move after exploding from the previous consolidation zone, which placed in a narrow range of 1.0780-1.0798. The pair has recorded a fresh daily high at 1.0822 and is likely to extend its gains considering the price action and higher demand for risk-sensitive assets.

The shared currency has gained strength as investors are awaiting the release of the Euro’s Industrial Production and Germany’s Producer Price Index (PPI). A preliminary estimate for Germany’s monthly PPI is 2.6% against the prior print of 1.6%. While the monthly Euro Industrial Production is expected to land at 0.7% against the previous figure of 0%. This may enhance the likes of the shared currency going forward. Meanwhile, investors are focusing on the appearance of European Central Bank (ECB)’s Christine Lagarde, which is due on Thursday. This will provide guidance to the market participants above the likely monetary policy announcement by the ECB.

On the greenback front, the US dollar index (DXY) has attracted some significant offers which have dragged the asset below 100.70. Multiple failed attempts from the DXY while overstepping the barricade of 101.00 have brought a decent sell-off in the asset.

Apart from ECB’s Lagarde speech, the appearance of Federal Reserve (Fed)’s Jerome Powell will also hold significant importance. This will provide insights into the likely monetary policy action by the Fed in May.

Analysts at Westpac offer their afterthoughts on the Reserve Bank of Australia’s (RBA) April meeting’s minutes, which fanned June rate hike expectations.

Key quotes

“Following the April Board meeting the Governor explicitly deleted reference to the Board being patient with its approach to policy. He also noted that “Over coming months important additional evidence will be available to the Board on both inflation and the evolution of labor costs.” That suggests to us that the Board will hold rates steady at the May meeting but be prepared to move at the next meeting on June 7.”

“Further evidence that the beginning of the rate hike cycle is close came in the Minutes to the April meeting where global inflation and the actions of other central banks, including the United States, were given much more emphasis than in past reports.”

“Westpac expects a lift of 15 basis points in the cash rate on June 7, with 25 basis point increases at most subsequent meetings in 2022 reaching 1.25% at the end of the year. In 2023 we expect three further increases of 25 basis points with the cash rate peaking at 2% in June.”

• USD/JPY pulls back sharply after rejection just below 129.50.
• Profit-taking, Japan’s exporters' sales and BOJ’s operation weigh on the spot.
• Fed/BOJ policy divergence will remain in play, eyes on Fed’s Beige book.

Having failed to sustain the bounce above 129.00, USD/JPY is on a free fall to test the 128.00 level, down over a big figure in the last hour.

 The sharp correction in the pair from 20-year peaks of 129.40 comes after heavy Japanese exporters' offers came through at 129.50, as reported by Reuters.

Additionally, investors resorted to profit-taking after the yen plunged these days against the US dollar. Presumed option barriers at 129.50 also prompted the corrective pullback in the major.

Meanwhile, the BOJ’s bond market intervention could be also partly attributed to the spot’s downward spiral.

The BOJ announced earlier on, it will conduct an unlimited fixed-rate purchase operation for Japanese Government Bonds (JGBs) after the yields hit the central bank’s upper cap at 0.25%.   

The downside in the pair, however, could be seen as a good ‘buy the dip’ trade, as the Fed-BOJ monetary policy divergence will continue to favor the US Treasury yields, in turn, the dollar against the yen.

Markets now look forward to the US Housing data and the Fed’s Beige Book for fresh trading opportunities. Thursday’s speech by Fed Chair Jerome Powell at the IMF Spring event will be eagerly awaited.

USD/JPY: Technical levels to consider

• NZD/USD is marching towards 0.6800 as the risk-perceived currencies gain strength
• A higher preliminary reading of NZ CPI at 7.1% may compel one more rate hike.
• The DXY has plunged below 100.70 as yields fall.

The NZD/USD pair has picked up rich bets in the Asian session from a low of 0.6734 as investors shrugged off the uncertainty over the jumbo rate hike by the Federal Reserve (Fed). The risk-on impulse has underpinned the antipodean against the US dollar index (DXY). The asset is advancing firmly and is expected to kiss the round level resistance of 0.6800 sooner.

A higher preliminary reading of kiwi’s Consumer Price Index (CPI) has raised the odds of a one more rate hike by the Reserve Bank of New Zealand (RBNZ). The yearly NZ inflation is seen at 7.1% against the prior print of 5.9%. It is worth noting that the RBNZ raised its Official Cash Rate (OCR) four times consecutively to 1.5%. The central bank elevated its OCR by 50 basis points (bps) in its last monetary policy meet and the soaring inflation is demanding at least one more hike to contain the inflation. RBNZ Governor Adrian Orr in his last speech also cleared that elevated policy rates are highly required to reduce the risks of high inflation.

Meanwhile, the US dollar index (DXY) has slipped below 100.70 after facing strong barricades to near 101.00. The 10-year US Treasury yields have tumbled below 2.95%. It looks like a profit-booking has dragged the safe-haven assets for now.

Apart from the NZ inflation, investors will focus on the speech from the Federal Reserve (Fed) chair Jerome Powell which will provide material cues about the likely monetary policy in May. This is likely to be the last appearance of Fed’s Powell before the policy announcement.

• Gold Price remains vulnerable at the critical daily support amid mixed mood.
• Surging Treasury yields offset a broad USD retreat, keeping XAUUSD undermined.
• Focus on Wednesday’s close, with eyes on the Fed’s Beige Book.

Gold Price is making a minor recovery attempt after hitting fresh six-day lows at $1,943, as a broad-based US dollar retreat comes to the rescue of bulls.

The greenback eases from two-year highs vs. its main competitors, tracking the sharp pullback in the USD/JPY pair. The yen is recovering ground following the Bank of Japan’s (BOJ) first bond market intervention of this month.

Despite the pullback in the dollar, the bullish potential remains intact amid the ongoing upsurge in the US Treasury yields. Expectations of faster Fed rate hikes in the coming month, on the back of the recent hawkish Fed commentary, are exacerbating the pain in the bond market. The US 10-year benchmark yields close in on the key 3% level while the real 10-year rates turn positive for the first time since 2020. 

The rise in real returns is likely to undermine the sentiment around the non-interest-bearing Gold Price unless the correction in the USD/JPY pair deepens and knocks the buck sharply down alongside. Further, uncertainty around the Russia-Ukraine war could help the downside in XAUUSD.

Although if risk sentiment worsens, the dollar could see a resurgent demand as a safe haven, which could limit any recovery attempts in Gold Price.

Also read: Gold Price Forecast: Demand for safety paused, but is far from over

On the data front, there is nothing significant on the table and, therefore, all eyes will remain on the Fed’s Beige Book. Meanwhile, investors digest the hawkish comments from Fed officials James Bullard and Charles Evans, who continue to see the need for 50-bps rate increases to curb raging inflation.

Gold Price Chart: Daily chart

Gold’s daily chart shows that the price is looking to defend the critical 21-Dailoy Moving Average (DMA) at $1,944, for now.

This could be seen as the 14-day Relative Strength Index (RSI) is still sitting just above the midline, keeping buyers hopeful.

If Gold Price yields a daily closing below the 21-DMA support, then a fresh downswing towards the April lows of $1,915 cannot be ruled out.

Ahead of that, the ascending 50-DMA at $1,931 will challenge the bullish commitments.

On the upside, the road to recovery in XAUUSD could face initial resistance at the $1,950 psychological barrier.

Up next, Friday’s low of $1,961 could come into play, above which doors will reopen towards the $2,000 mark.

• GBP/USD rebounds firmly after testing the yearly lows at 1.2987.
• The dictations from Fed’s Powell and BOE’s Bailey are the major events this week to watch out for.
• The DXY has faced strong barricades near 101.00.

The GBP/USD pair is scaling higher sharply after sensing significant bids to near the psychological support of 1.3000. The cable has been strengthened amid weakness in the US dollar index (DXY). The DXY has plunged in the Asian session after failing to sustain above the round level resistance of 101.00. It seems like a rebound in the Wall Street has eased some volatility, which arise due to higher expectations of a mega rate hike by the Federal Reserve (Fed).

Also, investors have poured liquidity into the cable as the market participants are awaiting the speech from the Bank of England (BOE)’s Governor Andrew Bailey, which is due on Thursday. Investors are expecting a tad more hawkish guidance from BOE’s Bailey as higher inflation in the UK’s zone may compel a fourth consecutive rate hike by the BOE in May.

Meanwhile, the speech from the Federal Reserve (Fed)’s Chair Jerome Powell will be the major event this week. The market participants are bracing an aggressive hawkish stance from Fed’s Powell led by hawkish comments from other Fed policymakers. St. Louis Fed President James Ballard in his speech on Monday opened doors for a 75 basis point (bps) interest rate hike in May. Also, he sees the interest rates beyond the neutral rates at 3.5% by the end of this year. The 10-year US Treasury yields have eased a little after failing to claim 3%.

The recent decline in the yen seems to be creating some discomfort amongst the Japanese officials, finally, as the country’s Deputy Chief Cabinet Secretary says that they are “closely watching FX moves with a sense of urgency.”

Additional quotes

Related reads

• USD/JPY battles 129.00, pauses upsurge post-BOJ’s intervention
• BOJ: To conduct unlimited fixed-rate purchase operations for JGBs

“The epidemic situation in the city has shown a downtrend in recent days,” authorities in Shanghai city said in a statement on Wednesday.

Additional quotes

• USD/JPY renews 20-year highs at 129.40 but corrects on BOJ’s JGBs operation.
• Fed/BOJ monetary policy divergence will continue to play out.
• Focus shifts to the US Housing data and Fed’s Beige book for fresh impulse.

USD/JPY is trading with moderate gains around 129.00, as bulls look to fight back control after the Bank of Japan’s (BOJ) bond market intervention.

The pair extended the previous rally and renewed 20-year highs at 129.40 before the BOJ’s operation knocked down the rates to daily lows of 128.88.

The BOJ said that it will conduct an unlimited fixed-rate purchase operation for Japanese Government Bonds (JGBs), as the yields opened near 0.25%, threatening the central bank’s upper cap.

The pair, however, managed to quickly recover ground above 129.00, as the US dollar holds onto the recent gains amid a 2% rally in the US 10-year Treasury yields, as of writing. The US rates continue to push higher amid faster Fed rate hikes expectations, with the real rates turning positive for the time first time in two years.

Meanwhile, the BOJ is likely to stick with its ultra-loose monetary policy while slightly raising its inflation forecasts. The Japanese central bank believes that the weakness in the yen is still positive for the economy on the whole, despite the recent sharp declines. The disparity between the Fed and BOJ policy stance keeps the sentiment around the yen undermined.

Attention now turns towards the US Housing data and the Fed’s Beige Book for fresh trading impetus, as investors digest the comments from Chicago Fed President and FOMC member Charles Evans.

“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,” FXStreet’s Analyst Joel Frank noted.

USD/JPY: Technical levels to consider

Fitch Ratings has published in a recent update that the ''near-term pressures on profitability are increasing for Chinese companies in a number of sectors.''

This comes as the People's Bank of China somewhat surprised markets by leaving rates on hold today at the interest rate meeting and set the yuan at a lower than expected rate.  

''Domestic and external consumer demand faces headwinds, even as supply chains within China are challenged by wide-ranging restrictions on movement designed to counter the spread of Covid-19 cases,'' Fitch Ratings wrote. 

The rating agency goes on to report:

''As of mid-April, pandemic-related public health restrictions affected all but 13 of the top 100 cities by GDP, according to research firm Gavekal, with a number of large regions such as Shanghai and Jilin facing full lockdowns for parts of March and April. These measures have added further challenges to policymakers’ efforts to stabilise economic momentum, after the emergence of housing-sector strains from mid-2021 that led some developers into distress.''

''Dented consumer confidence was evident in a quarterly survey released at end-1Q22 by the People’s Bank of China. This showed urban residents intended to reduce spending and investment, despite improved perceptions about household income and employment. It indicated that households intend to cut discretionary spending, focusing instead on essential items, education and healthcare. Retail sales also fell YoY in March.''

The agency now projects that China's retail sales growth to decelerate to mid-single digits in 2022 from 12.5% in 2021, given weaker consumer sentiment, the impact of lockdowns and the high base effect for 1H22.

Fitch notes that ''Demand pressures have been accompanied in recent weeks by an increase in supply chain problems associated with movement restrictions. Several companies have reportedly halted production owing to difficulties in transporting inputs and finished products.''

In yet another attempt to defend the yield cap at 0.25%, the Bank of Japan (BOJ) announced on Wednesday that it will conduct an unlimited fixed-rate purchase operation for Japanese Government Bonds (JGBs).

The Japanese central bank will buy 10-year JGBs at 0.25% in unlimited quantity.

This comes as the 10-year JGB yield opened near 0.25%.

Market reaction

In response to the BOJ intervention in the bond market, USD/JPY retreated sharply to near 128.90 before recapturing the 129.00 level.

At the time of writing, the pair is trading at 129.13, up 0.17% on the day, having hit fresh 20-year highs at 129.40 pre-Tokyo open.

• AUD/USD bears are lurking in a critical resistance area. 
• The bears are looking for a discount to take put the daily supporting trendline. 

AUD/USD is chipping away at the downside following the People's Bank of China's decision to hold rates, but that does not tell the whole story of the pair.

• PBoC surprised markets by leaving rates unchanged, but MLF was a give away

From technical analysis, the price is higher on the day, but also correcting in a typical fashion to mitigate a price imbalance left behind from the bearish daily impulse. The following illustrates the market structure from both a daily and 4-hour perspective. 

AUD/USD daily chart

As illustrated, the price is moving up into a congested area of presumed resistance where the 38.2% and 50% ratios are located near 0.7400/20. This would be presumed to offer an opportunity for bears to renegade at a discount for another push lower to break the dynamic supporting trendline. 

AUD/USD H4 chart

However, in order to do that, there will be a fair amount of 4-hour support to clear first as seen above. 

The People’s Bank of China (PBOC) set the USD/CNY reference rate at 6.3996 on Wednesday when compared to the previous close at 6.3940.

Meanwhile, the Chinese central bank left the loan prime rates (LPR) unchanged in April.

China leaves 1-year loan prime rate unchanged at 3.70% (estimated 3.65%); leaves 5-year loan prime rate unchanged at 4.60% (estimated 4.55%).

AUD/USD is a couple of pips lower on the decision despite surprising markets.  AUD/USD is staying put below 0.7402 highs and trades at 0.7394. 

The decision was polled by Reuters as and expected a reduction. 

''The loan prime rate (LPR), which banks normally charges their best clients, is set on the 20th of each month, when 18 designated commercial banks submit their proposed rates to the People's Bank of China.''

''A vast majority of the 28 traders and analysts surveyed in a snap Reuters poll on Tuesday expect a reduction this month.''

''Among them, 11, or 39% of all respondents, predicted a marginal cut of 5 basis points (bps) to both the one-year loan prime rate (LPR) and the five-year rate on Wednesday. Another six participants also expect a reduction to either rates within a range of 5 to 10 bps.''

However, last week, the PbOC rolled over the MLF, or the medium term lending facility at an unchanged rate  as well, which could have been a precursor for today's decision. 

About the PBoC Interest Rate Decision 

The PBoC Interest Rate Decision is announced by the People´s Bank of China. If the PBoC is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the CNY. Likewise, if the PBoC has a dovish view on the Chinese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.

• EUR/USD is inside the woods as the DXY steadies around 101.00.
• Higher energy bills have forced the ECB to keep a neutral stance on the policy rates.
• The Fed has also opened doors for a 75 bps rate hike.

The EUR/USD pair is trading directionless in a narrow range of 1.0780-1.0798 as the US dollar index (DXY) steadies after attacking the round level resistance of 101.00 in the Asian session. The market participants are awaiting the dictations from Federal Reserve (Fed) chair Jerome Powell and European Central Bank (ECB)’s President Christine Lagarde, which are due on Thursday.

The asset has been trending lower this month amid the diverted path of the Fed and ECB towards their respective interest rate policies. On one side, the Fed seems in dilemma between featuring the interest rate hike by 50 basis points (bps) or 75 bps as a rate hike is imminent to contain the inflation mess.

Meanwhile, the supply chain bottlenecks and rising energy bills have left no other option for the ECB than to stick with a neutral stance. The Ukraine crisis after Russia’s invasion has resulted in sluggish growth in the eurozone, which is expected to stay for a longer period. Higher energy bills are reducing the real income of the households and henceforth their confidence in the European economy. This has also triggered fears of stagflation in Europe, which will make the decision-making for the ECB more complex.

In the Europe session, investors will keep an eye on the release of the Euro’s Industrial Production. The monthly Industrial Production is expected to land at 0.7% while the catalyst on yearly basis may print at 1.5%.

Benchmark lending rates for China's commercial banks are likely to be lowered at a monthly fixing on Wednesday, a Reuters survey showed.

Reuters cites Beijing cautiously easing monetary conditions to aid an economy hit by coronavirus lockdowns in several cities.

''The loan prime rate (LPR), which banks normally charges their best clients, is set on the 20th of each month, when 18 designated commercial banks submit their proposed rates to the People's Bank of China.''

''A vast majority of the 28 traders and analysts surveyed in a snap Reuters poll on Tuesday expect a reduction this month.''

''Among them, 11, or 39% of all respondents, predicted a marginal cut of 5 basis points (bps) to both the one-year loan prime rate (LPR) and the five-year rate on Wednesday. Another six participants also expect a reduction to either rates within a range of 5 to 10 bps.''

''The remaining 11 respondents expected both rates to remain unchanged this month.''

''Most new and outstanding loans in China are based on the one-year LPR, which currently stands at 3.7%. The five-year rate, which influences the pricing of home mortgages, is 4.6%.''

Market implications

Investors are awaiting the decision today that comes at the top of the hour.  China last lowered the LPR in January and has held the rates steady in the following two months. Further easing could be seen as bullish for the commodity sector and the Aussie that trades as a proxy. 

However, expectations for imminent monetary easing were heightened last week when the People's Bank of China (PBOC) cut the amount of cash banks must hold in reserves, so it will come as no surprise and moves would be expected to be minimal. 

• The DXY is aiming to balance above 101.00 on a mega rate hike expectation.
• The 10-year US Treasury yields are eyeing to kiss 3% for the first time in the last three years.
• Speeches from Fed’s Powell, ECB’s Lagarde, and BOE’s Bailey will remain in focus.

The US dollar index (DXY) is auctioning in a narrow range of 100.094-101.03 in early Tokyo. The asset is building a base before surpassing the barricade of 101.00 as the DXY has been underpinned by the bolstered expectations of increasing interest rates to 3.5% by the end of the fiscal year 2022.

Speeches from the Fed policymakers

St. Louis Federal Reserve (Fed) President James Bullard in his speech on Monday opened doors for a 75 basis point (bps) interest rate hike by the Fed in its May monetary policy. The expectation of a mega interest rate hike has risen after the US economy posted March’s inflation print at 8.5%.

Meanwhile, Chicago Fed President Charles Evans on Tuesday that he's "comfortable" with a round of rate hikes this year that includes two 50 bps increases and reaches a neutral setting by year-end, but he does not see the need for bigger hikes as per Reuters.

US Treasury Yields surge higher

The 10-year US Treasury yields are looking to tap the psychological resistance of 3% for the first time in the last three years. Rising bets over a tight rate environment for a longer period are bolstering the yields, which are eventually pushing the greenback higher.

Key events this week: Building Permits, Housing Starts, Initial Jobless Claims, and S&P Global PMI.

Eminent issues on the back boiler: Russia-Ukraine Peace Talks, International Monetary Fund (IMF) meeting, People’s Bank of China (PBOC) interest rate decision, Fed Chair Jerome Powell speech, European Central Bank (ECB) President Christine Lagarde speech, and Bank of England (BOE) Governor Andrew Bailey speech.

Federal Reserve's Minneapolis head, Neel Kashkari stated that ''if supply chains don't improve as I hope, the Fed's job will get harder, and will need to do more to bring inflation down. He added that new covid waves may still be a threat to the economy.

More to come...

• USD/CAD is under pressure despite the strength in the greenback and oil prices.
• The price of oil was reaching resistance on Tuesday, but demand is subdued.

USD/CAD is a touch in the red on Wednesday in Tokyo as the US dollar steadies on the bid. The price has slid from a high of 1.2619 to a low of 1.2603, so far. The Canadian dollar was firmer vs, the US counterpart overnight despite rising bond yields that helped underpin the greenback.

The DXY index was higher for the fourth straight day and made a new cycle high at 101.028. The March 2020 high near 103 is the next big target. US dollars were supported by the US benchmark 10-year Treasury yields that 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%.'' 

Meanwhile, one of Canada's major exports is trading volatile. WTI spot ended the day bid reaching a high of $104.44bbls. However, as analysts at ANZ Bank explained, ''Chinese COVID-zero approach and strict lockdowns are keeping demand prospects subdued.''

The analysts added that ''further, talks around aggressive rate hikes have weighed on market sentiment. So far, the market has shrugged off supply risks emanating from a sixth sanctions package. The EU Commission President said, 'we are currently developing smart mechanisms so that oil can also be included in the next sanction step', suggesting oil may be part of the package. In Libya production fell to 800kb/d after the Sahara field (300kb/d) was closed.''

For the day ahead, Canada's inflation report for March is due on Wednesday which could offer clues on the Bank of Canada policy outlook.

''We look for the Consumer Price Index to firm to 6.1% YoY in March, with prices up 0.9% MoM,'' analysts at TD Securities said. ''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.''