CFD Markets News and Forecasts — 25-04-2022

EUR/GBP has found bids around 0.8400 in early Tokyo as investors await a speech from ECB’s Lagarde.

• The ECB adopted a dovish stance at the IMF meeting along with a slash in the growth forecasts.
• The BOE sees its inflation galloping higher this year amid higher energy bills.

The EUR/GBP pair is observing a minor bounce from 0.8400 after a steep fall from Monday’s high at 0.8440. The pair has remained firmer over the past few trading days despite European Central Bank (ECB) advocating a dovish stance on his testimony at the International Monetary Fund (IMF) meeting.

The ECB officials don’t see a rate hike till it concludes its Asset Purchase Program (APP). The central bank has emphasized reducing growth forecasts amid the Ukraine crisis and a significant plunge in the real income of the households due to higher energy bills and commodity prices. The circumstances are compelling a situation of stagflation in the eurozone. Meanwhile, investors are focusing on the speech from ECB’s President Christine Lagarde, which is due on Wednesday. The speech will provide cues for the plot of the monetary policy to be dictated in the policy announcement.

Meanwhile, Bank of England (BOE) Governor Andrew Bailey in his testimony on Thursday renewed fears of soaring inflation in the sterling area.  As per his dictation investors should start bracing for a further jump in inflation, which may move the interest rates higher.

Although a speech from ECB’s Christine Lagarde on Wednesday will hold significant importance, investors will also focus on eurozone Consumer Confidence, which is due on Thursday. The Euro Consumer Confidence is seen at -16.9, similar to its previous close.

• NZD/USD is holding up despite the strength in the US dollar, with the kiwi firm in the session so far. 
• Focus is on the Fed and US data amid Chinese covid risks. 

At 0.6617, during the time of writing, NZD/USD is in the green and firm, but sticking to a 0.6611/21 range on the day so far following a turbulent start to the week amid the spread of covid-19 in China. The US dollar has thrived whereas the yuan has fallen, and risk sentiment along with it, weighing on commodities and risk-FX. 

''The Kiwi followed the global FX trend and weakened against the USD. Concerns over broadening COVID restrictions in China and an associated sharp fall in equity markets drove the fall,'' analysts at ANZ Bank said.

''Ahead of the May FOMC meeting, it is difficult to see the strength in the USD waning much. FOMC members are now in blackout and the clear guidance is that a series of 50bps fed funds rate hikes are necessary. That guidance contrasts with growing downside growth risks outside of the US and is reflected in the current USD strength.''

Meanwhile, from the domestic front, the recent Consumer Price Index showed that prices rose 1.8% in the March quarter. Analysts at Standard Charted said that they now expect the Reserve Bank of New Zealand (RBNZ) to hike the official cash rate (OCR) by 50bps at the May meeting and another 25bps in July to bring the OCR to 2.25%, slightly above neutral (estimated at 2.0%).

''We now expect the rate hikes to be frontloaded, versus our previous call of 25bps hikes at each of the five meetings from April to October, which would take the OCR to 2.25%,'' the analysts argued, adding:

''Given the 50bps hike in April and our expectation of another 50bps hike in May, we drop the 25bps hikes in August and October, keeping our end-2022 OCR unchanged at 2.25%.''

''We think the RBNZ will find it hard to tighten significantly beyond neutral because of the challenges ahead, including heightened geopolitical tensions (and the resulting hit to sentiment), monetary policy tightening, and lingering pandemic risks.''

US data in focus

For the week ahead, during the Fed's blackout period, the focus will be on US data including Real Gross Domestic Product and Core PCE.

''GDP likely slowed sharply in the first quarter Q1 following a significant increase to 6.9% AR in Q4 from 2.3% in Q3. As was the case last quarter, inventories will play a large role though they will be a drag instead. That said, domestic final sales likely continued to strengthen on the back of firming consumer spending. The inflation parts of the report will likely show acceleration,'' analysts at TD Securities said. 

• USD/CHF steadies near 0.9600 as investors eye the release of US Consumer Confidence and Durable Goods Orders.
• The asset has remained strong this month amid higher expectations of a rate hike by the Fed.
• Swiss 13-year high CPI print at 2.2% may push the Swiss officials to adopt a hawkish stance.

The USD/CHF pair is oscillating in a narrow range of 0.9547-0.9596 from the New York session, following the footprints of the US dollar index (DXY). The asset is awaiting a potential trigger for further guidance.

On Tuesday, the pair is likely to respond to the release of US Consumer Confidence and Durable Goods Orders. A preliminary estimate for the US Consumer Confidence is 108 against the prior print of 107.2. While the monthly Durable Goods Orders are likely to land at 1% against the prior print of -2.1%. Higher reading from the economic data will fetch significant bids on the counter. The asset has remained in the grip of bulls in April as interest rate hike expectations have dominated the risk-sensitive currencies. The greenback bulls have underpinned against the Swiss franc as the Federal Reserve (Fed) chair Jerome Powell has dictated in its testimony that a 50 basis points (bps) interest rate hike is on the cards.

Meanwhile, the Swiss franc will majorly react to the speech from Swiss National Bank (SNB) Governor Thomas J. Jordan, which is due on Friday. This will provide insights into the likely monetary policy action by the SNB in its upcoming monetary policy. The Swiss Consumer Price Index (CPI) was released at 13-year high of 2.2%, which looks a little over the targeted inflation rate of 2%. This might turn the Swiss policymakers hawkish going forward.

• During the week, the AUD/JPY record losses of 1.29%.
• The market sentiment remains sour as Asian equities are set to open lower on China’s coronavirus woes and global central bank tightening.
• AUD/JPY Price Forecast: Ready to test the MTD lows around 90.11

The Australian dollar slumped sharply on Monday’s session, down some 1.23%, a 200-pip fall, but recovered late as the New York session waned. As Tuesday’s Asian Pacific session begins, the AUD/JPY is trading at 91.83, shy of the 92.00 mark at the time of writing.

US equities finished with an upbeat tone, lifted by the Nasdaq Composite. Asian futures point to a lower open, weighed by China’s coronavirus outbreak issues as fears of wider curbs in Beijing alarms market players, already fretting about a global economic slowdown. Meanwhile, the Ukraine-Russian woes appear to have taken a backseat of late, as worries about global central banks tightening have taken the front stage.

On Monday’s session, the AUD/JPY opened near last Friday’s lows and, without issuing any warning, extended its falls which accelerated as the Europan/North American sessions overlapped, reaching a daily low at 91.11. However, the shift in market mood on Wall Street lifted the AUD/JPY shy of the 92.00 area.

AUD/JPY Price Forecast: Technical outlook

The AUD/JPY daily chart depicts the pair as upward biased despite the recent fall. However, once AUD/JPY bears broke below 92.40, it could be expected sideways or further downward pressure on the pair, as it broke the latest market structure. Also, the Relative Strength Index (RSI), about to close below the 50-midline, will enter the bearish territory, so a move towards March’s 31 daily low at 90.76.

In the AUD/JPY’s 1-hour chart, its first support would be April 25 daily low at 91.11. Once cleared, the next demand zone would be the S1 daily pivot at 90.94, followed by the March 31 cycle low at 90.76. A break of the latter would expose September’s 2017 lows at 90.30, followed by the 90.00 figure.

Key Technical Levels

• The Silver Price will extend its losses if a daily close below the 200-DMA is achieved.
• The market sentiment shifted positive, but China’s coronavirus outbreak could turn it sour.
• The greenback remains in the driver’s seat, as shown by the US Dollar Index, reaching a new YTD high at 101.85
• Silver Price Forecast (XAG/USD): A daily close below the 200-DMA could extend the Silver slide towards $22.00.

Silver Price is dropping sharply on the back of an early risk-off dominated session, courtesy of China’s coronavirus outbreak spreading towards Beijing and market participants’ woes regarding a faster pace of tightening by the Federal Reserve. At $23.61, XAG/USD reflects the aforementioned, as safe-haven flows went to the greenback, not precious metals, as Gold is also down 1.73 in the day.

China’s coronavirus spreads from Shanghai to Beijing as further lockdowns loom

The market mood improved late near Wall Street’s close, as US equities recorded gains. China’s growing concerns weighed on commodity prices, as shown by oil, precious, and base metals, ending the day with losses. A renewed coronavirus outbreak in Shanghai triggered lockdowns in the city, extending to certain districts in Beijing. If the lockdowns continue, that would weigh on the global economic outlook. Additionally, the US central bank tightening expectations have fully priced in a 100% chance of a 0.50% rate hike in the May meeting, while for June, the odds are at 80%, as shown by the CME FedWatch Tool.

In the meantime, the greenback remains underpinned by increasing bets that the Federal Reserve would hike rates at a faster pace, with the US Dollar Index gaining some 0.61%, sitting at 101.738. Meanwhile, the US 10-year Treasury yield lost eight basis points on Monday, down to 2.818%.

This week’s highlight of the US economic docket is the first-quarter GDP, which would be unlikely to change the view of Fed policymakers of a 50-bps rate hike in May. Regarding the report, analysts at ING wrote in a note that “t[T]he coming data shouldn’t impact this outlook meaningfully. 1Q GDP data is expected to show the economy expanded at a 1-1.5% annualised rate, which would mark quite a deceleration from 4Q 2021’s 6.9% rate, reflecting the Omicron wave of the pandemic that impacted people movement quite considerably. However, recent data has pointed to a renewed uptick in activity and we expect to see stronger GDP growth for the second quarter.”

Silver Price Forecast (XAG/USD): Technical outlook

On Monday, the XAG/USD daily chart shows that the price action broke below the 200-day moving average (DMA) at $23.85. However, a daily close below the latter is required to further cement that the bias shifted from upwards to neutral. Furthermore, it’s worth noting that the Relative Strength Index (RSI) is aiming downwards, at 34.41, but it has some room to spare if Silver extends its losses.

In the case of further downside, the XAG/USD’s first support would be the February 15 daily low at $23.08. Once cleared, the following demand zone would be the February 11 daily low at $22.86, which, once out of the way, has a long run towards Silver bull’s last line of defense at $22.00.

• XAU/USD finds a short-lived cushion near $1,895.00 after the carnage on Monday.
• The aggressive gestures from Fed policymakers have already prepared investors for a jumbo rate hike.
• On Tuesday, US Consumer Confidence and Durable Goods Orders will remain in focus.

Gold (XAU/USD) has witnessed a sheer downside since Monday after slipping below the previous consolidation zone placed in a narrow range of $1,936.78-1,958.37. The precious metal has fallen like a house of cards as investors have started pricing in a tight liquidity environment, which will stay for a longer horizon, going forward. The gold prices are oscillating near their potential cushion levels at around $1,895.40. The asset has witnessed slight support but the price action is advocating more weakness in the counter.

The pessimism in the gold prices is marked by soaring inflation in the US economy. The US Consumer Price Index (CPI) has reached multi-decade highs along with the second booster of the tight labor market has already featured a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed). Well, as per the dictation by Fed chair Jerome Powell in his testimony at the International Monetary Fund (IMF) meeting; a jumbo rate hike is imminent while investors will further focus on the status of balance sheet reduction. Squeezing liquidity from the economy at a faster pace is the need of the hour and Fed policymakers are likely to exploit each measure.

Going forward, the precious metal is likely to dance to the tunes of the US Consumer Confidence and Durable Goods Orders release, which are due on Tuesday. A preliminary reading for the monthly Durable Goods Orders is 1% against the prior print of -2.1%.

Gold Technical Analysis

On a four-hour scale, XAU/USD is trading near its potential demand zone, which is placed in a narrow range of $1,891.38-1,896.31. A bear cross, represented by the 20- and 200-period Exponential Moving Averages (EMAs) at $1,940.00 adds to the downside filters. Meanwhile, the Relative Strength Index (RSI) (14) has established in a 20.00-40.00 range, which signals the strength of the sellers.

Gold four-hour chart

• USD/JPY bulls moving back in and take on hourly resistance
• US dollar is on fire as markets turn risk-off on global growth risks. 

USD/JPY is taking on bears on the hourly time frame, breaking into key resistance. At 128.12, the price is down a touch for the day, by -0.28% after travelling between a low of 127.52 and 128.13 the high. The greenback has been the favour at the start of the week hitting a two-year high due to a wave of risk aversion that has swept global markets.

Growing worries of an economic slowdown in China and the contagion in global trade coupled with the Ukraine crisis is hammering risk apatite at the start of the week.  The greenback, against a basket of its rivals (DXY), has reached a high of 101.856 and was on track for its biggest daily rise since March 11.

There is an additional focus on the Federal reserve during the blackout week before the interest rate decision in May, The Hawkish comments by various policymakers raised the risks of aggressive policy tightening. The money markets are now expecting the Fed to raise interest rates by a half-point at the next two meetings.

Meanwhile, analysts are looking to the US Real Gross Domestic Product this week which has likely slowed sharply in the first quarter following a significant increase to 6.9% AR in Q4 from 2.3% in Q3.

''As was the case last quarter, inventories will play a large role though they will be a drag instead. That said, domestic final sales likely continued to strengthen on the back of firming consumer spending. The inflation parts of the report will likely show acceleration,'' analysts at TD Securities said. 

What you need to know on Tuesday 26 April:

Though US equities were able to stage an impressive recovery in the latter hours of US trade, the dominant force in FX markets on Monday remained risk-off flows, with traders citing China lockdown concerns as the major driver. Amid a sharp pullback in global bond yields as traders reassessed global growth prospects amid the rising risk of a wider shutdown of the world’s second-largest economy, the rate-sensitive safe-haven yen was the best performing G10 currency.

USD/JPY dropped back to the 128.00 area, with the pair now more than 1.0% below last week’s multi-decade highs above 129.00. The safe-haven US dollar also benefited as a result of risk-off flows and was the second-best performing major G10 currency, with the Dollar Index (DXY) hitting fresh highs since March 2020 in the upper 101.00s.

The jump in the DXY, which is a trade-weighted basket of major USD currency pairs, was mainly a function of weakness in GBP/USD and EUR/USD as a result of risk aversion. The former at one point dropped under 1.2700 for the first time since September 2020 but was last trading down 0.7% in the 1.2730s, while EUR/USD was down a similar margin just above 1.0700 and also at fresh multi-month lows. Any euro relief in wake of French President Emmanuel Macron’s re-election did not last.

The worst performing of the major G10 currencies was the Aussie, with AUD/USD last trading down about 0.9% in the 0.7175 region, after having been as low as the 0.7130s earlier in the day, its lowest levels since late February. A steep drop in energy, industrial and precious metal prices weighed heavily on the commodity export-dependent Aussie, as did concerns about Chinese lockdowns, given China’s status as Australia’s most important export destination. The commodity-sensitive NZD and CAD held up better, depreciating a respective 0.3% and 0.1% each versus the buck.

The loonie may have been assisted by a hawkish set of remarks from BoC Governor Tiff Macklem on Monday, who reiterated the need for higher interest rates to tackle inflation, suggested a 50 bps rate hike at the next meeting was likely and even floated the possibility of a 75 bps hike. Either way, USD/CAD looks set to end the day in the low 1.2700s having fallen back from the upper 1.2700s and NZD/USD recovered from a brief dip under 0.6600.

• The bears are in control and eye a significant correction.
• The daily doji is being formed on Monday in a key resistance area. 

USD/CAD is under pressure as the price of oil picks up in late US trade. Nevertheless, the bears are may wish to move out in hourly support and the M-formation does not bode well for short-term short positions. 

USD/CAD H1 chart

As illustrated, the price is in the hands of the bears, but the reversion pattern is menacing for the near term. 

USD/CAD daily chart

On the other hand, the daily chart is highly bearish in terms of market structure. Monday's daily candle is on the way to forming a doji in a resistance area. The daily impulse is overextended and due for a correction and the W-formation is a bearish reversion pattern. The prior resistance in the formation, or the neckline, aligns with the 38.2% and 50% ratios as a confluence target area for the days ahead.

• The Australian dollar falls some 0.92% on Monday amidst a dismal market mood.
• China’s coronavirus outbreak and the US central bank’s aggressive hawkish tilt spurred a flight to safe-haven assets.
• AUD/USD Price Forecast: The break of the 200-DMA opened the door for further AUD/USD weakness.

On Monday, the AUD/USD fell sharply in the middle of a dampened market mood trading day in the financial markets, courtesy of China’s coronavirus outbreak which has spread to some districts of Beijing, threatening to slow down the world’s second-largest economy, and fears of a Federal Reserve aggressive tightening. At 0.7179, the AUD/USD is down and about to record losses of 0.94%.

China’s coronavirus spread to Beijing might slow its economy, commodities fall

The market sentiment, as previously mentioned, keeps global equities under pressure, except for the tech-heavy Nasdaq Composite, up 0.42%. Also, commodities keep heading south amid China’s growing concerns, as shown by oil, precious and base metals, which record losses. That also weighed on the pair, as the Australian economy heavily depends on China. Furthermore, Iron ore prices recorded losses of 12%, a headwind for the AUD/USD.

In the meantime, the greenback remains underpinned by increasing bets that the Federal Reserve would hike rates by 50-bps, as shown by Short Term Interest Rates (STIRs), fully pricing in a 0.50% increase. The reflection of the aforementioned is the US Dollar Index, edging up 0.57%, sitting at 101.698.

Data-wise, the Australian and US economic docket would have some tier 1 data to release. The Consumer Price Index (CPI) for Q1 will be revealed in Australia. Across the pond, the US Gross Domestic Product (GDP) for Q1 is expected to show some growth, but at a much slower pace than last year.

AUD/USD Price Forecast: Technical outlook

The AUD/USD broke several daily moving averages (DMAs) on its sharp fall, including the “trendsetter” 200-DMA lying at 0.7291, which denotes bullish/bearishness on an asset, depending on the location of the price. Worth noting that the Relative Strength Index (RSI) accelerated its downward trend, but at 33.05, it still has some room to spare in the case of further AUD/USD weakness.

Therefore, the AUD/USD first support would be the March 15 cycle low at 0.7165. A breach of the latter would expose the April 25 daily low at 0.7134, followed by the February 24 daily low at 0.7095.

• GBP/JPY has extended on last Friday’s losses and is back to trading near two-week lows in the 163.00 area.
• Risk-off flows and an associated downturn in UK bond yields was the main factor driving the drop on Monday.
• The pair now trades more than 3.0% below last week’s peak above 168.00.

GBP/JPY was last trading lower by 1.1%, after extending on last Friday’s slightly larger loss to fall back to near the 163.00 level for the first time in nearly two weeks and, in doing so, drop below its 21-Day Moving Average (currently at 163.18) for the first time since mid-March. The latest move has been driven by a combination of risk-off flows hurting risk-sensitive sterling and benefiting the safe-haven yen and downside in UK bond yields, which reduces the UK’s rate advantage over Japan thus improving the yen’s relative investment appeal versus GBP.

At current levels in the 162.80s, the pair now trades more than 3.0% below last week’s multi-year highs above the 168.00 mark. According to technicians, the latest drop back under the 21-Day Moving Average opens the door to a pullback all the way to the 50DMA and key support in the form of early 2022 and late 2021 highs near-158.00, a further 3.0% drop from current levels.

The main fundamental catalyst behind the risk-averse start to the week that has weighed so heavily on GBP/JPY is the negative Covid-19 news coming out of China, a story that will be a key driver of sentiment in the coming weeks. Should further cities go into Shanghai style-lockdown, global growth forecasts will be further called into question and this could easily provoke further downside for GBP/JPY.

Aside from China lockdown risks, GBP/JPY traders will also be watching this week’s BoJ meeting, with the bank expected to reiterate its ultra-dovish stance. That could mean some downside risks for the yen. In terms of UK data and domestic themes, there isn't much to note. Discontent regarding the UK PM’s so-called “partygate” scandal continues to foment but doesn’t yet look likely to endanger his job.

• EUR/USD bears n charge at the start of the week. 
• Covid spread in China is playing havoc on risk sentiment. 

EUR/USD has been pressured at the start of the week. At 1.0712, the pair is down some 0.8% after falling from a high of 1.0815 to a low of 1.0696. Risk sentiment was poor and government bond yields slumped due to the  COVID-19 related shutdowns in China that are expected to compound supply chain restrictions, undermining prospects of a global recovery. 

The worsening of supply-chain restrictions in China is not only troublesome for the global economy and work trade, but they are also worrisome because it makes it harder for the Federal Reserve to control inflation in the US at multi-decade highs. nevertheless, the US dollar has picked up a safe haven bid and rallied to 101.856 on the day as per the DXY index. 

''A strong USD suggests that a sharp rebound in EUR/USD may be out of reach near-term.  That said, the tone of the June 9 European Central Bank meeting is likely to be instrumental in determining whether or not EUR/USD can make a moderate recovery,'' analysts at Rabobank said. 

''It is our central view that EUR/USD will end the year higher in the 1.10 area,'' the analysts added. ''This view has depended on the assumption that the ECB will have started to hike rates and on the coincident view that investors will be preparing for slower US growth next year.  The possibility of another Covid related wave of economic uncertainty coinciding with aggressive Fed tightening would likely result in a stronger for longer USD.''

Meanwhile, the media blackout ahead of the FOMC meeting is in effect and so there will be no Fed speakers until Chair Powell’s post-decision press conference the afternoon of May 4. instead, traders will look to the is week's US core March PCE reading Friday that will be important.  

PCE is expected to ease a tick to 5.3% YoY, but analysts at Brown Brothers Harriman said that they see upside risks given inflation data already reported for March.  'If so, expect another leg higher in US rates.''

• On Monday, the Japanese yen benefited from a dismal market mood, gaining 1.19% vs. the euro.
• China’s Covid-19 outbreak expanding to Beijing, alongside central bank tightening, turned the sentiment sour.
• EUR/JPY Price Forecast: If a daily close below 137.50 is achieved, a dip towards 134.00 is on the cards.

The EUR/JPY nose dives from daily highs around 139.00 towards 136.40s daily lows due to a risk-off market mood that increased demand for safe-haven assets. In the FX space, investors scrambled towards the JPY, the CHF, and the USD, as most G8 currencies print losses vs. the previously mentioned peers. In the North American session, at the time of writing, the EUR/JPY is trading at 137.13.

The market sentiment remained sour throughout the day, spurred by the Covid-19 outbreak in China, which started in Shanghai and is expanding towards Beijing, as reported by Reuters. Also, the Ukraine-Russia jitters and central banks tightening monetary conditions triggered risk aversion.

On Monday, in the Asian session, the EUR/JPY opened near the daily pivot at 138.82 and pushed towards the 139.00 mark to record a daily high. Afterward, the EUR/JPY plummeted more than 250-pips, reaching a daily low at 136.48.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY daily chart shows the pair remaining upward biased. However, the break below February’s 2018 highs at 137.50 opened the door for further losses. Furthermore, a daily close below the latter and a drop towards 134.00 is on the cards.

If that scenario plays out, the EUR/JPY first support would be 136.00. Break below would expose April’s 11 daily low at 135.27. Once cleared, the EUR/JPY bear’s next target would be April’s 5 daily low at 134.29, followed by the 134.00 mark.

Key Technical Levels

• The British pound extended its last week’s losses on weaker than expected UK economic data.
• Also, a dismal market mood and flight to safe-haven assets weighed on the GBP boosts the USD.
• GBP/USD Price Forecast: To remain downward pressured unless the 1.3000 is reclaimed.

The GBP/USD plummets to fresh multi-year lows, below the 1.2700 mark, amidst a dampened market mood and odds that the US central bank would hike rates aggressively throughout the year. In the FX space, the greenback remains in the driver’s seat, while risk-sensitive currencies like the GBP, the CAD, and the antipodeans fall. At the time of writing, the GBP/USD is trading at 1.2726 in the North American session.

Sentiment turned sour on China’s Covid-19 outbreak, central bank tightening

Global equities still cling to losses. China’s Covid-19 outbreak over the last two weeks in Shanghai threatens to extend to Beijing, as reported by Reuters. Also, Fed expectations of a 0.50 bps increase in the US, on a slowing economic outlook, threaten to trigger a global “stagflation,” as mentioned by some financial analysts.

The GBP/USD recorded losses of 1.71% in the last week on weaker than expected UK economic data. A worse than expected April’s Gfk Consumer Sentiment (at -38 vs. -33 foreseen) kept the British pound under pressure, hitting its lowest level since the Global Financial Crisis (GFC) of 2008. It is worth noting that a GfK Consumer Sentiment reading has preceded four of the last five recessions in the UK. Additionally, the drop in the Retail Sales from -0.3% estimated to -1.4% emphasizes that the UK economy is losing momentum, painting a cloudly environment as the Bank of England (BoE) goes through its tightening cycle.

Elsewhere, last week comments from Bank of England (BoE) Catherine Mann prepared the case for a 50-bps rate hike in May. Nevertheless, with weaker than expected data in the previous week, analysts at Rabo bank wrote in a note that “on the heels of the retail sales plunge in March, it may be tough to convince the majority of the MPC to announce a move larger than 25 bps next month. In the face of strong inflationary pressures, it is our view that the Bank will announce three more 25 bps rate hikes in the coming months bringing the peak in rates to 1.5%.”

GBP/USD Price Forecast: Technical outlook

The GBP/USD remains downward pressured but fell short of testing September’s 2020 cycle lows around 1.2675, staging a recovery towards current price levels. The bounce off 1.2697 YTD lows provided some air to GBP/USD bears because the Relative Strength Index (RSI) reached oversold conditions, with its reading at 26.40. Nevertheless, once the RSI reclaims 30, further downside is expected.

With that said, the GBP/USD first support would be the YTD low at 1.2697. Once cleared, the next support would be September’s 2020 cycle lows around 1.2675, followed by July’s 2020 swing lows near 1.2479.

• USD/JPY has dropped back under 128.00 with the yen outperforming in the G10.
• The yen is benefitting from a bullish combination of risk-off flows, lower commodities and lower global bond yields.
• Ahead, US GDP and Core PCE plus the BoJ’s policy announcement will be the major risk events of the week.

The yen has thus far this week enjoyed some rare time as the best performing of the major G10 currencies, and was last trading up about 0.6% versus the buck, and with much larger gains against some of its risk-sensitive G10 counterparts. The Japanese currency on Monday took advantage of a combination of yen bullish factors including 1) risk-off flows in risk assets which spurred demand for safe-haven currencies, 2) downside in global yields which saw rate differentials to Japan shrink, boosting the low-yielding yen’s investment appeal and 3) a sharp drop in global commodities, which out to boost the terms of trade of the heavily commodity import-dependent Japanese economy.

USD/JPY was last trading in the upper 127.00s, now more than 1.25% below last week’s peaks above 129.00, and is eyeing a push lower towards support in the 125.00 area. Should the trends of weaker equities and commodities plus lower yields continue this week, then USD/JPY should have a decent chance of testing this support, which also happens to coincide with the pair’s 21-Day Moving Average. The main driver of these trends at the start of the week has been the news out of China of tighter lockdowns in Shanghai and Covid-19 cases being picked up in Beijing, which has triggered fears of wider lockdowns across the country.

This will be a key theme in the week ahead, but USD/JPY traders should keep an eye on the economic calendar. The BoJ will be setting monetary policy on Thursday and expectations for it to reiterate its ultra-dovish policy stance pose a risk to the nascent yen comeback. The first estimate of US Q1 GDP figures on Thursday followed by March Core PCE inflation on Friday will also keep markets thinking about the outlook for the US economy and for Fed policy, even though the Fed will be quiet given blackout ahead of its policy meeting in the first week of May.

• US dollar holds onto significant daily gains across the board on risk aversion.
• NZD/USD heads for lowest daily close since late January.
• AUD/NZD falls to three weeks lows.

The NZD/USD bottomed hours ago at 0.6580, the lowest level in almost three months. It then rebounded, trimming losses and peaked at 0.6633 before turning back to the 0.6600 area. The pair remains under pressure on the back of a stronger US dollar across the board.

The kiwi is falling for the third consecutive day versus the dollar, accumulating a decline of more than 200 pips. The key driver is risk aversion. The worsening in the situation with COVID in China and concerns about the impact of a more aggressive tightening from the Federal Reserve.

Equity prices in Wall Street are falling 1% on average while at the same time US yields are falling sharply amid a rally in Treasuries with investors looking for safety. The US 10-year yield stands at 2.77%, the lowest since April 14.

Despite the decline versus the dollar and the deterioration in market sentiment, the kiwi is not among the worst performers in the G10 space. AUD/NZD dropped to the lowest level in three weeks at 1.0823, moving further away from the one-year highs it reached last week at 1.0998.

Below 0.6590, next stop at 2022 lows

The bias in NZD/USD remains negative. The area of 0.6585/90 is a key support and a break lower should clear the way to more losses, targeting the 2022 low at 0.6528 (interim support at 0.6555. On the upside, resistance levels are seen at 0.6640 followed by 0.6675 and 0.6715.

Technical levels

Bank of Canada Governor Tiff Macklem on Monday refused to rule out lifting interest rates by more than 50 bps, but said that such a move would be very unusual, reported Reuters. He also said that the government's 2022 budget is expansive, but will have very little macro-economic impact. 

His remarks come after said he expects the bank will be considering another 50 bps increase in June, and that how high rates go will depend on how the economy responds and how the outlook for inflation evolves.

• Oil prices slumped on Monday amid concerns about demand in China, and amid risk-off flows and the stronger buck.
• WTI dropped over $6.0 to the $95.00s, and is eyeing a test of March/April lows in the $93.00 area.

Oil prices have seen a steep decline on Monday, with front-month WTI futures last trading lower by more than $6.0 (or over 6.0%) in the $95.00s, having dropped under $100 for the first time in nearly two weeks. Oil bears will be eyeing a test of April and March lows in the $93.00 area, a break below which could feasibly open the door to a drop towards the next key area of support in the $88 and $85 areas.

Market commentators attributed negative news about the state of the Covid-19 outbreak in China as driving the moves, given China’s continued strict adherence to a policy of zero-Covid-19. A few Covid-19 cases were reported in Beijing, sparking fears that the city might be plunged into a lockdown like Shanghai has been in over the last few weeks. In Shanghai, reports suggest the lockdown has been toughened in some areas, with residents reportedly fenced into their apartment blocks.

“It seems that China is the elephant in the room… The tightening COVID-zero restrictions in Shanghai, and fears Omicron has spread in Beijing, torpedoed sentiment today,” said one analyst. “Shanghai shows no signs of letting up its strict zero-COVID policy; instead vowing to step up the enforcement of COVID restrictions, which could hurt oil demand further,” said another. China is the world's second-largest consumer of crude oil and, according to a Bloomberg report last week has already seen its daily consumption drop by around 1.2MBPD this month, nearly 10% of the nation’s demand.

Elsewhere, steep losses across global equities and in other major commodity markets amid broad risk-off flows have also contributed to the downturn in crude oil prices, as has the strengthening of the US dollar. The DXY hit new year-to-date highs in the upper 101.00s on Monday. A stronger dollar makes USD-denominated oil more expensive for international buyers, hurting demand.

• A firm US dollar and a dismal market mood weighed on the Swiss franc, which is losing some 0.15%.
• The US Dollar Index continues reaching YTD highs, now around 101.782.
• USD/CHF Price Forecast: Remains tilted upwards, but solid resistance around 0.9600 could spook buyers.

The USD/CHF rallies amidst a risk-off market sentiment, triggering a flight to safe-haven assets. In the FX space, the greenback is bolstered by increasing odds of an aggressive Federal Reserve, which propels the USD/CHF up some 0.17% in the North American session, and is trading at 0.9585 at the time of writing.

As previously mentioned, the buck remains in the driver’s seat in the FX complex. The US Dollar Index, a measurement of the greenback’s value against a basket of six peers (including the Swiss franc), is trading at multi-year highs around 101.782 and is gaining 0.66%, despite falling US Treasury yields.

The US 10-year Treasury yield is losing twelve basis points on the day, and trading at 2.779%, after hitting a YTD high at 2.981% last Wednesday.

On Monday’s Asian and European session, the USD/CHF opened below last week’s close, though it achieved a bounce near the 0.9600 figure, retreating afterward, before settling around the daily pivot point at 0.9560.

USD/CHF Price Forecast: Technical outlook

The USD/CHF remains bullish from a daily chart perspective, but the Relative Strength Index (RSI) reading around 74.50 suggests the pair could be topping in the near term.

The USD/CHF 1-hour chart shows bulls' failure to reclaim 0.9600 opened the door for a dip towards the daily pivot point around 0.9560. However, they recovered some ground, lifting the USD/CHF price to 0.9580. The Relative Strength Index (RSI) is back above the 50-midline (bullish territory) at 58.12. However, price action in the overnight session for North American traders showed that the 0.9600 supply zone would be difficult to overcome.

To the upside, the USD/CHF's first line of resistance would be the confluence of the major round figure and the R1 daily pivot at 0.9600. A breach of the latter would expose the R2 daily pivot at 0.9630, followed by the June 5, 2020 swing high around 0.9650.

On the flip side, the USD/CHF first support would be the confluence of the 50-day Simple Moving Average (SMA) and the daily pivot near the 0.9557-0.9560 range. Once cleared, the following support would be the S1 daily pivot, which confluences with June 30, 2020, daily high, turned support at 0.9533, followed by the S2 daily pivot at 0.9500.

Key Technical Levels

Bank of Canada Governor Andrew Bailey reiterated on Monday that interest rates in Canada will need to be lifted and said that inflation is too high and is going to be elevated for longer than we previously thought, reported Reuters.  

Additional Remarks as summarised by Reuters:

Demand is beginning to run ahead of the economy’s productive capacity.

Businesses can’t find enough workers to meet demand and they’ll need to raise wages to attract and retain staff.

A broadening in price pressures is a big concern.

The bank is committed to using interest rates to return inflation to its target and will do so forcefully if needed

We do not have a pre-set destination for the policy interest rate.

How high rates go will depend on how the economy responds and how the outlook for inflation evolves.

Reiterates it may be appropriate to pause our tightening once we get closer to the neutral rate and then take stock.

Reiterates that, on the other hand, the BoC may need to take rates modestly above neutral for a period to bring demand and supply back into balance and inflation back to target. 

Macklem said that it's fair to say that prices increases are not 'transitory' as he said they would be last year.

Macklem said that inflation is close to peak. 

Macklem said he expects the bank will be considering another 50 bps increase in June. 

• The USD/CAD is gaining in the week by some 0.39%.
• A dismal market sentiment, courtesy of China’s Covid-19 outbreak, weighed on oil prices and the CAD.
• USD/CAD Price Forecast: Tilted to the upside, once broken the 200-DMA around 1.2624.

The USD/CAD rallies in the middle of a flight to safe-haven peers in the FX space, using the US dollar, the JPY, and the CHF as safety vehicles in a risk-off market mood. Also, falling oil prices and increasing bets that the Federal Reserve would hike rates 0.50% in the May 4-5 meeting boost the prospects of the greenback. At the time of writing, the USD/CAD is trading at 1.2755 at fresh monthly highs at the time of writing.

The Covid-19 outbreak in China weighed on market sentiment

Global equities are recording losses. The abovementioned factors and China’s Covid-19 lockdown in Shanghai threaten to slow down economic recovery. China’s situation is expanding towards Beijing, as reported by Reuters.

“In Shanghai, authorities have erected fences outside residential buildings, sparking fresh public outcry. In Beijing, many people have begun stockpiling food, fearing a similar lockdown after the emergence of a few cases of COVID-19.”

Consequently, commodity prices are down, led by the US crude oil benchmark, Western Texas Intermediate (WTI), down close to 5%, exchanging hands at $96.70 per barrel, weighing on the commodity-linked Loonie. Production and delivery of oil products in Canada contributed just under 10% of the Gross Domestic Product (GDP).

An absent Monday’s US economic docket left USD/CAD traders adrift to the Bank of Canada (BoC) Governor Tiff Macklem, and Senior Deputy Governor Rogers are scheduled to testify before the House of Commons Standing Committee on Finance at 11:00 ET on Monday.

USD/CAD Price Forecast: Technical outlook

The USD/CAD broke April’s 13 previous monthly high at 1.2676 and gave fresh legs to the pair, as it broke above the 1.2700 figure quickly. It extended its gains and is accelerating the uptrend towards 1.2800. However, the Relative Strength Index (RSI) at 62.19, with its steeper slope, has enough space before reaching overbought conditions.

Given the previously-mentioned, the USD/CAD first resistance would be 1.2800. Break above would expose a solid supply zone around March’s 13 daily high at 1.2871, followed by March’s 7 daily high at 1.2901.

• EUR/USD puts the 1.0700 support to the test on Monday.
• A drop below 1.0707 exposes a retracement to 1.0635.

EUR/USD keeps correcting lower and challneges the 1.0700 key level at the beginning of the week.

The downside momentum in the pair accelerated on Monday and the breach of the 1.0700 area could motivate EUR/USD to attempt an assault to the 2020 low at 1.0635 (March 23).

While below the 200-day SMA, today at 1.1404, the outlook for the pair is expected to remain negative.

EUR/USD daily chart

According to Russia's First Deputy Envoy to the UN, Russia sees no point in agreeing to a ceasefire in Ukraine at the moment, reported Russia's state-run RIA media agency, as cited by Reuters. The First Deputy Envoy to the UN said that Russia believes that Kyiv may use any ceasefire to stage provocations and said that Russia has not struck residential areas of Ukraine's city of Odesa.  

These latest comments come after the FT reported over the weekend that Russian President Vladimir Putin had dropped his hopes for a deal with Ukraine and instead shifted to a so-called "land-grab" strategy. 

• DXY keeps pushing higher and records new highs around 101.70.
• Further upside could see the 2020 high near 103.00 revisited.

DXY keeps the bid bias well and sound and reaches new cycle peaks past 101.70 on Monday.

The sharp rebound from the 99.80 region (April 21) carries the potential to extend further. Against that, the breakout of the so far 2022 high at 101.73 (April 25) on a convincing fashion could motivate the index to attempt a visit to the 2020 high at 102.99 (March 20).

The current bullish stance in the index remains supported by the 7-month line near 96.70, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 95.50.

DXY daily chart

• EUR/GBP climbed to the monthly peak on Monday, though struggled to capitalize on the move.
• Friday’s dismal UK macro data continued weighing on the British pound and extended support.
• Sustained USD buying undermined the shared currency and kept a lid on any meaningful upside.

The EUR/GBP cross retreated a few pips from the monthly peak touched during the mid-European session and was last seen trading with modest gains, around the 0.8425 region.

Following an early dip to sub-0.8400s, the EUR/GBP cross regained positive traction for the fifth successive day on Monday and built on last week's strong move up. The disappointing UK macro data released on Friday indicated that the domestic economy is under stress from the soaring cost of living. This, in turn, was seen as a key factor that continued weighing on the British pound and acted as a tailwind for spot prices.

On the other hand, hawkish remarks by some ECB policymakers contributed to the shared currency's relative outperformance against its British counterpart. It is worth recalling that ECB Vice President Luis de Guindos had said that a rate hike is possible in the second half of the year. Moreover, ECB Governing Council member Pierre Wunsch suggested a probable rate hike in July and also anticipated that rates could be positive as soon as this year.

Furthermore, Joachim Nagel, President of the Deutsche Bundesbank, noted that the ECB could raise interest rates at the start of the third quarter. ECB President Christine Lagarde, however, said that the central bank may need to cut its growth outlook further amid concerns about the fallout from Russia's invasion of Ukraine. This, along with sustained US dollar buying, held back the euro bulls from placing fresh bets and capped the EUR/GBP cross.

Even from a technical perspective, the intraday positive move faltered just ahead of a technically significant 200-day SMA, currently around mid-0.8400s, which should now act as a pivotal point. This makes it prudent to wait for sustained strength beyond the said barrier before positioning for any further near-term appreciating move amid absent relevant market moving economic releases.

Technical levels to watch

• EUR/USD hit fresh annual lows just above 1.0700 on Monday as risk-off flows saw the buck strengthen across the board.
• Ahead of a busy week of US and Eurozone GDP and inflation data, bears continue to target the 2020 lows.  

EUR/USD has stabilised at fresh annual lows just to the north of the 1.0700 level in early Monday US trade, as the US dollar gains across the board amid the distinctly risk-off tone to the broader market trade. At current levels in the 1.0720s, EUR/USD trades with losses of about 0.7% on the day, which would mark the worst day for the pair since 5 April, with the pair seeing losses on a similar scale to GBP/USD, but less severe than other more risk-sensitive G10/USD majors.

ECB sources cited by Reuters over the weekend highlight a sense of urgency being felt by many ECB policymakers to end net QE purchases as soon as possible and hinting towards the possibility of multiple rate hikes before the end of the year from July or August failed to lift the euro on Monday. As far as EUR/USD traders are concerned, the ECB’s hawkish shift in recent weeks towards a preference to ending QE and a start to rate hikes in Q3 has been negated by a comparatively larger hawkish shift from the Fed.

That explains to a large part why EUR/USD has been able to sustain lasting rallies, with a fragile risk appetite backdrop and elevated European geopolitical/economic risks associated with the Russo-Ukraine war also weighing. Eurozone and US GDP numbers are out later in the week and are unlikely to distract from the above noted broader narratives.

US March Core PCE inflation data and preliminary April Eurozone Consumer Price Inflation figures will be of more interest, with both expected to show still very elevated inflation levels that continue to argue in favour of Fed and ECB monetary tightening. EUR/USD are likely to look to fade any rallies, with many short-term bears looking for the pair to test 2020 lows in the 1.0630 area sometime in the coming days/weeks.

Gold Price remains on slippery slopes. Coronavirus-related lockdowns in China are set to continue weighing on the yellow metal, economists at TD Securities report.

Few participants left with appetite to buy gold

“Gold prices are succumbing to a weakening yuan as China’s worsening COVID-19 outbreak saps the buying impulse from yet another pillar of demand for bullion.” 

“With little over a week remaining for the Fed to hike by 50bp and to begin quantitative tightening as we expect, demand for bullion from the investor community is likely to ease.”

“Shanghai's reinvigorated appetite for the yellow metal has helped to support prices, but a weakening yuan should translate into less demand from this cohort.”

The GBP’s crash through 1.30 on Friday is not letting up to start the week as cable heads towards a test of 1.27. Below here, the way is clear towards the 1.25 level, economists at Scotiabank report.

Trading in oversold territory could slow the cable’s decline

“There are no major support markets between the 1.27 level and the 1.25 figure aside from the Sep 2020 low of ~1.2675 and psychological support at the figure and mid-figure areas.”

“Trading in oversold territory may slow the GBP’s decline as it did in mid-March which was followed by a three cents gain roughly.”

“Resistance is 1.2765/70 followed by the 1.28 zone and the mid figure.”

EUR/USD firmly broke under the 1.08 figure, surpassing last week’s intraday lows, and tested the low-1.07s. After the 1.07 level, the March 2020 low of 1.0636 stands as key support, economists at Scotiabank report.

Resistance after the mid-1.07s is the 1.0780 mark

“The 1.07 zone stands as key support ahead of the next key level of 1.0636 – its March 2020 low.” 

“Resistance after the mid-1.07s is ~1.0780, the 1.08 area and the mid-1.08s.”

• GBP/USD witnessed heavy selling for the third successive day and tumbled to the 1.2700 mark.
• Friday’s dismal UK macro data weighed on the GBP and exerted pressure amid stronger USD.
• Extremely oversold conditions on short-term charts held back bears from placing fresh bets.

The GBP/USD pair remained under intense selling pressure for the third successive day on Monday and plunged to the 1.2700 mark, or its lowest level since September 2020 during the mid-European session.

The British pound was pressured by last week's dismal macro data, which indicated that the UK economy is under stress from the soaring inflation. On the other hand, the prospects for a more aggressive policy tightening by the Fed pushed the US dollar to a more than two-year high and contributed to the heavily offered tone surrounding the GBP/USD pair.

From a technical perspective, the pair on Friday confirmed a fresh bearish breakdown through the 1.3000 psychological mark. The subsequent downfall and acceptance below the 50% Fibonacci retracement level of the 1.1411-1.4249 strong move up, around the 1.2800 mark, was seen as a fresh trigger for bearish traders and accelerated the intraday decline.

That said, extremely oversold oscillators on hourly/daily charts held back traders from placing fresh bets and assisted the GBP/USD pair to find some support near the 1.2700 mark. The attempted intraday recovery, however, met with a fresh supply near the 1.2755 region. This, in turn, suggests that the near-term bearish trend might still be far from being over.

A convincing break below the 1.2700 mark, leading to a subsequent break through the September 2020 low, around the 1.2675 region, will reaffirm the negative bias. The GBP/USD pair might then turn vulnerable to weaken further below the 1.2600 round figure and accelerate the slide towards the 61.8% Fibo. level, around the key 1.2500 psychological mark.

On the flip side, the 1.2755-1.2760 region now seems to act as an immediate resistance ahead of the 1.2800 mark. Any subsequent move up is more likely to run out of steam near the 50% Fibo. level., around the 50% Fibo. level, around the 1.2825-1.2830 region, which should act as a pivotal point. Sustained strength beyond could trigger a near-term short-covering move. 

GBP/USD daily chart

Key levels to watch

Gold Price has risen significantly since the beginning of the year. Strategists at Commerzbank are revising their gold price forecast upwards and expect a price of $1,900 per troy ounce at the end of the year.

Gold Price to rise to $2,000 next year

“We expect a price level of $1,900 at the end of the year (previous forecast $1,800). This means that we do not expect any stronger price decline despite the pronounced rate hike expectations.” 

“Inflation is likely to remain at a higher level in the longer-term, which will have a dampening effect on real interest rates. Whether central banks are ready or willing to raise key interest rates far above inflation rates remains to be seen.”

“Weaker economic data are likely to raise doubts as to whether interest rates will actually be raised as much as is expected on the futures markets.” 

“For next year, we expect the price to rise to $2,000 per troy ounce (previously $1,900).”

EUR/GBP has extended its sharp recovery to turn the spotlight back on the important 200-day moving average (DMA) at 0.8450. Analysts at Credit Suisse only see the pair marking a more important turn higher on a sustained close above this mark.

Further near-term strength in the broader sideways range

“A sustained hold above 200-DMA at 0.8450 is needed to rekindle thoughts of a potential base, with resistance seen next at the March high at 0.8514/23. Only a close above this latter area though would see a base established to raise the prospect of a more significant turn higher, with resistance then seen next at the December 2021 high at 0.8601.” 

“Support is seen at 0.8383 initially, then the 55-DMA at 0.8359, which we look to try and hold. Below 0.8311/10 though is needed to ease the immediate upside bias for a fall back to potential trend support at 0.8260.”

EUR/USD has fallen sharply for a clear break below the 1.0806 recent low and uptrend from 2017. Analysts at Credit Suisse look for a test of the 2020 low at 1.0635.

Resistance at 1.0934 to cap

“The rapid sell-off has already seen support from the April 2020 low at 1.0727 removed and we stay directly negative for the ‘measured wedge objective’ seen at 1.0675/74 and eventually the 2020 low at 1.0635. Whilst we would look for signs of a better floor here, a direct break would warn of a yet further and significant break lower with support then seen next at the April 2017 low at 1.0579, then 1.0496/93.”

“Resistance is seen initially at 1.0758/60, then the 13-day exponential average and price resistance at 1.0836/59, which we look to now try and cap. A break can see a recovery back to 1.0934/33, but only a break above here would mark the completion of a near-term base to clear the way for a recovery back to 1.1034/40.”

The S&P 500 has completed a bearish “outside week”. With the market having gapped lower on Friday on increased volume, analysts at Credit Suisse look for a retest of the 4115 YTD low.

The bearish risk for the market has increased sharply

“The aggressive sell-off last week on increased volume has seen not only a bearish ‘outside week’ established, but also a bearish ‘reversal day’ on Thursday and the market then gap lower on Friday, along with a sharp turn lower on weekly MACD momentum again from zero.

We not only maintain our immediate negative outlook, but look for a further deterioration and a fall to retest support at the 23.6% retracement of the 2020/2021 uptrend at 4199. Below here can see support next at 4162/58 and eventually back at the 4115 Q1 YTD low. Whilst a fresh hold here should be allowed for, we see the risk for an eventual break as high to expose the 38.2% retracement of the entire 2020/2021 uptrend at 3855/15.” 

“Resistance is seen at 4295 initially, then 4316, with the immediate risk seen staying lower whilst below 4370/94.”

Concerns over French politics are refusing to go away. Simultaneously, heightened fears of supply issues resulting from lockdown fears in China have compounded support for the safe-haven USD. Therefore, the EUR/USD pair is unlikely to enjoy substantial gains in the near-term, economists at Rabobank report.

Slower growing Chinese economy and a rapid pace of Fed tightening support the greenback

“A fractured French electorate and concerns about energy security in Europe continue to cloud the outlook for the EUR.” 

“A strong USD suggests that a sharp rebound in EUR/USD may be out of reach near-term. That said, the tone of the June 9 ECB meeting is likely to be instrumental in determining whether or not EUR/USD can make a moderate recovery.”

“It is our central view that EUR/USD will end the year higher in the 1.10 area. This view has depended on the assumption that the ECB will have started to hike rates and on the coincident view that investors will be preparing for slower US growth next year.”

“The possibility of another covid related wave of economic uncertainty coinciding with aggressive Fed tightening would likely result in a stronger for longer USD.”

• AUD/USD slumped under 0.7200 on Monday to its lowest since late February, a drop of over 1.0% on the day.
• The pair is being weighed by concerns about widening lockdowns in China and associated sharp downside in global commodity markets.

Aussie underperformance that dragged AUD/USD under support around the key 0.7200 level and to its lowest levels since late February has continued in the run up to the start of US trade. At current levels in the 0.7160s, the pair trades with losses of sightly more than 1.0% on the day. A sharp downturn in global commodity prices, from oil to copper and precious metals, amid concerns about widening lockdowns in key Australian export market and key global commodity consumer China is weighing heavily on the Australian dollar at the start of the week.

The past two sessions have seen AUD/USD technicals take a sharp turn for the worse. The pair broke below an uptrend in play since late January at the end of last week in the 0.7400 area and has since tumbled below its important 50 and 200-Day Moving Averages near 0.7350 and 0.7300 respectively. Bears will not be eyeing a test of 2022 lows just under the 0.7000 level.

Much will depend on whether the outbreak in China, which has now spread to some districts of Beijing, continues to grow, triggering further strict lockdowns in the world’s second largest economy, on which the Australian economy is heavily dependant. If, as many analysts fear, more cities are headed for the kind of lockdown seen in Shanghai over the last few weeks, AUD/USD hitting 0.7000 is a good bet.

AUD/USD traders will also have some key US and Australian data points to keep an eye on this week. The Aussie bulls will be hoping for a spicey Q1 2022 Australian Consumer Price Inflation report to boost expectations for RBA tightening and thus reverse some of the currency’s recent weakness. But US data in the form of the first estimate of Q1 GDP growth (on Thursday) and March Core PCE inflation (on Friday) are likely to keep Fed tightening bets robust and the buck broadly supported ahead of the Fed’s policy meeting next week.

GBP/USD finally saw a decisive break of the 1.30 March low last week. Analysts at Credit Suisse look for the risk to stay directly lower for a test of the 61.8% retracement and psychological barrier at 1.2500/1.2494.

Resistance at 1.3000 set to cap

“With the USD expected to stay strong, we look for the risk to stay directly lower. Support is seen next at the 1.2676 low from September 2020 ahead of the 61.8% retracement and psychological barrier at 1.2500/1.2494. Whilst we would look for this to hold at first, we see no reason not to look for a break in due course with support then seen next at 1.2251.” 

“Resistance is seen at 1.2812 initially, then 1.2862 with 1.2917 ideally capping to keep the immediate risk lower. Above can see a recovery back to 1.2973/82, potentially 1.3000, but with sellers expected here.”

• USD/CAD scaled higher for the third straight day and shot to over a one-month high on Monday.
• Sliding oil prices undermined the loonie and remained supportive amid sustained USD buying.
• The technical setup favours bullish traders and supports prospects for additional near-term gains.

The USD/CAD pair gained traction for the third successive day on Monday and climbed to a six-week high, around the 1.2765-1.2770 region during the first half of the European session.

The momentum reaffirmed last week's bullish breakout through the 1.2650 hurdle, or the 50% Fibonacci retracement level of the 1.2901-1.2403 downfall and was sponsored by a combination of factors. Crude oil prices dropped to a near two-week low, which undermined the commodity-linked loonie and acted as a tailwind for spot prices amid sustained US dollar buying.

Looking at the broader picture, acceptance above the 1.2700 mark and sustained strength beyond the 61.8% Fibo. level could be seen as a fresh trigger for bullish traders. The constructive outlook is reinforced by the fact that technical indicators on the daily chart are holding in the positive territory and are still far from being in the overbought zone.

This, in turn, supports prospects for a further near-term appreciating move towards an intermediate hurdle near the 1.2780-1.2785 region en-route the next relevant resistance near the 1.2800-1.2810 area. Some follow-through buying should pave the way for additional gains and allow bulls to aim back to conquer the 1.2900 mark, or the YTD peak touched in March.

On the flip side, the 1.2700 mark (61.8% Fibo. level) now seems to protect the immediate downside and any further pullback could be seen as a buying opportunity. This, in turn, should help limit losses near the 50% Fibo. level resistance breakpoint, around the 1.2650 region. The latter should act as a pivotal point and strong base for the USD/CAD pair.

A convincing break below will negate the near-term positive outlook and prompt some technical selling. The USD/CAD pair might then turn vulnerable to weakening further below the 38.2% Fibo. level, around the 1.2600-1.2590 region, and accelerate the slide towards the 1.2560-1.2555 support. The downward trajectory could get extended towards the 1.2500 psychological mark.

USD/CAD daily chart

Key levels to watch

Why can there be Brexit and not "Frexit"? The United Kingdom became impoverished by leaving the European Union, but this exit was not disastrous. It would be disastrous for France due to five factors, economists at Natixis report.

Why the United Kingdom can leave the EU and France cannot

“UK long-term interest rates were spontaneously low, while the tight yield spread between France and Germany is linked to the ECB’s commitment to stabilise interest rates between euro-zone countries. France’s exit from the eurozone would then lead to a sharp rise in France’s long-term interest rates.”

“The UK gross external debt is in the country's own currency while France’s gross external debt is in euros. This means that a depreciation of the pound sterling has no effect on the UK external debt, while a depreciation of the French franc against the euro, which would be very likely if France left the EU, would lead to an unsustainable rise in France’s external debt.”

“The pound sterling is an important reserve currency, given the weight of the UK, which enables the country to receive capital inflows, thanks to this reserve currency role of the pound sterling, and therefore to easily finance a permanent external deficit. If France left the EU, the French franc would no longer be a reserve currency at all, and it would become very difficult to finance France’s external deficit.”

“The London financial centre has suffered little from the UK's exit from the EU, which would not be the case for Paris, which is a financial centre only because France is in the eurozone.”

“Replacing exports to the rest of the world with exports to the EU is much easier for the UK than for France. After leaving the EU, the UK succeeded in replacing part of its exports to the EU with exports to the rest of the world. It is doubtful that France would be able to make the same substitution, given the weakness of foreign trade and the chronic decline in export market shares.”

• Silver has slumped towards $23.50 this Monday amid a broader sell-off in risk assets and commodities and as USD strengthens.
• Now XAG/USD is below its 200DMA, bears are eyeing an eventual drop towards Q4 2021 lows in the $21.00s.

Spot silver (XAG/USD) prices came under heavy selling pressure on Monday in tandem with a broader downturn in the market’s appetite for risk and downside in other key commodities such as across energy and metals. Traders cited risk aversion relating to the increased risk of lockdowns in China with a Covid-19 outbreak now reported in Beijing, continued pessimism about the prospects for a peace deal in the Russo-Ukraine war and, perhaps most importantly, recent hawkish chatter from central bank policymakers.

Either way, XAG/USD was last trading down nearly 2.5% on the day just above the $23.50 per troy ounce mark, having broken below key resistance in the form of the 200-Day Moving Average at $23.85 and the March lows at $23.97. That means spot silver prices are trading at their lowest since mid-February, prior to the start of Russia’s invasion of Ukraine, with a modest downturn in global yields on the day as a result of risk aversion likely the only thing stopping silver crashing further towards $23.00.

But the bears will be confident in wake of the recent breakout below the 200DMA, with many calling for a drop towards support in the form of the Q4 2021 lows in the $21.00s in the coming weeks as the US dollar continues to rise on hawkish Fed sentiment and risk-off flows. The key risk events for traders to monitor this week include the first estimate of US Q1 GDP growth on Thursday followed by March Core PCE inflation on Friday, with the latter likely to endorse Fed plans/market expectations for a 50 bps rate hike at next week’s meeting.

• EUR/JPY comes under pressure and approaches 137.00.
• The April lows around 134.30 emerge as the next support of note.

EUR/JPY adds to Friday’s retracement and revisits the vicinity of the 137.00 mark at the beginning of the week.

Further weakness should not be ruled out in the very near term. That said, the corrective move in the cross could extend further and retest the monthly lows around 134.30.

In the meantime, while above the 200-day SMA at 130.56, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggests USD/IDR could edge higher and test the 14,470 region.

Key Quotes

“We expected USD/IDR to trade sideways between 14,335 and 14,385 last week. USD/IDR subsequently traded between 14,323 and 14,365 before surging higher upon opening today. The price actions suggest USD/IDR could strengthen further from here.”

“A break of 14,470 would not be surprising but last July’s high at 14,565 is likely out of reach for this week. Support is at 14,410 followed by 14,385.”

• USD/JPY witnessed some selling on Monday, though the downtick lacked bearish conviction.
• Weakness below the 100-hour SMA/ascending trend-line could stall near the 23.6% Fibo. level.
• Sustained move back above the 129.00 mark will set the stage for an extension of the bullish trend.

The USD/JPY pair edged lower on the first day of a new week, albeit lacked follow-through selling and remained well within Friday's broader trading range. The pair traded with a mild negative bias through the first half of the European session and was last seen hovering around the 100-hour EMA, just above the 128.00 round-figure mark.

The prevalent risk-off mood drove some haven flows and benefitted the Japanese yen, which, in turn, acted as a headwind for spot prices. Bearish traders further took cues from a further pullback in the US Treasury bond yields, though the Fed-BoJ policy divergence helped limit any deeper losses for the USD/JPY pair, at least for now.

From a technical perspective, bulls are trying to defend support marked by ascending trend-line support extending from the monthly low. This is followed by the 23.6% Fibonacci retracement level of the 121.28-129.41 parabolic rise, which stalled last week's sharp corrective pullback from the 129.40 area, or a fresh 20-year high.

The latter should act as a pivotal point for short-term traders and help determine the next leg of a directional move. A convincing breakthrough should pave the way for deeper losses and drag the USD/JPY pair towards the 127.00 mark, below which the USD/JPY pair could accelerate the fall to test the 126.35 region, or the 38.2% Fibo. level.

On the flip side, the 128.40 region now seems to act as an immediate hurdle ahead of the 129.00-129.10 region. Some follow-through buying will suggest that the corrective slide has run its course and lift the USD/JPY pair back towards the two-decade peak, around the 129.40 area. The momentum could then allow bulls to reclaim the 130.00 psychological mark.

USD/JPY 1-hour chart

Key levels to watch

Quek Ser Leang at UOB Group’s Global Economics & Markets Research noted USD/MYR faces the next significant up barrier at 4.40.

Key Quotes

“We highlighted last Monday (18 Apr, spot at 4.2460) that ‘upward momentum is beginning to build’ and we held the view that the ‘risk for USD/MYR is on the upside towards 4.2600, possibly 4.2650’. While our view for USD/MYR to strengthen was correct, we did not anticipate the manner by which it lifted off and rocketed to a high of 4.3240 last Friday. Note that USD/MYR gained a whopping 2.13% last week, its largest 1-week advance in more than 2 years.”

“USD/MYR extended its rally upon opening today and the risk for this week is still clearly on the upside. With all the resistance levels on the daily chart been taken out, the resistance level to focus on from here is at the weekly declining trend-line connecting the highs of 2017 and 2020 (level is currently near 4.4000). That said, it is left to be seen if USD/MYR has enough momentum to reach this level within this week. In order to maintain the current strong momentum, USD/MYR should ideally not move below 4.2800.”

• EUR/USD comes under heavy pressure near 1.0700.
• German 10y bund yields break below the 0.90%.
• Germany IFO survey surprised to the upside in April.

The single currency started the week well into the negative territory and dragged EUR/USD to the 1.0700 region earlier on Monday.

EUR/USD weak on risk-off mood

EUR/USD adds to the pessimism seen in the second half of last week and extends the leg lower to the boundaries of the 1.0700 yardstick at the beginning of the week.

The sharp selloff in the European currency follows fresh concerns over the impact of current lockdown measures on the Chinese economy, which have also spread to the broader risk-linked galaxy.

In the domestic calendar, Business Climate in Germany unexpectedly improved to 91.8 for the current month. Despite the positive surprise in this key event, the euro failed to spark a noticeable bounce.

Data wise across the pond, the Chicago Fed National Activity Index will be the salient event later in the NA session.

What to look for around EUR

EUR/USD’s price action shows further deterioration and revisits the 1.0700 neighbourhood at the beginning of the week. The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. 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: Germany IFO Business Climate (Monday) – Germany GfK Consumer Confidence (Wednesday) – ECB 2021 Annual Report, Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Thursday) – Germany, EMU Flash Q1 GDP Growth Rate, EMU Flash Inflation Rate (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 down 0.58% at 1.0733 and a break below 1.0707 (2022 low April 25) would target 1.0700 (round level) en route to 1.0635 (2020 low March 23). On the upside, the next hurdle appears at 1.0936 (weekly high April 21) seconded by 1.1000 (round level) and finally 1.1051 (55-day SMA).

• GBP/USD witnessed aggressive follow-through selling for the third successive day on Monday.
• Signs that the UK economy is under stress from soaring inflation weighed heavily on the GBP.
• Aggressive Fed rate hike bets, the risk-off mood pushed the USD to a more than two-year high.
• Oversold oscillators make it prudent to wait for some consolidation before the next leg down.

The GBP/USD pair continued losing ground through the first half of the European session and dived to its lowest level since September 2020, around the 1.2720-1.2715 region in the last hour.

The pair extended last week's sharp downfall from the vicinity of the 1.3100 round-figure mark and remained under intense selling pressure for the third successive day on Monday. The British pound was weighed down by Friday's disappointing release of the UK Retail Sales and the flash Services PMI. This, along with sustained US dollar buying, turned out to be a key factor that continued exerting downward pressure on the GBP/USD pair.

The Office for National Statistics reported on Friday that UK Retail Sales volumes fell 1.4% MoM in March and suggested that the expected consumption drag from high inflation might have arrived already. Adding to this, the flash PMI pointed to the biggest loss of momentum for service sector activity since Omicron hit businesses at the end of last year. The macro data indicated that the UK economy is under stress from the soaring cost of living.

On the other hand, the US dollar continued drawing support from expectations for a more aggressive policy tightening by the Fed and shot to a more than two-year high. On Thursday, Fed Chair Jerome Powell all but confirmed a 50 bps rate hike at the upcoming meeting in May and also hinted at consecutive increases this year. The markets were quick to react and are now pricing in jumbo rate hikes at the next four meetings in May, June, July and September.

Apart from this, prolonged COVID-19 lockdowns in China raised concerns about slowing global growth and tempered investors' appetite for perceived riskier assets. This was evident from a sea of red across the equity markets, which benefitted traditional safe-haven assets and provided an additional lift to the buck. The combination of supporting factors helped offset retreating US Treasury bond yields and remained supportive of the strong bid tone surrounding the USD.

Apart from this, some short-term trading stops being triggered on a sustained break below the 1.2800 mark further aggravated the bearish pressure and contributed to the GBP/USD pair's steep decline. This might have already set the stage for additional near-term losses. That said, extremely oversold RSI (14) on short-term charts warrants come caution for aggressive bearish traders, making it prudent to wait for some intraday consolidation before the next leg down.

Technical levels to watch

According to CN Wire, China’s State Council announced additional measures to promote consumption potential and sustainable recovery of consumption.

Additional takeaways

“Will guide financial system to support real economy through various measures such as lowering interest rates and reducing fees.”

“Will steadily increase mass consumption such as automobiles. All regions shall not add new automobile purchase restriction measures.”

“Regions that have implemented automobile purchase restrictions will gradually increase the number of automobile increment quotas and relax qualification restrictions for car buyers.”

‘Will make overall use of existing financial funds to support the construction of consumption-related infrastructure. Will include eligible projects in the scope of local government special bonds, so that investment can be better used to boost consumption.”

Market reaction

As of writing, USD/CNY is sitting at yearly highs of 6.5660, up 0.99% on the day.

• Gold Price remains vulnerable amid hawkish Fed bets, firmer US dollar.
• Risk-aversion remains at full steam and boosts the USD at XAUUSD’s expense.
• Friday’s closing is critical for XAUUSD’s bullish traders after the decline.

The US dollar march northward appears unstoppable amid the hawkish Fed narrative, Beijing lockdown fears and global economic growth concerns on the whole. Gold Price, therefore, remains on slippery slopes amid a ‘sell everything’ mode playing out so far. The market’s perception of risk sentiment, the dollar and the yields’ price action will have a notable influence on XAUUSD, as the Fed policymakers step aside during the ‘blackout period’. The US Q1 Preliminary GDP will remain the key event risk this week.

Also read: Gold Price Forecast: $1,900 could be next key support as bears refuse to give in

Gold Price: Key levels to watch

The Technical Confluences Detector shows that Gold Price is gyrating near daily lows of $1,912, awaiting a fresh impetus to extend the downside momentum towards $1,910. That level is the pivot point one-day S2.

The next critical support is seen at $1,906, which is the confluence of the pivot point one-week S1 and the Bollinger Band one-day Lower.

Further down, the $1,900 round level could challenge the bullish attempts.

On the upside, strong resistance is placed around $1,920, where the pivot point one-day S1 and Bollinger Band four-hour Lower merge.

The previous day’s low of $1,927 will be next on the buyers’ radars.

XAUUSD bulls will then try to take out the Fibonacci 23.6% one-day at $1,934. The last line of defense for gold bears is pegged around $1,937, the convergence of the SMA50 one-day and Fibonacci 38.2% one-day.         

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.

• Sustained USD buying pushed USD/CHF to its highest level since June 2020 on Monday.
• Bets for a more aggressive Fed policy tightening continued underpinning the greenback.
• The risk-off mood extended some support to the safe-haven CHF and might cap gains.

The USD/CHF pair held on to its modest gains through the first half of the European session and was last seen trading near the highest level since June 2020, just below the 0.9600 mark.

The pair extended its recent strong bullish momentum witnessed over the past three weeks or so and gained some follow-through traction for the third successive day on Monday. The US dollar shot to a more than two-year high, which, in turn, was seen as a key factor that acted as a tailwind for the USD/CHF pair. That said, the prevalent risk-off environment extended some support to the safe-haven Swiss franc and kept a lid on any further gains, at least for the time being.

The USD continued drawing support from growing acceptance that the Fed would tighten its monetary policy at a faster pace to combat stubbornly high inflation. The bets were reaffirmed by Fed Chair Jerome Powell on Thursday, saying that a 50 bps rate hike will be on the table at the upcoming FOMC meeting in May. Powell also hinted at a series of rate increases this year. The markets were quick to price in jumbo rate hikes at the next four meetings, which continued underpinning the buck.

The prospects for more aggressive Fed rate hikes, along with prolonged COVID-19 lockdowns in China, raised concerns about slowing global growth. This, in turn, tempered investors' appetite for perceived riskier assets, which was evident from a generally weaker tone around the equity markets. The anti-risk flow offered some support to traditional safe-haven assets, including the CHF, which might hold back bulls from placing aggressive bets and cap the USD/CHF pair amid slightly overbought conditions.

Nevertheless, the fundamental backdrop supports prospects for a further near-term appreciating move, suggesting that any pullback could be seen as a buying opportunity. In the absence of any major market-moving economic releases, the USD price dynamics will continue to play a key role in influencing the USD/CHF pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch

Analysts at Morgan Stanley revised down their forecasts for Eurozone GDP growth this year and the next, in the latest note published Monday.

Key quotes

“It had now lowered its 2022-euro area GDP forecast to 2.7% from 3% previously and shaved 1 percentage point off its 2023 growth forecasts to 1.3%.”

“Despite the resilience in economic activity shown so far against geopolitical headwinds, we think more material impacts will show in the second half of the year, through various channels of transmission.”

Related reads

• EUR/USD needs to flip 1.0760 into support to extend its rebound
• German government raises 2022 CPI forecast to 6.1% vs. 3.3% seen in January – Reuters

• USD/CAD bulls take a breather after a remarkable upsurge to six-week highs.
• The US dollar corrects, dragging USD/CAD lower towards 1.2700.
• WTI price tumbles over 4% on China covid lockdown concerns, risk-aversion.

USD/CAD is off the six-week highs of 1.2757, consolidating the upsurge above 1.2700 amid a correction in the US dollar while the WTI price keeps falling.

The pullback in the major could be attributed to the correction in the US dollar across the board despite rife risk-aversion. The global market sell-off is boosting the haven demand for the US bonds while weighing heavily on the US Treasury yields. The weakness in the yields is dragging the greenback lower.

USD/CAD, however, continues to find support from plunging oil prices, with WTI meandering in over two-week lows at $97.03. The extended slump in the black gold comes on the back of heightened worries over demand for oil and its products after the covid outbreaks in China are rapidly spreading to Beijing. The Chinese authorities are planning to strengthen the restrictions in Shanghai while the lockdowns could extend to Beijing.

Looking ahead, the pair will continue to follow the price action in the dollar, as well as, the US oil, in absence of any top-tier economic releases from the US and Canada. Although the speech by Bank of Canada (BOC) Governor Tiff Macklem will also hog the limelight.

USD/CAD: Technical levels to consider

EUR/USD has recovered modestly from two-year lows set at the beginning of the week. Euro needs to stabilize above 1.0760 for sellers to take a break, FXStreet’s Eren Sengezer reports.

1.0760 aligns as a key resistance in the near-term

“1.0760 (former support, static level) aligns as the first hurdle. In case the pair rises above that level and starts using it as support, it could extend its correction toward 1.08 (psychological level) and 1.0820 (20-period SMA, 50-period SMA).”

“On the downside, significant near-term support seems to have formed at 1.07 (psychological level) following the sharp decline witnessed in the early Asian session. With a four-hour close below that level, additional losses toward 1.0640 (March 2020 low) could be witnessed.”

In its spring forecast, Germany’s government raised the 2022 inflation forecast to 6.1% vs. 3.3% seen in January, Reuters reports, citing a document obtained from the government sources.

Meanwhile, the government sees the 2023 German Consumer Price Index (CPI) at 2.8%.

The German government sees nominal consumer spending at +9.7% and +4.8% in 2022 and 2023 respectively, Reuters said.

Market reaction

EUR/USD was last seen trading at 1.0740, down 0.50% so far.

Quek Ser Leang at UOB Group’s Global Economics and Markets Research suggests further upside in USD/THB should meet the next hurdle of note at 34.25.

Key Quotes

“Our view for USD/THB last week was that ‘there is room for USD/THB to test the major resistance at 33.81 before the risk of a pullback would increase’. However, USD/THB rose above 33.81 and today, it has edged slightly above 34.00. Note that USD/THB tried to move above 34.00 twice last year but failed both times.”

“If USD/THB can maintain a foothold above 34.00 within these few days, it is likely to strengthen further. Resistance levels are at 34.25 and 34.40. Overall, the risk for USD/THB is on the upside as long as it does not move below 33.70.”

Gold has dropped to $1,915 – its third consecutive day of losses. Despite falling US Treasury bond yields, the US dollar gathers strength. Subsequently, the yellow metal is having a difficult time finding demand, strategists at Commerzbank report.

World Gold Council is likely to testify to robust investment demand in the first quarter

“Gold already shed 2.4% last week as interest rate expectations rose. We believe that it is also the rate hike expectations that are weighing on gold at the start of the new week.” 

“Though bond yields are not climbing this time, the US dollar is appreciating. The market now also expects the ECB to begin tightening its monetary policy in the near future. A rate hike of 25 basis points at the meeting after next in late July is now almost completely priced in on the basis of the forwards.” 

“In the quarterly report on gold demand trends it will be publishing on Thursday, the World Gold Council is likely to testify to robust investment demand in the first quarter. After all, gold was in considerable demand as a safe haven when the Ukraine war broke out at the end of February. And the high and further rising inflation rates have also allowed gold to shine in its capacity as a store of value.” 

The British pound has come under renewed selling pressure over the past week resulting in cable breaking below the 1.30 level. In the view of economists at MUFG Bank, GBP remains vulnerable to risks of more abrupt UK slowdown and less favourable financial market conditions.

GBP remains vulnerable to further weakness

“We expect policy divergence between the BoE and Fed to become even more apparent in the coming months. Building evidence of a more abrupt slowdown for the UK economy will make the BoE cautious over-delivering further rate hikes beyond the 1H of this year. In contrast, the Fed is now more determined to front-load rate hikes to get the policy rate back to their neutral estimate of around 2.50% through the rest of this year, and there is less risk of sharper immediate slowdown for the US economy.”

“We expect the GBP to be more negatively impacted than the USD as market participants become more concerned over the negative implications for global financial conditions and the global economy from aggressive policy tightening. A deeper correction lower for global equity markets and a pick-up in financial market volatility would likely encourage a weaker cable rate as well going forward.”

President Macron has won the second round of the French election. However, this result provides only a brief respite for the euro, economists at MUFG Bank report.

Downside risks to growth in Europe from ongoing conflict in Ukraine to continue

“The result is supportive for further EU integration going forward and will keep alive speculation over further joint funded fiscal stimulus to help dampen the negative fallout for European economies from the Ukraine conflict.”

“President Macron will likely be emboldened to keep pushing for a stronger response to Russia’s invasion of Ukraine. Imposing tougher measures including restricting the supply of Russia’s energy imports into the EU is still one of the main downside risks facing European economies in the coming months.” 

“For the EUR, the favourable French election result is clearly not sufficient on its own to turn the current bearish trend.”

An inverted US Treasury yield curve generally suggests a reasonably high chance of a US recession. Meanwhile, geopolitical uncertainty remains high and a key focus. All this should lend support to the counter-cycle nature of the US dollar, in the view of economists at HSBC.

USD tends to benefit when the global economy is cooling

“We believe it is too early to turn bearish on the USD. An inverted US yield curve is not the right condition for us to think differently.”

“If global economic activity is set to wilt in the face of monetary tightening, geopolitical risks, and squeezed real incomes, then the USD will not be among the more vulnerable.”

“Over the near-term, there is a lot in the price in terms of likely Fed tightening, and there are no more key US data releases for markets to become even more hawkish ahead of the Fed’s3-4 May meeting. As such, it could leave the USD on autopilot edging higher in the coming weeks, barring significant changes on the geopolitical front, but the pace may slow from that seen in early April.”

Economist Klaus Wohlrabe at Germany’s IFO said that they do not see a risk of recession in the first quarter.

Further comments

Related reads

• German IFO’s Economist: Economy is robust in face of uncertainty
• Forex Today: Dollar rally picks up steam on risk-aversion

• DXY gives away part of the earlier spike to the 101.70/75 band.
• US yields in the short end and the belly of the curve add to recent losses.
• The Chicago Fed Index, Dallas Fed Index come next in the US docket.

The greenback, when gauged by the US Dollar Index (DXY) surrenders some of its earlier gains to new cycle tops in the 101.70/75 zone at the beginning of the week.

US Dollar Index bolstered by risk-off, China

The index advances for the third session in a row on Monday and navigates levels last seen in early March 2020 on the back of the resumption of the risk-off sentiment, particularly exacerbated after renewed worries over a potential economic slowdown in China.

Fresh jitters on the latter resurfaced in response to the persistent lockdown measures following the relentless increase of coronavirus cases.

US cash markets, in the meantime, show some renewed interest in bond, which keep yields depressed along the curve so far in the European morning.

In the US data sphere, the Chicago Fed National Activity Index is due seconded by the Dallas Fed Manufacturing Index and short-term notes auctions.

What to look for around USD

The dollar faces renewed buying interest and challenges the 2022 highs past the 101.00 barrier. So far, the greenback’s price action continues to be dictated by the likeliness of a tighter rate path by the Fed as well as 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: Chicago Fed National Activity Index (Monday) – Durable Goods Orders, House Price Index, CB Consumer Confidence, New Home Sales (Tuesday) – MBA Mortgage Applications, Flash Goods Trade Balance, Pending Home Sales (Wednesday) – Advanced Q1 GDP Growth Rate, Initial Claims (Thursday) – Core PCE, PCE, Final Consumer Sentiment, Personal Income/Spending (Friday).

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

US Dollar Index relevant levels

Now, the index is advancing 0.38% at 101.50 and the breakout of 101.73 (2022 high April 25) would open the door to 101.91 (high March 25 2020) and finally 102.99 (2020 high March 20). On the other hand, initial contention emerges at 99.81 (weekly low April 21) seconded by 99.57 (weekly low April 14) and then 97.68 (weekly low March 30).

Following the release of the German IFO Business Survey, the institute’s Economist Klaus Wohlrabe said that the “economy is robust in face of uncertainty.”

Additional quotes

EUR/USD reaction

EUR/USD is keeping its recovery mode intact at around 1.0750, as of writing, down 0.43% on the day.  

Investors have gone away from Gold amid Federal Reserve's willingness to tighten its policy at an aggressive pace. Strategists at TD Securities believe that the bright metal could plummet on additional signals to control inflation.

Probability that gold will again attempt a run at $2,000 over the short-run has dropped sharply

“The growing expectation that the US Federal Reserve will lift rates by at least 50bps in May and likely another 50bps in June, in response to sky-high inflation and an above potential economy, prompted money managers to aggressively cut gold length. Specs aggressively grew short exposure amid concerns that sharply higher rates will drive price lower, while they also reduced long bets as the probability that gold will again attempt a run at $2,000/oz over the short run has dropped sharply.” 

“Any additional signals from Mr. Powell and friends that they are willing to materially slow the economy to control inflation will send prices sharply lower.”

• German IFO Business Climate Index came in at 91.8 in April.
• IFO Current Economic Assessment jumps to 97.2 this month.
• April German IFO Expectations Index arrived at 86.7.

The headline German IFO Business Climate Index unexpectedly improved to 91.8 in April versus last month's 90.8 and the consensus estimates of 89.1.

Meanwhile, the Current Economic Assessment climbed to 97.2 points in the reported month as compared to March's 97.1 and 95.8 anticipated.

The IFO Expectations Index – indicating firms’ projections for the next six months, rose to 86.7 in April from the previous month’s 84.9 reading and surprised the market to the upside with 83.5.

Market reaction

The recovery in EUR/USD found extra legs on the German IFO positive surprise.

At the time of writing, the pair is trading at 1.0749, extending its rebound from multi-month lows of 1.0707. The spot is still down 0.41% on the day.

About German IFO

The headline IFO business climate index was rebased and recalibrated in April after the IFO research Institute changed series from the base year of 2000 to the base year of 2005 as of May 2011 and then changed series to include services as of April 2018. The survey now includes 9,000 monthly survey responses from firms in the manufacturing, service sector, trade and construction.

• GBP/JPY witnessed heavy follow-through selling for the second successive day on Monday.
• Friday’s dismal UK macro data continued weighing on the British pound and exerted pressure.
• The global flight to safety benefitted the JPY and further contributed to the intraday selling bias.

The GBP/JPY cross dropped to a near two-week low during the early European session, though managed to find some support and recover a few pips from the 163.00 round-figure mark. The cross was last seen trading around mid-163.00s, still down over 0.85% for the day.

The cross extended last week's sharp retracement slide from the 168.40-168.45 region, or the highest level since February 2016 and witnessed heavy selling for the second successive day on Monday. The British pound was weighed down by the recent disappointing domestic data, which indicated that the UK economy is under stress from the soaring cost of living.

In fact, the Office for National Statistics reported on Friday that UK Retail Sales volumes plunged 1.4% MoM in March and suggested that the expected consumption drag from high inflation might have arrived already. Adding to this, the flash PMI pointed to the biggest loss of momentum for service sector activity since Omicron hit businesses at the end of last year.

On the other hand, the prevalent risk-off mood drove haven flows towards the Japanese yen and also contributed to the heavily offered tone surrounding the GBP/JPY cross. The prospects for rapid interest rate hikes in the US, along with concerns about slowing global growth, weighed on investors' sentiment and boosted demand for traditional safe-haven assets.

Adding to this, speculation that officials were uncomfortable and would respond to the Japanese yen's recent slump supports prospects for additional gains. That said, the Bank of Japan's commitment to defend the 0.25% yield cap might keep a lid on any meaningful gains for the JPY. This, in turn, could help limit losses for the GBP/JPY cross, at least for the time being.

Technical levels to watch

In opinion of FX Strategists at UOB Group Quek Ser Leang and Lee Sue Ann, USD/CNH’s potential upside could target the 6.5880 level in the next weeks.

Key Quotes

24-hour view: “We expected USD to ‘advance further’ last Friday but we were of the view that ‘a clear break of 6.5000 is unlikely for now’. However, easily blew past 6.5000 as it rocketed to a high of 6.5482. Conditions remain deeply overbought but there is scope for the rally in USD to extend to 6.5600 (next resistance is at 6.5880). Support is at 6.5220 followed by 6.5100.”

Next 1-3 weeks: “We have held a positive view in USD since early last week. Last Friday (22 Apr, spot at 6.4800), we highlighted stronger than expected momentum is likely to lead to further USD strength. We added, ‘the next resistance levels to monitor are at 6.5000 followed by 6.5200’. USD subsequently blew past both resistance level as it surged to 6.5482. Upward momentum remains strong and despite the outsized rally last week, USD could advance further. The next resistance levels are at 6.5600 followed by last year’s high near 6.5880. On the downside, the ‘strong support’ level has moved higher to 6.4750 from 6.4300 last Friday. Only a breach of the ‘strong support’ would indicate that the current rally has run its course.”

We are seeing a correction in three of the currencies that had emerged as outperformers in the first phase of the Ukrainian conflict – the Chinese yuan, the Australian dollar and the New Zealand dollar. Unstable risk sentiment and China's battle against covid are raising the downside risks for commodity currencies, economists at ING report.

Commodity currencies in trouble

“The lack of any intervention by the People's Bank of China despite the elevated downside volatility in CNY may signal that China could be shifting to more growth-orientated currency management (i.e. welcoming a weaker yuan) at a time when tight containment measures are posing significant risks to the country’s economic outlook. Should markets receive more indications that this is the case, selling pressure on the yuan may well continue.”

“The commodity market is also absorbing China’s growth concerns, with energy and metals facing some considerable bearish momentum. This is another channel through which AUD and NZD are getting hit. We think the fall in AUD/USD might extend into the 0.70-0.71 area in the coming days.”

“The implications of unstable risk sentiment and commodity prices correcting lower are spreading to the whole commodity FX segment, which may struggle to find any firm support in the coming days.”

Open interest in natural gas futures markets reversed five daily pullbacks in a row and rose by around 8.8K contracts on Friday considering advanced prints from CME Group. On the other hand, volume extended the downtrend, this time dropping by around 37.4K contracts.

Natural Gas: Sellers target $6.00

Prices of natural gas extended the downtrend on Friday against the backdrop of increasing open interest. That said, further retracement might be in store for the commodity in the very near term and with a potential revisit to the $6.00 mark per MMBtu emerging as the next level of note.

This and next week will be dominated by central bank meetings in the Central and Eastern Europe (CEE) region. Economists at ING do not expect the Hungarian forint or the Czech koruna to strengthen as the market is already pricing hawkish outcome from the National Bank of Hungary (NBF) and the Czech National Bank (CNB), respectively.

Hawks gather to further raise interest rates in the CEE region

“We expect the National Bank of Hungary to raise its base rate by 100bps and deposit rate by 30bps this week. With EUR/HUF now being close to pre-election levels of 368, we don't see this meeting as being a game-changer. Although it can provide some support to the forint, we don’t envision a marked strengthening here purely based on monetary policy decisions.”

“The second half of the week marks the start of the blackout period for the NBP and CNB ahead of next week's monetary policy meetings. Thus, we expect statements from the MPCs in both cases, which should continue the hawkish tone. However, given the high market expectations, we do not expect significant support for both currencies.”

Here is what you need to know on Monday, April 25:

With safe-haven flows dominating the financial markets at the start of the week, the greenback continued to gather strength against its major rivals and the US Dollar Index (DXY) reached its highest level in more than two years at 101.73 early Monday. Reflecting the risk-averse market atmosphere, US stock index futures are down between 0.7% and 0.8% and the benchmark 10-year US Treasury bond yield is losing more than 2%. IFO business sentiment survey from Germany will be featured in the European economic docket before the Federal Reserve Bank of Chicago releases the National Activity Index for March later in the day.

Investors grow increasingly concerned over the global economy slowing down amid the protracted Russia-Ukraine conflict, coronavirus-related lockdowns in China and the major central banks' willingness to tighten their policies at an aggressive pace. 

Ukrainian presidential adviser Mykhailo Podoloyak said over the weekend that Russian forces were "continuously attacking" the steel plan in Mariupol, where the Ukrainian forces are holding out.

EUR/USD opened with a bullish gap as investors reacted to Emmanuel Macron's victory in the second round of French elections but quickly reversed its direction. After touching its weakest level since March 2020 near 1.0700 during the Asian trading hours, the pair recovered a small portion of its daily losses but was last seen trading deep in negative territory below 1.0750.

GBP/USD lost 1.5% on Friday after the British pound came under heavy selling pressure on disappointing macroeconomic data releases from the UK. The pair stays on the back foot early Monday and trades at its lowest level in nearly 20 months at around 1.2730.

Gold is having a difficult time finding demand at the start of the week despite falling US Treasury bond yields. XAU/USD is trading below $1,920 early Monday, dragged by the broad-based dollar strength.

USD/JPY is edging lower as the Japanese yen attracts investors as a safe haven. Speaking at the IMF event on Friday, Bank of Japan (BoJ) Governor Haruhiko Kuroda said that the BoJ should persistently continue with the aggressive monetary easing.

Bitcoin fluctuated in a relatively tight range during the weekend but extended its slide after breaking below $40,000 early Monday. BTC/USD was last seen losing more than 2% on a daily basis at around $38,500. Ethereum closed the previous five days in negative territory and fell sharply toward $2,800 at the start of the week.

USD/JPY is expected to keep the 126.90-129.40 range for the time being, suggested FX Strategists at UOB Group Quek Ser Leang and Lee Sue Ann.

Key Quotes

24-hour view: “We expected USD to ‘trade within a range of 128.00/129.00’ last Friday. USD subsequently traded within a wider range than expected (127.72/129.10). Further range trading appears likely even though the slightly firmed underlying tone suggests a higher range of 128.00/129.20.”

Next 1-3 weeks: “Our view from last Thursday (21 Apr, spot at 128.20) still stands. As highlighted, USD has likely moved into a consolidation phase and is expected to trade within a range of 126.90/129.40 for now. Looking ahead, if USD closes above 129.40, it would signal the start of the next up-leg in USD.”

Markets are too aggressive pricing European Central Bank (ECB) tightening. Subsequently, economists at ING expect the EUR/USD pair to struggle to stage any significant advance.

EUR/USD to keep hovering around the 1.08 level this week

“The marked ECB-Fed divergence argues against any sustainable rebound in EUR/USD. This is despite ECB officials having sounded more hawkish after the ECB5's April meeting, simply because money markets are already pricing in three 25bp rate hikes by year-end, which is keeping the bar quite high for any hawkish surprise.”

“This week, the focus will be on inflation figures in the eurozone, with the headline rate expected to top March’s 7.5% reading. The already hawkish market pricing for ECB tightening means that any upside surprise may fail to materially lift the euro.”

“We expect EUR/USD to keep hovering around the 1.08 level this week, although some idiosyncratic dollar strength may trigger a break below 1.07.”

A big technical break below 1.30 on Friday triggered a sizable sell-off in GBP/USD, which is now struggling to hold on to the 1.28 level. Economists at ING believe that the pair could plunge towards 1.25 in the coming weeks.

Dealing with heavy selling pressure

“Some weaker-than-expected retail sales figures for March probably fed some already ongoing re-rating of UK growth expectations and the notion that the British economy was more insulated than other European countries from the fallout of the Ukrainian conflict. However, this hasn’t been followed by a significant re-pricing of Bank of England tightening expectations, as markets continue to fully price in six more 25bp rate hikes by the end of the year (plus a seventh one that is 80% priced in).”

“The deterioration in risk sentiment, risks of a dovish re-pricing in the BoE rate expectations and potentially some re-emergence of negative Brexit-related headlines continue to pose downside risks to the pound in the coming weeks, and a test of the 1.25 support cannot be excluded.” 

CME Group’s flash data for crude oil futures markets noted traders added more than 5K contracts to their open interest positions at the end of last week, reversing a downtrend in place since April 7. Volume, instead, shrank by around 111.8K contracts, reaching the third consecutive daily pullback.

WTI could retest the $93.00 area

Prices of the barrel of WTI traded on the defensive on Friday amidst rising open interest, hinting at the possibility of a deeper correction in the very near term and with the immediate target at the April low around the $93.00 mark (April 11).

• AUD/USD witnessed heavy selling for the third straight day and dropped to a two-month low.
• Aggressive Fed rate hike bets, the risk-off impulse underpinned the USD and exerted pressure.
• Oversold conditions on intraday charts warrant some caution before placing fresh bearish bets.

The AUD/USD pair continued losing ground through the early European session and dropped to a two-month low, around the 0.7150 region in the last hour.

The pair extended last week's bearish breakdown momentum through the very important 200-day SMA and witnessed heavy selling for the third successive day on Monday. Expectations for a more aggressive policy tightening by the Fed, along with the risk-off impulse, pushed the safe-haven US dollar to a more than two-year high. This, in turn, was seen as a key factor that continued exerting downward pressure on the AUD/USD pair.

The market bets that the US central bank would hike interest rates at a faster pace to combat high inflation were reaffirmed by Fed Chair Jerome Powell on Thursday. In fact, Powell said that a 50 bps hike will be on the table at the upcoming meeting in May and also hinted at a series of rate increases this year. The markets were quick to price in jumbo rate hikes at the next four scheduled meetings in May, June, July and September.

The prospects for rapid US interest rate hikes, along with prolonged COVID-19 lockdowns in China, have raised concerns about slowing global growth and tempered investors' appetite for riskier assets. This, in turn, boosted demand for traditional safe-haven assets, including the greenback. Apart from this, weaker iron ore prices further collaborate to drive flows away from the perceived riskier and the resources-linked aussie.

With the latest leg down, the AUD/USD pair has now retreated over 500 pips from the YTD peak, around the 0.7660 region touched earlier this April. The ongoing downward trajectory seems strong enough to drag spot prices further towards the 0.7100 round-figure mark. That said, extremely oversold conditions on intraday charts warrant some caution for bearish traders amid absent relevant market moving economic releases.

Technical levels to watch

FX Strategists at UOB Group Quek Ser Leang and Lee Sue Ann noted NZD/USD risks a probable drop to the 0.6530 region in the next weeks.

Key Quotes

24-hour view: “We highlighted last Friday that NZD could ‘weaken further to 0.6700, possibly 0.6675’. We clearly underestimated the downward momentum as NZD plunged to a low of 0.6627 before extending its decline during Asian hours. From here, NZD could drop below 0.6590. The next support at 0.6530 is unlikely to come under threat. Resistance is at 0.6640 followed by 0.6675.”

Next 1-3 weeks: “Last Friday (22 Apr, spot at 0.6725), we highlighted that downward pressure is building again and that NZD could decline to 0.6675. While our view for NZD to weaken turned out to be correct, we did not expect the rapid manner by which NZD plunged to 0.6627. Downward momentum has improved considerably and NZD could weaken further to 0.6590. A break of this support would shift the focus to the yearto-date low near 0.6530. On the upside, a breach of 0.6715 (‘strong resistance’ level) would indicate that NZD is unlikely to weaken further.”

According to preliminary readings from CME Group, open interest in gold futures markets rose by around 1.3K contracts on Friday, reversing at the same time three consecutive daily drops. In the same line, volume went up for the second session in a row, now by more than 22K contracts.

Gold could recede to $1900

Friday’s downtick in prices of the ounce troy of the yellow metal was in tandem with rising open interest and volume, favouring the continuation of the leg lower in the very near term. That said, the next level to focus on for gold comes at the $1900 mark per ounce.

Following a consolidation phase at around $1,950 in the second half of the week, XAU/USD faced renewed bearish pressure on Friday and ended up nearly 2% down on a weekly basis. Bulls are set to remain on sidelines ahead of key US data, FXStreet’s Eren Sengezer reports.

Gold's volatility could rise on US Q1 GDP and March PCE inflation data

“Markets expect the US economy to expand at an annualized rate of 1% in Q1 following the 6.9% growth recorded in the fourth quarter of 2021. In case the GDP reading surpasses analysts’ forecast, this would confirm the Fed’s view that the economy will be able to handle aggressive tightening. On the other hand, a disappointing GDP print could cause the dollar to lose interest and open the door for an XAU/USD recovery.”

“On Friday, April inflation data from the eurozone will be watched closely by market participants. A hotter-than-expected inflation reading could fuel a rally in EUR/USD. In such a scenario, the selling pressure surrounding the dollar should help gold edge higher.”

“The US Bureau of Economic Analysis will release the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, on Friday. Core PCE Price Index is forecast to edge lower to 5.3% on a yearly basis in March from 5.4% in February. A soft PCE inflation figure should weigh on the dollar, supporting gold, and vice versa for a stronger result.”

A streak of hawkish Riksbank speeches alongside surprisingly high inflation prints have paved the way for front-loaded rate hikes and contributed significantly to the SEK rally. The EUR/SEK pair could test 2022 lows if the Riksbank hike rates at its upcoming meeting on Thursday, April 28, economists at Danske Bank report.

Riksbank’s talk (and walk) pulls EUR/SEK lower

“We stick to June as our base case but admit the door is wide open for a 25bp rate hike in April and that it is a close call. While April looks by and large-priced in, we have argued that an April hike should send EUR/SEK lower, challenging 2022 lows and thus the 10.20-40 range and possibly reaching our 6M 10.10 target earlier than anticipated.”

“If April is a meeting that is used to signal a series of hikes starting in June, the knee-jerk reaction might be to push EUR/SEK slightly higher. However, the monetary policy-implied krona outlook is not only about the first hike but also the trajectory, and proportional to how much the RB allows itself to deviate from ECB. If it signals a series of hikes starting in June, we believe EUR/SEK remains a sell-on rallies.”

“Finally, a baby step revision to, say, 2023 seems very unlikely to us, an outcome that could send EUR/SEK sharply higher even though it would probably not be credible. That is, pricing would continue to be ‘ahead of’ the RB, limiting the upside.”

The renminbi is getting weaker and weaker. In the opinion of economists at Commerzbank, it is time to ask how much of the past CNY strength is justified medium to long-term.

Everyone seems to have overcome the pandemic now, except for China

“It does seem surprising that everyone seems to have overcome the pandemic now, except for China. I leave it to the China experts to judge whether this is due to the inability of Chinese public health policy, political stubbornness which prevents the use of effective vaccines, or whether Chinese politicians are quite happy to create social stress which seems to justify the use of interventions on an unprecedented scale.”

“The only thing that is relevant from the FX market’s point of view is: it is high time to look through the export boom that caused CNY strength in the past and to ask how much of the past CNY strength is justified medium to long-term. The fact that this different approach has come so suddenly does not exactly say much about the far-sightedness of the FX market. But better late than never…”

• GBP/USD remains vulnerable despite oversold on the daily chart.
• Risk-aversion, Fed-BOE contrast and weak UK data keep the GBP undermined.
• Descending triangle breakdown opens floor towards 0.2650 pattern target.

GBP/USD is on a downward spiral towards 1.2700, as bears remain unrelenting following Friday’s 200-pips sell-off from 1.3035 levels.

Aggressive Fed’s tightening expectations, China's covid lockdowns and a likely EU embargo on the Russian oil imports dent the investors’ sentiment on Monday, as the safe-haven US dollar catches up on its extended rally. The dollar’s strength combined with risk-aversion adds to the weight on the high-beta pound.

Meanwhile, the Fed-BOE monetary policy divergence got widened further after the UK Retail Sales and S&P Global Preliminary Services PMI disappointed in the reported month. The central banks’ contrast will continue to remain a headwind for cable.

Looking at the daily chart, GBP/USD’s sell-off yielded a downside break from a descending triangle formation after the price closed below the 1.2975 triangle support on Friday.

In light of the triangle breakdown, cable remains on track to test the pattern target measured at 1.2650, as the 1.2700 level appears at risk, as of writing.

The 14-day Relative Strength Index (RSI) has entered into the oversold region, suggesting that a pullback cannot be ruled out in the near term.

Although the way the sellers remain in full form, bearish exhaustion appears elusive. Should the pair attempt a rebound, recapturing the 1.2800 barrier will be critical.

Further up, the daily highs of 1.2842 could be put to test.  

GBP/USD: Daily chart

GBP/USD: Additional technical levels

Markets are well advanced with pricing in an aggressive rate hike cycle by the Federal Reserve (Fed) and the European Central Bank (ECB). Economists at ABN Amro expect the 10-year US Treasury yields to dip toward 2.7% throughout the rest of 2022.

Expecting lower Euro rates as well as US rates

“We judge that markets run ahead of itself and we expect repricing of central bank hikes downwards in both the US and the Eurozone. This would, in turn, result in lower Euro rates as well as US rates.”

“We expect the 10y US Treasury yields to drop from around 2.9% to 2.7% during the course of this year.”

The election in France – what does it mean for the euro? Nobody seems to have seen the election results as an incentive to trade EUR/USD at higher levels as Emmanuel Macron won the run-off against Marine Le Pen with only 58.5% of voters endorsing him for a second term (compared to 66% in 2017), economists at Commerzbank report.

Every five years at the latest there is considerable event risk for the eurozone and its single currency

“The fact that more than 40% of the population gave their vote to an anti-European in France means that every five years at the latest there is considerable event risk for the eurozone and its single currency.”

“I do not expect that we might see another Macron euro (EUR appreciation). More than 40% voting in favour of an anti-European candidate was simply too frightening for that to happen.”

Economists at ABN Amro expect the European Central Bank (ECB) to disappoint markets while the Federal Reserve (Fed) is set to meet market expectations. Therefore, the EUR/USD pair should extend its decline.

Outperformance of the US economy to have a downward effect on EUR/USD

“Our views of the Fed are roughly priced in by the market but our view on the ECB is for less aggressive monetary policy tightening than financial markets now expect. If some of the expected rate hikes by the ECB are priced out, the euro will likely decline.”

“The outperformance of the US economy compared to the eurozone economy should also have a downward effect on EUR/USD.”

Gold Price keeps pushing lower. As FXStreet’s Dhwani Mehta notes, $1,900 could be next key support as bears refuse to give in.

More downside eyed in the week ahead

“The Fed expectations and the dollar’s price action will continue to have a significant impact on XAUUSD amid the Fed’s ‘blackout’ period and a lack of first-tier US economic data. Incoming Russia-Ukraine headlines will be eyed after Ukrainian President Volodymyr Zelenskyy met with US Secretary of State Blinken and Defense Secretary Austin on Sunday.”

“If sellers manage to gain a foothold below the $1,915 level, then a further sell-off to the $1,900 mark will be in the offing. The next stop for bearish traders is envisioned at the March lows of $1,890.”

“Any recovery attempts are likely to meet the initial supply at the 50-Daily Moving Averages (DMA) of $1,937, above which recapturing the 21-DMA at $1,943 will be critical for the additional upside. The $1,950 psychological level will be the level to beat for gold bulls.”

• The exploding of the Darvas Box chart formation will imbalance the asset.
• Declining 20 and 50-period EMAs claim that the downside is intact.
• The RSI (14) is on the verge of slipping below 40.00.

The EUR/USD pair is experiencing an open-rejection reverse trading session on Monday. The asset opened almost flat at 1.0806 and moved higher to 1.0815 but responsive sellers dragged the pair below the opening price to a low of 1.0772. The pair has been trading lower for the past few trading sessions after failing to sustain above the psychological resistance of 1.0900 last week.

On a four-hour scale, the asset is forming a Darvas Box chart pattern, which is plotted in a range of 1.0763-1.0940. An explode of the Darvas Box chart pattern will result in an expansion of volumes and volatility.

The 20- and 50-period Exponential Moving Averages (EMAs) at 1.0812 and 1.0832 respectively continue to scale lower, which signals that a bearish bias is intact.

Meanwhile, the Relative Strength Index (RSI) (14) is on the verge of slipping below 40.00, which will bring a fresh bearish impulsive wave.

A slippage below monthly lows at 1.0758 will drag the asset towards the 24 March 2020 low at 1.0721, followed by a two-year low at 1.0639.

On the contrary, the euro bulls can dictate the asset if it oversteps above the 150-EMA at 1.0908. This will send the asset towards the March 22 and March 31 highs at 1.1046 and 1.1185 respectively.

EUR/USD four-hour chart

• USD/INR has scaled above monthly highs at 76.59 despite falling oil prices.
• Solid DXY amid progressive bets over an aggressive Fed rate hike has pushed the asset higher.
• An intense sell-off in the Indian equities has resulted in the outflow of foreign funds.

The USD/INR pair is advancing higher as the US dollar index (DXY) strengthens on a downbeat market mood and foreign fund outflows. The asset has overstepped its monthly highs of 76.59 despite falling oil prices.

Risk-off impulse due to uncertainty over the interest rate decision by the Federal Reserve (Fed) in May has improved the appeal of safe-haven assets. The DXY has comfortably established above the round level resistance of 101.00 and is aiming higher as investors are betting over an ultra-tight monetary policy by the Fed along with hawkish guidance for the rest of the year. Meanwhile, the impact of the global sell-off in equities has also been advanced to the Indian equities. A sheer downside in the Indian indices has resulted in the outflow of foreign funds, which has also dampened the demand for the Indian rupee.

Meanwhile, oil prices have taken a hit after the fears of a slump in the aggregate demand renewed. A significant cut in the global growth forecasts by the International Monetary Fund (IMF) has raised concerns over the demand for oil in the global market. Also, the lockdown measures in China to contain the spread of Covid-19 have dented the oil demand. It is worth noting that China is a leading importer of oil. Therefore, a slippage in the demand for oil by the world’s biggest importer will have multiplier effects on the asset. However, the Indian rupee has failed to get benefitted from the oil prices despite having a higher dependency on the oil imports.

Going forward, investors will focus on the release of the US Durable Goods Orders, which will release on Tuesday. A preliminary estimate for the monthly Durable Goods Orders is 1% against the prior print of -2.1%.

• NZD/USD is pressured, down some 0.48% on the way to breaking below 0.66 the figure. 
• Bears are in charge as the US dollar firms at the start of the week. 

NZD/USD has been forced lower at the start of the week as the US dollar rallies. At 0.6605, the kiwi is lower by 0.43% and has fallen from a high of 0.6636 and reached a low of 0.6597. Risk aversion is denting the commodity complex as Covid risks rear their ugly head in the open. 

The Chinese Covid-19 outbreak may have been spreading in Bejing for a week, city authorities said on Saturday at a press briefing who are tracking cases across multiple districts. The capital reported 22 new local cases on Saturday, national health authorities said Sunday morning.

"The city has recently seen several outbreaks involving multiple transmission chains, and the risk of continued and undetected transmission is high. The situation is urgent and grim," municipal official Tian Wei told reporters Saturday. "The whole city must act immediately."

Nevertheless, the central banks will come back into vogue with hawkish rhetoric coming from both the Federal Reserve and the Reserve Bank of New Zealand. ''We now expect the Reserve Bank of New Zealand (RBNZ) to hike the official cash rate (OCR) by 50bps at the May meeting and another 25bps in July to bring the OCR to 2.25%, slightly above neutral (estimated at 2.0%),'' analysts at Standard Charted said. 

However, the Fed is taking up the attention of markets as policymakers express a need for 50-bps rate hikes to the Federal Funds Rates (FFR); even a 75-bps rate hike was considered by the hawkish St. Louis Fed President Bullard. Nomura is also predicting that after a 50 bps rate hike in May, the Fed would follow up with two 75 bps rate hikes in June and July. Fed Chair Powell, was saying last week that a 50-bps rate hike in the May meeting “is on the table.” 

Wang Yiming, a member of the monetary policy committee of the People’s Bank of China (PBOC), call on the government to enact stronger policy measures to stimulate growth above 5% in the second quarter, per Bloomberg.

Key quotes

“Reaching that benchmark in the April-to-June period is critical if China is to meet a government gross domestic product growth target of about 5.5% for all of 2022.”

new challenges facing the economy, including the ongoing war in Ukraine and the risks of rising imported inflation, as well as the Federal Reserve’s aggressive interest rate hike plan.”

“Covid outbreaks in China have also hurt domestic demand and disrupted production and supply chains.”

“The government should make Covid controls more flexible to ensure logistics are smooth, and also strike a balance against relaxing restrictions too much or imposing excessively stringent curbs.”

Market reaction

USD/CNY is extending its vertical rise, now sitting at yearly highs of 6.5414, up 0.60% on the day. Worsening China’s economic growth outlook and fears that strict covid lockdown measures will spread to Beijing are weighing heavily on the domestic currency.

The Chinese yuan posted its worst week since 2015 after witnessing a sharp depreciation on Friday amid the widening US-China yield differential and growth concerns.

• AUD/JPY has slipped near 92.20 amid improvement in safe-haven appeal, which has underpinned yen.
• Lockdown measures in China have resulted in supply chain bottlenecks.
• A profit-booking in the asset after reaching extended levels has brought a sell-off in the currency.

The AUD/JPY pair is falling like a house of cards in the Asian session as the negative market sentiment has underpinned the Japanese yen against aussie. The cross has eroded almost 1% from its previous close on Friday. The pair has carry-forwarded its sell-off on Monday and is likely to find a cushion to near the round level support at 92.00. A vertical downside was recorded in the cross since Thursday after it failed to sustain above the psychological resistance of 95.00.

Aussie bulls have lost strength as the Covid-19 pandemic in China has disrupted the supply chains. The laborious path of the zero-Covid strategy has forced the Chinese authorities to resort to severe lockdown measures, which has affected the aggregate demand and has also challenged the global supply chains. Australia, being the leading exporter to China, is going to hurt amid supply chain bottlenecks, which eventually will affect its fiscal revenues due to a steep reduction in its exports. Also, the antipodean is facing headwinds on a higher preliminary reading of the Consumer Price Index (CPI), which is due on Wednesday. The Aussie inflation is likely to land at 4.6% against the prior figure of 3.5%.  

Meanwhile, the Japanese yen is resisting further weakness broadly. It looks like the Japanese yen is gaining strength on short-coverings as its long-duration weakness has resulted in some profit-booking, which still does not favors an end to its downside.

• USD/CAD is meeting a potential resistance. 
• The bears will not the reversion market structure that has formed on the daily chart. 

At 1.2736, USD/CAD is consolidating near Friday's close after travelling between a low of 1.2699 and a high of 1.2743, higher by some 0.2% on the session so far. From a technical perspective, the price has extended the cycle bull trend on the hourly charts, but the price on the daily chart is at risk of correcting as per the market structure as follows:

USD/CAD daily chart 

The W-formation is a bearish reversion pattern. The price is stalling at an old structure which could prove to be resistance. If so, then the 38.2% Fibonacci that has a confluence with a prior resistance area could be eyed by the bears as a reasonable target area.

Citing nine sources familiar with European Central Bank (ECB) thinking, Reuters reported Monday that the central bank policymakers are eagerly waiting to wind up their asset purchases programme at the earliest so that they can begin raising raise interest rates in July and latest by September.

Key takeaways

"It was just over 2% so in my interpretation all the criteria to raise interest rates have now been met.”

"When (chief economist) Philip (Lane) presented the numbers, people actually clapped."

“Nearly all of the sources said that they see at least two rate hikes this year, but some argued that a third is also possible, although highly dependent on how markets digest its moves.”

Also read: EUR/USD drops below 1.0800, closes Macron win-led bullish open gap

Markets price in around 85 basis points of hikes for this year, so more than three 25 basis point moves, which would put the minus 0.5% deposit rate back in positive territory for the first time since 2014.

• USD/JPY bulls hold the fort near monthly highs. 
• US dollar firms in the open for the last week of trade in April ahead of Fed May meeting. 

At 128.40, USD/JPY holds near monthly highs as the US dollar picks up a bid at the start of the week despite the positive euro and market-friendly outcome of the French elections. DXY is 0.12% higher trading near the highs of the day at 101.277. 

The single currency gained a touch in early Asian markets on Monday following French President Emmanuel Macron's comfortable Sunday defeat of far-right rival Marine Le Pen. Nevertheless, the focus is elsewhere and there were no surprises in the victory, so the euro lost its initial bid which has triggered flows into the greenback. 

Markets are looking ahead to the Federal Reserve meeting at the start of next month as April begins to draw to a close. The Fed chairman Jerome Powell in his testimony at the International Monetary Fund (IMF) meeting last Thursday mentioned that a 50 basis point (bps) interest rate hike on the cards helped to bolster demand for the greenback. 

Powell reported that multi-decade high inflation in the US economy is demanding a quick pace for interest rate elevation, which states that investors should brace for more than one 50 bps rate hike announcement by the Fed this year. It even drove some analysts at major banks to forecast rate increases as high as 75bps. Nomura Holdings Inc. now expects the Fed to lift interest rates by 75 basis points at both its June and July meetings, moves that would follow up on an expected 50 basis point hike in May.

• EUR/USD is back in the red after bulls fail to sustain the recovery momentum.
• Risk-aversion, Lagarde’s comments offset Macron win-induced opening gains.
• German IFO survey eyed amid a relatively quiet start to the US GDP week.

EUR/USD is resuming its downtrend towards the previous week’s low of 1.0761, wiping out all of its early gains triggered by the French Presidential election results.

In doing so, the main currency pair closed out the bullish opening gap of about 50-pips to 1.0841 highs. The main catalyst behind the latest leg lower could be attributed to Sunday’s remarks from European Central Bank (ECB) President Christine Lagarde.

Lagarde said in an interview with CBS TV, "We will be interrupting the purchases of assets in the course of the third quarter, a high probability that we do so early in the third quarter. And then we will look at interest rates and how and by how much we hike them."

Her comments poured cold water on the expectations for a July ECB rate hike, as hinted by other ECB policymakers all through the last week.

Additionally, risk-off flows returned in Asia amid increased concerns over the impact of the aggressive Fed’s tightening on the American corporate sector, as borrowing costs surge. The souring market mood offered extra legs to the ongoing rally in the safe-haven US dollar across its main peers.

In the opening trades, the shared currency spiked nearly 50-pips from Friday’s close versus the US dollar after projections by France’s five main pollsters put incumbent Emmanuel Macron on course to win about 58% of the vote in Sunday’s runoff compared with 42% for Marine Le Pen. 

Looking ahead, the US Q1 Preliminary GDP stands out amid the Fed’s ‘blackout’ period while the ECB commentary will also remain in the spotlight. In the meantime, the German IFO survey due for release later on Monday will be closely followed alongside risk sentiment for fresh trading incentives.

EUR/USD: Technical levels to consider

• Covid cases spreading in China weigh on the oil price. 
• High food and energy prices raise disruption risks and persistent underproduction from OPEC+ is considered bullish. 

US oil is under pressure and down by some 2.5% creating a fresh low on the verge of breaking 99 the figure in West Texas Intermediate (WTI). Oil is sliding amid persistent worries that prolonged COVID-19 lockdowns in Shanghai and now the prospects for stringent restrictions in Beijing. 

The Covid-19 outbreak may have been spreading in the capital for a week, city authorities said on Saturday at a press briefing who are tracking cases across multiple districts. The capital reported 22 new local cases on Saturday, national health authorities said Sunday morning.

"The city has recently seen several outbreaks involving multiple transmission chains, and the risk of continued and undetected transmission is high. The situation is urgent and grim," municipal official Tian Wei told reporters Saturday. "The whole city must act immediately."

However, with respect to risks to the price of oil, analysts at TD Securities argued that ''these forces are transient in nature, and crude oil's impressive resilience in the face of these temporary headwinds highlights that prices are coiling towards a breakout.''

Moreover, the analysts added that the trough in Chinese mobility may already be behind us. ''While the nation continues to battle the spread of Covid-19, our tracking of congestion data for the 15 largest cities in China by vehicle registrations shows a +0.6% increase in mobility on the week (or +1.3% on the month). Demand for energy products is firming once more, driving a tightening in crude oil timespreads and cracks, and energy supply risks should remain elevated.''

The analysts went on to say that the ''persistent underproduction from OPEC+, related to a decade of underinvestment, along with stretched global spare capacity and critically low inventories provide little buffer for any further disruptions. Yet, high food and energy prices raise disruption risks associated with a higher likelihood of unrest across the globe. This informs our decision to re-engage upside in far-dated Brent.''

• AUD/USD has tumbled below 0.7200 on advancing odds of a rate hike by the Fed.
• The negative market sentiment has improved the appeal of safe-haven assets.
• Aussie yearly inflation is seen higher at 4.6% against the prior print of 3.5%.

The AUD/USD pair is witnessing a steep fall in the Asian session as the negative market impulse deepens on advancing chances of a mega-rate hike by the Federal Reserve (Fed) in May. The asset has slipped below the round level support of 0.7200 and is eyeing more downside amid broader weakness in the risk-sensitive currencies.

From the testimony of Fed chair Jerome Powell at the International Monetary Fund (IMF) meeting on Thursday, it is ‘loud and clear that a 50 basis point (bps) interest rate hike by the Fed is on the cards. The monetary policy announcement by the Fed in May will feature a half-of-a-percent rate hike to contain the inflation mess. Along with this, it is highly likely that the Fed could announce a balance sheet reduction program with the agenda of reducing liquidity from the market at a sheer pace. The US dollar index (DXY) has printed a fresh two-year high at 101.33 on Friday as investors are pouring funds into the greenback on uncertainty over the expectation of a hawkish policy environment remaining this year.

On the Aussie front, investors are focusing on the release of Wednesday’s Consumer Price Index (CPI). The yearly Aussie inflation is likely to land at 4.6% against the prior print of 3.5%. While the preliminary reading of quarterly CPI is 1.7% against the previous figure of 1.3%. The Reserve Bank of Australia (RBA) has not elevated its interest rate yet. Therefore, a higher inflation print this time could force the RBA to dictate a constructive interest rate decision.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.4909 vs the last close of 6.5016.

About the fix

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

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

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

• USD/CHF consolidates in a 20-pips range after a juggernaut upside move.
• Fed-SNB policy stance diversion underpinned the greenback against the Swiss franc.
• Investors are expecting more than one 50 bps rate hike by the Fed this year.

The USD/CHF pair is witnessing back and forth moves in early Tokyo in a range of 0.9555-0.9575. The asset has been scaling higher right from the first tick in April on progressing odds of a jumbo rate hike by the Federal Reserve (Fed) in its upcoming monetary policy meet while the Swiss National Bank (SNB) will stick with its ultra-loose monetary policy due to lower aggregate demand.

Inflation is sky-rocketing in the US economy and it won’t be wrong to say that the economy is entering into a prolonged hawkish environment where interest rates will continue to elevate and balance sheet size will reduce drastically in order to squeeze liquidity from the market. For the certainty of the liquidity squeeze, investors should brace more than one 50 basis points (bps) interest rate hike by the Federal Reserve (Fed) this year. Also, the Fed will do the strategic decision-making to return to neutral rates sooner rather than later.

On the Swiss franc front, investors are focusing on the speech from SNB Governor Thomas J. Jordan, which is due on Friday. This will provide insights into the likely monetary policy action by the SNB in its upcoming monetary policy. Meanwhile, investors have shrugged off Swiss’s 13-year high inflation print at 2.2%.

• NZD/USD tumbles below 0.6620 on souring market mood.
• Lower-than-expected inflation in NZ has brought an intense sell-off in the asset.
• The DXY has printed a fresh high at 100.33 on rising odds of Fed’s rate hike.

The NZD/USD pair has slipped below last week’s low at 0.6626 after carry-forwarding the weakness observed on Friday. The asset has recorded a sheer downside from the last two trading sessions after failing to sustain above the round level resistance of 0.6780 on multiple attempts. Risk-off market mood has dampened the demand for the risk-perceived assets and considering the price action, a downward trending move is likely to drag the asset to near yearly lows at 0.6529.

The kiwi has been underperforming against the greenback since the release of the NZ Consumer Price Index (CPI) on Thursday. The yearly NZ CPI landed at 6.9% against the expectation of 7.1% and the previous print of 5.9%.  Lower-than-expected inflation print pressured the kiwi but not lowered the odds of more rate hikes from the Reserve Bank of New Zealand (RBNZ). RBNZ Governor Adrian Orr mentioned in his last monetary policy statement that inflation is soaring high and interest rate elevation is the only measure to reduce the risks of inflation. Therefore, RBNZ policymakers will stick to its hawkish guidance and will bring inflation below the targeted rate of 2% sooner.

Meanwhile, higher odds of a rate hike by the Federal Reserve (Fed) are pushing the US dollar index (DXY) toward the north. The DXY is comfortably auctioning above 101.00 and is expected to advance gains as investors are expecting higher Durable Goods Order this week. The monthly Durable Goods Orders are likely to land at 1% against the prior print of -2.1%. Also, investors will shed themselves behind the greenback to combat uncertainty ahead of the Fed’s monetary policy announcement in May.

The European Union is preparing “smart sanctions” against Russian oil imports, The Times reported on Monday, citing the European Commission’s executive vice president, Valdis Dombrovskis.

“We are working on a sixth sanctions package and one of the issues we are considering is some form of an oil embargo. When we are imposing sanctions, we need to do so in a way that maximizes pressure on Russia while minimizing collateral damage on ourselves,” Dombrovskis told the Times.

Nevertheless, the price of oil is under pressure with WTI down some 1.42% on the sesisons so far at $100.33bbls.

• GBP/USD bears moved in with force and the price is potentially moving into bullish accumulation. 
• The Fibonaccis are drawn and the 38.2% ratio is eyed ahead of the 61.8%.

GBP/USD's parabolic move on Friday may have run out of gas and there are eyes on the 61.8% ratio for the days ahead. The following illustrates the potential for a significant correction across the daily and hourly charts. 

GBP/USD daily chart

The daily chart has left an M-formation behind which is a reversion pattern. However, considering how heavy the drop has been, the formation is overextended, therefore the 38.2% Fibonacci has a higher probability of being reached.

GBP/USD H1 chart

From an hourly perspective, the price is moving within a phase of accumulation and until the meanwhile resistance is overcome, there are still prospects of a lower low for the sessions ahead.