CFD Markets News and Forecasts — 29-03-2022

The Bank of Japan has been intervening in the markets which has seen the yen depreciate significantly this month. 

On Wednesday, they have announced that they offer to buy 600B yen in 3-5 yr JGBs and 725B yen in 5-10 yr JGBs.

This follows a number of days of heavier intervention in the central bank's quest to defend a key yield cap by offering to buy unlimited amounts of 10-year government bonds.

Its ultra-loose policy sent the yen skyrocketing to 125.10 on Tuesday, its highest level since 2015. Today, the price is a touch higher again by 0.24% and popping gin the last hour as the BoJ continues to show its hand. 

• AUD/USD has settled above 0.7500 as progress on the Moscow-Kyiv peace talks underpins risk-on impulse.
• The upbeat market sentiment has improved the demand for risk-sensitive assets.
• Strong Australian Retail Sales have underpinned the antipodean against the greenback.

The AUD/USD pair is breaching its previous balanced profile in which the auctioning was placed in a narrow range of 0.7466-0.7519 on the upside. The pair has displayed a firmer rally after hitting a low of 0.7165 on March 15.

The constructive step towards a ceasefire by the Kremlin and Kyiv has set a positive tone for the market. Risk-on impulse is gaining more traction and eventually, the risk-perceived assets are scaling higher. Russian leader Vladimir Putin has withdrawn some of its troops from the Ukrainian land against an adaptation of neutral status by Ukraine. The former has cut off its military activity in northern Ukraine and Kyiv while Ukraine has promised to abstain from alliances. The roadmap toward a truce between Russia and Ukraine has cheered the market sentiment.

Apart from that, the aussie has been underpinned against the mighty greenback on upbeat Australian Retail Sales, which were reported on Tuesday. The Australian Bureau of Statistics reported monthly Retail Sales at 1.8%, much higher than the preliminary estimate of 1% but in line with the previous figure of 1.8%.

Meanwhile, a dead cat bounce in the US dollar index (DXY) has pushed it towards 98.40 but is likely to lose grounds soon and will find initiative selling further. The odds of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) are stabled amid the decent performance of US JOLTS Job Openings data. The JOLTS Job Opening was recorded at 11.266M, slightly higher than a month earlier figure of 11.263M but modestly higher than the estimate of 11M.

• Auction below the ascending triangle formation is making the loonie bulls hopeful.
• Loonie bulls await a death cross from 50 and 200-period EMAs for further validation.
• The RSI (14) has registered a fresh low around 38.00, which signals a fresh downside impulsive wave.

The USD/CAD pair has tumbled below 1.2500 after failing to turn the strong upside move of Monday into a bullish reversal. The asset is settling below 1.2500 and is likely to extend its losses amid broader weakness in the greenback.

On the daily scale, the USD/CAD has settled below the ascending triangle formation whose upper end is capped around 1.2960 while the trendline of the lower end is placed from 18 May 2021 low at 1.2013. Usually, a violation of an ascending triangle formation on the downside fetches volume expansion and displays wide range ticks.

Loonie bulls await a death cross from 50 and 200-period Exponential Moving Averages (EMAs), which are trading at 1.2662 and 1.2645 respectively. This will put loonie bulls in a dominant position.

Meanwhile, the Relative Strength Index (RSI) (14) has slipped below 40.00 from its previous oscillating range of 40.00-60.00, which signals a bearish move ahead. The RSI (14) has registered a fresh low of around 38.00.

Should the asset drops below Friday’s low at 1.2465, the major will be dragged towards the round level support at 1.2400, followed by the 29 October 2021 low at 1.2328.

On the flip side, greenback bulls can become worthy if the asset surpasses last week’s high at 1.2624, which will send the asset towards March 11 low at 1.2694. Breach of the latter will send the pair towards round level resistance at 1.2800.

USD/CAD daily chart

• The S&P 500, the Dow Jones, and the Nasdaq Composite printed gains on upbeat market sentiment.
• Discussions between Russia and Ukraine improved as a meeting between Putin – Zelenskiy looms.
• Gold, the greenback, and US Treasury yields finished in the red.

US equities ended the Wall Street trading session in positive territory amid an optimistic market mood, as Russia-Ukraine jitters easied, thus boosting market participants’ sentiment. The S&P 500, the Dow Jones Industrial Average, and the heavy-tech Nasdaq recorded gains between 0.97% and 1.84%, finishing at 4,631.60, 35,294.19, and 14,787.13, respectively.

Positive developments in Eastern Europe underpins the market sentiment

The market mood improvement courtesy of developments in the Russia – Ukraine front boosted the prospects of a truce between both countries. Furthermore, Russia’s Medisnky noted that talks had been constructive, and Russia is taking two steps to de-escalate the conflict. Additionally, reports that a Putin – Zelenskiy meeting could be possible, according to the Ukrainian Presidential Advisor Podolyak, as reported by a CNN reporter on Twitter. 

Meanwhile, the US Dollar Index, a gauge of the greenback’s value, ended at 98.410, down 0.69%, while the 10-year US Treasury yield extended its losses, down five basis points at 2.398%, and during the day sat below the 2-year, which now is at 2.372%,  just two-basis point short of inverting the yield curve for the second time in the day.

Sector-wise, the leading gainers were Real Estate, Technology, and Consumer Discretionary, up 2.85%, 2.06%, and 1.54% each. The main loser was Energy which lost 0.44% despite rising crude oil prices.

In the commodities complex, the US crude oil benchmark, WTI, is up 1.58%, trading at $105.39 BPD, while gold (XAU/USD) is down 0.17%, exchanging hands at $1890.15 a troy ounce, pressured by risk appetite.

The US economic docket featured Philadelphia Fed President Patrick Harker crossing the wires. Harker stated that inflation in the US would be around 4% in 2022 and added that the US central bank “misjudged” the effect of fiscal expenditure on inflation.

He added his name to the list of policymakers that do not rule out a 50-bps increase in the Federal Funds Rate (FFR). Harker commented that the QT could add the equivalent of two quarter-point rate increases to Fed tightening.

Technical levels to watch

• USD/CHF slips to near 0.9300 on progress in the Russia-Ukraine peace talks.
• A constructive step by Moscow and Kyiv toward a truce has brought a fresh wave of risk-on impulse.
• The DXY failed to capitalize on upbeat Consumer Confidence and JOLTS Job Openings.

The USD/CHF pair has attracted some significant offers near 0.9375 and has been dropped near 0.9300 as the improved risk appetite of investors fades off the rally in the mighty greenback. The constructive outcome from the Russia-Ukraine peace talks has cheered the market sentiment and a risk-on impulse has underpinned the demand for risk-perceived assets.

The Kremlin is cutting its military activity in northern Ukraine and its capital Kyiv as an initial step to feature a truce. The withdrawal of Russian troops from various parts of Ukraine has indicated a ceasefire between the nations going forward. Meanwhile, Ukraine is adopting a neutral status and has proposed to abstain from joining alliances. It is worth noting that Russia was not dominating the position in those regions however a withdrawal of Russian military activity from Mariupol city will be considered a significant step towards a ceasefire further.

On the dollar front, the US dollar index (DXY) has lost its ground and is oscillating near 98.00 amid an upbeat market mood. The outperformance of US Consumer Confidence and JOLTS Job Openings has failed to provide any material optimism for the greenback. Although, their outperformance has firmed the odds of a 50 basis points (bps) interest rate hike by the Federal Reserve (Fed) in May’s monetary policy.

Apart from the Russia-Ukraine peace talks, investors will focus on US ADP Employment Change and Gross Domestic Product (GDP) Annualized, which are due on Wednesday while the Swizz docket will unfold Swiss National Bank (SNB) Quarterly Bulletin in the same period.

• The DXY sensed selling pressure and slipped near 98.00 on the upbeat market mood.
• Risk-sensitive assets are underpinned amid progress in the Russia-Ukraine peace talks.
• An uptick in US Consumer Confidence shows elevating confidence of individuals in US economic activities.

The US dollar index (DXY) has witnessed a serious plunge near 99.40 after its multiple failed attempts of kissing the psychological figure of 100.00. Souring market mood on obscurity over the progress of the Russia-Ukraine peace talks were providing a cushion to the mighty greenback but risk sentiment turned active after Moscow withdraw some of its troops from northern Ukraine and Kyiv. The initial step toward a ceasefire with Ukraine has cheered the market participants and risk-sensitive assets have witnessed stellar demand from investors. On the Ukraine front, the administration has announced to adopt a neutral status but with a stipulation of international guarantees that it would be protected from attack and proposed not joining alliances or hosting bases of foreign troops.

US Consumer Confidence and JOLTS Job Openings data

The US Conference Board reported Consumer Confidence at 107.2 in March from 105.7, reported a month earlier and a little above the expected 107.0 reading. This showed that the confidence of US individuals in the US economic activities is on elevation. Meanwhile, the JOLTS Jobs Opening landed at 11.266M, slightly higher than the previous print of 11.236M but modestly higher than the estimation of 11M.

Key events this week: ADP Employment Change, Gross Domestic Product (GDP) Annualized, Core Personal Consumption Expenditure, Initial Jobless Claims, Nonfarm Payrolls (NFP), Unemployment Rate, and ISM Manufacturing PMI

Eminent issues on the back boiler: Russia-Ukraine Peace Talks, OPEC Meeting, Fed President John C. Williams speech, European Central Bank (ECB) President Christian Lagarde speech.

• The NZD/JPY finished Tuesday’s session flat, as the Asian Pacific session is about to begin.
• Reports from Eastern Europe shed some light on a meeting between Putin and Zelensky.
• NZD/JPY Price Forecast: Price action over the last two days suggests consolidation lies ahead.

The NZD/JPY grinds lower on Tuesday, although an improved risk appetite as positive news from Eastern Europe suggests that Russia and Ukraine might be finding some agreements in their postures, which could trigger a cease-fire and find a diplomatic solution to the war. At 85.20. the NZD/JPY does not reflect the aforementioned, as the end of the Japanese fiscal year looms, meaning that the yen strengthened on month-end flows.

Market sentiment improved on Tuesday as reports from the Russia - Ukraine front increased the prospects of a cease-fire between both parties. As reported by a CNN reporter on Twitter, it is possible a reunion between Russian President Vladimir Putin and Ukraine’s President Volodymyr Zelenskyy, as stated by Ukrainian President Advisor Podolyak.

The optimistic tone lifted US equities, which ended in the green, gaining between 097% and 2.55%. The so-called “fear index,” the CBOE Volatility Index (VIX), dropped below 20, sits at 18.90, down 3.72%, reflecting confidence in investors.

In the FX space, the low yielder EUR and safe-haven peers benefitted, particularly the Japanese yen.

Aside from this, in the overnight session for North American traders, the NZD/JPY seesawed in the 85.30-80 range. However, late in the European session, it dropped below the 85.00 mark, reaching a daily low at 84.27, recovering later as the New York session ended, reclaiming the 85.00.

NZD/JPY Price Forecast: Technical outlook

The NZD/JPY printed an inverted hammer after a steeper upward move towards 87.00, followed by a regular hammer, but on a lower note, as the close is above the open. Those two candlesticks themselves signal that the upward bias could shift to consolidation, despite that the daily moving averages (DMAs) reside below the spot price.

With that said, the NZD/JPY first resistance would be 85.73. Breach of the latter would expose 86.00, followed by April 2013 high at 86.41, and then the multi-year-high reached on Monday at 86.95.

On the flip side, the NZD/JPY first support would be 85.00. A sustained break could lead towards March 29 low at 84.27, followed by the 84.00 mark, and then October 21, 2021, daily high at 82.50.

• Two-way price action in energy markets following peace talk headlines between Russia and Ukraine.
• WTI falls on the prospects of a cease-fire but rallies due to sceptism.

West Texas Intermediate (WTI) crude oil prices were starting out on the back foot again but managed to stage a recovery from below the US$100 level at the $98.54 spot following traction in Russian & Ukraine peace talks. Russia said it will reduce military activity around the Ukrainian cities of Kyiv and Chernihiv. 

Spot WTI crude oil rallied to a high of $107.81 while for May delivery, the futures closed down US$1.72 to settle at US$104.24 per barrel after earlier touching US$98.44. May Brent crude, the global benchmark, was last seen down US$2.15 to US$110.33.

The moves in oil prices were counterintuitive to the prospect that a ceasefire could be around the corner. Russia indicated the talks could pave the way for a meeting between Russian President Vladimir Putin and his Ukrainian counterpart Volodymyr Zelensky. However, this initially saw Brent crude fall to USD106/bbl, down from USD120/bbl last week.

Coldwater, however, was poured over the good news by US Secretary of State Antony Blinken who expressed scepticism about Russia’s promise to de-escalate its military operations around Kyiv. ''The market is also grappling with the impact of lockdowns in China which are weighing on crude oil demand. A sharp slowdown in mobility in Shanghai, which accounts for 4% of China’s oil consumption, could lower overall consumption in China,'' analysts at ANZ Bank said. 

''OPEC members continued to strike a cautious tone ahead of this week’s meeting. Saudi Arabia and UAE have suggested it doesn’t see the need to accelerate output increases, with several ministers highlighting how their production strategy has stabilised the oil market.''

Meanwhile, with regards to the peace talks, analysts at TD securities said, ''while these factors certainly tame some of the bullish factors present in the crude market, they are unlikely to completely undo the vast array of supply risks that come with self-sanctioning and extremely stretched spare capacity. ..

''Furthermore,'' the analysts added, ''China's zero-Covid strategy may once again translate into a short-lived but sharp hit to mobility, which could in turn boost prices as demand recovers in the aftermath. Despite the knee-jerk correction, the set-up is still ripe for higher energy prices.''

• GBP/USD in a chop as the bulls and bears battle it out within familiar ranges. 
• Bulls need to get above 1.3110 for the near term. 

GBP/USD is stuck in ranges across the time frames without a clear bias one way or the other. The following illustrates this across the weekly, daily and hourly time frame. 

GBP/USD daily chart

As illustrated above, the price has run into the neckline of the formation, a move that was telegraphed in the prior day's analysis as follows:

''The price, however, is being held up at what could be a support zone on the daily chart. This is an old area of resistance and an M-formation could be marked so long as the forthcoming sessions are bullish.''

The analysis is fractal in nature and part of a long-term projection as per the weekly chart:

GBP/USD weekly chart

 While the current week's candle is strongly bearish and arguably engulfing following the weekly dojo candle of last week, there is still time until the close for the price to move higher and even close bullish. However, this would be going against the grain in the futures market as short positions increased for the third week. Additionally, the price has already reached a 38.2% Fibonacci retracement level and prior support of December 2021. Therefore, there is a lot of work to come from the bulls:

Instead, we could see the price break the recent lows and mitigate the imbalance left behind from the summer of 2020 down in the 1.28 areas. 

For the very near term, however, there is an M-formation on the hourly chart:

GBP/USD H1 chart

As seen, the price here has also made a 38.2% Fibo retracement from where the bears appear to be engaging from. However, should there be a move beyond the highs in the 1.3110 area, then the neckline of the formation would be expected to come under pressure near 1.3130. 

• AUD/JPY’s rally eased on Tuesday, with the pair on course to post only its second daily loss since 14 March.
• But after dipping as low as the 91.40s, the pair managed to recover back above above the key 92.00.
• Any pullback towards support in the form of 2017 highs around 90.00 likely to be viewed as a buying opportunity.

The AUD/JPY rally eased on Tuesday, with the pair on course to post only its second daily loss since 14 March after hitting its highest level since mid-July on Monday. Crucially though, after dipping as low as the 91.40s, the pair managed to recover back above the key 92.00 level that had been acting as resistance last week, a sign that the rally isn't dead just yet. At current levels in the 92.30s, the pair still trades with losses on the day of about 0.4%, but the day’s price action will instill some confidence that the sharp rally of recent weeks isn't over yet.

Indeed, as the end of the month and quarter approaches, AUD/JPY looks on course to confirm a historic rally. The pair is up over 10.5% on the month and on course for its best monthly gain since 1995. While signs from the RBA haven't exactly been hawkish, a hawkish repricing of central banks globally (apart from in Japan) and a subsequent sharp rise in global yields (again, apart from in Japan) has sent the pair lurching higher.

The Aussie also continues to benefit from the idea that the Australian economy is disproportionately geared to benefit from the global surge in commodity prices as a result of the Russo-Ukraine war. At the same time, amid recent positive updates regarding Russo-Ukraine peace talks, the risk-sensitive Aussie alsos stands to benefit from the ongoing recovery in global equity markets.

Perhaps the main bearish factor for AUD/JPY at this point is the fact its already come so far in such a short time and is thus looking overbought. A lack of meaningful economic events in Australia and Japan this week mean focus will very much remain on geopolitics, risk appetite and global yields, with any pullback towards support in the form of 2017 highs around 90.00 likely to be viewed as a buying opportunity, with a target (perhaps) of 100.00.

• NZD/USD has surged towards 0.6950 on Tuesday in a risk-on setting. 
• The bulls are lapping up the positives from the Ukraine & Russian peace talks. 

NZD/USD is trading near 0.8% higher on the day in a risk-on setting as the US dollar bleeds out following positive progress in Ukraine and Russian peace talks. The pair has rallied on Tuesday from a low of 0.6875 to a high of 0.6945 so far. 

''While overall FX market volatility has been elevated (with EUR/USD surging 1½ cents before coming back a touch and USD/JPY now about 2½ cents off Monday night’s peak), AUD and NZD have been much calmer against the USD (but more volatile on crosses),'' analysts at ANZ Bank explained.

Meanwhile, Russia promised on Tuesday to scale down military operations around Ukraine's capital and north, while Kyiv proposed Ukraine join the EU while adopting neutral status by not joining NATO. 

This sparked off a risk-on wave during the peace talks that are taking place in an Istanbul palace more than a month into the largest attack on a European nation since World War II. There was a heads up on Monday, however, and was something telegraphed by Financial Times Monday which had already led to an improved risk-on environment for the week. 

''Talks successful enough for a possible meeting between Putin and Zelensky, says Ukrainian presidential advisor Mykhailo Podolyak. “We have documents prepared now which allow the presidents to meet on a bilateral basis," he said.

However, Russia's top negotiator has warned that there is still a long way to go until a mutually acceptable agreement with Ukraine is reached and de-escalation around Kyiv and Chernihiv does not mean a cease-fire. British Prime Minister Boris Johnson said a ceasefire agreement in Ukraine will not be enough to lift British sanctions against Russia. US president, in the same vein, says that the US will keep sanctions. 

In more recent trade, Ukraine's Volodymyr Zelenskyy has said that signals from talks with Russia could be called positive, but these signals don't drown out explosions of Russian shells.

Overall, ''the NZD story is a good one, but having “gone early” with the recovery and hikes, it may not be as good as the AUD story; so, could we be in for a period of slight gains against the USD but losses against the AUD as the latter re-awakens,'' analysts at ANZ Bank said. 

What you need to take care of on Wednesday, March 30:

The dollar plunged alongside other safe-haven assets amid renewed hopes for a diplomatic solution to the Russia-Ukraine conflict. Risk appetite surged following headlines indicating a de-escalation of Russian attacks around Kyiv and Chernihiv, as announced by Russia's mediator Vladimir Medinsky.

Ukraine has suggested a new security guarantee system, with Turkey as one of the main potential security guarantors. If the security guarantee system works out, then Ukraine will agree to neutral status, including not to host foreign military bases in its territory. Kyiv wants to hold a referendum on Ukraine's neutrality.

Meanwhile, the US yield curve temporarily reverted, as the 2-year and the 10-year Treasury noted were hovering around 2.40%, although that on the shorter note retreated to 2.35%. An inverted yield curve is usually seen as a sign of recession.

Wall Street rallied following its overseas counterparts on easing concerns related to the Eastern European crisis.

Central banks and potential rate hikes returned to the spotlight. Financial markets are pricing in a 60 bps hike in Europe, while US Philadelphia Federal Reserve President Patrick Harker noted that rate hikes should be methodical. He said he would not rule out a 50 bps hike in May but would not commit either. Finally, he added that the balance sheet reduction could be equivalent to two quarter-point rate increase.

The EUR/USD pair trades just below the 1.1100 threshold, maintaining its bullish potential. GBPUSD struggled to post gains, now trading at around 1.3100. Commodity-linked currencies find room to advance at the end of the American session, with AUD/USD trading above 0.7500 and USD/CAD in the 1.2480 price zone. The USD/JPY pair settled around 122.90.

Commodity prices were firmly down, with WTI currently trading at $104.30 a barrel. Spot gold fell to $1,890.05 a troy ounce, to later bounce to settle around $1,917.00.

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• The British pound gave back Monday’s gains amid a risk-on market sentiment.
• A positive market mood failed to underpin the GBP/JPY cross currency.
• GBP/JPY Price Forecast: Upwards, but a bearish engulfing candlestick pattern looms.

GBP/JPY erases Monday’s 300 plus pip rally gains and is set to form a bearish engulfing candlestick pattern, which means that the pair is about to be under downward pressure. However, a daily close below 160.87 is needed to confirm its validity. At the time of writing, the GBP/JPY is trading at 161.01.

The market mood has improved since the mid-European session, as European and US equity indices reflect. Discussions between Russia and Ukraine seem to progress. Latest developments in Eastern Europe suggest that a Putin – Zelenskiy meeting would likely happen, as Ukrainian presidential advisor Podolyak said, according to a CNN reporter via Twitter.

Overnight, the GBP/JPY clung to the 50-hour simple moving average (SMA), followed by a slump during the European session, which carried on to the North American one, witnessing a daily low at 160.25.

GBP/JPY Price Forecast: Technical outlook

The GBP/JPY retreated below 161.00, but the bias remains upward. Nevertheless, if the GBP/JPY records a daily close below 160.87, it would form a bearish engulfing candlestick pattern, suggesting that downward pressure is mounting on the GBP/JPY.

If that scenario plays out, the GBP/JPY first support would be 160.00. Once cleared, the next demand zone would be March 23 daily low at 159.03, followed by 158.00.

Otherwise, the GBP/JPY first resistance would be 162.00. Breach of the latter would expose March 29 daily high at 162.71, followed by 163.00 and then 164.00.

Technical levels to watch

• Gold has rebounded well from earlier session lows in the $1890 area and is back to the mid-$1910s.
• But a sustained rebound is unlikely against the backdrop of positive Russo-Ukraine updates and yields that may remain buoyant.

Spot gold (XAU/USD) prices have enjoyed a healthy rebound from earlier session lows in the $1890 area during US trade and are now back to trading near $1915, with on-the-day losses brought back to just 0.3% versus 1.6% at earlier lows. The rebound was in part facilitated by the presence of strong support in the $1890 area in the form of the 50-Day Moving Average (at $1892) and earlier monthly lows at $1895. This encouraged buyers to pile back, with a sharp pullback from recent highs across the US yield curve also helping.

There was a lot of focus on the first inversion of the US 2-year/10-year yield spread since 2019, a classic recession indicator. Indeed, anxiety regarding US economic weakness in wake of the Fed’s recent hawkish shift in policy guidance and amid ongoing global economic uncertainty as a result of the ongoing Russo-Ukraine conflict has likely helped to support precious metals during US trade.

But in wake of Tuesday’s positive Russo-Ukraine developments that included “constructive” talks which appeared to make progress towards a peace deal and a Russian announcement of scaling down military activities in Ukraine’s north, it remains far to soon to bet on a sustained XAU/USD rebound back to earlier weekly highs in the $1960 area. Further positive Russo-Ukraine headlines later this week could well inject bearishness into gold markets, as was the case momentarily on Tuesday.

There is also a barrage of US data to consider (official March jobs report and ISM surveys, plus Core PCE), all of which should continue to indicate a hot economy, thus supporting the Fed’s recent policy shift. This is likely to keep the trajectory of US bond yields pointed upwards, with higher borrowing acting as a headwind to non-yielding precious metals via a higher “opportunity cost”. Rallies back towards the mid-$1900s may well be sold.

• AUD/USD is moving in on the key hourly resistance. 
• Risk sentiment remains positive and unhinged by yield curve inversions. 
• Ukraine & Russian peace talks take precedence and lift market spirits. 

At 0.7510, AUD/USD is attempting to move higher as it takes on a wall of resistance near 0.7520. The price has travelled from a low of 0.7456 to a high of 0.7518 so far.

The risk sentiment is making for a better environment for the high beta currency as US stocks climb on Tuesday, lifted by signs of progress in peace talks between Russia and Ukraine. However, the US Treasury yield curve has flashed warning signs for the economy as curves invert, keeping a lid on the risk-on mood. 

Moscow has decided to drastically cut military activity around Kyiv and northern Ukraine, while Ukraine proposed adopting a neutral status but with international guarantees that it would be protected from attack. This was something telegraphed by Financial Times Monday which had already led to an improved risk-on environment before Aussie Retail Sales beat expectations and started to lift the currency also. 

Retail Sales increased by 1.8% MoM in February, resulting in annual growth of 9.1% YoY. The strong monthly result was driven by social spending, which recovered as Omicron caution dissipated in most states, analysts at ANZ Bank said. ''Strong discretionary spending in February is a good sign of household financial wellbeing ahead of intensifying inflation.''

Meanwhile, the Reserve Bank of Australia's tightening expectations continues to rise. ''WIRP suggests liftoff is fully priced in for the June 7 meeting now.  At the beginning of March, liftoff was priced in for the August 2 meeting,'' analysts at Brown Brothers Harriman argued. 

''Swaps market sees 225 bp of tightening over the next 12 months and another 125 bp over the following 12 months that would see the policy rate peak near 3.75%, up from 3.5% at the start of the week. ''

The analysts noted that AUD is nearing a test of the October high near 0.7555. ''A break above that would set up a test of the May 2021 high near 0.7890.  it is the best performing major YTD, followed by NOK, CAD, and NZD.''

US recession on the cards? 

In the US, there are worries that a recession is on the way as the US 5s30s curve has inverted for the first time since 2006 and the 2s10s curve has inverted for the first time since 2019 as the market prices in faster rate hikes.

''Historically, a US recession tends to follow a year after the curve inverts, though the variance is large and there are occasional false positives,'' analysts at TD Securities said, adding:

''The 10y-2y curve, which is another common metric, implies a 37% probability of recession within a year and a 43% probability one- to two-years ahead at current levels. The 30y-5y curve has actually moved in the opposite direction of late, with current levels suggesting a 19% recession chance in one- to two- years.''

Ukraine & Russian peace talks

Meanwhile, during the highly anticipated start of fresh peace talks, Russia promised on Tuesday to scale down military operations around Ukraine's capital and north, while Kyiv proposed Ukraine join the EU while adopting neutral status by not joining NATO. 

The peace talks are taking place in an Istanbul palace more than a month into the largest attack on a European nation since World War II. 

''Talks successful enough for a possible meeting between Putin and Zelensky, says Ukrainian presidential advisor Mykhailo Podolyak. “We have documents prepared now which allow the presidents to meet on a bilateral basis," he said.

Nevertheless, Russia's top negotiator said that there is still a long way to go until a mutually acceptable agreement with Ukraine is reached and de-escalation around Kyiv and Chernihiv does not mean a cease-fire. British Prime Minister Boris Johnson said a ceasefire agreement in Ukraine will not be enough to lift British sanctions against Russia. US president, in the same vein, says that the US will keep sanctions.

Looking ahead for the week, US Nonfarm Payrolls data will take centre stage as a meanwhile distraction t the Ukraine crisis on Friday. ''Employment likely continued to advance in March following two strong reports averaging +580k in Jan and Feb,'' analysts at TD Securities said. 

''That said, we expect some of that boost to fizzle, though to a still firm job growth pace of +350k. Indeed, job gains should lead to a new drop in the unemployment rate to a post-COVID low of 3.7%. We also expect wage growth to slow to a still firm 0.3% MoM pace.''

• Gains in the EUR/USD lift the EUR/GBP, gaining 1.01%.
• The market sentiment improvement benefits the EUR, as it gains against most G8 currencies.
• EUR/GBP Price Forecast: Neutral biased but a daily close above the 200-DMA would shift the bias to neutral upwards.

The EUR/GBP is rallying sharply from Monday’s highs and is probing the 200-day moving average (DMA), which in the case of being broken and then a daily close achieved, would suggest a shift in the EUR/GBP bias. At the time of writing, the EUR/GBP is trading at 0.8470.

An upbeat market sentiment keeps safe-haven peers pressured. In the case of the EUR/GBP, the GBP/USD has remained downward pressured, losing 0.04% in the day. Contrarily, the EUR/USD advances almost 1%, a tailwind for the EUR/GBP.

Overnight, the EUR/GBP was subdued in the Asian Pacific session, within the 0.8383-90 range. However, as European traders got to their desks, the shared currency began its 100-rally of the day, breaking the 0.8400 mark on its way to the daily high at 0.8482.

EUR/GBP Price Forecast: Technical outlook

The EUR/GBP daily chart depicts a neutral bias. However, as mentioned in the first paragraph, a daily close above the 200-DMA which sits at 0.8467, would open the door for further gains and shift the bias to neutral-upwards.

If that scenario plays out, the EUR/GBP first resistance would be 0.8500. Breach of the latter would expose the confluence of a descending channel top-trendline and December 20, 2021, 0.8550, a daily high, followed by December 8, 2021, a daily high at 0.8599.

On the flip side, the EUR/GBP first support would be 0.8400. Once cleared, the next demand zone would be March 11 daily low at 0.8360, followed by February 21 daily low at 0.8309.

Technical levels to watch

• EUR/USD peace talk rally is faded as the US dollar recovers. 
• Ukraine and Russian peace talks are making positive progress but risk of global recession looms. 

Trading at 1.1078 currently, EUR/USD is back under pressure in the mid-US session trading in the green by some 0.87% after correcting from the peace talk rally highs of 1.1137, its highest level since March 17. 

During the highly anticipated start of fresh peace talks, Russia promised on Tuesday to scale down military operations around Ukraine's capital and north, while Kyiv proposed Ukraine to join the EU while adopting neutral status and not join NATO. The Financial Times had previewed such a proposal on Monday which led to a bout of risk-on during the latter part of the New York session. 

This was the first taste of any real progress towards negotiating peace between the two nations and the markets have reacted in kind. Their talks took place in an Istanbul palace more than a month into the largest attack on a European nation since World War II. 

''Talks successful enough for a possible meeting between Putin and Zelensky, says Ukrainian presidential advisor Mykhailo Podolyak. “We have documents prepared now which allow the presidents to meet on a bilateral basis," he said.

In response, the safe-haven US dollar fell against a basket of peer currencies on Tuesday as measured by the DXY index which is trading off the lows of 98.037 and back to 98.485 currently. Meanwhile, steps toward a ceasefire or potential peace deal in Ukraine would be expected to significantly support the euro as Europe is seen suffering a hefty economic hit from the conflict and rises in energy prices.

Nevertheless, the markets are very much driven by headlines and the volatility is starting to wipe out some of the risk-on gains made at the start of the day. Some of the subsequent announcements have not been so positive, with Russia's top negotiator saying that there is still a long way to go until a mutually acceptable agreement with Ukraine is reached and de-escalation around Kyiv and Chernihiv does not mean a cease-fire.

British Prime Minister Boris Johnson said a ceasefire agreement in Ukraine will not be enough to lift British sanctions against Russia. US president, in the same vein, says that the US will keep sanctions strong and help aid Ukraine in its military forces. 

Yield curve inversion implications

Additionally, there are concerns out there in markets that a recession is on the way as the US 5s30s curve has inverted for the first time since 2006 and the 2s10s curve has inverted for the first time since 2019 as the market prices in faster rate hikes.

''Historically, a US recession tends to follow a year after the curve inverts, though the variance is large and there are occasional false positives,'' analysts at TD Securities said.

Additionally, the analysts explained, ''the 5s30s inversion signals the market concern that the Fed might choose inflation credibility over achieving a soft landing, though it is too early to draw this conclusion. The Fed is sounding hawkish right now, but if growth begins to slow, some of the Fed's urgency to tighten will fade. "Nimble" could become consistent with a pause once the Fed reaches neutral. Note that QT will also be tightening financial conditions in the background.''

For now, however, the interest rate differentials between the US, EU and other nations, such as Japan, is underpinning a strong safe-haven greenback and the meanwhile peace talk relief rally in the euro may struggle to maintain traction.

''In comparison, the steepening in the US has moved way ahead of that in the EU, Japan, and the UK, and is only comparable to Australia,'' analysts at Brown Brothers Harriman said. ''This supports our view that growth differentials (and inflation expectations) are starting to play an increasingly larger role in asset prices as investors become more confident that the vaccine-led normalization is within sight.'' 

''While we are getting increasingly confident that the US dollar can carve out a bottom in the first quarter, the recovery won’t be a straight line as the US data can continue to disappoint.  That said, the vaccine rollout here continues and should allow the US economy (and the dollar) to outperform in the coming months.''

• USD/JPY’s pullback from Monday’s 125.00 highs continued on Tuesday after Japanese policymaker jawboning triggered profit-taking.
• But the pair bounced at 122.00 and many strategists don’t expect a lasting pullback given the Fed’s recent hawkish shift.

USD/JPY’s sharp pullback from multi-year highs as traders mull recent jawboning from Japanese policymakers and assess whether the recent rally has gone too far continued on Tuesday, with the pair at one point testing the 122.00 level during US trade. The pair has since bounced back into the upper 122.00s, but at current levels in the 122.70s still trades lower by about 0.8% on the day and about 1.9% lower versus Monday’s highs around 125.00.

The BoJ this week stepped up its Yield Curve Control efforts to defend the upper limit of its 10-year target range (at 0.25%). The increased purchases mark an increase in monetary stimulus at a time when other major global central banks like the Fed, BoE and ECB are removing such stimulus and helped power the recent melt-up in USD/JPY. But as the pair hit its highest levels since 2015 on Monday at 125.00, and as its 14-day Relative Strength Index (RSI) hit its highest levels since 2014 above 87.00, traders warned that profit-taking and a technical correction was likely.

That profit-taking on USD/JPY long appeared triggered by comments from Japanese Finance Minister Shunichi Suzuki, who said the government would closely watch currency moves to prevent a "bad" weak yen that hurts the economy. “While the comments from Japanese officials overnight are unlikely to reverse the yen weakening trend on their own, they should at least help to slow the recent fast pace of yen selling” said analysts at MUFG.

Strategists at UniCredit said that “the divergence between the US and Japan’s monetary policy will continue to weigh on the yen, which we expect to stabilize at around 125 versus the dollar and probably even beyond that level”. “Our view on the greenback remains positive due to the Federal Reserve’s hawkish stance,” they added. Perhaps it shouldn’t have come as too much of a surprise then to see USD/JPY find support at 122.00. As a barrage of US data (including the latest NFP number) looms and as Fed policymakers throw their weight behind the Fed’s new hawkish rate guidance, a retest of this week’s highs at 125.00 looks very much on the cards.

The difference between the US 2-year (just under 2.40%) and 10-year (just under 2.40%) yields just fell below 0.0% (or "inverted") for the first time since 2019. Over the past 70 years, this has been a reliable indicator that a recession in the US economy is coming within the next 18-24 months.

The 2s/10s inversion comes after multiple inversions on other key parts of the US curve. Other key spreads like the 5s/10s and 5s/30s have been inverted for a while now. Market participants often interpret an inverted yield curve as a sign that monetary policy in the short-term is overly tight, or more broadly, as a reflection of expectations for weaker longer-term growth versus short/medium-term growth. 

• The USD/CAD erases Monday’s gains and trades near its close.
• A risk-on market mood weighed on the USD, thus slightly boosting the CAD.
• The Fed and BoC to hike rates aggressively in 2022, as shown by money market futures.
• USD/CAD Price Forecast: The pair is downward biased.

The USD/CAD is barely flat during the North American session after a volatile Monday’s session, which pushed the pair towards a weekly high at 1.2592, retreating afterward towards the 1.2510 area. At the time of writing, the USD/CAD is trading at 1.2514.

The geopolitical situation in Ukraine progressed, lifting the market mood

On Tuesday, the market sentiment improved as talks between Russia and Ukraine have been constructive, said the Russian negotiator Medisnky. Additionally, reports emerged that a Putin – Zelenskiy meeting could be possible. At the same time, the Ukraine negotiator noted that Ukraine’s neutral status would mean that there would not be any foreign military bases in the country.

Meanwhile, Philadelphia Fed President Patrick Harker crossed the wires. Harker noted that inflation in the US would be around 4% in 2022 and added that the US central bank “misjudged” the effect of fiscal expenditure on inflation. He added to the list of policymakers that do not rule out a 50-bps increase to the Federal Funds Rate. Harker commented that the QT could add the equivalent of two quarter-point rate increases to Fed tightening.

Money market futures expect six more rate hikes by the Federal Reserve in 2022. In fact, some market players expect two 50 bps increases in the May and June meetings. Meanwhile, regarding the Bank of Canada, money markets are pricing in “between 200 and 225 basis points in the six remaining interest rate announcements in 2022, up from about 140 basis points before a blockbuster employment report this month,” according to Reuters.

USD/CAD Price Forecast: Technical outlook

The USD/CAD downfall appears to have bottomed, though the Relative Strength Index (RSI), at 38.05, almost horizontal, never reached oversold conditions, meaning that the USD/CAD might consolidate before resuming downwards.

That said, and once the daily moving averages (DMAs) reside above the spot price, the USD/CAD path of least resistance is downwards. The USD/CAD first support would be 1.2500. Once cleared, the next demand zone to test would be March 25, 1.2465 daily low, followed by November 10, 2021, daily low at 1.2386, and then October 2021 lows at 1.2288.

• Pound among the worst G10 performers during the American session.
• DXY trims losses as optimism starts to fade.
• GBP/USD unable to sustain a recovery, 1.3050 exposed.

The GBP/USD gave up all gains and dropped back under 1.3100 after reaching earlier a daily high at 1.3159. The dollar gained strength as Wall Street trimmed gains, while the pound weakened.

Data offset by market sentiment

The rally in stocks at the beginning of the US sessions pushed the dollar to fresh lows across the board. During the last hours, the optimism faded and the greenback recovered momentum. Still, lower US yields could limit the dollar’s upside. The 10-year yield is under 2.40%, down 2.60% so far on the day.

US data came in above expectation on Tuesday. The Jobs Opening and Labor Turnover Survey (JOLTS) showed job positions at 11.26 million (consensus 11.0 million); The S&P/Case-Shiller Home Price Index rose 19.1% in January from a year ago, above the 18.4% of market consensus. On the negative front, Conference Board’s consumer confidence index declined to 107.2, the lowest level in thirteen months. The ADP employment report is due on Wednesday and the Non-farm Payroll report on Friday.

Analysts at ING point out that “strong and vibrant housing and jobs markets reinforce the message that the Fed has a lot of work to do to regain control of inflation pressures. Consumer confidence is softening, presumably on the back of higher prices, but at least for now, households are happy to keep spending. The case for a series of 50bp Fed rate hikes is growing.” Fed’s Harker mentioned on Tuesday the central bank “collectively underestimated” the impact of fiscal spending on inflation.

The pound continues to show weakness after Bank of England Governor Bailey on Monday offered a cautious tone, warning about economic uncertainty. Also, the currency is being affected by the rally of EUR/GBP that trades above 0.8465, at the highest level since early March.

Technical levels

• The USD/CHF erases Monday losses courtesy of market sentiment improvement and a softer USD.
• Falling US Treasury yields undermine the greenback, as the DXY falls below the 99.00 mark.
• USD/CHF Price Forecast: Upward biased in the daily chart, but a double top in the hourly chart, suggest a correction towards 0.9280.

The USD/CHF erases Monday’s gains amid an improved market mood courtesy of advancement in peace talks in Eastern Europe and a softer US dollar, underpinned by falling US Treasury yields. At the time of writing, the USD/CHF is trading at 0.9304.

Reflection of the greenback’s weakness is portrayed by the US Dollar Index, falling almost 1%, sitting at 98.246. US Treasury yields eased from highs, a headwind for the USD/CHF.

The USD/CHF remained buoyant overnight in the Asian and early European session and reached a daily high at 0.9373. But headlines that Russia-Ukraine negotiations progressed, and the possibility of a Putin – Zelenskiy reunion, improved the market mood; thus, traders rushed out from US dollars which lifted the prospects of the Swiss franc, dragging the pair towards lows of 0.9310s.

USD/CHF Price Forecast: Technical outlook

The daily chart depicts the USD/CHF as upward biased, but Tuesday’s price action threatens to engulf the previous bullish candle, which could lead to further losses.

Meanwhile, the USD/CHF 1-hour chart depicts the formation of a double top near the 0.9373 area, double-tested on Monday and Tuesday, which pushed the USD/CHF below the double-top neckline, which is located at 0.9326, exposing the 0.9300

That said, the USD/CHF first support would be 0.9300. Breach of the latter would expose the double-top measured target at 0.9280.

Hourly chart

• Gold tumbles to 1890$ and then rebounds more than 20$.
• Volatility is set to remain high amid news from Ukraine and sharp moves in the Treasury market.
• Bearish bias prevails in XUA/USD, more losses seen on a consolidation under 1900$.

Gold is having another volatile session on Tuesday. Price dropped sharply to 1890$ following positive reports about the conversation between Ukraine and Russian authorities. It then rebounded sharply, rising back above 1910$.

XAU/USD is hovering around 1912$ as stocks in Wall Street hold onto daily gains. The yellow metal received support from a weaker US dollar and lower US yields. The DXY is having the worst day since March 10, falling 0.90%; it trades at 98.25, after finding support above 98.00.

The Treasury market is also making sharp moves. The US 10-year yield peaked earlier at 2.53% and then tumbled to as low as 2.38%. As of writing, it is hovering around 2.43%. The decline in yields took place amid an improvement in market sentiment.

XAU/USD holding above 1910$

While US yields continue to correct lower, gold could find buyers after dips. If yields start rising again, gold will likely came under pressure. A consolidation under 1900$ (or a daily close below 1910$) would likely trigger more losses. The next strong support stands at 1885$ (55-day SMA) followed by 1875$ and 1850$.

On the upside, the daily high at 1930$ is the first relevant resistance, followed by the 20-day simple moving average that stands 1955$. A daily close above 1960$ would negate the current negative bias.

Technical levels

• Silver has been volatile on Tuesday, dipping briefly under $24.00 but then recovering back above $24.50.
• Positive Russo-Ukraine updates triggered the initial dip to sub-$24.00 levels, whilst falling yields then helped the recovery.
• But that still leaves prices lower by more than 1.0% on the session.

It’s been a volatile session for spot silver (XAG/USD), with prices now back to just above $24.50 having at one point been below the key $24.00 level to test key support in the form of the 200-Day Moving Average. A combination of different factors have been exerting themselves on precious metal prices, with the initial drop under $24.00 as a result of the knee-jerk reaction to positive Russo-Ukraine updates, but the more recent rally likely as a result of a pullback in yields.

Indeed, commodity prices such as oil saw sharp downside in wake of the most recent positive Russo-Ukraine commentary and this saw bond market participants paring back on the inflation compensation they demand on bonds (i.e. via higher yields). Lower yields reduce the “opportunity cost” of holding non-yielding precious metals and, so, arguably, the reversal lower helped support spot silver recovery from more than one-month lows.

With silver thus having found robust support at the $24.00 area and at its 200DMA, the bears might not be confident of continued downside going forward. Lockdowns in China, whilst they might ease energy prices, risk exacerbating global supply chain snags which might worsen the inflation problem, thus presenting an upside risk for silver. That will be key a theme to watch.

Aside from this and geopolitics, there is plenty of data this week for investors to sink their teeth into, culminating in the official jobs report on Friday. All this data should feed into the narrative of a hawkish Fed that wants to get rates back to neutral as quickly as possible and Fed rhetoric, like Patrick Harker’s most recent remarks, are also likely to reinforce this narrative. This is a downside risk for silver, but high inflation may continue to negate it for now.

European Central Bank Governing Council member Bostjan Vasle on Tuesday said that an interest rate hike this year is feasible, reported newswires. It would be prudent for the ECB not to increase current uncertainties, he added, noting the important of monetary policy predictability. 

Market Reaction

Markets did not react to Vasle's latest remarks, but it has nonetheless been a volatile day for Eurozone bond/short-term interest rate markets. German 2-year yields came within a whisker of positive territory and interest rate future markets were at one point showing that 67bps of tightening by the end of the year is priced for the ECB.

These moves have now backed of a little, but markets are clearly saying they expect more than one rate hike from the ECB in 2022. Flash March Eurozone HICP inflation readings later in the week will be important in this context. 

• The EUR/JPY holds to the 136.00 mark on positive news from Russia-Ukraine.
• ECB’s Chief Economist Lane said it would be appropriate to normalize rates later this year.
• EUR/JPY Price Forecast: The path of least resistance is upwards, but it would depend on market sentiment.

The EUR/JPY climbs in the North American session but is off from seven-year-highs, lifted by news from Russia’s – Ukraine front, emerged of a possible cease-fire between both parties, an advance in negotiations after two weeks of being stuck. At the time of writing, the EUR/JPY is trading at 136.24.

Russia and Ukraine negotiations improve, the market sentiment shifts positively

Risk appetite increased after Russia’s Medisnky said that talks had been constructive and Russia is taking two steps to de-escalate the conflict. Furthermore added that a Putin – Zelenskiy meeting could be possible. On the Ukraine front, the negotiator said that neutral status would entail not having foreign military bases.

Headlines lifted the market sentiment alongside the shared currency against most crosses, including the Japanese yen, which has been under much stress, courtesy of the Bank of Japan (BoJ).

On Monday, the BoJ decided to buy Japanese Government Bonds (JGBs) to achieve its Yield Curve Control (YCC) fixed at 25 bps, as the BoJ maintains its loose monetary policy.

In the European session, the Chief Economist of the European Central Bank (ECB), Philip Lane, said that “there are scenarios where it would be appropriate to start to normalize interest rates later this year. And then, of course, there are scenarios where it could be appropriate to move at a later point.” However, he added that “inflation will decline later this year and will be a lot lower next year and the year after compared to this year.”

The Eurozone economic docket featured the German Gfk Consumer Sentiment for April, which tumbled to -15.5, more than the -14.5 estimated. Also, German Import Prices for February fell in both annual and monthly readings.

With that said, fundamentally, the central bank policy divergence between the ECB and the BoJ would favor the shared currency. Nevertheless, it’s essential to notice that unless Russia and Ukraine achieve a truce and the conflict de-escalates, the Euro area will feel the pain of elevated energy prices, meaning higher rates of the ECB but at the cost of slower growth.

EUR/JPY Price Forecast: Technical outlook

Monday’s price action in the EUR/JPY witnessed a seven-year-high at 137.54 but retreated 150-pips towards the 136.00 mark, on a downward move that seems to be profit-taking due to the steepness of the rally. However, the EUR/JPY buying pressure remains due to the size of Monday’s real-body of the candlestick, which is more extensive than the wick, suggesting that the JPY would continue losing vs. the EUR if the market sentiment improves.

That said, the EUR/JPY path of least resistance is upwards and would face its first resistance at 136.50. Breach of the latter would expose 137.00, followed by the YTD high at 137.54.

On the flip side, the EUR/JPY first support would be 136.00. Once cleared, the next demand zone would be March 29 low at 135.30, followed by March 25 134.74 daily high.

Philadelphia Fed President and FOMC member Patrick Harker said on Tuesday that Fed policymakers "collectively underestimated" the impact that fiscal spending in 2020 would have on inflation, reported Reuters. Harker said that there is "definitely correlation" between the yield curve and later recessions, but there is a need to look at a host of market signals, including inflation expectations and market sentiment. 

Referring to his dots in the Fed's latest dot-plot, Harker said that he was a "median dot" and predicts seven rates hikes this year, though that is not a commitment to seven. Developments in China are "another wrench" in global supply chain and could make a 50 bps hike more appropriate, Harker noted, adding that balance sheet reduction could add the equivalent of two quarter point rate increases to Fed tightening. 

Apparent progress in ceasefire talks has put a dent in safe-haven flows. Subsequently, gold tumbled beneath the $1,900 level. The path of least resistance appears to the downside amid positive Russo-Ukraine updates, economists at TD Securities report.

Strong ETF inflows associated with safe-haven appetite

“The latest easing of tensions comes at a time when rates markets are readying for the Fed to deliver a hawkish surprise to markets while easing price momentum has brought CTA liquidation triggers within range near $1880/oz.” 

“While the yield curve may be bringing back whispers of a looming recession that could re-ignite investor interest in gold, ETF flows have not historically been strongly associated with the yield curve during a hiking cycle. This suggests that the strong ETF inflows have rather been associated with safe-haven appetite, which leads to downside risks as the negotiators continue to work towards a ceasefire.”

Philadelphia Fed President and FOMC member Patrick Harker said on Tuesday that interest rate hikes are to be "deliberate" and "methodical", reported Reuters. Inflation is "far higher than ... we are comfortable with" Harker said, caveating that "there are some signs in the data, and in what we hear from our contacts, that supply chain constraints are finally easing". Harker said that there is the potential for a "significant uptick" in the service sectors of large, Democrat-leaning cities that had the toughest pandemic rules. Harker did not speak on whether he would prefer 25 or 50 bps rate hikes in the coming months.

• WTI has been volatile on Tuesday and currently trades in the $102.00s, near the middle of the day’s $98.50-$107.80ish range.
• Weighing on prices has been positive Russo-Ukraine headlines and ongoing China lockdown worries.

Oil prices have seen rollercoaster price action on Tuesday. Front-month WTI futures currently trade in the $102.00s, slightly below the mid-point of the day’s near-$10 per barrel $98.50-$107.80ish ranges. On the week, WTI’s losses currently stand at more than $10, with the major bearish news having come out of China, where the Covid-19 outbreak continues to spread and authorities continue to try and stamp it out as per their so-called “dynamic zero Covid strategy”. Shanghai was the latest place to go into strict lockdown as infections in the city surge and this is a major theme playing on the mind of global oil market participants, given China’s status as both a major consumer and massive importer of the black gold.

But the major catalyst behind more recent volatility on Tuesday, i.e. the reason WTI slumped nearly $10 from session highs in within the space of about one hour, has been recent positive Russo-Ukraine updates. Peace talks have wrapped up and were framed as constructive by both sides, with the Ukrainians making a new security proposal to the Russians and hinting towards a possible Presidential meeting between the two sides. Meanwhile, the Russian Defense Ministry said it was scaling down military activities around northern Ukrainian cities in order to foster more conducive conditions for negotiations.

Moving forward, while WTI clearly remains vulnerable to both China lockdown and Russo-Ukraine peace talk progress-related headlines, a few factors may help underpin things. Firstly, Western leaders have said that a Russo-Ukraine peace deal does not mean an immediate end to sanctions, meaning that severe disruptions to Russian oil exports likely won’t ease any time soon, regardless of developments in Ukraine. Secondly, recent commentary from OPEC members suggests a more significant boost to output will not be forthcoming. The oil rollercoaster is likely to continue, but it remains far too early to bet on a return back to pre-Russo-Ukraine war levels under $90.00.

There were 11.266M job opening in the US at the end of February, the latest JOLTs Job-Opening data release on Tuesday by the US Labour Department showed. That was slightly less than the 11.283M openings at the end of January, but well above the 11.0M expected. 

Market Reaction

Robust JOLTs data which points to a backdrop of continued very strong demand for labour throughout the US economy has not been enough to lift the buck from session lows, with the DXY still trading in the low 98.00s. The safe-haven USD has been weighed on Tuesday amid positive Russo-Ukraine updates that have spurred hope for a ceasefire.  

The US Conference Board's measure of US Consumer Confidence rose slightly to 107.2 in March from 105.7 one month earlier, a little above the expected 107.0 reading, data released on Tuesday showed. The Consumer Present Situation Index rose to 153.0 in March versus 143.0 one month earlier and the Consumer Expectations Index fell to 76.6 versus 80.8 a month earlier. The Jobs Hard-to-get index fell to 9.8 from 12.0 the month prior and the 1-year Consumer Inflation Expectation Rate rose sharply to 7.9% from 7.1%. 

Market Reaction

Currency markets did not react to the latest US data release.

• USD/JPY witnessed heavy selling on Tuesday amid a broad-based USD weakness.
• Hopes for diplomacy in Ukraine lifted the euro and weighed on the greenback.
• A combination of factors should lend support to the pair and limit deeper losses.

The heavily offered tone surrounding the greenback dragged the USD/JPY pair to a fresh daily low, around mid-122.00s during the early European session.

Following an early uptick to the 124.30 area, the USD/JPY pair witnessed some selling on Tuesday and extended the overnight sharp pullback from the 125.10 area or the highest level since August 2015. The latest optimism over the possibility of a diplomatic solution to end the war in Ukraine triggered aggressive short-covering around the shared currency. This, in turn, weighed on the US dollar and was seen as a key factor exerting downward pressure on the major.

Apart from this, the US dollar downtick lacked any obvious fundamental catalyst and is more likely to remain limited amid rising bets for a 50 bps Fed rate hike move at the next two meetings. Moreover, the divergence in the monetary policy stance adopted by the Fed and the Bank of Japan supports prospects for the emergence of dip-buying around the USD/JPY pair. The constructive outlook is reinforced by the risk-on impulse, which tends to undermine the safe-haven Japanese yen.

Russian Defense Ministry said that it would scale down military activity in Kyiv and Chernihiv in order to create conditions for dialogue. Adding to this, a Ukrainian negotiator noted that there have been enough developments to hold a meeting between Ukrainian President Volodymyr Zelenskyy and Russian President Vladimir Putin. The incoming geopolitical headlines boosted investors' confidence, which was evident from the bullish trading sentiment around the equity markets.

This makes it prudent to wait for strong follow-through selling before confirming that the USD/JPY pair has topped out in the near term. Next on tap is the US economic docket, featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index. The focus, however, will remain on fresh geopolitical developments, which will influence the risk sentiment and drive demand for the safe-haven JPY, providing some impetus to the USD/JPY pair.

Technical levels to watch

• DXY tanked to the 98.00 area on Tuesday.
• Auspicious headlines open the door to a ceasefire in Ukraine.
• CB’s Consumer Confidence next of note in the calendar.

The greenback accelerates losses to 2-week lows near the 98.00 mark when tracked by the US Dollar Index (DXY) on turnaround Tuesday.

US Dollar Index offered on upbeat news from Ukraine

The index shed more than a big figure on Tuesday following encouraging news from the geopolitical scenario, which at the same time has opened the door to a potential ceasefire and eventually the end of the military conflict between Russia and Ukraine.

The dollar rapidly lost ground and approached the 98.00 region alon with a U-turn in yields in the belly and the long end of the curve, while the short end still cling to daily gains just below the 2.50% area.

In the docket, the House Price Index gauged by the FHFA rose 1.6% MoM in January, while house prices measured by the S&P/Case-Shiller Index gained 19.1% in the year to January.

Later in the session, the Conference Board’s Consumer Confidence is due along with JOLTs Job Openings.

What to look for around USD

Positive developments from the geopolitical landscape put the buck under strong downside pressure and forced the index to drop further into the negative territory. In the meantime, very near-term price action in the greenback continues to be dictated by geopolitics, while the case for a stronger dollar in the medium/long term remains well propped up by the current elevated inflation narrative, a potential more aggressive tightening stance from the Fed, higher US yields and the solid performance of the US economy.

Key events in the US this week: FHFA House Price Index, CB Consumer Confidence (Tuesday) – Mortgage Applications, ADP Employment Change, Final Q4 GDP (Wednesday) – PCE Price Index, Initial Jobless Claims, Personal Income, Personal Spending (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Manufacturing PMI, ISM Manufacturing PMI (Friday) .

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

US Dollar Index relevant levels

Now, the index is down 1.03% 98 09 and a break above 99.41 (2022 high March 7) would open the door to 100.00 (psychological level) and finally 100.55 (monthly high May 14 2020). On the flip side, the next down barrier emerges at 97.72 (weekly low March 17) seconded by 97.71 (weekly low March10) and then the 55-day SMA at 96.92.

USD/CAD trimmed nine consecutive days of losses. However, economists at Scotiabank still expect the pair to move downward.

Rallies towards the high 1.25/low 1.26 zone remain an attractive selling opportunity

“Given that the TSX has been one of the best performing major equity markets so far this year, month and quarter-end rebalancing flows may weigh on the CAD in the short run, delaying a run down through 1.2450. As yesterday’s CAD sell-off and today’s rebound reflect, however, USD rallies towards the high 1.25/low 1.26 zone remain an attractive selling opportunity.”

“A heavy tone persists on the short-term chart and trend momentum, while choppy, suggests the USD bear trend remains quite strong.”

“We see support at 1.2465, ahead of the Jan low at 1.2450, then 1.23.”

“Resistance remains 1.2585/1.2615 on the charts.”

• AUD/USD turned lower for the second straight day, though the downside remains limited.
• Hopes for diplomacy in Ukraine weighed on commodities and the resources-linked aussie.
• The risk-on impulse undermined the safe-haven USD and extended support to the major.

The AUD/USD pair witnessed aggressive selling during the mid-European session and dropped to a four-day low, around mid-0.7400s in the last hour.

The pair struggled to preserve its intraday gains, instead met with a fresh supply near the 0.7250 region and drifted into the negative territory for the second successive day on Tuesday. The incoming geopolitical headlines surrounding the Russia-Ukraine saga lifted hopes for a diplomatic solution to end the war. This, in turn, triggers a sharp pullback in commodity prices and was seen as a key factor that undermined the resources-linked Australian dollar.

In fact, the Russian Defense Ministry said that it would scale down military activity in Kyiv and Chernihiv in order to create conditions for dialogue. Moreover, a Ukrainian negotiator noted that there have been enough developments to hold a meeting between Ukrainian President Volodymyr Zelenskyy and Russian President Vladimir Putin. The AUD/USD pair retreated around 70 pips from the daily high, though a broad-based US dollar weakness helped limit losses.

The risk-on impulse - as depicted by a strong rally in the equity markets - dented demand for traditional safe-haven assets, including the buck, and extended some support to the perceived riskier aussie. This warrants caution before confirming that the AUD/USD pair has topped out and before positioning for any meaningful corrective pullback. Hence, any subsequent slide might still be seen as a buying opportunity and remain limited near the 0.7420 horizontal support.

Market participants now look to the US economic docket, featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index. The focus, however, will remain on geopolitics, which will influence the risk sentiment and commodities. This, along with the US bond yields, will drive the USD demand and provide some impetus to the AUD/USD pair.

Technical levels to watch

• EUR/USD rebounds markedly and surpasses the 1.1100 mark.
• Further up comes the weekly high at 1.1137 (March 17).

EUR/USD jumped above the 1.1100 mark on the back of the sudden change of heart around the risk complex.

That said, the recovery now targets the weekly high at 1.1137 (March 17). The surpass of this level could open the door to a test of the temporary barrier at the 55-day SMA, today at 1.1207.

The medium-term negative outlook for EUR/USD is expected to remain unchanged while below the key 200-day SMA, today at 1.1496.

EUR/USD daily chart

Russia has begun withdrawing forces from around Ukraine's capital Kyiv in what the US assesses to be a "major strategic shift", a senior US official told CNN on Tuesday. The comments from the US official follow an announcement by the Russian Defense Ministry earlier in the day where it said it would "scale down" operations around northern Ukrainian cities Kyiv and Chernihiv in order to foster more constructive conditions for negotiations. Russia has in recent days hinted towards a strategic shift by a change in their language regarding the war and a placing of more emphasis on the "liberation" of Ukraine's Eastern Donbass region. 

The S&P 500 Index has cleared with ease the 61.8% retracement of the 2022 fall at 4550. Although volume remains worrying light, analysts at Credit Suisse stay biased higher for a test of the February highs at 4590/95.

Only a close below 4456 would be seen to mark a minor top

“We continue to look for a move to test the February highs at 4590/95, but we would expect a fresh cap here at first and a retracement lower. Should strength directly extend though, we would look for a move to next resistance at 4612, then the 78.6% retracement and price resistance at 4663/68.”

“Near-term support moves to 4538, then 4418/14, with the immediate risk seen staying higher whilst above the 63- and 200-day averages at 4485/78.”

“Only a close below the 4456 recent reaction low though would be seen to mark a minor top.”

• DXY plummets to multi-day lows and challenges 98.00.
• Decent contention is seen around the 97.70 region.

The index accelerates losses and trades close to the 98.00 mark following encouraging news from the geopolitical landscape.

The continuation of the decline carries the potential to break below the key support at 98.00 and drag DXY lower to visit the weekly lows around 97.70 (March 10, 17).

The current bullish stance in the index remains supported by the 6-month line just near 96.10, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 94.77.

DXY daily chart

Spot gold (XAU/USD) prices tumbled beneath the $1900 level on Tuesday in wake of constructive Russo-Ukraine developments, with the precious metal now trading in the $1890 area, its lowest in roughly one month and down over 1.5% on the day. Russo-Ukraine peace talks seemingly made decent progress, while the Russian Defense Ministry announced that it would be scaling down its military operations near key Ukrainian cities in order to foster more constructive negotiating conditions. 

XAU/USD is now probing its 50-Day Moving Average in the $1890 area, having already broken below earlier mid-month lows around $1895. A break below could open the door to a push lower towards the next key support area which would be around $1880 - this level has acted as key support and resistance in recent months.

Positive geopolitical updates arent the only factor weighing on gold. Bond yields globally continue to melt higher, with focus on Eurozone yields on Tuesday as the German 2-year approaches 0.0% for the first time since 2015, but US yields also hitting/nearing multi-year highs. Bond market participants are upping their central bank tightening bets and higher interest rates tend to erode demand for gold by increasing the "opportunity cost" of holding non-yielding assets. The push higher in yields is one key reason why gold prices have reversed lower so sharply this week - XAU/USD is already down more than 3.0% or over $60 on the week. 

• GBP/USD staged a goodish rebound from a near two-week low touched earlier this Tuesday.
• The risk-on impulse weighed heavily on the safe-haven USD and extended support to the pair.
• Hawkish Fed expectations, elevated US bond yields could limit USD losses and cap spot prices.

The intraday USD selling picked up pace during the mid-European session and pushed the GBP/USD pair to a fresh daily top, around mid-1.3100s in the last hour.

The pair witnessed an intraday short-covering move and rallied around 100 pips from the 1.3050 area, or a near two-week low touched earlier this Tuesday amid a broad-based US dollar weakness. The incoming geopolitical headlines lifted hopes for a diplomatic solution to end the war in Ukraine and boosted investors' confidence.

In fact, the Russian Defense Ministry said that it would scale down military activity in Kyiv and Chernihiv in order to create conditions for dialogue. Adding to this, a Ukrainian negotiator noted that there have been enough developments to hold a meeting between Ukrainian President Volodymyr Zelenskyy and Russian President Vladimir Putin.

The latest developments triggered a risk-on rally in the global equity markets, which, in turn, weighed heavily on the safe-haven buck and was seen as a key factor behind the GBP/USD pair's strong rebound. That said, the fact that the Bank of England had softened its language on the need for further rate hikes acted as a headwind for sterling.

Conversely, the markets have been pricing in a more aggressive policy response by the Fed and a 50 bps rate hike move at the next two meetings. This was reinforced by elevated US Treasury bond yields, with the benchmark 10-year note holding above 2.5%, or a nearly three-year high, which should limit the USD losses and further contribute to capping the GBP/USD pair.

Even from a technical perspective, the recent weakness below an ascending trend channel marked a bearish flag breakdown and favours bearish traders. Hence, it will be prudent to wait for some follow-through buying before confirming that the GBP/USD pair has bottomed out and positioning for any further near-term appreciating move.

Market participants now look to the US economic docket, featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index. The focus, however, will remain on fresh developments surrounding the Russia-Ukraine saga. This, along with the US bond yields, will influence the USD and provide some impetus to the GBP/USD pair.

Technical levels to watch

• Positive Russo-Ukraine updates and Eurozone bond yield upside has propelled EUR/USD towards 1.1100 and to more than one-week highs.
• The pair’s technical momentum has shifted after earlier breaching the 21DMA for the first time in weeks.

A barrage of positive newsflow/developments regarding the Russo-Ukraine war and peace talks has seen EUR/USD in recent trade extend on what was already healthy gains on the session, with the pair making further progress towards 1.1100. At current levels in the 1.1090s, where the pair is trading at more than one-week highs and with gains of about 1.0% on the session, the bulls are eyeing a test of mid-month highs in the 1.1120s-30s area. Even prior to recent positive headlines, EUR/USD’s rally on Tuesday was already significant from a technical standpoint, with the pair successfully breaking to the north of its 21-Day Moving Average, which currently resides at around 1.1005, for the first time since February.

With the latest commentary from both Russian and Ukrainian negotiators in wake of now concluded Tuesday peace talks alluding to progress and a potential Presidential meeting and Russia announcing a scaling back of military activities around northern Ukrainian cities in order to foster more constructive conditions for talks, further EUR/USD upside may well be in store. A break above the psychologically important 1.1100 level and recent highs would open the door for a run towards the 50DMA in the 1.1180s.

Another factor aiding the run higher in EUR/USD is what is looking more and more like a melt-up in Eurozone bond yields. German 2-year yields, up more than 10bps on the day (much more than the 4bps rise in US 2-year yields) are eyeing a break above the key 0.0% level for the first time since 2015. Bond market participants are testing the ECB’s guidance (which hints toward rate hikes starting in Q4 this year) as money markets up their ECB tightening bets. Eurozone short-term interest rate markets now price 67bps of ECB tightening before the year’s end, up 7bps on the day.

Focus is likely to remain on EUR-sensitive themes like the Russo-Ukraine war and Eurozone bond yields for the remainder of the week. If positive momentum in talks continues and this week’s preliminary Eurozone inflation figures surprise to the upside, sparking further Eurozone yield upside, this might be enough to distract EUR/USD from the barrage of upcoming US data releases. For reference, these include JOLTS later on Tuesday, ADP jobs on Wednesday, Core PCE on Thursday and the official jobs report plus ISM Manufacturing PMI on Friday.

The Russian Defense Ministry said on Tuesday that it would stop military activity in Kyiv and Chernihiv in order to create conditions for dialogue, reported Reuters. The Russian Defense Ministry called on Ukraine to abide by the Geneva Convention for Prisoners of War. 

Market Reaction

A recent announcement alluding to a ceasefire around key northern Ukrainian cities of Kyiv and Chernihiv as well as updates alluding to constructive peace talks has triggered an improvement in risk appetite. The safe-haven US dollar dipping as a result, with the DXY recently slipping back under to 98.50 and to session lows. Other safe-havens have also taken a knock, with spot gold dipping around $10 in a matter of minutes to test the $1900 level. 

The US 10-year yield also popped to fresh session highs above 2.52% as safe-haven US bonds come under selling pressure. Meanwhile, the unwind of geopolitical risks has seen oil prices come under sharp selling pressure, with front-month WTI futures dropping hard from the $107 area to the low $100s. 

There have been enough developments to hold a meeting between Ukrainian President Volodymyr Zelenskyy and Russian President Vladimir Putin, a Ukrainian negotiator said on Tuesday following earlier peace talks, reported Reuters.

Similarly, top Russian negotiator Vladimir Medinsky on Tuesday said that talks between the two sides had been constructive and that Russia would be looking at Ukrainian proposals and reporting than back to President Vladimir Putin. A meeting between Putin and Zelenskyy would only be possible if a deal has been rubber-stamped by the foreign ministers, Medinsky added. 

Market Reaction

A recent announcement alluding to a ceasefire around key northern Ukrainian cities of Kyiv and Chernihiv as well as updates alluding to constructive peace talks has triggered an improvement in risk appetite. The safe-haven US dollar dipping as a result, with the DXY recently slipping back under to 98.50 and to session lows. Other safe-havens have also taken a knock, with spot gold dipping around $10 in a matter of minutes to test the $1900 level. 

The US 10-year yield also popped to fresh session highs above 2.52% as safe-haven US bonds come under selling pressure. Meanwhile, the unwind of geopolitical risks has seen oil prices come under sharp selling pressure, with front-month WTI futures dropping hard from the $107 area to the low $100s. 

With Tuesday's Russo-Ukrainian peace talks on Tuesday having now wrapped up, comments from one of Ukraine's negotiators are now crossing the wires. Ukraine suggested a new security guarantee system at Tuesday's talks, the Ukrainian negotiator said according to Reuters. Ukraine sees Turkey as one of the main potential security guarantors, the negotiator added, saying that Israel, Poland, Canada and Turkey could be among Ukraine's security guarantors under the new system.

If the security guarantee system works out, then Ukraine will agree to neutral status, the negotiator said, which would include the pledge not to host foreign military bases. However, first of all, a referendum in Ukraine would be needed on the terms of agreement with Russia and there needs to be full peace across Ukrainian territory for any final agreement with Russia to come into force. Ukraine also proposed holding consultation with Russia on the status of Crimea over the next 15 years, the negotiator added. 

Market Reaction

There has not been much of a market reaction to the latest headlines regarding peace talks, given they did not really allude to any progress/lack thereof in talks. Market participants now await word from the Russian side. 

• EUR/JPY extends further the march north, this time above 136.00.
• Next hurdle of note emerges near 139.00 (August 21 2015).

EUR/JPY adds to the optimism seen at the beginning of the week and trespasses the 136.00 level on Tuesday.

The upside momentum in the cross appears unabated for the time being. That said, the breakout of the 2022 high at 137.54 (March 28) should open the door to a probable visit to the August 2015 peak at 138.99 (August 15) ahead of the round level at 140.00.

In the meantime, while above the 200-day SMA at 130.05, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

• EUR/GBP rallied for the second straight day and shot to over a one-week high on Tuesday.
• The recent price action constitutes the formation of an inverted head and shoulders pattern.
• Sustained strength beyond the 200-day SMA hurdle will confirm a near-term bullish breakout.

The EUR/GBP cross gained strong traction for the second successive day on Tuesday and jumped to over a one-week high, around the 0.8440 region during the first half of the European session. This also marked the fourth day of a positive move in the previous five and assisted the cross to build on its recent bounce from sub-0.8300 levels.

Looking at the broader picture, the recent price action constitutes the formation of a bullish inverted head and shoulders pattern on the daily chart. The neckline resistance is pegged near mid-0.8400s and is closely followed by the very important 200-DMA, near the 0.8465-0.8470 region, which if cleared would confirm the bullish pattern.

With technical indicators on the daily chart holding in the bullish territory and still far from being in the overbought zone, the EUR/GBP cross could then accelerate the move and aim to reclaim the 0.8500 psychological mark. Some follow-through buying has the potential to lift spot prices towards the next relevant hurdle near the 0.8550 region en-route the 0.8570-0.8580 zone.

On the flip side, the 0.8400 round-figure mark now seems to protect the immediate downside. Any subsequent decline might now be seen as a buying opportunity near the 0.8360-0.8350 horizontal zone. This, in turn, should limit the downside near the 0.8320-0.8315 area, which should act as strong near-term base for the EUR/GBP cross.

A convincing break below, leading to a subsequent breakthrough the 0.8300 mark will negate the constructive set-up and shift the bias back in favour of bearish traders. The EUR/GBP cross would then turn vulnerable to accelerate the fall towards the 0.8255-0.8250 region before dropping to the multi-year low, around the 0.8200 round figure.

EUR/GBP daily chart

Technical levels to watch

Citing an announcement from Japan's Ministry of Finance, Reuters reported on Tuesday that Japan will impose a ban on Russia-bound exports of precious metals, mainly gold, from April 5 as part of the latest sanctions over the conflict with Ukraine.

Market reaction

This headline seems to be helping gold recover modestly from the two-week low it set at $1,909 earlier in the day. As of writing, the XAU/USD pair was trading at $1,915, where it was down 0.4% on a daily basis.

Economist at UOB Group Barnabas Gan reviews the latest industrial production figures in Singapore.

Key Takeaways

“Industrial production surged 17.6% y/y (+16.6% m/m sa) in Feb 2022, surprising market expectations for a 6.3% y/y (+5.7% m/m sa) growth. Excluding biomedical manufacturing, industrial production rose 16.8% y/y.”

“The strong performance in Singapore’s manufacturing sector is underpinned by the global trade recovery, especially on the back of healthy semiconductor- and biomedical-related demand. Other factors that have supported Singapore’s manufacturing momentum also include the gradual reopening of international borders, which resulted in higher levels of maintenance, repair and overhaul activity from commercial airlines.”

“In all, our outlook is for full-year manufacturing to grow by an average of 4.0% in 2022. This suggests that despite the high-base growth rate seen in 2021, global trade activity is expected to stay buoyant in the new year.”

• A combination of factors dragged USD/CAD back below the 1.2500 round figure on Tuesday.
• An uptick in oil prices underpinned the loonie and exerted pressure amid modest USD weakness.
• Hawkish Fed expectations, rising US bond yields should limit losses for the buck and the major.

The USD/CAD pair extended its steady intraday descent through the first half of the European session and dropped to a fresh daily low, back below the 1.2500 psychological mark in the last hour.

Following the overnight short-covering bounce and the subsequent pullback from the vicinity of the 1.2600 mark, a combination of factors prompted fresh selling around the USD/CAD pair on Tuesday. Hopes for progress in the Russia-Ukraine peace negotiations boosted investors' confidence. This was evident from a positive tone around the equity markets, which weighed on the safe-haven US dollar. Apart from this, an uptick in crude oil prices underpinned the commodity-linked loonie and exerted some downward pressure on the major.

The latest optimism over the possibility of a diplomatic solution to end the war in Ukraine, along with fears that fresh COVID-19 restrictions in China could impact fuel acted as a headwind for oil prices. Apart from this, growing acceptance that the Fed would tighten its monetary policy at a faster pace to combat stubbornly high inflation should help limit any further losses for the greenback. In fact, the markets have been pricing in a 50 bps Fed rate hike at the next two meetings, which, in turn, favours the USD bulls.

Expectations for a more aggressive Fed policy action was evident from the recent surge in the US bond yields, which pushed the benchmark 10-year note above 2.5%, to a nearly three years high. The fundamental backdrop supports prospects for the emergence of some dip-buying around the USD/CAD pair, warranting some caution for bearish traders. Hence, any subsequent downfall is more likely to find decent support near the 1.2465 region ahead of the YTD low, around mid-1.2400s, which should act as strong base for spot prices.

Market participants now look to the US economic docket, featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index. Traders will further take cues from the incoming geopolitical headlines, which should influence the broader market risk sentiment. This, along with the US bond yields, will drive the USD demand. Apart from this, oil price dynamics might further contribute to producing some trading opportunities around the USD/CAD pair.

Technical levels to watch

Top Russian negotiator Vladimir Medinsky said that he hoped there would be a statement in several hours following talks between Russia and Ukraine in Istanbul, Reuters reports on Tuesday.

“Russia protested to the Ukrainian delegation over abuse of the Russian prisoners,” Medinsky said.

Market reaction

Risk sentiment remains lifted on hopes for a ceasefire, as the Russia-Ukraine peace talks get underway.

The shared currency is breathing a sigh of relief, as EUR/USD advances towards 1.1050. The S&P 500 futures, a risk gauge, is rising 0.82% on the day, at the press time.

The Kremlin said in a statement on Tuesday that polling data pointed to a "fairly unprecedented" growth in Russian backing for President Vladimir Putin, per Reuters.

 The polls show that Putin had the "absolute support" of the population, Reuters cited the Kremlin.

Related reads

• USD/RUB extends losses to below 80 the figure
• US Treasury’s Adeyemo: To target with sanctions the Russian sectors critical to Kremlin's ability to wage war

• Gold price extends declines, as the US Treasury yields keep rallying amidst the bond rout.  
• Hopes for diplomacy in the Ukraine crisis fail to deter USD bulls, as focus shifts to NFP.
• Gold’s path of least resistance appears down, Ukraine updates eyed.

Gold price remains in the red so far this week, as the US Treasury bonds see no reprieve, leading to the relentless surge in the yields. The US dollar is tracking the rates higher, weighing heavily on gold price. Hopes for progress on the Russia-Ukraine peace talks are boosting the overall market mood, adding to gold’s plight.  The incoming updates from the negotiations and sentiment around the US yields will remain the main market drivers ahead of Friday’s critical Nonfarm Payrolls release.

Read: Gold breaks strong support at 1937/34 to turn the outlook negative now [Video]

Gold Price: Key levels to watch

The Technical Confluences Detector shows that gold price has smashed critical demand areas, now testing the previous week’s low of $1,911.

The next downside target is seen at the pivot point one-day S1, below which a test of the Fibonacci 38.2% one-month at $1,903 will be on the cards.

A fresh sell-off towards $1,891 will be initiated on a sustained breach of the latter. That level is the confluence of the pivot point one-week S2, SMA50 one-day and pivot point one-day S2.

Alternatively, the previous day’s low of $1,917 will guard the immediate upside, above which gold bulls will need to crack a dense cluster of resistance levels stacked up around $1,925.

At that point, the SMA5 four-hour and the pivot point one-week S1 coincide.

The next resistance awaits at the Fibonacci 23.6% one-day at $1,928.

A powerful barrier at $1,933, the intersection of the Fibonacci 38.2% one-day, 61.8% one-week and 23.6% one-month, will be the level to beat for gold bulls.

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.

USD/CNH faces further upside on a close above 6.4105 in the next weeks, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectations for USD to ‘breach 6.4000’ did not materialize as it popped to a high of 6.3982 before easing off to close little changed at 6.3873 (+0.04%). The current price actions appear to be part of a consolidation and USD is likely to trade sideways between 6.3790 and 6.3950 for today.”

Next 1-3 weeks: “Yesterday (28 Mar, spot at 6.3850), we highlighted that while upward momentum is beginning to build again, USD has to break and close above 6.4105 before a sustained advance is likely. The chance for USD to close above 6.4105 would remain intact as long as USD does not move below 6.3750 within these 1 to 2 days. There is no change in our view for now.”

• EUR/USD trades with decent gains around the 1.1000 mark.
• The dollar extends the selling mood on Tuesday.
• Germany GfK Consumer Confidence worsens to -15.5 in April.

The sentiment around the single currency improves further and motivates EUR/USD to climb to 2-day highs near 1.1020 on Tuesday.

EUR/USD looks to Ukraine, USD

EUR/USD advances for the second session in a row on Tuesday and attempts to break above of the 1.1000 yardstick in a convincing fashion.

The renewed offered bias in the greenback allows the pair to extend the bounce off Monday’s lows in the 1.0940 region against the backdrop of some mild improvement in the risk complex and the resumption of the uptrend in German 10y yields, which approach the 0.65% level for the first time since May 2018.

In the meantime, Russian and Ukrainian official will meet once again today in Turkey amidst renewed hopes of a potential negotiated solution to the military conflict in Ukraine.

In the domestic docket, Germany’s Consumer Confidence tracked by GfK worsened to -15.5 in April. Across the pond, the focus of attention will be on the Consumer Confidence gauged by the Conference Board along with housing data and the speech by NY Fed J.Williams.

What to look for around EUR

EUR/USD reverses part of the recent weakness and retests the 1.1000 zone in response to the softer note in the greenback. Occasional pockets of strength in the single currency should appear reinforced by the speculation of the start of the hiking cycle by the ECB at some point by year end, while higher German yields, elevated inflation, the decent pace of the economic recovery and auspicious results from key fundamentals in the region are also supportive of a rebound in the euro.

Key events in the euro area this week: Germany GfK Consumer Confidence (Tuesday) – EMU Final Consumer Confidence, ECB Lagarde, Germany Flash Inflation Rate (Wednesday) – Germany Retail Sales, Unemployment Change, Unemployment Rate, EMU Unemployment Rate (Thursday) – Final EMU, Germany Manufacturing PMI, 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. Presidential elections in France in April. Impact of the geopolitical conflict in Ukraine.

EUR/USD levels to watch

So far, spot is gaining 0.27% at 1.1012 and faces the next up barrier at 1.1037 (high March 25) followed by 1.1137 (weekly high March 17) and finally 1.1205 (55-day SMA). On the other hand, a drop below 1.0944 (weekly low March 28) would target 1.0900 (weekly low March 14) en route to 1.0805 (2022 low March 7).

• GBP/USD witnessed some intraday selling on Tuesday amid renewed USD buying interest.
• Hawkish Fed expectations, rising US bond yields continued acting as a tailwind for the buck.
• A positive risk tone capped gains for the safe-haven USD and helped limit losses for the pair.

The GBP/USD pair quickly recovered a few pips from a near two-week low touched in the last hour and was last seen trading around the 1.3175-1.3180 region, nearly unchanged for the day.

The pair struggled to preserve its modest intraday gains to the 1.3115 region and turned lower for the fifth successive day on Tuesday amid the emergence of fresh US dollar buying. Rising bets for a 50 bps rate hike at the next two FOMC meetings turned out to be a key factor that continued acting as a tailwind for the buck.

The market expectations for a more aggressive policy response by the Fed to combat high inflation was reinforced by elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond moved back above the 2.5% threshold, or back closer to a nearly three-year peak and underpinned the greenback.

The British pound was further pressured by the overnight dovish sounding remarks by the Bank of England Governor Andrew Bailey, saying that they are seeing evidence of an economic slowdown. Bailey stuck to the tone from this monthly policy decision, wherein officials softened their language on the need for further interest rate hikes.

This was seen as another factor that exerted additional pressure on the GBP/USD pair. That said, a generally positive risk tone, bolstered by hopes for progress in the Russia-Ukraine peace talks, capped the safe-haven USD and helped limit the downside for the GBP/USD pair. This, in turn, warrants some caution for bearish traders.

Hence, the market focus will remain glued to fresh developments surrounding the Russia-Ukraine saga. The incoming geopolitical headlines will influence the broader market risk sentiment. This, along with the US bond yields, will drive demand for the USD and produce some short-term trading opportunities around the GBP/USD pair.

Later during the early North American session, traders will take cues from the US economic docket - featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index.

Technical levels to watch

Consumers across the eurozone may need to get used to current higher prices even as the current inflation is likely to 'fade away' in the year ahead, European Central Bank (ECB) Chief Economist Philip Lane said in an interview with Politico published Tuesday.

Key quotes (via MNI)

"Europe may have to get used to higher prices.”

"Most of this inflation will fade away the momentum where every month you wake up and you read that inflation is higher than the previous month – that element, the momentum element - we do think will decline.”

“We do think that inflation will decline later this year and will be a lot lower next year and the year after compared to this year."

Market reaction

The shared currency shrugs off these above comments, as EUR/USD keeps its range just below 1.1000 amid firmer Treasury yields and an upbeat mood.

• USD/CHF gained some positive traction for the third successive day on Tuesday.
• A positive risk tone undermined the safe-haven CHF and remained supportive.
• Hawkish Fed expectations acted as a tailwind for the USD and favours bulls.

The USD/CHF pair edged higher through the early part of the European session and climbed to a fresh daily high, around the 0.9360 region in the last hour.

The pair attracted fresh buying on Tuesday - marking the third successive day of the positive move - and inched back closer to over a one-week high, around the 0.9380 area touched the previous day. Hopes for progress in the Russia-Ukraine peace negotiations and a diplomatic solution to end the war boosted investors' confidence. This was evident from a generally positive tone around the equity markets, which, in turn, undermined traditional safe-haven assets, including the Swiss franc, and extended support to the USD/CHF pair.

On the other hand, the US dollar continued drawing support from expectations that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation. In fact, the markets have been pricing in the possibility of a 50 bps at the next two meetings, which was reinforced by the recent surge in the US Treasury bond yields. This was seen as another factor that acted as a tailwind for the USD/CHF pair and supports prospects for an extension of the recent goodish rebound from the 0.9260 zone, or the two-week low touched last Friday.

Market participants now look to the US economic docket, featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index later during the early North American session. This, along with the US bond yields, will drive the USD demand. Traders will further take cues from developments surrounding the Russia-Ukraine saga, which will influence the risk sentiment and drive demand for the CHF. The combination of factors should provide some impetus to the USD/CHF pair and allow traders to grab some short-term opportunities.

Technical levels to watch

Gold price has dropped below $1,920. Russia and Ukraine negotiators are set to meet in Turkey for a one-on-one meeting. In absence of any progress, the yellow metal could regain some traction, strategists at Commerzbank report.

Gold in less demand

“Some market participants apparently have high hopes of the talks that will be taking place between Russia and Ukraine in Istanbul today. This is presumably why gold was in less demand. If the talks prove to be inconclusive yet again, however, we believe gold is likely to start climbing again.”

“In the EU, and especially in Germany, automotive production is (again) being cut because key components such as wire harnesses are in short supply. Citing industry sources, news agencies are reporting that some production lines in China have also been idled. The lower automotive production is likely to result in lower demand for palladium (and platinum).”

Australian Treasurer Josh Frydenberg is presenting the federal budget on Tuesday, highlighting the following points.

"Australia sees a 2022/23 budget deficit at A$78.0 bln vs. A$98.9 bln projected in December."

"Australia sees GDP growth at 4.25% in 2021/22, 3.5% in 2022/23."

"Australia sees the unemployment rate at 3.75% in 2022/23."

"Australia sees CPI inflation at 3% in 2022/23."

Earlier on, Frydenberg said that the government will increase spending on defense and national security while reducing household expenses.

Market reaction

AUD/USD is almost unchanged on the day, trading at 0.7485, as of writing.

The Bank of Thailand (BoT) is seen keeping the policy rate unchanged at its meeting on Wednesday, suggested Lee Sue Ann, Economist at UOB Group.

Key Quotes

“On the back of further GDP recovery amidst inflation risks, we expect BoT to implement a 25 bps rate hike in 2022, possibly as early as 3Q22.”

“The risks of a rate hike in 2022 will likely be magnified giving the rising debt levels, both in public and private debt.

EUR/USD has regained its traction after dropping to two-week lows. The pair is holding above 1.10 but it could find it difficult to break above the 1.1040 resistance, FXStreet’s Eren Sengezer reports.

Euro recovery likely to be capped at 1.1040

“The fundamental outlook highlighted by the policy divergence between the Fed and the ECB should continue to favour the dollar over the euro, suggesting that the pair's recovery attempts are likely to remain technical in the near-term.”

“On the upside, 1.1020 (50-period SMA) aligns as interim resistance ahead of 1.1040 (Fibonacci 50% retracement of the latest downtrend). In case the latter turns into support, the next bullish target could be seen at 1.1080 (Fibonacci 61.8% retracement).”

“Immediate support is located at 1.10 (psychological level, Fibonacci 38.2% retracement, 100-period SMA) before 1.0960 (static level) and 1.0940 (Fibonacci 23.6% retracement).”

• DXY loses some upside momentum near 99.00.
• US yields keep the upside bias unchanged on Tuesday.
• CB Consumer Confidence, housing data, Fedspeak next on tap.

The greenback, in terms of the US Dollar Index (DXY), gives away part of the recent strong advance and returns to the 99.00 neighbourhood on turnaround Tuesday.

US Dollar Index looks to geopolitics, data

The index trades on the defensive for the first time after four consecutive daily advances on the back of the re-emergence of some buying interest in the risk-associated space.

In the meantime, US yields resume the upside across the curve and remain in levels last seen in nearly 3 years ago when it comes to the short end and the belly of the curve, while the long end look side-lined also in the upper end of the range.

Support for the riskier assets seems to have resurged in the form of renewed hopes ahead of another round of peace talks between Russia and Ukraine in Turkey due later in the day.

In the US data space, the Conference Board will release its Consumer Confidence gauge seconded by the FHFA’s House Price Index, the S&P/Case-Shiller Index and JOLTs Job Openings. In addition, NY Fed and permanent voter J.Williams (centrist) is due to speak.

What to look for around USD

The upside momentum in the index seems to have taken a breather on Tuesday. Concerns surrounding the geopolitical landscape are expected to keep propping up the demand for the buck in combination with prospects of extra tightening by the Fed. Looking at the broader picture, bouts of risk aversion – exclusively emanating from Ukraine - should underpin inflows into the safe havens and lend legs to the dollar at a time when its constructive outlook remains well supported by the current elevated inflation narrative, a potential more aggressive tightening stance from the Fed, higher US yields and the solid performance of the US economy.

Key events in the US this week: FHFA House Price Index, CB Consumer Confidence (Tuesday) – Mortgage Applications, ADP Employment Change, Final Q4 GDP (Wednesday) – PCE Price Index, Initial Jobless Claims, Personal Income, Personal Spending (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Manufacturing PMI, ISM Manufacturing PMI (Friday) .

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

US Dollar Index relevant levels

Now, the index is losing 0.14% at 98.98 and a break above 99.41 (2022 high March 7) would open the door to 100.00 (psychological level) and finally 100.55 (monthly high May 14 2020).On the flip side, the next down barrier emerges at 98.40 (low March 25) seconded by 97.72 (weekly low March 17) and then 97.71 (weekly low March10).

• GBP/JPY witnessed two-way price moves around the 162.00 mark on Tuesday.
• The markets seem to have digested the BoJ’s move to arrest the rise in yields.
• A positive risk tone undermined the safe-haven JPY and extended some support.

The GBP/JPY cross seesawed between tepid gains/minor losses through the early European session and was last seen trading just below the 162.00 round-figure mark.

The cross edged higher during the early part of the trading Tuesday after the Bank of Japan intervened in the markets for the second consecutive day to arrest the rise in yields. The uptick, however, lacked bullish conviction and ran out of steam near the 162.70 region. As investors digested the BoJ's desperate move, extremely overbought conditions held back bulls from placing fresh bets around the GBP/JPY cross, instead prompted some long-unwinding.

On the other hand, the British pound was weighed down by the overnight dovish sounding remarks by the Bank of England Governor Andrew Bailey, saying that they are beginning to see evidence of a slowdown in economic growth. Bailey largely stuck to the tone from this monthly policy decision, wherein policymakers softened their language on the need for further interest rate hikes. This was seen as another factor that exerted pressure on the GBP/JPY cross.

That said, a combination of factors acted as a tailwind and helped limit any further downside, at least for the time being. A generally positive tone around the equity markets continued undermining the safe-haven Japanese yen. Apart from this, modest US dollar weakness extended some support to sterling and assisted the GBP/JPY cross to find some support near the 161.20 region. This, in turn, warrants caution before positioning for any further losses.

The two-way price move on Tuesday comes on the back of the overnight sharp pullback of over 250 pips from the highest level since May 2016 and points to indecision among traders. Given the recent surge from sub-151.00 levels, or the monthly low touched on March 8, this might still be categorized as a consolidation phase. Hence, the corrective pullback is more likely to be short-lived amid expectations that the BoJ will stick to its ultra-lose policy stance.

Technical levels to watch

In opinion of FX Strategists at UOB Group, if USD/JPY breaches the 122.20 level it could signal the end of the end of the rally.

Key Quotes

24-hour view: “Yesterday, we expected ‘the rally in USD to extend to 123.30’. We did not expect the massive spike in volatility as USD rocketed to 125.10 before dropping quickly. Further volatile price actions appear likely and USD could trade within a relatively broad range of 122.60/124.60.”

Next 1-3 weeks: “Yesterday (28 Mar, spot at 122.80), we highlighted that the rally in USD could extend to 123.80. We did not expect the outsized surge that sent USD to a high of 125.10. Despite the subsequent sharp pullback from the high, the USD rally is still intact. That said, it is left to be seen if USD is able to maintain a foothold above 125.10 (next resistance is another major level at 125.85). Overall, only a breach of 122.20 (‘strong support’ level was at 121.00 yesterday) would indicate that the USD rally that started more than 2 weeks ago has come to an end.”

The pound has o started this week on a softer footing following dovish comments yesterday from Bank of England (BoE) Governor Bailey. It has resulted in cable falling back below the 1.31-level. Economists at MUFG Bank believe that GBP/USD is set to retest support and break below the 1.30-level.

Governor Bailey’s comments reinforce expectation for policy divergence

“BoE Governor Bailey explained that the BoE softened their forward rate guidance to reflect the high level of economic uncertainty in light of the additional negative shock from the Ukraine conflict.” 

“The UK rate market is now expecting the BoE to deliver 25bps hikes at upcoming meetings and a cumulative total of around 136bps of hikes by the end of the year. The US market has moved to price in an even more aggressive path for rate hikes with a couple of 50bps hikes priced in over the next three FOMC meetings and a cumulative total of 212bps by the end of the year.”

“A retest and a break below the 1.30-level for cable appears increasingly likely in the near-term.”

The Bank of England’s (BoE) dovish 25bp hike in March is likely to set a bearish tone for GBP in the coming weeks, in the view of economists at HSBC. They expect the BoE to deliver three more 25bp hikes this year.

The BoE will raise rates three more times this year

“We believe the shadow cast by the BoE meeting over the GBP will persist in the coming weeks, especially if BoE members continue their dovish refrain.”

“With higher energy prices, along with other inflationary factors , we now see UK CPI inflation running at close to 8% for the rest of 2022 and expect the BoE to deliver a 25bp hike in each of the next three meetings,taking the policy rate to 1.50% this year. However, this remains considerably more dovish than the market curve. As such, risks to the GBP are skewed to the downside.”

“UK fiscal support for households will unlikely move the dial for the BoE, providing only limited support for the GBP.”

The Swiss National Bank (SNB) will test indexing repurchase agreement (repo) transactions to its policy rate in the coming months, the central bank said in a statement on Tuesday.

"Once the test operations have been completed, indexed repo transactions can be used as part of the SNB's monetary policy operations," the central bank said.

Market reaction

USD/CHF was last seen trading at 0.9344, up 0.06% on the day.

• USD/CHF Price Analysis: Pullback likely near 0.9310 as bulls seek validation

Citi analysts have devised three scenarios to forecast possible outcomes as the world faces an exceedingly complex set of challenges. Currently, Citi’s base case is resilient at a 40% probability, with each robust and recession at 25% probabilities.

Robust, resilient, recession

“The RESILIENT scenario expects Fed tightening policy will constrain growth in the US and world economy this year. This will be neutralized to some degree by growth generated from lean inventories and recovering production. In this scenario, strong corporate profits will shift to sectors with ‘durable demand’.” 

“The ROBUST scenario assumes there is greater risk in Europe's markets than in the US, and that the conflict in Ukraine and Russian economic sanctions do not expand further. A compromise between Ukraine, Russia, and NATO would bring commodity prices down and might diminish the Fed's urgency to tighten policy.” 

“In the RECESSION scenario, the Fed would tighten too fast for growth in supply to meet decelerating demand, resulting in recession in 2023 with a sharp drop in US share prices. The forecasted path for US Treasury 2-year notes – coupled with expectations of reduced Fed lending – suggests a growing recession risk in 2023.”

• AUD/USD attracted some dip-buying on Tuesday and was supported by a combination of factors.
• Better-than-expected Australian data, a positive risk tone benefitted the perceived riskier aussie.
• Hawkish Fed expectations should limit any meaningful USD losses and cap the upside for the pair.

The AUD/USD pair climbed to a fresh daily high during the early European session and is now looking to build on the momentum further beyond the 0.7500 round-figure mark.

Following an early dip to the 0.7475 region, the AUD/USD pair attracted some buying on Tuesday and for now, seems to have stalled the previous day's retracement slide from the YTD peak. The Australian dollar drew some support from better-than-expected domestic Retail Sales data, which showed a 1.8% growth as against consensus estimates pointing to a 1% rise.

On the other hand, a generally positive risk tone undermined the safe-haven US dollar and also extended some support to the perceived riskier aussie. That said, expectations that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation should act as a tailwind for the buck. This, in turn, might cap any further gains for the AUD/USD pair.

In fact, the markets have been pricing in a 50 bps Fed rate hike move at the next two meetings. This was reinforced by the recent surge in the US Treasury bond yields, which pushed the 10-year note beyond the 2.5%, or a nearly three-year high on Monday. Hence, it will be prudent to wait for some follow-through buying before placing fresh bullish bets around the AUD/USD pair.

Market participants now look to the US economic docket, featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index. This, along with the US bond yields, will drive the USD demand. Traders will further take cues from developments surrounding the Russia-Ukraine saga, which will influence the risk sentiment and provide some impetus to the AUD/USD pair.

Technical levels to watch

“US Treasury to target with sanctions the Russian sectors critical to Kremlin's ability to wage war,” Wally Adeyemo, Deputy Secretary of the US Treasury said on Tuesday.

Additional comments

“US, allies committed to constraining Russian economy for the duration of Ukraine invasion.”

“Treasury planning to take actions to disrupt supply chains critical to Russia’s war effort. “

“Russia will struggle to operate its economy without access to the international economic, financial system.”

“Western allies prepared to sanction those assisting sanctioned Russian elites hide wealth.”

Market reaction

The above comments have little to no impact on the market mood, as the sentiment remains lifted on hopes for diplomacy on the Russia-Ukraine war.

The S&P 500 futures jump 0.30% on the day while the US dollar index drops to 99.00, down 0.07% so far.

The S&P 500 Index rallied on Monday for third straight day. Economists at Morgan Stanley remain bearish and targets 4400 by end-2022.

Bearish on the S&P 500 from a risk-reward standpoint

“We remain bearish on the S&P 500 index from a risk-reward standpoint, particularly after the recent rally.”

“Our year-end base case target of 4400 is 4% below current levels.”

The US Dollar Index (DXY) has risen back above 99.00 at the start of this week, with the dollar moderately benefiting from aggressive market bets on multiple 50bp rate increases by the Federal Reserve. Economists at ING continue to see upside risks for the dollar.

Balance of risks for the dollar skewed to the upside

“The Fed’s openness to 50bp rate hikes has clearly freed up some significant space for dollar appreciation, and this space has been only marginally filled so far, so even if rate expectations don't have much further to run, FX should ultimately catch up with the move in rates and we continue to see the balance of risks for the dollar as skewed to the upside.”

“Data, like Fed speakers (John Williams and Patrick Harker will speak later), should play a secondary role in driving the dollar today, and we expect DXY to keep climbing towards the 100.00 mark.”

EUR/USD fell below 1.10 on Monday but closed the day virtually unchanged slightly below that level. Economists at ING still expect the pair to break under the 1.09 mark in the coming days.

Only limited respite from peace talks

“We estimate the current short-term fair value in the 1.07/1.08 area at the moment.”

“Peace talks between Russia and Ukraine are offering some support to the euro. However, we suspect we’ll need to see continued optimism on this side to keep the EUR/USD afloat given the pressure applied by rising US yields.”

“We continue to see downside risks for EUR/USD in the near-term, even if peace talks offer some temporary respite, and we still expect a break below 1.0900 soon.”

The yen has been on a wild ride, with USD/JPY briefly trading at 125 on Monday, before correcting lower to the 123/124 region. Japanese officials have started to voice some concern on the yen's high volatility, which could offer some support. Still, economists at ING believe that the USD/JPY pair can return to 125 today.

Japan getting nervous about FX volatility

“Japan's top currency diplomat, Masato Kanda, expressed high concern about the volatility of the yen, which risks harming economic stability, and pledged to work with the US Treasury and other countries to “respond” to excessive FX moves.”

“We think the yen remains highly vulnerable as long as bond yields continue to press higher – and a return to 125 today is not off the charts.”

“More indications that Japan is taking action to curb JPY volatility could offer some support, but that appears to be a secondary factor compared to keeping yields well within the YCC range.”

GBP/USD lost more than 100 pips on Monday and was last seen fluctuating in a tight range near 1.31. The Bank of England (BoE) is expected to hike rates to 2% by end-2022 – this aggressive pricing poses downside risks for the British pound, economists at Commerzbank report.

A key rate at around 2% at year-end seems exaggerated 

“Contrary to, for example, the US central bank there is no sign in the BoE’s communication pointing towards further-reaching action than the modest tightening over the coming months that has already been signalled. A key rate at around 2% at year-end, as the market is pricing in, seems exaggerated to us.”

“The market expectations are likely to be further fuelled with each set of high inflation data, but once signs that the British economy is weakening further increase the market might have to adjust its expectations to the downside. Medium-term we, therefore, see downside risks for sterling.”

The trade in EUR/USD was lacking momentum on Monday. Economists at Commerzbank expect the shared currency to continue to struggle in absence of a ceasefire in Ukraine.

ECB might struggle with sounding more hawkish due to economic concerns

“As long as the European Central Bank (ECB) continues to seem quite hesitant in particular compared with a number of other central banks that is unlikely to help EUR much.”

“As long as the war in Ukraine continues and the risk of further sanctions remains in place the ECB might struggle with sounding more hawkish due to economic concerns.”

“Unless there is positive news from the negotiations between Ukraine and Russia, EUR will continue to struggle climbing back above the 1.10 mark against USD on a sustainable basis.”

FX option expiries for March 29 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0900 722m
• 1.0960 1.30b
• 1.0980 1.33b
• 1.1000 2.78b
• 1.1100 956m

- USD/JPY: USD amounts                     

• 121.75 430m
• 122.00 490m
• 123.50 200m

- GBP/USD: GBP amounts        

• 1.3100 249m
• 1.3175 440m
• 1.3220 238m

- AUD/USD: AUD amounts

• 0.7350 300m

Here is what you need to know on Tuesday, March 29:

Wall Street's main indexes ended up closing the first day of the week in positive territory and the greenback lost some interest. The US Dollar Index is consolidating its recent gains near 99.00 early Tuesday and the benchmark 10-year US Treasury bond yield stays relatively quiet below 2.5% after reaching a multi-year high of 2.55% on Monday. Later in the day, the Conference Board's Consumer Confidence Index and January Housing Price Index will be featured in the US economic docket.

The market mood remains relatively upbeat heading into the European session with US stock index futures rising 0.2%. Earlier in the day, China's Shanghai city announced that they will roll out economic policies to help firms through the latest coronavirus lockdown. Additionally, China Securities Times said the People's Bank of China was expected to lower the reserve requirement ratio (RRR) soon. Meanwhile, the Financial Times reported that Russia was no longer going to demand Ukraine be "denazified" in the upcoming negotiations.

EUR/USD fell below 1.1000 on Monday but closed the day virtually unchanged slightly below that level. The pair is moving sideways early Tuesday. 

GBP/USD lost more than 100 pips on Monday and was last seen fluctuating in a tight range near 1.3100. Bank of England (BOE) Governor Bailey noted that they were beginning to see evidence of a slowdown in growth. Commenting on the May rate decision, "the situation is very volatile," Bailey said.

USD/JPY surged to a multi-year high of 105.11 on Monday on the Bank of Japan's (BOJ) decision to conduct unlimited fixed-rate purchase operations for the 10-year Japanese government bonds. During the Asian session, Japan's Finance Minister Shunichi Suzuki said that they are closely watching market moods to avoid negative JPY weakness. USD/JPY is trading in negative territory around the mid-123.00s heading into the European session. 

Gold fell sharply on Monday amid rising US T-bond yields but seems to have steadied above $1,920 early Tuesday.

Bitcoin managed to build on the previous week's rally and registered gains for the seventh straight day on Monday. As of writing, BTC/USD was up nearly 1% at around $47,500. Ethereum preserves its bullish momentum and trades at its highest level in more than two months near $3,400.

Global turmoil benefits the greenback. Economists at BBH expect the EUR/USD pair to test lows near 1.08 while the cable is likely to fall toward the November 2020 low near 1.2855.

USD/JPY on track to test the June 2015 high near 125.85

“USD/JPY traded above 125 for the first time since August 2015 and is on track to test the June 2015 high near 125.85. After that, there are no significant chart points until the January 2002 high near 135.15.”

“The euro remains heavy just below 1.10 and we still expect an eventual test of this month’s cycle low near 1.08.” 

“Sterling is trading heavy after being unable to sustain a move above 1.32 last week. We look for an eventual test of this month’s new cycle low near 1.30 and then the November 2020 low near 1.2855.” 

• Silver struggled to capitalize on its modest intraday uptick beyond the $25.00 mark.
• The technical set-up supports prospects for a fall back towards the 61.8% Fibo. level.
• A move beyond the $26.00 mark is needed to negate the near-term bearish outlook.

Silver gained some positive traction during the early part of the trading on Tuesday, though struggled to capitalize on the move beyond the $25.00 psychological mark.

From a technical perspective, the XAG/USD, so far, has managed to defend the 200-period SMA on the 4-hour chart. The said support coincides with the lower boundary of over a two-week-old ascending trend channel and should now act as a key pivotal point for traders.

A convincing break below could prompt technical selling and accelerate the slide towards the $24.55 support zone, or the 50% Fibonacci retracement level of the $22.00-$26.95 move up. Some follow-through selling will set the stage for a further depreciating move.

The XAG/USD would then turn vulnerable to slide further towards testing sub-$24.00 levels, or the 61.8% Fibo. level. The downward trajectory could further get extended towards the next relevant support near the $23.40 region en-route the $23.00 round-figure mark.

On the flip side, sustained move beyond the 38.2% Fibo. level or the $25.00 mark is likely to confront stiff resistance near the $25.35-$25.40 region. Some follow-through buying should lift the XAG/USD back towards the 23.6% Fibo. level, around the $25.75-$25.80 area.

This is closely followed by trend-channel resistance and the $26.00 mark, which if cleared decisively would shift the bias in favour of bullish traders. The XAG/USD might then extend the momentum towards the $26.40 intermediate resistance en-route the $27.00 mark.

Silver 4-hour chart

Technical levels to watch

Economists at Natixis are trying to examine the effects on the UK economy of the June 2016 referendum that triggered Brexit. They look at the different important variables and seek to determine what the overall effect of Brexit has been on the United Kingdom.

Foreign trade

“UK imports have risen sharply, that the fall in UK exports to the EU has not at all been offset by an increase in exports to other countries, and that overall UK export market shares have fallen sharply.”

Investment

“Total corporate investment has declined, but no more so than in the eurozone; Direct investment inflows have disappeared; Housing investment has remained vigorous.”

Employment, immigration

“We see a decline in the labour force since 2020, due to a decline in immigration that is greater than that of immigration from the EU; A significant loss of employment from 2016 to 2022 compared with the eurozone.”

Per capita GDP and income

“UK GDP grew faster than euro-zone GDP until 2016, which has not been the case since then; The UK’s per capita GDP has fallen, but that is because of the exchange rate.”

Share prices and earnings

“From 2017, share prices fell sharply in the United Kingdom relative to the eurozone; which is consistent with the decline in profitability of UK companies compared with those in the eurozone.”

UAE Energy Minister Suhail Mohamed Al Mazrouei said on Tuesday, “we have one mission in OPEC+, which is stabilizing the market.”

Additional comments

Market reaction

WTI is rebounding 1.70% on the day, trading at $104.35, as of writing. The black gold tumbled on Monday after Shanghai entered into a phased lockdown due to the coronavirus resurgence.

NZD/USD slid below the 0.69 mark, opening the door for a correction. Still, economists at Westpac expect the kiwi to enjoy further gains towards the 0.70 level.

Potential to soar above 0.71 by June

“Potential for this minor reversal to reach 0.6875 before resuming the two-month-old rally beyond 0.7000.”

“The commodity price trend remains upward – a powerful source of support for the NZD. 

“Longer-term, we target 0.7100+ by June.”

“The RBNZ clearly has more work to do to claw back inflation expectations, and NZ meat and dairy prices, in particular, have further upside.”

AUD/NZD rose from 1.0820 to 1.0870 – a 12-month high. Economists at Westpac expect the pair to hit the 1.0950 mark with potential to reach the 1.10 level in the long run.

Global commodity boom and AUD/NZD’s undervaluation are supportive

“The break above 1.08 has been sustained, targeting 1.0950 multi-week.”

“The global commodity boom and AUD/NZD’s undervaluation are supportive, and could help take the cross towards 1.10 multi-month.”

Open interest in natural gas futures markets dropped for the second consecutive session at the beginning of the week, now by around 6.6K contracts as per advanced prints from CME Group. Volume, instead, rose by more than 53K contracts, partially reversing the previous drop.

Natural Gas retreats from YTD peaks

Prices of natural gas clinched fresh 2022 tops past $5.60 on Monday, just to give away part of that advance afterwards and end the session in the negative territory. The downtick, however, was amidst shrinking open interest, indicative that extra gains remain in store in the very near term.

• EUR/USD sticks around 1.1000 amid obscurity over a ceasefire between Russia and Ukraine.
• The Ukraine crisis has complicated the job of the ECB ahead of April’s monetary policy.
• The extent of the interest rate hike by the Fed largely banks upon the extent of US NFP.

The EUR/USD pair is auctioning back and forth in a narrow range of 1.0940-1.1440 since the previous week as investors are waiting for the speech from the European Central Board (ECB)’s President Christian Lagarde and the release of the European Union (EU)’s Unemployment Rate, which are due on Wednesday and Thursday respectively.

The speech from the ECB’s Lagarde will provide insights into the likely monetary policy action in April. The ECB policymakers have yet not increased their interest rates, unlike the other World leaders who have already turned their interest rate cycle. The Ukraine crisis amid Russian military activity on Ukrainian land has made the context complicated for the ECB policymakers. Russia’s invasion of Ukraine has raised fears of stagflation in Europe. Its February inflation figure at 5.9% is very much higher than the targeted figure of 2%. Therefore, ECB’s think tank will remain in dilemma whether to elevate the interest rate or to take the bullet itself.

Meanwhile, the US dollar index (DXY) has rebounded sharply after sensing bids near the round level support at 99.00. Investors are eying the US Nonfarm Payrolls (NFP) for building further positions in the mighty greenback. The extent of US NFP is likely to dictate the extent of the interest rate hike by the Federal Reserve (Fed) as any underperformance from the above-mentioned indicator will keep the interest rate hike in 25 basis points (bps) category.

Apart from the ECB’s Lagarde speech and US NFP, the EU’s Unemployment Rate holds significant importance. The inactive labor force rate is likely to trim to 6.7% against the previous print of 6.8%.

Gold price is making a minor recovery attempt this Tuesday, having found support just above the $1,920 barrier. But as FXStreet’s Dhwani Mehta notes, XAU/USD’s path of least resistance appears down.

Ukraine updates could revive the dollar’s demand

“Investors remain edgy amid slim chances of a meeting between the Russian and the Ukrainian leaders while cease-fire talks will likely continue. The developments surrounding the two warring nations will likely lead the market sentiment.”

“Gold is testing the trendline support now resistance at $1,931 on its road to recovery. If the latter is scaled on a sustained basis, then the 23.6% Fibo level at $1,937 will come into play once again. Further up, the mildly bullish 21-DMA at $1,953 will be retested. The next significant resistance awaits at $1,962, the 38.2% Fibo level of the same descent.”

“If the previous day’s low of $1,917 gets cracked convincingly, then floors will open floors towards the previous week’s low of $1,910. The line in the sand for gold bulls is seen at $1,895, where the March 16 low and ascending 50-DMA align.”

According to FX Strategists at UOB Group, the downside in NZD/USD could extend to the 0.6850 area in the next weeks.

Key Quotes

24-hour view: “Our expectations for NZD to ‘trade sideways’ yesterday were incorrect as it dropped sharply to 0.6890 before closing on a weak note at 0.6897 (-0.70%). Further weakness appears likely but oversold conditions suggest the major support at 0.6850 is likely out of reach for now (there is another support at 0.6875). Resistance is at 0.6915 followed by 0.6930.”

Next 1-3 weeks: “On 17 Mar (spot at 0.6835), we highlighted that the risk for NZD has shifted to the upside. As NZD rose, in our latest narrative from yesterday (28 Mar, spot at 0.6960), we indicated that upward momentum is beginning to wane and the odds for NZD to advance to 0.7025 has diminished. NZD subsequently cracked our ‘strong support’ level at 0.6925. The break of the ‘strong support’ indicates that NZD strength has run its course. At this stage, we view the current movement as part of a pullback that could extend to 0.6850. Only a breach of 0.6960 (‘strong resistance’ level) would indicate that NZD is not ready to pullback to 0.6850.”

Considering preliminary readings from CME Group for crude oil futures markets, open interest rose for the third straight session, albeit by just 403 contracts, on Monday. Volume followed suit and increased for the second session in a row, this time by around 97.4K contracts.

WTI could revisit $95.00 near term

Prices of the WTI dropped sharply on Monday amidst rising open interest and volume, exposing the continuation of the corrective downside in the very near term. That said, the next support of note remains intact around the $95.00 region per barrel.

GBP/USD now shifted the attention to the 1.3060 level in the near term, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “We expected GBP to weaken yesterday but we were of the view that ‘the major support at 1.3100 is unlikely to come under threat’. The anticipated weakness exceeded our expectations as GBP cracked 1.3100 and plummeted to 1.3066. The sharp and rapid decline appears to be overdone and GBP is unlikely to weaken much further. For today, GBP is more likely to trade sideways within a range of 1.3060/1.3140.”

Next 1-3 weeks: “Last Friday (25 Mar, spot at 1.3195), we highlighted that GBP appears to have moved into a consolidation phase and is likely to trade between 1.3100 and 1.3300. GBP dropped below 1.3100 yesterday (low of 1.3066) before rebounding quickly. Downward momentum has improved, albeit not by all that much. From here, GBP has to close below 1.3050 before a sustained decline is likely. The chance for GBP to close below 1.3050 is not high for now but it would remain intact as long as GBP does not move above 1.3195 (‘strong resistance’ level) within these few days. Looking ahead, the next support below 1.3050 is at 1.3000.”

A top currency diplomat from the Japanese Finance Minister, Masato Kanda, said on Tuesday, “Excess volatility and disorderly fx moves could hurt economic, financial stability.”

Additional quotes

Related reads

• USD/JPY Price Analysis: Profit-booking drags near 123.00 on highly overbought oscillators
• BOJ’s Amamiya: Japan's real GDP remains below pre-pandemic levels, keeping inflation subdued

CME Group’s flash data for gold futures markets noted open interest shrank for the second session in a row on Monday, this time by around 20.1K contracts, the largest single-day drop since March 10. On the other hand, volume resumed the uptrend and went up by more than 77K contracts, leaving behind Friday’s pullback.

Gold could re-target $1900

Monday’s strong retracement in prices of gold was in tandem with shrinking open interest, indicative that a deeper pullback looks unlikely in the very near term. In the meantime, the yellow metal remains well supported around the $1900 zone for the time being.

EUR/USD could see its decline accelerated below 1.0950 in the near term, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘there is room for EUR to drop below the major support at 1.0950’ but we were of the view that ‘a sustained decline below this level is unlikely’. Our view turned out to be correct as EUR dropped to 1.0943 before rebounding quickly. The current movement is likely part of a consolidation phase and EUR is likely to trade sideways between 1.0960 and 1.1025.”

Next 1-3 weeks: “We highlighted yesterday that downward momentum is beginning to build but EUR has to close below 1.0950 before a sustained decline is likely. EUR subsequently dropped to 1.0943 before rebounding. There is no change in our view for now but a breach of 1.1070 (‘strong resistance’ level was at 1.1130 yesterday) would indicate that the build-up in momentum has fizzled out.”

• USD/JPY has slipped near 123.00 after the profit-booking kicks in.
• The RSI (14) has turned overbought after printing fresh highs above 80.00.
• The horizontal trendline placed at 118.66 will act as important support.

The USD/JPY pair has eased modest gains after hitting a six-year high at 125.10. The asset has recorded a juggernaut rally of almost 7.8% in the last four weeks. The pair is likely to witness a pullback going forward as oscillators have turned highly overbought.

On Tuesday, the major has displayed a negative open rejection reverse move as the asset moves higher after opening gradually but faced significant offers after investors prefers a ‘sell on rise’ approach.

As per the weekly scale, USD/JPY has witnessed a firmer rally after a breakout out of the rising channel on the upside whose upper end is placed from 2 April 2021 high at 110.97 while the lower end is marked from 8 January 2021 low at 102.59. The horizontal line placed from 16 December 2016 high at 118.66 will act as major support.

The 10 and 20-period Exponential Moving Averages (EMAs) are scaling higher at 118.24 and 116.25 respectively, which adds to the upside filters.

The Relative Strength Index (RSI) (14) has printed a fresh high around 82.00, which indicates an overbought situation and sets a pullback going forward.

Should the major test its ground of five-year-old resistance at 118.66, a build-up of fresh bids will drive the pair towards the psychological resistance of 120.00, followed by a 5 February 2016 high at 121.49.

On the flip side, bears can take control if the pair slips below the 10 EMA at 118.24. This will drag the pair towards the 20 EMA at 116.25. Breach of the latter will send the pair towards the 3 March 2017 high at 115.50.

USD/JPY weekly chart

Bank of Japan (BOJ) Deputy Governor Masayoshi Amamiya made some comments on the Japanese economy and inflation outlook during his appearance on Tuesday.

Key quotes

Market reaction

At the time of writing, USD/JPY is losing 0.55% on the day to trade at 123.22. The yen met fresh demand, in the face of the Japanese fiscal year-end flows.

The pair is almost 1 big figure down from its daily highs of 124.31, reached after the BOJ conducted unlimited bond buys on Tuesday.

Ahead of the federal budget release on Tuesday, Australian Treasurer Josh Frydenberg said his government will ramp up spending on defense and national security while reducing household expenses.

Key quotes

With Russia at war with Ukraine and China's military becoming more assertive, "further investments in defense and national security reflect the challenges that we now face."

"Tonight in a temporary, in a targeted, in a responsible way, we will provide the cost of living relief.”

“Would also reveal a "material improvement to the budget bottom line."

On Monday, Australian Prime Minister Scott Morrison announced that his Coalition will roll out an extra AUD17.9 billion (USD13.4 billion) on road and rail projects over the next ten years if he is re-election for the second term in May general election, per Xinhua News Agency.

Market reaction

AUD/USD is little changed on the above headlines, currently trading at 0.7485, modestly flay on the day.

• USD/INR has plunged below 76.00 as DXY weakens on higher demand for risk-sensitive assets.
• Falling oil prices have appreciated the Indian rupee.
• DXY has also been hammered ahead of poor US NFP.

The USD/INR pair is on the verge of auctioning below the previous week’s low at 75.95 as the mighty greenback surrendered sufficient gains on Tuesday after the risk-off impulse fades away amid progress in the Russia-Ukraine peace talks. While a serious plunge in oil prices has put the Indian rupee on the front foot.

The US dollar index (DXY) has been offered strongly by the responsive sellers at around 99.30 as the market participants have started expecting an underperformance from the US Nonfarm Payrolls (NFP) indicator, which is due on Friday. A preliminary estimate of US NFP at 475k indicates disappointment in comparison with the previous print of 678K. Apart from the US Consumer Price Index (CPI) figure, US NFP is an important economic indicator, which is approached by the Federal Reserve (Fed) policymakers before dictating the interest rate policy. Therefore, a decent shrinkage in the employment numbers is likely to trim the odds of a 50 basis point (bps) interest rate hike by the Fed.

On the oil front, lockdown measures in Shanghai to contain the resurgence of Covid-19 have started highlighting heavy slippage in the overall demand.  The Chinese administration has restricted the movement of men, materials, and machines amid mass Covid-19 testing in a large part of Shanghai. India, being a major importer of crude oil is going to reap the benefits of cooling oil prices.

The major driver will remain the US NFP this week but before that investors will also focus on the speech from Fed President John C. Williams, which is due on Tuesday.

• The rouble strengthened in Moscow trade on Monday.
• Russian market is gradually reopening and returning to normal.

The Russian rouble has performed strongly while Russian stocks extended their slide lower on the third day of trading after an almost month-long suspension.

The Russian market is gradually reopening and returning to normal following the sanctions that were imposed by the West for the invasion of Ukraine. USD/RUB has traded to as low as 79.90 on the day so far and has moved in on February's resistance and breakout area that could act as support for the sessions ahead. 

''Russian stocks and bonds resumed trading in full on Monday, albeit for a curtailed time frame and with various restrictions, including a ban on short-selling, still in place. Non-residents are barred from selling stocks and OFZ rouble bonds until April 1,'' Reuters reported.

The firm comeback in the ruble started on the back of  President Vladimir Putin announcing last Wednesday that Russia will demand “unfriendly'' countries pay for Russian natural gas exports only in rubles from now on.

In a meeting with government officials, Putin said that “a number of Western countries made illegitimate decisions on the so-called freezing of the Russian assets, effectively drawing a line over the reliability of their currencies, undermining the trust for those currencies.”

Meanwhile, yields on Russia's benchmark 10-year OFZ treasury bonds were at 13.61%, down from last week's record high of 19.74%, which is just below the central bank's key interest rate, but still at levels last seen in March 2015, Reuters explained in a note on Tuesday. 

• Greenback bulls may attract bids on completion of pullback near falling channel surface.
• The RSI (14) may trace the pullback and find support near 40.00.
• Bulls are firmer above 61.8% Fibo retracement.

The USD/CHF pair has eased slightly after struggling to overstep 0.9380 multiple times. The asset performed subdued on Monday and is expected to continue its weakness after slipping below intraday’s low at 0.9327.

On an hourly scale, USD/CHF displayed a breakout of the falling channel formation whose upper end was placed from March 17 high at 0.9418 while the lower end was marked from March 21 low at 0.9294. Usually, a falling channel breakout pursues a pullback near the channel surface. The asset is following the structure and is advancing towards the upper end of the falling channel to test the breakout.

Earlier, the asset showed a bullish reversal from 61.8% Fibonacci retracement (placed from March 6 low at 0.9165 to March 16 high at 0.9460) at 0.9279.

 The Relative Strength Index (14) has shifted into a range of 40.00-60.00 from the bullish range of 60.00-80.00, which signals consolidation ahead. The RSI (14) is likely to trace the pullback and may find a cushion near 40.00 going forward.

Should the asset test the surface of the upper end of the rising channel around 0.9320, some significant bids are expected to drive the pair higher towards Thursday’s high at 0.9345, followed by Tuesday’s high at 0.9376.

On the contrary, a slippage below the round level support at 0.9300 will send the pair towards March 10 high at 0.9284. Breach of the latter will drag the asset towards March 9 low at 0.9250.

USD/CHF hourly chart

• AUD/USD bulls are tiring at the 0.75 area, so far, 
• Failures through 0.7510 could lead to a deeper daily correction. 

Following the Retail Sales data from earlier in the Asian session on Thursday, the price has attempted to rally but has come against offers protecting the 0.75 area so far:

AUD/USD hourly chart

From a longer-term perspective, the focus is on the downside so long as 0.7510/12 areas can hold and there will be prospects for a run into the daily support area, presuming that a deeper correction on the daily chart will play out before there is enough fuel for a continuation higher:

• EUR/USD holds in a tight range for Asia below 1.10 the figure.
• Price is trapped between hourly support and resistance below a bearish counter trendline.

EUR/USD is trading around 0.1% higher after climbing from a low of 1.0968 and reaching a high of 1.0997 so far on Tuesday. The price is being resisted on an hourly basis around 1.1000 for the start of the week while trapped between there and support near 1.0950. The main focus is on the Ukraine crisis and forthcoming peace talks that start up again today. 

Ukraine peace talks in focus

There was a light of hope cast over Wall Street on Monday when news in an article in the Financial Times reported that Russia was no longer demanding that Ukraine be ‘denazified’ in ceasefire talks. Additionally, the article stated that Russia will allow Kyiv to join the EU if it abandons Nato aspirations. It went on to say that Moscow & Kyiv will discuss a pause in hostilities at talks in Turkey on Tuesday and draft documents do not contain three of Russia’s initial core demands — “denazification”, “demilitarisation”, and legal protection for the Russian language in Ukraine, sources told the FT.

Meanwhile, a slightly positive mood has crept into Asian markets as well, despite the mixed sentiment. Asian equities climbed, buoyed by a drop in oil prices as well as the glimmer of hope in the ceasefire talks.  Following a rebound and rally of the S&P 500for a third day, equities in Japan, Hong Kong, and China climbed. As for yield, the US 10-year treasury yield is stuck around 2.46%. However, the inversions in the bond curve are noted that signal the worries over a recession looming at the same time that the  Federal Reserve is on a path of raising interest rates sharply. 

EUR/USD technical analysis

As illustrated on the hourly chart above, the price is trapped between support and resistance with a focus on the downside below the countertrendline.

• GBP/USD has found bids near 1.3080 as the risk-aversion theme loses appeal.
• Higher UK’s CPI advocates for a fourth interest rate hike in a row.
• Going forward, US NFP and UK’s GDP will be keenly watched.

The GBP/USD pair has attracted some significant bids near 1.3080 as the risk appetite of investors improves and risk-perceived assets are gaining more demand. Earlier, the cable was underperforming despite tightening monetary policy from the Bank of England (BOE).

The BOE has increased its interest rates to 0.75% to combat the soaring inflation. The central bank raised its benchmark rates three times in a row, each time by 25 basis points (bps). Adding to that, the UK’s Office for National Statistics printed the yearly Consumer Price Index (CPI) at 6.2%, which was significantly higher than the market estimates and previous figures of 5.9% and 5.5% respectively. A likely higher print of UK inflation may force the BOE to come forward with one more interest rate hike in May.

The US dollar index (DXY) has faced barricades after failing to record a fresh nine-month high and is on the verge of slipping below 99.00. An improvement in the risk-appetite post the absence of three core demands of Moscow: denazification, demilitarisation, and legal protection for the Russian language in Ukraine have hammered the DXY near 99.30. Meanwhile, the 10-year US Treasury Yields is hovering around 2.46% ahead of the US Nonfarm Payrolls (NFP), which are to be unfolded on Friday. A preliminary estimate of US NFP at 475K signals a significant reduction against the previous print of 678K.

Apart from the US NFP, investors will also focus on the quarterly and yearly UK Gross Domestic Product (GDP) numbers, which will be released on Thursday.  The quarterly and yearly GDP numbers are likely to land at 1% and 6.5% respectively.

• Gold is recovering in Asia as bulls step in.
• Markets eye the Ukraine crisis, with mixed headlines overnight.
• Can XAU/USD push higher as west blocks Russia's gold transactions? 

The gold price fell sharply at the start of the week while the greenback picked up the flow, eradicating the demand for the precious metal. The US dollar climbed to its highest level in more than a week, while yields on two-year Treasuries surged. At the time of writing, XAU/USD is 0.2% higher in Asia as the bulls move in and the price attempts to recover. 

The gold price has travelled from a low of $1,921.54 to a high of $1,929.45 so far. Markets remain hinged to developments regarding the Ukraine crisis, with mixed headlines overnight. The Financial Times on Monday published news that Russia is no longer demanding that Ukraine be ‘denazified’ in ceasefire talks and will allow Kyiv to join the EU if it abandons Nato aspirations. It went on to say that Moscow & Kyiv will discuss a pause in hostilities at talks in Turkey on Tuesday and draft documents do not contain three of Russia’s initial core demands — “denazification”, “demilitarisation”, and legal protection for the Russian language in Ukraine, sources told the FT.''

With that being said,the possibility of a Putin-Zelenskiy meeting is slim. The Kremlin says there has been no progress. The Russian Foreign Minister Lavrov said recently that any meeting between Putin and Zelenskiy to exchange views currently would be counter-productive. Additionally,  a senior US official said Russian President Vladimir Putin did not appear ready to make compromises. Ukrainian officials are also playing down the chances of a major breakthrough at the talks.

Meanwhile, US equities slipped early in new York trade as high inflation and monetary tightening risks weighed on market sentiment. However, there was a rebound late in the day as big tech names supported the Nasdaq, the S&P 500 and the Dow. The Dow Jones Industrial Average ended up 0.3%, the S&P 500 gained 0.7% while the Nasdaq Composite added 1.3%.

As for data, the Dallas Federal Reserve's monthly manufacturing survey for March, a narrower advance trade gap for February and a rise in inventories. The Dallas Fed's Manufacturing Activity Index dropped to 8.7 in March from 14 in February, in contrast to other regional data that indicated expansion in the sector.

Additionally, the trade gap narrowed 0.9% to $106.6 billion in February amid higher exports. The updated trade data for the month will be released on April 5. Lastly, Wholesale Inventories rose by 2.1% in February and retail inventories by 1.1%. Wholesale inventories will be updated on April 8, while retail inventories will be updated on April 14.

Key data ahead

Looking ahead for the week, the labour market in the US, as well as the eurozone inflation data, will be keenly eyed. The US Nonfarm Payrolls at the start of the new month on Friday is likely to show that Employment continued to advance in March following two strong reports averaging +580k in Jan and Feb, analysts at TD Securities argued.

''That said, we expect some of that boost to fizzle, though to a still firm job growth pace of +350k. Indeed, job gains should lead to a new drop in the unemployment rate to a post-COVID low of 3.7%. We also expect wage growth to slow to a still firm 0.3% MoM pace.''

As for eurozone inflation, the analysts expect ''headline HICP inflation to soar across the euro area in March, mostly due to a substantial surge in energy prices.''

They are also looking for a rise in non-energy industrial goods prices to boost euro area core inflation to a 28-year high of 3.2% (mkt: 3.1%). ''However, newly passed energy subsidies and price caps add some downside risk to our headline forecasts.''

Gold technical analysis

• Chart of the Week: Gold is moulding a bullish close for the month

We are in the last week of the month and the start of a new quarter could print a bullish prospect on the monthly chart, as illustrated below:

The month is set could close with a bullish candle and long wick that represents a phase of accumulation on the lower time frames. Meaning, there is potential for a move high in the weeks ahead and a fresh cycle high thereafter. 

As the covid lockdowns bite, China’s Shanghai city unveils economic policy measures to offer support SMEs and eligible companies.

Key takeaways

• USD/CAD on the front foot as oil declines, China demand weakens. 
• Fed and BoC coming into focus beyond oil prices.

USD/CAD is flat on the session and has moved in a relatively tight range of just 15 pips between 1.1513 and 1.12530 so far.  The Canadian dollar weakened against the greenback at the start of the week, ducking below a two-month high, as oil prices tumbled and the greenback broadly climbed.

The moves follow nine straight days of gains for the loonie, the longest winning streak since August 2016. On Friday, the pair reached the best level since Jan. 20 at 1.2462. Speculators’ net CAD long positions fell back into negative ground though. However, the loonie has fought back against the USD in the spot market in recent sessions on the back of stronger oil prices.

Meanwhile, the price of oil, one of Canada's major exports at the start of the week dropped as Shanghai entered a two-stage lockdown of 26 million people in an attempt to curb the spread of COVID-19. ''China's most intense hit to mobility since the initial wave of Covid-19 lockdowns is weighing heavily on energy prices,'' analysts at TD Securities explained.

''While our tracking of Shanghai traders' metals positioning suggests confidence that Chinese production will remain resilient, the lockdowns are translating into a significant hit to mobility. As of last week, road traffic in China had collapsed by nearly 10% on the month amid Omicron's explosive spread, a figure which appears likely to intensify amid imminent lockdowns.''

''We still expect that Brent crude will continue to rally as the market continues to price-in a rise in energy supply risk amid immense supply disruptions. The right tail in energy markets is still fat, as effective spare capacity across OPEC+ is stretched thin, while OECD inventories reach their lowest since the Arab Spring and US shale's position as a swing producer is constrained by a growing focus on ESG and balance sheet along with supply chain bottlenecks in energy equipment and labour.''

BoC in focus

As for money markets, the US Treasury yield curve, as measured by the gap between five and 30-year yields, briefly inverted for the first time since early 2006, raising concerns about the risk of recession. Compared to Canada's curve, this has also flattened as investors weigh the prospects of the Bank of Canada raising interest rates by 50 basis points at its April 13 policy announcement. The 2-year yield touched its best level since October 2008 at 2.427% before dipping to 2.362%. The 10-year pulled back to 2.2 basis points at 2.523%.

Overnight, the BoC's Kozicki spoke on households and monetary policy late on Friday. ''DG Kozicki stated that Bank would be debating the pace and magnitude of tightening ahead of its April announcement and stating that the Bank was prepared to act forcefully,'' analysts at TD Securities explained.

''We don't think this should be seen an explicit hint that the Bank is planning a 50bp hike, but certainly, the remarks had a hawkish tilt to them. The rest of the speech focussed on how monetary policy transmits through households, with Kozicki noting that households are better positioned to weather rising interest rates compared to the 2017-18 cycle.''

Looking forward, with the Federal Reserve expected to raise rates by 50bps in May and June, the Bank of Canada could also be set to move faster. markets are pricing for at least 25bp rate hikes in each of the next seven BoC meetings. This would equate to the BoC reaching a terminal rate of 2.25% in January 2023.

''We continue to see a high bar for 50bp moves, but the risk of more drastic action is clearly rising as inflation continues to surprise to the upside,'' analysts at TD Securities argued. ''We expect the Bank will be closely watching longer-term inflation expectations ahead of the April meeting, and we think the risk of a 50bp hike is highest in June following the expected move from the Fed.''

According to a state-owned newspaper, China Securities Times, the People's Bank of China is likely to cut banks’ reserve requirement ratio (RRR) soon.

The Chinese central bank is expected to slash the RRR to boost liquidity and support growth in the second quarter of 2022.

Read: PBOC may gradually shift away from RRR cuts – Bloomberg

Market reaction

USD/CNY came under fresh selling pressure and gave up the 6.3700 level on the above headlines.

The pair is currently trading at 6.3680, losing 0.07% on the day.

The Bank of Japan (BOJ) conducted an unlimited amount of bond-buying of 10-year Japanese Government Bonds (JGB) at 0.25% on Tuesday to defend the yield cap.

The Japanese central bank’s second consecutive day of the intervention is seen as a desperate measure to stem the advance in the yields.

The BOJ made two consecutive and unlimited bond-buying offers for the first time ever on Monday, as it pledged to conduct the operation for the first four days of this week.

Market reaction

USD/JPY remained volatile around 124.00 on the above announcement. The pair is now trading at 123.80, down 0.11% on the day, having hit daily highs at 124.31 in the last hour.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3640 vs. estimate at 6.3601 and the last close of 6.3720.

About the fix

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

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

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

• AUD/JPY has witnessed bids from 92.30 despite flat Aussie’s Retail Sales.
• The BOJ is grabbing JGB to keep interest rates on the ground.
• This week: Japan’s Retail Sales will be a major event that investors will keep on the radar.

The AUD/JPY has witnessed decent buying interest around 92.30 after the Australian Bureau of Statistics reported Retail Sales figures. Outperformance has been witnessed in the print of Aussie’s Retail Sales in comparison with the market estimates as it is landed at 1.8%, higher than the preliminary estimate figure of 1%. While the previous figure was 1.8%, in-line with the month of February.

The aussie has been outperforming the Japanese yen for the past few trading sessions amid the broader weakness in the latter. The broader weakness in the Japanese yen escalated on Monday after the Bank of Japan (BOJ) announced an unlimited bond-buying program for a period of four days to keep the interest rates from any context of elevation. Meanwhile, traders dumped 10-year benchmark Japan Government Bonds (JGB) in the expectation of flat interest rates going forward.

Apart from that, a marginal slippage in the Japanese Unemployment Rate managed to activate minor profit-booking in the counter. The Statistics Bureau of Japan reported the Unemployment Rate at 2.7%, lower than the previous print and market estimate of 2.8%.

Going forward, the Retail Sales data from Japan’s docket will remain the key driver, which is due on Wednesday. The street is eying underperformance from Japan’s Retail Sales amid a market estimate of -0.3% against the prior print of 1.1%.

Japan's Finance Minister Shun'ichi Suzuki said that they will tap emergency budget reserves first to fund measures to counter rising oil prices and they are closely watching market moves to avoid negative yen weakness.

This followed the start of the week's drop in the yen when the Bank of Japan announced that it will offer to buy an unlimited amount of 10-year JGBs at 0.25%.

Consequently, USD/JPY rallied to the highest levels since 2015:

• AUD/USD has failed to stick to its fresh yearly high at 0.7540.
• Australian Retail Sales have landed flat but have outperformed the market consensus.
• The DXY is scaling higher gradually on an expectation of a 50 bps interest rate hike.

The AUD/USD pair has attracted some significant offers after failing to stick to its fresh yearly high at 0.7540. The asset is trading lower as the Australian Bureau of Statistics has reported stabled Retail Sales. The monthly Retail Sales for February have landed at 1.8% in line with the previous print but have outperformed the preliminary estimate of 1%.

 The aussie has been performing stronger against the greenback this month amid rising commodity prices globally. Australia, being a major exporter of base metals has capitalized upon the recent rally in the base metals, which has helped the antipodean to generate significant cash flows.

Meanwhile, the US dollar index (DXY) is moving toward the north gradually amid rising expectations of a tightening monetary policy by the Federal Reserve (Fed). Betting over a 50 basis point (bps) interest rate hike is gaining momentum after various Fed policymakers cited the requirement of elevating the interest rates to corner the soaring inflation. It is worth noting that Fed Chair Jerome Powell has announced seven interest rate hikes this year and has emphasized that the economy is strong enough to digest the aggressive interest rate elevation.

Going forward, the US Nonfarm Payrolls (NFP) will remain a key driver for the FX domain this week. The street is expecting underperformance from the US NFP as it is likely to land at 475k against the February figure of 678K.

Australia's Retail Sales for February has been released:

Australian Retail Sales (MoM) Feb: 1.8% (est 1%; prev 1.8%).

AUD/USD reaction

The data, while far better than expected, is still not an improvement on prior and AUD/USD only popped 5 pips on with the focus elsewhere, (Ukraine risks).

AUD/USD is down some 0.12% at the time of writing, trading in a risk-off environment despite a positive start on Wall Street for the week. 

About Retail Sales

The primary gauge of Australia’s consumer spending, the Retail Sales, is released by the Australian Bureau of Statistics (ABS) about 35 days after the month ends. It accounts for approximately 80% of total retail turnover in the country and, therefore, has a significant bearing on inflation and GDP.

This leading indicator has a direct correlation with inflation and the growth prospects, impacting the Reserve Bank of Australia’s (RBA) interest rates decision and AUD valuation. The stats bureau uses the forward factor method, ensuring that the seasonal factors are not distorted by COVID-19 impacts.

• Euro bulls are hopeful for a bullish reversal above the 50 EMA.
• The RSI (14) is still inside the woods, trading in a 40.00-60.00 range.
• The asset has struggled to surpass the trendline placed from 1.1495 multiple times.

The EUR/USD pair is auctioning in a narrow range of 1.0940-1.1440 since the previous week. The shared currency bulls have struggled multiple times near 1.1050 and are likely to remain lackluster till the asset gets validations from multiple filters.

On a four-hour scale, EUR/USD is trading back and forth in the above-mentioned trading range. The trendline placed from February 10 high at 1.1495 adjoining the February 21 high at 1.1390 and March 17 high at 1.1137 has acted as a major barricade.

The Relative Strength Index (14) is trading in a range of 40.00-60.00, which signals more consolidation ahead.

The asset is holding below 50 and 200-period Exponential Moving Averages (EMAs) at 1.1000 and 1.1093, which indicates a lack of conviction in Euro bulls.

Should the asset overstep the 50 EMA at 1.1000, a bullish reveal will be witnessed which will send the pair towards the 200 EMA at 1.1093 followed by March 17 high at 1.1137.

On a contrary, the asset will find initiative selling if it slips below Monday’s low at 1.0945, which will send the pair towards March 11 low at 1.0900. Breach of the latter will drag the asset towards March 7 low at 1.0806.

EUR/USD four-hour chart

The BOJ Summary of Opinions at the Monetary Policy Meeting on March 17 and 18, 2022, have been released as follows:

• Rising inflation could weigh on overseas economic growth.
• Worried of risk uncertainty over Ukraine developments could weigh on japan's economy.
• Rising raw material and food costs, geopolitical risks could inflict strong downward pressure on economy.
• Japan's consumer inflation likely to accelerate clearly from April, may move around 2% for some time.
• Inflationary pressure to heighten on improvements in the output gap, rising inflation expectations.
• Consumer inflation likely to hover around 2% in 1st half of fiscal 2022 but may undershoot if commodity prices turn down.
• More companies appear to be passing on higher costs to consumers.
• Surging imported raw material costs unlikely to lead to sustained rise in consumer inflation.
• BoJ must maintain monetary easing as japan unlikely to see inflation continuously exceed 2%.
• BoJ must focus not on fx, commodity price moves themselves, but how they could affect the economy, prices.
• BoJ must respond flexibly without hesitation if the achievement of 2% inflation comes under threat as rising raw material prices could hurt the economy, prices.
• Important to think of various possibilities and how to respond with monetary policy, taking into account recent changes in economic, price developments.

About the Summary of Opinions

This report includes the BOJ's projection for inflation and economic growth. It is scheduled 8 times per year, about 10 days after the Monetary Policy Statement is released.

Australia's Retail Sales for February is a key data event today that is scheduled for the top of the hour. It is expected to post a relatively strong gain in February, with Queensland and New South Wales flooding risks the only bumps along the road. 

The data should come in strong as households run down their sizeable savings, analysts at TD Securities argued. ''Thus, we see sales revisiting the record high in Nov'21 soon. The outsized gains in ANZ job vacancies (+8.4% MoM) in February could be a preview of the likely strength in the official job vacancies data.''

AUD/USD outlook on Retail Sales

As illustrated on the hourly chart above, the price is under pressure and could be on the verge of a test of the demand area in and below the 0.7400/50 areas for the coming sessions. Zooming on in the hourly time frame ... 

... an M-formation is present and the price has already reverted towards the neckline in a 50% mean reversion of the prior bearish impulse. Should this resistance area hold and the data not impress, then there is the possibility that the pair will start to melt in the direction of the said targetted areas.

If, on the other hand, the data surprise positively in any significant way, then the bears will have to play a waiting game as the price firms back into the consolidation areas in the 0.75's for a while longer, presuming that a deeper correction on the daily chart will play out before there is enough fuel for a continuation higher:

About Retail Sales

The primary gauge of Australia’s consumer spending, the Retail Sales, is released by the Australian Bureau of Statistics (ABS) about 35 days after the month ends. It accounts for approximately 80% of total retail turnover in the country and, therefore, has a significant bearing on inflation and GDP.

This leading indicator has a direct correlation with inflation and the growth prospects, impacting the Reserve Bank of Australia’s (RBA) interest rates decision and AUD valuation. The stats bureau uses the forward factor method, ensuring that the seasonal factors are not distorted by COVID-19 impacts.