CFD Markets News and Forecasts — 29-04-2022

• The AUD/USD is aiming lower in the month and would record its most significant loss since March 2020., down 5.57%.
• A risk-off market mood dragged the AUD/USD lower as late position trading favors the greenback.
• US Treasury yields jumped late in the session, led by the 10-year up ten basis points, at 2.936%.
• AUD/USD Price Forecast: Bears prepare an assault of 0.7000.

The AUD/USD plummets from daily highs near 0.7200 and tanked below 0.7100 as market sentiment turned sour, ahead of a busy week for the Australian and US economic dockets, as both countries’ central banks would have monetary policy meetings. At the time of writing, the AUD/USD is trading at 0.7069.

Market sentiment weakens the risk-sensitive AUD

Risk-aversion rules April’s last trading day, as portrayed by US equities set to record losses between 2.32% and 4.09%. Factors like China’s covid outbreak, Federal Reserve tightening, and the Russia-Ukraine war developments weighed on market sentiment.

On Friday, the Fed’s favorite inflation gauge, the core Personal Consumption Expenditures (PCE), rose to 5.2% y/y, lower than the 5.3% estimations. However, headline inflation expanded by 6.6% y/y, from 6.3% in the previous month. The data further strengthens the case for a Federal Reserve rate hike in the next week, as the US central bank chief Jerome Powell expressed during the month that a 50-bps increase is “on the table.”

Hotter than expected inflationary readings reported during the week on the Australian front paint a problematic scenario for the Reserve Bank of Australia (RBA) as a federal election looms on May 16^th. Money market futures odds of a 0.25 bps increase by the RBA sit at an 85% chance, though some analysts were expecting a 40-bps rate hike.

The consensus amongst economists is that the board would stay put and hold rates unchanged. However, according to Bloomberg, Goldman Sachs Group, Inc. sees the RBA delivering a 40-bps move in June.

Therefore, the AUD/USD scenario favors the greenback. But, a higher-than-expected RBA rate increase or a “dovish” Federal Reserve would boost the prospects of the AUD, though it’s unlikely to happen.

AUD/USD Price Forecast: Technical outlook

The AUD/USD remains downward biased, accelerating its downward trend as shown by the daily chart. The MACD remains bearish, as the MACD/signal lines aim lower while the histogram expands downwards. Additionally, the daily moving averages (DMAs) above the spot price confirm the aforementioned, though it’s worth noting that the 50-DMA remains on top of the 200 and the 100-DMA.

That said, the AUD/USD’s first support would be February’s 4 cycle low around 0.7051. A break below would expose February’s 1 daily low at 0.7033, followed by the S3 daily pivot at the triple-zero figure at 0.7000.

• Risk-off flows on Wall Street weighed heavily on AUD/JPY on Friday.
• Having failed to rally above its 21DMA near 93.00, the pair dropped over 1.0% to the mid-91.00s.
• Focus remains on broader risk appetite China lockdown risks next week, as well as on the RBA policy announcement.

A sharp deterioration in risk appetite on Wall Street on the final trading day of the month that saw the S&P 500 index drop around 3.0% to fresh multi-week lows weighed heavily on risk-sensitive currencies on Friday. As a result, the Australian dollar was one of the underperforming G10 currencies on the day, while the safe-haven yen was able to attract some safe-haven-related inflows.

AUD/JPY was subsequently last trading lower by more than 1.0% in the 91.75 region, having failed for a second successive session to rally above its 21-Day Moving Average near 93.00. Friday’s pullback puts the pair on course to have fallen about 1.5% this week, which is not too shabby considering the pair was at one point trading nearly 3.0% lows in the mid-90.00s. The dovish tone of the BoJ on Thursday, which triggered a broad drop in the yen at the time, combined with spicey Australian Consumer Price Inflation data on Wednesday, which triggered a build up of RBA tightening bets, was the main catalyst for the mid-week rebound.

Markets now expect that the RBA will hike interest rates by 15 bps next week to 0.25%, with the bank expected to fully depart from its prior stance emphasising “patience” to being more proactive in getting rates back to neutral. Against that backdrop, one might think that risks are tilted to the upside for AUD/JPY next week. But if the pair is to have any chance of rallying back towards recent multi-year highs in the upper 95.00s, risk appetite in equity markets is going to need to improve.

But with the Fed expected to hike interest rates by 50 bps, announce QT plans and signal its intent to get rates back to around 2.5% by the year’s end, betting on a risk appetite rebound against this hawkish backdrop is risky. Moreover, the Aussie also has to contend with risks related to lockdowns in China, which could yet further throttle demand in Australia’s most important export partner.

• The EUR/JPY prepares to finish April with decent gains of 1.64%.
• A dismal market sentiment, increased appetite for safe-haven peers.
• EUR/JPY Price Forecast: A head-and-shoulders pattern in the daily chart is forming and, once validated, could drag the EUR/JPY towards 130.00.

The EUR/JPY grinds lower during the North American session on Friday, though it looks forward to printing two consecutive monthly gains, up 1.64% as the month-weekly end looms. At the time of writing, the EUR/JPY is falling some 0.31%, trading at 136.80.

A risk-off market mood suddenly shifted appetite in the FX space. Except for the greenback, safe-haven peers are the leaders in the North American session. Risk appetite is weighed by concerns about China’s coronavirus outbreak which threatens to disrupt supply chains, Russia-Ukraine tussles continued, and a Federal Reserve aggressive tightening added a pinch of salt to a dismal sentiment.

During the overnight session, the EUR/JPY opened around 137.50 and meandered around the 200-hour simple moving average (SMA), almost horizontal, around 137.70. However, once European traders got off their desks, the US session’s sour sentiment weighed on the EUR/JPY, dragging the pair towards new daily lows around 136.50.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY daily chart depicts the pair as upward biased, though it in the last couple of days was unable to break resistance at 138.00, courtesy of EUR weakness. Also, a head-and-shoulders pattern is forming, which would add downward pressure on the pair, though a break below the neckline is needed to validate the pattern.

If that scenario plays out, the EUR/JPY first support would be 136.00. Break below would drag the pair towards the head-and-shoulders necklines, around 134.70-135.00. Once broken, the next stop would be last year’s high, around 134.12, followed by some DMAs before reaching the 130.00 head-and-shoulders targets.

• US equities slumped on Friday, led by a more than 15% decline in Amazon’s share price post-earnings.
• The S&P 500 dropped nearly 3.0% to test monthly lows in the 4,160s, where it trades over 8% lower on-the-month.

A more than 15% drop in US tech giant Amazon’s share price to its lowest level in nearly two years under $2500 per share weighed heavily on the major US indices on Friday. Amazon posted its Q1 earnings results after Thursday’s market close, which revealed that higher costs were squeezing margins more than expected. Fellow tech giant Apple also reported earnings after Thursday’s close and failed to lighten the mood. The iPhone maker’s share price was last trading lower by about 1% despite posting record sales and profits in Q1, with traders citing a weak outlook.

Downbeat earnings meant the US equity markets were a sea of red on Friday, with no major sector able to escape the sell-off. The S&P 500 was last trading lower by nearly 3.0%, which saw it crash back below the 4,200 level and probe multi-week lows printed earlier in the week around 4,160. The tech-dense Nasdaq 100 index was down a little over 3.5% and eyeing a test of weekly lows at 13,000, while the Dow was last down a little over 2.0% and also eyeing a test of weekly lows just under 33,100.

Traders said Friday’s sell-off was partially worsened after US yields rallied in wake of data revealing a larger than expected jump in the Employment Cost Index in Q1 this year, which seemed to encourage markets to up their bets on Fed tightening. Indeed, fears about Fed tightening, with the bank expected to lift interest rates by 50 bps next week followed by a series of further rate hikes of similar magnitude, have been a key factor weighing on US equities this month.

The S&P 500 is currently on course to post a near 8.0% loss on the month, its worst performance since Q1 2020, with the index now back in correction territory versus record highs above 4,800 printed at the start of the year. The losses are more severe for the Nasdaq 100, which looks set to end the month around 12.5% lower, taking the index more than 20% below its peak last November, meaning the index is in an official “bear market”. The Dow, meanwhile, looks set to end the month a more modest 4.0% lower and is still less than 10% below its record highs from back in January. 

Russian Foreign Minister Sergey Lavrov said on Friday that Russia does not consider itself to be at war with NATO, adding that such a development could raise the risk of a nuclear war, something which cannot be allowed, reported Reuters citing Russia's RIA news agency. 

Moscow and Kyiv could already have achieved major results at peace talks, but Kyiv is changing its position under orders from the US and UK, Lavrov continued. Russia is not threatening anyone with nuclear war, he said seemingly in response to accusations from the West that Russia has been employing nuclear threats/blackmail recently.  

Lavrov reiterated that any shipment of foreign weapons into Ukraine is a legitimate target for Russia. 

Ukrainian President Volodymyr Zelenskyy said on Friday that peace talks with Russia at a high risk of ending given the action of Russian troops during the war, reported Russian state-run news agency Interfax reported according to Reuters.  

Seperately, a Pentagon spokesperson said that it is hard to look at what Russian President Vladimir Putin is doing in Ukraine and think that any ethical, moral person could justify such actions. The Pentagon spokesperson added that Russian operations in Ukraine are brutality of the coldest and most depraved sort. 

• The USD/CHF to record the biggest monthly gain since May 2012, up 5.17%.
• A dampened market mood increased the appetite for the safe-haven Swissy as US dollar traders booked profits.
• USD/CHF Price Forecast: A daily close below 0.9700 might open the door for a mean reversion move.

The USD/CHF retreats from YTD highs though clings to the 0.9700 mark despite broad US dollar weakness across the board, driven by traders booking profit as the month-weekly end looms. At 0.9706, the USD/CHF reflects the previously mentioned and is headed to record monthly gains of 5.17%, its largest since May 2012.

Sentiment turned sour once European markets closed. US equities remain on the backfoot, weighed by weak earnings from mega-cap companies like Apple and Amazon. Furthermore, China’s coronavirus outbreak, Federal Reserve aggressively tightening, and the Russia-Ukraine war concerns dented investors’ mood.

In the meantime, the US Dollar Index, a gauge of the buck’s value vs. a basket of its peers, drops below 103.000, down some 0.73%, sitting at 102.912.

During the overnight session, the USD/CHF seesawed around the daily pivot point at 0.9720. However, once European traders took over the market, the Swissy strengthened. The pair reached a daily low around the S1 daily pivot at 0.9670 on news that the US Core Personal Consumption Expenditure (PCE), the Fed’s favorite gauge of inflation, rose lower than estimated. Of late, the greenback recovered some ground, and USD/CHF bulls achieved to hold prices above 0.9700.

USD/CHF Price Forecast: Technical outlook

The USD/CHF is upward biased, as depicted by the daily chart, despite Friday’s fall. However, the steepness of the uptrend threatens to put into play a mean reversion move, further expected as the Relative Strength Index (RSI) within the overbought territory begins to aim lower.

If that scenario plays out, the USD/CHF first support would be June 5, 2020, swing high turned support at 0.9650. A breach of the latter will send the pair towards 0.9600, followed by June 30, 2020, a daily high at 0.9533.

Key Technical Levels

• It's been a quiet session for GBP/JPY, with the pair just above 163.00 but capped by its 21DMA.
• GBP/JPY still looks set to end the week lower by roughly 1.1%, as UK growth concerns outweighed the dovish BoJ.

It's been a quiet session for GBP/JPY, with the pair nudging slightly higher back above the 163.00 level, but with the upside remaining contained for a second session running by the 21-Day Moving Average, which currently sits at 163.40. Global yields have risen on Friday, wth recent upside in US yields as a result of evidence of stronger than expected wage growth in Q1 of this year, thus preventing the yen from mounting a comeback.

Nonetheless, after Thursday’s post-dovish BoJ meeting battering, the yen bears seem fatigued and content to see out the week in subdued fashion. Despite recent yen weakness that has seen GBP/JPY bounce over 2.0% from earlier sub-160.00 weekly lows, the pair still looks set to end the week lower by roughly 1.1%.

UK growth fears as evidence build of economic weakness amid the country’s worst cost-of-living squeeze in a decade were front and centre this week. While the BoE is expected to raise interest rates by a further 25 bps next week, the bank is expected to further moderate its tone on the need for further interest rate hikes amid growing concern about the economy.

This shift in expectations was attributed as a key driver behind this week’s broad GBP weakness. Aside from next week’s BoE meeting, bond yields and risk appetite will remain key drivers of the pair. While rising fears about global growth and recent weakness in risk appetite argue for GBP/JPY to continue pulling back next week, if hawkish central banks spark further upside in global bond yields (the Fed is going to lift interest rates by 50 bps next week), that could further weaken the yen’s appeal.

Analysts at MUFG Bank, point out the GBP/USD pair has weakened sharply after breaking below the 1.3000-level. They consider the pound became deeply oversold and weakness has overshot short-term fundamental drivers increasing the likelihood of a temporary relief rally.

Key Quotes:

“Unsurprisingly technical indicators are signalling that the GBP is now heavily oversold against the USD in the near -term which increases the likelihood of a temporary relief rally. The 14-day RSI has reached its low est level since March 2020. At the same time, our short-term regression model is signalling that cable has overshot fundamental drivers to the downside.”

“In light of the building risks for a sharper slow down for the UK economy as the cost of living crisis takes more of a toll on activity, we expect the BoE to maintain a more cautious outlook over the need for further tightening as it finely balances upside risks to inflation against downside risks to growth when setting policy. It should favour the BoE sticking to smaller 25bps hikes at upcoming policy meetings. The UK rate market is pricing in 25bps hikes at all six remaining MPC meetings this year. GBP weakness w ould be reinforced if the BoE signals that rate hikes could be paused sooner in response to weaker growth.”

“The fundamental outlook continues to favour further GBP weakness. A cautious message from the BoE should support a weaker GBP in the week ahead. The main risk is that the GBP is already heavily oversold.”
 

Canadian GDP rose at a 1.1% rate in February, above the 0.8% expected, according to a report released on Friday. Analysts at CIBC, point out that the Bank of Canada now has even more ammunition to justify a non-standard 50 bp interest rate hike at the next meeting, and likely the one thereafter.

Key Quotes: 

“After hitting the fast lane in February, advance data suggests growth eased to a steadier pace in March. The 1.1% gain in February was even larger than the consensus and advance estimate (+0.8%), and was followed by a steadier, but still solid, 0.5% gain in March. This puts Q1 as a whole on track for a 5.6% annualized growth rate, well above the 3% forecast contained within the Bank of Canada's latest MPR.”

“The Canadian economy continues to surprise and the Q1 number now seems much stronger than expected. This would put our annual forecast at around 4%, all else equal, a few ticks higher than our last projection. However, we’ve seen on occasion big gaps between these monthly data on GDP by industry data and the subsequent quarterly GDP figures, which are measured by the sources of expenditures, most notably in Q2 2021. We continue to expect a deceleration in growth over the balance of the year as impact of high inflation and rate hikes put a squeeze on Canadians' spending power and slow the housing market.”

“With another strong release in hand, the Bank has even more ammunition to justify a non-standard 50 bp interest rate hike at the next meeting, and likely the one thereafter. However, with growth likely to slow in the second half of the year and inflation poised to decelerate, we still think that the path higher for interest rates won’t be as steep as financial markets are currently expecting, and we still see a peak of 2.5% reached in early 2023.”

Data released on Friday showed persanal income rose 0.5% in March and a 1% increase in personal spending. Consumers had to dip into savings to pull it off, but not only did real personal expenditures rise in March, revisions lifted real February spending into positive territory as well, noted analysts at Wells Fargo.

Key Quotes: 

“In the wake of yesterday's negative GDP print, the additional detail from today's March personal income and spending report point to consumer spending growth that is outpacing the fastest inflation in decades.”

“Overall personal income rose 0.5% in March with broad-based gains across major components of income. But once adjusting for higher prices during the month—the PCE deflator rose 0.9% in April—real disposable income told a slightly different story, sliding 0.4% from a month earlier. Upward revisions to prior months' data lifted the level of real disposable income by about $70 billion and turned income growth positive in February. Still, the trend is clear with real disposable income down in ten out of the past twelve months, leaving income about 4% below the level implied by its pre-pandemic trend.”

“As persistently high inflation has weighed on overall income growth, households have had to make tough decisions around purchasing patterns and increasingly rely on their balance sheets to fund spending. The personal saving rate slid to 6.2% in March, which not only marks a fresh cycle low but marks the lowest monthly rate at which households have saved at in almost nine years.”

“For now at least, consumers have been able to absorb the worst price hikes in decades by dialing back saving, a trend that likely will continue in the months ahead amid persistently high prices and slowing income growth but isn't sustainable over the medium-to-longer term.”
 

• USD/CAD resumes upside despite upbeat Canadian GDP data.
• US dollar recovers from correction as US yields move higher.
• Consumer income and spending data from the US surpass expectations.

The USD/CAD printed fresh daily highs on Friday during the American session above 1.2800. It rebounded from three-day lows it hit earlier after Canadian data at 1.2718.

Dollar surges again

On Friday, the greenback was correcting lower across the board, but it turned to the upside, particularly against commodity currencies. The DXY is still down for the day, but now by 0.45%, off lows.

The US dollar started to recover after the personal consumption and personal spending report that showed larger-than-expected increases. The same report showed no surprises in the Core PCE. The Chicago PMI dropped from 62.9 to 58.5 and the Consumer Sentiment Index from the University of Michigan declined to 65.2.

The USD/CAD bottomed after Canadian GDP data showed an increase of 1.1% in February, above the 0.8% of market consensus. “With February's upside surprise and solid flash estimate for March, Q1 GDP is now tracking well above BoC projections at 5.6%. This will add more pressure for the Bank to return policy to neutral, and while we continue to see a high bar for 75bps, we look for a 50bp hike in June and July”, said analysts at TD Securities.

Later in the day, USD/CAD bounced to the upside on the dollar’s strength and printed a fresh daily high at 1.2820. The pair is hovering around 1.2800, headed toward the fifth weekly gain in a row.

Technical levels

• The USD/JPY is set to record its biggest monthly gain since November 2016 so far, up 6.70%.
• The market mood is mixed, as European stock indices rose while US equities fell.
• USD/JPY Price Forecast: Though it remains upward biased, it is in a correction.

The USD/JPY pullbacks from two-decade highs during April’s last trading day and edges lower some 0.52%, amid broad US dollar weakness, courtesy of traders booking profits ahead of next week’s Federal Reserve monetary policy meeting. At around 129.80, the USD/JPY is set to finish the month with hefty gains close to 7%, the greenback’s most significant gains since November 2016.

Mixed sentiment and US dollar weakness, a headwind for the USD/JPY

Sentiment shifted to a mixed one, as European equities rise while US ones fall. The Fed’s favorite gauge for inflation, the Core Personal Consumption Expenditure (PCE) for March, rose by 5.2% y/y, lower than the 5.3% foreseen, a sign that inflation might be peaking. However, analysts of ING in a note wrote that “even if supply chains improve and we see geopolitical tensions ease a little, we doubt this inflation measure will be below 4% before early next year.”

Also, the Bank of Japan’s (BoJ) commitment to its ultra-loose monetary policy weighed on the JPY throughout the week. The BoJ kept rates unchanged on Thursday and reiterated that it would buy an unlimited amount of 10-year JGBs at a fixed 0.25% rate. The BoJ’s expressed that they will ease policy without hesitations as needed with an eye on pandemic impact.

Meanwhile, China’s Covid-19 worries wane as its health agency emphasized its commitment to COVID zero, but instead would optimize its response. Also, further economic stimulus from Beijing on COVID affected industries and small firms improved the market mood.

Also read: USD/JPY Weekly Forecast: The fallacy of devaluation or the BoJ is out of ideas

Elsewhere, the recent Ukraine-Russia developments have taken a backseat so far. However, Ukraine’s President Zelenskyy said that Kyiv is ready for immediate negotiations for evacuation from the Azonstal plant.

In the meantime, the US Dollar Index, a measurement of the greenback’s value against a basket of its peers, retraces 0.44%, sitting at 103.215, a reflection of profit-taking and month-end flows. Contrarily to the previously mentioned, the 10-year benchmark note rate sits at 2.904%, up almost eight basis points from yesterday’s close.

Therefore, the USD/JPY is ongoing through a correction on Friday. However, financial analysts speculate that the FOMC’s May meeting could be a “buy the rumor, sell the fact” event due to the steeper rally posted by the greenback. USD/JPY traders might need to be aware of it because a deeper correction might be on the cards.

USD/JPY Price Forecast: Technical outlook

The USD/JPY remains upward biased, despite Friday’s fall. For the USD/JPY pair to shift to a neutral bias, a daily close below 129.40 is needed, which could threaten to drag prices towards April’s 27 swing low at 126.94. Nevertheless, that scenario is unlikely to happen unless a fundamental shift from Japanese authorities could boost the JPY.

Upwards, the USD/JPY first resistance would be 130.00. A break above would expose 131.00, followed by the multi-decade-high around 131.25. On the other hand, the USD/JPY’s first support would be 129.00. A breach of the latter would expose April’s 129.40 daily high, followed by April’s 28 daily low at 128.33.

A senior US defense official said on Friday that the US does not believe that there is a threat of Russia using nuclear weapons, despite the recent escalation in rhetoric/jawboning from Russian officials, reported Reuters. "We continue to monitor their nuclear capabilities every day the best we can and we do not assess that there is a threat of the use of nuclear weapons and no threat to NATO territory," said the official.

The comments come after another US defense official said earlier in the day that recent Russian airstrikes in Kyiv were meant to target military production capabilities and that Russia appears to be behind schedule regarding its assault in Ukraine's Donbass region. 

• NZD/USD has pulled back from earlier session highs in the 0.6540s as the buck pares intra-day losses.
• The pair is back under 0.6500 and on course for its worst one-month performance since mid-2015.
• The US dollar has been strong this month amid a combination of hawkish Fed bets plus safe-haven demand.

A pickup in the strength of the US dollar, which has been on the back foot on Friday amid month-end profit-taking, in tandem with a rally in US yields following data that showed wage pressures building in Q1 has seen NZD/USD reverse back from intra-day peaks in the 0.6540s to trade back below 0.6500 and close to multi-month lows once again. The latest batch of US data showed core inflationary pressures (according to the Core PCE Price Index) easing in March, but a larger than expected jump in the Employment Cost Index during Q1.

That appears to have resulted in markets upping their Fed tightening bets, hence a rally in US yields (which has been most acute at the short-end) that has seen the US dollar reverse some of its earlier intra-day losses. At current levels in the 0.6480s, NZD/USD is trading flat on the day, but looks set to close out the week 2.2% lower, which would mark a fifth successive week in the red. As a result, the pair looks on course to have dropped nearly 6.5% this month, its worst one-month performance since mid-2015.

NZD/USD, as have many of its other major G10 /USD peers this month, appears to have fallen prey to a combination of USD bullish factors, including heightened Fed tightening bets and safe-haven demand amid concerns about global growth amid growing geopolitical risks as Russia/NATO economic/military tensions rise and China lockdowns bite. Next week will be a big one for the pair, with the Fed expected to hike interest rates by 50 bps and signal intent to get rates near 2.5% by the year’s end and also announce quantitative tightening plans, plus a barrage of tier one US data releases (official jobs report plus ISM business surveys).

But New Zealand data will also be in focus with the release of Q1 labour market figures in focus on Wednesday. This data, if it continues to show a super tight New Zealand labour market, may give the kiwi some much-needed support, if it results in a build-up of RBNZ tightening bets. One advantage the kiwi has over other G10 currencies that could help it hold firm in the face of hawkish Fed fuelled buck strength is the fact that the RBNZ is arguably the most hawkish central bank in the G10 at the moment.

• US dollar corrects lower across the board, trend remains positive.
• Mexican peso’s recovery limited so far.
• USD/MXN to gain momentum if it rises above 20.40.

The USD/MXN is about to erase all losses and is back near a critical technical level, showing that the strength is still in the dollar. The correction from the one-month hit it reached on Thursday at 20.63, extended to 20.28. Later the pair rose back to the 20.40 area.

Despite the correction and the failure of the USD/MXN to hold clearly above 20.40, risks remain to the upside. At 20.45, the 200-day Simple Moving Average (SMA) stands, a daily close above should clear the way to more gains. The next strong resistance is seen at around 20.70.

On the downside, the USD/MXN could drop even further to 20.20 without changing the bullish bias. The 20.15/20.20 zone could be seen as an opportunity to buy the pair again. A break lower would expose the 20-day SMA at 20.07. A slide back under 20.00 would negate the short-term bullish outlook, leaving the dollar vulnerable.

The weekly chart shows USD/MXN far from the peak (a positive for the MXN) and the 20-week SMA (a relevant technical level) is at 20.44.

USD/MXN daily chart

• EUR/USD rebounds to the proximity of 1.0600 on Friday.
• Another visit to the YTD low at 1.0470 stays on the cards.

EUR/USD attempts a technical bounce following oversold levels, although the move ran out of steam near 1.0600 at the end of the week.

The offered stance in the pair remains well and sound despite Friday’s bounce and the door stays open to another probable visit to the YTD low around 1.0470 (April 28).

While below the 2-month line around 1.0990, extra losses in the pair are likely.

EUR/USD daily chart

• WTI hit fresh weekly highs in the $107.00s on Friday and is eyeing last week’s highs above $109.00.
• EU/Russia gas tensions and the growing risk of an EU embargo on Russian oil imports has supported prices this week.
• But China demand concerns as the country continues to fight its Covid-19 outbreak remains a downside risk.

Oil prices remain on the front foot as the weekend approaches, with front-month WTI futures currently trading at weekly highs in the mid-$107.00s per barrel area, up nearly $2.50 on the day and on course for a fourth successive daily gain. At current levels just above $107.50, Wti looks on course to post a weekly gain of about $6.0, having reversed more than $12 higher versus earlier weekly lows in the $95.00s. WTI bulls have last week’s highs just above $109.00 in their sights, a break above which could open the door for a push into the $110s.

The main catalyst behind this week’s rally in crude oil markets has been an increased focus on Russia/Europe tensions regarding energy trade. Earlier in the week, Russia halted gas exports to two European countries (Poland and Bulgaria) that have refused to pay in roubles, triggering a surge in gas prices on fears of a larger blockade on Russian gas. Later, reports began doing the rounds suggesting Germany has dropped its opposition to a blanket ban on all Russian oil imports.

While an EU ban on Russian oil imports would exert further downwards pressure on Russia’s benchmark Ural grade of crude oil, it exerts upward pressure on other global crude oil grades, like WTI, as European buyers look for new markets. An official announcement of a ban on Russian oil imports next week could be a key catalyst to launch WTI back above $110.

Amid the heightened focus on geopolitical and energy trade tensions with Russia, Chinese lockdown concerns and the potential impact on Chinese oil demand have taken a back seat. However, analysts note that if the lockdowns in Beijing were to widen in the coming days, or Covid-19 was to spread to more major urban centres, WTI’s recent upwards progress would once again be at risk.

Looking ahead to next week, major central banks like the Fed will be meeting and likely lifting interest rates, which could keep broader risk appetite ropey. Further weakness in, say, US equity markets could weigh on crude oil prices. OPEC+ will also be in focus with the group expected to stick to their current output policy of incremental 400K barrel per day output hikes each month once again in June. China risks aside, it seems likely that Russia supply concerns and OPEC+’s slow approach to increasing output should be able to keep WTI underpinned above $100 for the time being.

• DXY retreats from Thursday’s 19-year highs near 104.00.
• A deeper correction could extend to the 101.00 region.

Following nearly 2-decade highs around 104.00, DXY is finally facing some corrective downside at the end of the week.

There is still scope for further downside, as the index keeps navigating the overbought territory, as per the daily RSI around 75. That said, the retracement carries the potential to extend to the 101.00 area prior to the weekly low in the 99.80 zone (April 21).

The current bullish stance in the index remains supported by the 7-month line near 96.70, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 95.70.

DXY daily chart

• EUR/JPY’s daily advance falters around 138.00 on Friday.
• Some range bound trading could emerge in the short term.

EUR/JPY trades on the defensive around 137.00 following two daily gains in a row on Friday.

The cross could move into a consolidative phase in the very near term ahead of the potential continuation of the uptrend. Against that, the immediate hurdle still emerges at the 2022 high around 140.00 (April 21). If cleared, the cross should then focus on the June 2015 high at 141.05. Beyond this level, there are no hurdles of note until the 2014 top at 149.78 (December 2014).

In the meantime, while above the 200-day SMA at 130.69, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

• UoM's headlines Consumer Sentiment Index came in a tad lower than the flash estimate, but still much higher than last month. 
• FX markets did not react to the latest UoM data, which was close to expectations. 

According to the final version of the University of Michigan's (UoM) Consumer Sentiment survey, the headline Consumer Sentiment Index for April came in at 65.2, a tad below the flash estimate released earlier in the month of 65.7. That meant the headline index remained well above March's reading of 59.4, the worst level in over a decade. 

The UoM's Consumer Expectations Index came in at to 62.5, a little below the flash estimate of 64.1, but, again, well above last month's reading of 54.3. The Current Conditions Index came in at 69.4, which was better than the flash estimate of 67.8 and better than last month's 68.1 reading. 

UoM's gauge of one-year inflation expectations remained unchanged versus the flash estimate at 5.4%, while the gauge for five-year inflation expectations was also unchanged versus the flash estimate at 3.0%. 

Market Reaction

FX markets did not react to the latest UoM data, which was close to expectations. 

Markets await next week’s Bank of England (BoE) decision. Economists at Scotiabank expect GBP losses to resume to below 1.24.

A firm and longer-lasting drop under 1.25 seems likely 

“The bank is likely to hike by 25bps but it looks set to accompany this with a cautious economic outlook and implicit guidance that market pricing seeing 150bps in hikes by year-end is significantly out of line – as this would result in a notable undershoot in inflation.

“There’s very little possible upside for the GBP from this meeting and considerable downside as the bank strikes a much more neutral to even dovish tone than markets are reflecting in rate bets.”

“A firm and longer-lasting drop under 1.25 seems likely and with it a test of 1.24 with continued weakness below this mark also a possibility.”

EUR/USD ends its six-day losing streak. However, economists at Scotiabank note that the pair is in a bearish trend and expect more dowside ahead.

Clear risk of a re-test of the 1.05 zone and Thursday’s 1.0472 low

“Weak growth, continued risks surrounding energy supply, and exhausted ECB hike bets point to more downside than upside risks for the EUR over the coming months.”

“After closing just under 1.05 yesterday, the EUR strengthened to as high as the 1.0590/00 resistance zone that should continue to act as a strong ceiling during today’s session.”

“Downward pressure could face support at the mid-1.05s but the EUR’s steep bearish trend suggests it is at clear risk of a re-test of the figure zone and yesterday’s 1.0472 low; no obvious support markers come in until the early 2017 low of 1.0341.”

Canadian GDP bounced back in February. The reaction in CAD was fairly muted but it reinforces that the status quo of outperformance on the crosses should prevail, economists at TD Securities report.

More pressure for the Bank of Canada to bring policy back to neutral

“Industry-level GDP surprised to the upside with a robust 1.1% print in February, easily beating the market consensus for 0.8%. Growth was broad-based with a strong performance across goods (+1.5%) and services (+0.9%), while a strong flash estimate for March (+0.5%) added to the upbeat tone.”

“With February's upside surprise and solid flash estimate for March, Q1 GDP is now tracking well above BoC projections at 5.6%. This will add more pressure for the Bank to return policy to neutral and while we continue to see a high bar for 75bps, we look for a 50bp hike in June and July.”

“Without significant changes elsewhere and the prospect of doing more, not less, on BoC hikes, we look for CAD to trade on its front foot against EUR and JPY.”

“We think USD/CAD is a much trickier proposition given that the Fed has scope for a much higher terminal rate relative to the BoC. We prefer to fade a 1.24/28 range in USD/CAD until proven otherwise.”

This week, gold hit its lowest levels since late February near $1,880. As economists at TD Securities note, Chinese lockdowns fuel demand concerns across the yellow metal market. 

Shanghai traders are liquidating their gold length at a fast clip

“Our tracking of the top SHFE traders' net length highlights continued and substantial liquidations from Shanghai traders cohort since last Friday. After all, concerns are emerging surrounding the broadening lockdown's impact on domestic demand for the yellow metal. With economic activity also plunging, jewelry sales are likely to collapse as well, which erodes a major pillar of support for the yellow metal.” 

“The outlook for investment demand also remains muted, with gold bugs staring down the barrel of a hawkish Fed, while safe-haven flows associated with the war in Ukraine begin to fizzle out.” 

“A contingent of participants also expects the Fed's ability to constrain supply-side inflation is limited, which argues for a stagflationary regime in which gold will be in high demand as a store-of-value. However, the decline in prices is rather nodding to a growing cohort which expects that the last month's inflation print may have marked the peak.”

• Modest USD pullback from the multi-year peak prompted some short-covering around AUD/USD.
• Stronger US PCE and a softer risk tone helped the USD to pare intraday losses and capped the pair.
• The prospects for rapid US rate hikes warrant caution before placing bullish bets around the major.

The AUD/USD pair held on to its strong intraday recovery gains, just above mid-0.7100s through the early North American session and moved little following the release of the US macro data.

The pair witnessed a short-covering bounce on Friday and moved away from its lowest level since early February, around the 0.7055 area touched the previous day amid broad-based US dollar weakness. Month-end flows prompted the USD bulls to take some profits off the table after the recent strong bullish run to the five-year peak. Apart from this, the USD downtick lacked any obvious fundamental catalyst and remained limited amid the prospects for a more aggressive policy tightening by the US central bank.

The Fed is expected to hike interest rates by 50 bps when it meets on May 3-4, and again in June and July, and ultimately lift rates to around 3.0% by the end of the year to curb soaring inflation. The bets were reaffirmed by the release of the March Personal Consumption Expenditure (PCE) Price Index. In fact, the Fed's favourite inflation gauge - the PCE Deflator - accelerated to the highest level since January 1982 and rose by 6.6% YoY in March. This helped offset a slight disappointment from the core PCE.

Additional details revealed that both Personal Income and Spending rose by 0.5% and 1.11% in March, respectively. This marked the sixth straight month of increase in income and the third successive month of rise in spending. Apart from this, a softer risk tone, assisted the safe-haven USD to trim a part of its intraday losses and acted as a headwind for the perceived riskier aussie. Hence, it will be prudent to wait for some follow-through buying before confirming that the AUD/USD pair has bottomed out in the near term.

Technical levels to watch

The new geopolitical situation following the war in Ukraine raises many questions relating to the future of global trade and globalisation more broadly. Economists at Danske Bank envision three possible longer-term geopolitical scenarios and how these could affect the global economy.

A new cold war

“This is an extreme scenario where world powers form two competing blocs: an eastern group led by China (with Russia) and a Western alliance rallying behind the US. Winners: Defence, commodities, green transitioning, sectors providing near-sourcing technologies. Losers: Globally orientated manufacturing and services companies, shipping companies, housing market (lower growth, higher interest rates).”

Limited deglobalisation and spheres of interest 

“We consider a limited de-globalisation with strengthening spheres of interest as the most likely outcome, and hence, our base case scenario. Winners: Tech and digital (robotics), domestic-focused service companies. Losers: Global manufacturing companies (need to set up regional hubs), housing market (higher interest rates).”

A return to globalisation

“This scenario would involve the trade tensions in recent years between China and US being resolved and also a re-integration of Russia into the global economy on the back of a peace deal between Ukraine and Russia. Winners: Global service sector and manufacturing, shipping companies, housing markets (lower rates). Losers: Defence.”

• EUR/USD trims gains and refocuses on the 1.0500 level.
• EMU flash CPI seen at 7.5% in April, GDP to expand 5% in Q1.
• US headline PCE rose 6.6% YoY, Core CPI gained 5.2% YoY in March.

The bullish attempt in EUR/USD appears to have bumped into a wall around the 1.0600 yardstick at the end of the week.

EUR/USD clings to gains on USD-selling

EUR/USD retreats from earlier highs near 1.0600 amidst some tepid rebound in the greenback, although the mood around the dollar remains tilted towards the bearish side on Friday.

Indeed, the pair manages well to capitalize on some profit taking around the buck, while the upbeat tone in German 10y bund yields also collaborates with the improvement in spot following Thursday’s drop to fresh 5-year lows around 1.0470.

Data wise in Euroland, the German economy is expected to expand at an annualized 3.7% in Q1, while preliminary figures for the euro area see the bloc growing 5% YoY in Q1 and headline CPI rising 7.5% in the year to April.

In the US data space, inflation tracked by the headline PCE rose 6.6% YoY in March and 5.2% when it comes to Core prices. In addition, Personal Income expanded 0.5% MoM and Personal Spending rose 1.1% MoM, both prints for the month of March. Later in the session comes the Chicago PMI and the final U-Mich Index for the month of April.

What to look for around EUR

EUR/USD leaves behind part of the recent multi-session sharp selloff and rebounds from 5-year lows around 1.0470 (April 28). The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany, EMU Flash Q1 GDP Growth Rate, EMU Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Second round of the presidential elections in France (April 24). Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is up 0.34% at 1.0533 and faces the next hurdle at 1.0593 (high April 29) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level). On the other hand, a break below 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017).

• USD/CAD witnessed heavy selling on Friday and was pressured by a combination of factors.
• Rising oil prices underpinned the loonie and exerted pressure amid a sharp USD pullback.
• Stronger US PCE Price Index/Canadian GDP report failed to provide any meaningful impetus.

The USD/CAD pair maintained its offered tone below mid-1.2700s through the early North American session and had a rather muted reaction to the US/Canadian macro releases.

A combination of factors exerted heavy pressure on the USD/CAD pair and dragged spot prices away from the highest level since March 9, around the 1.2875-1.2880 area touched the previous day. Crude oil prices climbed to a near two-week high amid concerns that falling output in sanctions-hit Russia will tighten supply. This, in turn, underpinned the commodity-linked loonie and attracted some follow-through selling around the major amid broad-based US dollar weakness.

The USD downfall could be attributed to month-end profit-taking following the recent strong bullish run to the five-year high. That said, expectations that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation should act as a tailwind for the buck. The bets were reaffirmed by the Personal Consumption Expenditure (PCE) Price Index, which accelerated to a 6.6% YoY rate in March from the 6.3% reported in the previous month.

Additional details revealed that the Core PCE Price Index - the Fed preferred inflation gauge, which excludes seasonally volatile products - eased to 5.2% YoY in March from 5.3% previous. The disappointment, to a larger extent, was offset by a sharp jump in the Employment Cost and a stronger-than-expected rise in the Personal Income/Spending data. The data all but confirms that the Fed would hike interest rates by 50 bps at its meeting next week.

From Canada, the monthly GDP report showed that the economy expanded by 1.1% in February, surpassing consensus estimates pointing to the 0.8% growth. The backward-looking data, however, did little to impress traders or provide any meaningful impetus, leaving the USD/CAD pair at the mercy of the USD/oil price dynamics.

Technical levels to watch

• Core PCE inflation fell a little more than expected in March, but the Employment Cost Index jumped in Q1. 
• The latest Personal Income and Spending figures for March will instill confidence about the underlying strength of the US economy. 
• The DXY has not seen a notable reaction to the latest batch of mixed US economic data.

Annual inflation in the US fell to 5.2% in March according to the latest Core PCE Price Index reading released by the US Bureau of Economic Analysis on Friday. That was slightly below median economist forecasts for a reading of 5.3%, while February's reading was downgraded from 5.4% to 5.3%. MoM, Core PCE Price Index rose at a pace of 0.3% in March, in line with expectations and unchanged from February's 0.3% rate, which was revised lower from 0.4%. 

The Core PCE Price Index is the Fed's favoured gauge of underlying inflationary pressures in the US economy. The headline PCE Price rose at a pace of 6.6% YoY in March, up from 6.3% a month earlier amid a MoM rise of 0.9%, which comes after February's 0.6% reading. 

Separately, US Personal Income and Spending data for March was also released, with the latter rising 0.5% MoM and the former rising 1.1% MoM. Both of these figures were stronger than the median economist forecast for 0.4% and 0.7% MoM gains respectively. Taken in tandem with the MoM growth in the headline PCE Price Index, real consumption growth was 0.2% MoM in March, up from 0.1% in February.   

Elsewhere, Employment compensation data for Q1 was also released. The Employment Cost Index rose at a QoQ pace of 1.4% in the first quarter of 2022, above the forecasted gain of 1.1% and above Q4's 1.0% gain. Employment Benefits rose at a QoQ pace of 1.8% after rising 0.9% in Q4, while Employment Wages rose at a pace of 1.2% after rising at a pace of 1.0% in Q4. 

Market Reaction

The DXY has not seen a notable reaction to the latest batch of mixed US economic data. Evidence of easing US inflationary pressures as per the latest Core PCE Price Index numbers was negated by a larger than expected rise in the Q1 Employment Cost Index, while the latest Personal Income and Spending figures for March will instill confidence about the underlying strength of the US economy. 

• Silver prices have risen on Friday, boosted by month-end profit-taking in the US dollar.
• But XAG/USD has pulled back sharply from intra-day highs in the $23.50s, and remains vulnerable.
• Markets are focused on upcoming US Core PCE inflation data and next week’s Fed meeting.

Pre-month-end profit-taking in the US dollar, which has seen significant strength in recent weeks that has weighed heavily on precious metals, is giving spot silver (XAG/USD) prices a modest lift on Friday. XAG/USD was last trading higher by about 0.5% in the $23.25 area per troy ounce, more than 1.5% higher versus Thursday’s sub-$23.00 lows, though the precious metal has seen a sharp more than 1.4% pullback from earlier session highs in the $23.50s.

Silver traders are bracing for the release of US Core PCE inflation data for March at 1330BST, which will probably just reaffirm the scale of the inflation problem currently plaguing the US economy, before focus then turns to next week’s Fed meeting. With policymakers at the bank now seemingly in unanimous agreement that getting interest rates to around 2.5% by the year’s end is appropriate (meaning a series of 50 bps rate hikes, starting next week, are likely) and increasingly leaning toward’s the need to take interest rates into outright restrictive territory (i.e. above 2.5%) to tackle inflation, risks to the US dollar likely remain tilted to the upside for the foreseeable future.

In that regard, it probably isn't to surprising that XAG/USD bears jumped on the opportunity to sell the precious metal when it rallied back into the $23.50s and may be looking for a retest of Thursday’s weekly lows under $23.00. Even if the positioning-related pullback in the US dollar does continue next week and XAG/USD rebounds into the mid-$23.00s once again, any recovery back above the 200-Day Moving Average near $23.80 will be difficult.

US PCE Price Index Overview

Friday's US economic docket highlights the release of the March Personal Consumption Expenditure (PCE) Price Index, scheduled later during the early North American session at 12:30 GMT. The headline gauge is expected to edge higher from 6.4% YoY in February to 6.5% during the reported month. The core reading, however, is anticipated to have eased to 5.3% YoY in March from 5.4% previous and rose 0.3% on a monthly basis, down from 0.4% in February.

How Could it Affect EUR/USD?

Ahead of the key release, a sharp US dollar corrective pullback assisted the EUR/USD pair to snap a six-day losing streak to its lowest level since January 2017 touched the previous day. That said, expectations that the Fed would adopt a more aggressive policy response to curb soaring inflation should act as a tailwind for the buck. Stronger PCE figures will reinforce market bets and provide a fresh lift to the greenback.

Conversely, softer-than-expected readings might prompt traders to continue unwinding their USD bullish bets and offer additional support to the major, though any meaningful recovery still seems elusive. Concerns about the economic fallout from the ongoing Ukraine crisis might hold back traders from placing aggressive bullish bets around the shared currency. This, in turn, suggests that any further move up is more likely to attract fresh sellers and runs the risk of fizzling out rather quickly.

Eren Sengezer, Editor at FXStreet, outlined important technical levels to trade the EUR/USD pair: “The Fibonacci 23.6% retracement of the latest trend seems to have formed a key resistance level at 1.0600. In case the pair rises above that level and makes a four-hour close there, the next recovery target could be seen at 1.0660 (Fibonacci 38.2% retracement) ahead of 1.0700 (Fibonacci 50% retracement, 50-period SMA on the four-hour chart).”

“Ideally, the Relative Strength Index (RSI) indicator, which is currently located at around 40, would rise above 50 in such a move, possibly attracting additional buyers. On the downside, interim support aligns at 1.0520 (static level) before 1.0500 (psychological level) and 1.0470 (multi-year low set on April 28),” Eren added further.

Key Notes

  •   EUR/USD Forecast: Euro eyes 1.0660 as next recovery target

  •   US Dollar Index comes under pressure near 103.00 ahead of PCE

  •   EUR/USD: Limited correction to 1.0560/70, with outside risk to 1.0650 – ING

About the US PCE Price Index

The Personal Spending released by the Bureau of Economic Analysis, Department of Commerce is an indicator that measures the total expenditure by individuals. The level of spending can be used as an indicator of consumer optimism. It is also considered as a measure of economic growth: While Personal spending stimulates inflationary pressures, it could lead to raise interest rates. A high reading is positive (or Bullish) for the USD.

• GBP/USD has rebounded about 1.0% into the upper 1.2500s amid pre-month-end selling pressure in the US dollar.  
• Focus now turns to next week’s Fed and BoE meetings, which could pose downside risks to the pair.
• GBP/USD rallies, for now, may remain vulnerable to being sold.

Pre-month-end profit-taking in the US dollar, which has up until this point been on a rampage higher in recent weeks against most of its major counterparts, is being attributed as the main factor giving GBP/USD a lift on Friday. The pair was last trading in the 1.2575 region, up about 1.0% on the day and over 1.3% higher versus Thursday’s intra-day lows at 1.2410.

But the pair’s latest rebound comes as little consolation for the deflated GBP/USD bulls, with cable still set to end the week with losses of about 2.0% and the month with losses of about 4.25%. That would mark GBP/USD’s joint-worst one-month performance since July 2019.

Upcoming US Core PCE inflation data for March at 1330BST will be of interest and is likely to reaffirm the scale of the inflation problem currently plaguing the US economy. Focus then turns to next week’s Fed and BoE meetings which, a cursory examination of which would seem to imply downside risks for GBP/USD.

After all, the Fed seems increasingly tilting towards the need to take rates above so-called neutral to control inflation, which the BoE has been coming across as more concerns about weak UK growth as of late, seemingly weakening their resolve to tighten. As a result, any further GBP/USD rebound might well be viewed as a good opportunity to sell. Resistance in the 1.2675 area looks may attract particular attention from the bears.

• The Canadian economy expanded at a MoM pace of 1.1% in February, faster than expected. 
• The loonie did not react to the latest data, even though it will underpin BoC tightening expectations. 

Canadian real GDP expanded at a pace of 1.1% MoM in February, according to the latest data release by Statistics Canada on Friday, a faster pace of growth than the 0.8% forecasted by economists. That marked an acceleration in the pace of economic growth in Canada after January's 0.2% rise in real GDP.  

Market Reaction

Though the robust growth data will increase confidence at the BoC that it can get away with rapid rate hikes given underlying economic strength, the loonie has not seen any reaction. USD/CAD continues to trade close to session lows just under the 1.2750 mark, with traders more focused on the latest batch of mixed US economic data. 

European Central Bank Chief Economist Philip Lane on Friday said in an interview on Bloomberg TV that the entire Euro area must adapt to high energy prices and warned that "we" are facing new bottlenecks due to lockdowns in China. The Eurozone is not returning to the low inflation path, he noted, adding that the ECB has already done a lot in pulling back stimulus. 

The larger issue, he continued, is not about raising the deposit rate away from -0.5%, but about normalisation, before adding that euro depreciation will be an important element when creating the ECB's next set of projections. 

• USD/JPY corrected from the two-decade high amid aggressive USD long-unwinding trade.
• The Fed-BoJ policy divergence extended some support and helped limit any further losses.
• Mixed oscillators on hourly charts warrant caution before placing aggressive bearish bets.

The USD/JPY pair came under some selling pressure on the last day of the week and eroded a part of the overnight strong gains to a fresh two-decade high. The pair remained on the defensive through the first half of the European session, albeit managed to rebound a few pips from the daily low and was last seen trading just below mid-130.00s.

The US dollar witnessed aggressive long-unwinding trade and snapped a six-day winning streak to the five-year high. This, in turn, was seen as a key factor that exerted downward pressure on the USD/JPY pair. That said, a big divergence in the monetary policy stance adopted by the Bank of Japan and the Fed helped limit the downside.

From a technical perspective, the intraday downtick stalled near the 129.75 region, or the 50-hour SMA. The said area coincides with the 38.2% Fibonacci retracement level of the strong gains recorded over the past two trading sessions. This, in turn, should act as a pivotal point and help determine the USD/JPY pair's intraday move.

Technical indicators on intraday charts - though have been losing positive traction - are yet to confirm a bearish bias. This makes it prudent to wait for sustained break below the aforementioned confluence support before confirming that the USD/JPY pair has topped out and positioning for any meaningful corrective pullback.

Spot prices could then accelerate the decline towards testing the 50% Fibo. level support, around the 129.00 round-figure mark. The downward trajectory could further get extended towards the 61.8% Fibo. level, around the 128.60-128.55 region, which coincides with the 200-hour SMA and should act as strong base for the USD/JPY pair.

On the flip side, immediate resistance is pegged near the 130.75 area ahead of the 131.00 round-figure mark and the post-BoJ swing high, around the 131.25 region. Sustained move beyond the said barriers will be seen as a fresh trigger for bullish traders and set the stage for an extension of a near two-month-old bullish trend.

USD/JPY 1-hour chart

Key levels to watch

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

- EUR/USD: EUR amounts        

• 1.0565 1.4b
• 1.0600 542m
• 1.0650 436m
• 1.0700 2.3b
• 1.0750 423m

- GBP/USD: GBP amounts        

• 1.2900 585m

- USD/JPY: USD amounts                     

• 126.75 500m
• 127.00 460m

- USD/CAD: USD amounts       

• 1.2395 650m
• 1.2695 649m

- EUR/GBP: EUR amounts

• 0.8215 560m
• 0.8285 486m
• 0.8475 652m

• Gold Price extends the rebound amid a sharp correction in the US dollar.
• Profit-taking engulfs the dollar heading into the Fed and NFP next week.
• $1,890 appears as strong support for XAUUSD while $1,927 guards the upside.

Month-end flows combined with profit-taking have triggered a sharp correction in the US dollar against its major rivals, aiding Gold Price to recover sizeable ground above the $1,900 mark. Investors unwind their USD longs ahead of next Wednesday's critical Fed rate hike decision, with a 50-bps lift-off well priced in. The rebound in Gold Price, however, appears shallow, as the dollar will continue capitalizing on the aggressive Fed rate hike expectations, despite the dismal US Q1 GDP print.

Also read: Gold Price Forecast: XAUUSD rebound - a good selling opportunity?

Gold Price: Key levels to watch

The Technical Confluences Detector shows that Gold Price is running into stiff resistance near $1,918 on the road to recovery.

A sustained break above the latter will put the SMA50 four-hour at $1,923 to test, above which the confluence of the previous week’s low and pivot point one-day R3 at $1,927 will challenge the additional upside.

Alternatively, if the recovery momentum fizzles out, then sellers could target the pivot point one-day R2 at $1,913 once again.

The next relevant support awaits around $1,905, where a dense cluster of support levels comprising the pivot point one-week S1, SMA5 one-day and pivot point one-day R1 converge.

The previous day’s high at $1,898 will be tested on the move lower. The last line of defense for XAU bulls is seen at $1,890, the intersection of the Fibonacci 23.6% one-day, the previous month’s low and SMA10 four-hour.

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.

• A combination of supporting factors assisted GBP/JPY to gain traction for the third straight day.
• A sharp USD corrective pullback from the multi-year peak extended support to the British pound.
• The risk-on impulse undermined the JPY’s relative safe-haven status and remained supportive.

The GBP/JPY cross maintained its bid tone through the first half of the European session and was last seen trading near the daily high, around the 163.70-163.85 region.

Following the overnight sharp pullback of nearly 150 pips from the three-day high, the GBP/JPY cross regained positive traction for the third successive day on Friday, though lacked bullish conviction. The US dollar witnessed aggressive long-unwinding trade and benefitted the British pound. On the other hand, the risk-on impulse undermined the Japanese yen's relative safe-haven status and acted as a tailwind for the GBP/JPY cross.

The Japanese yen was further pressured by the dovish Bank of Japan statement on Thursday. It is worth recalling that the Japanese central bank stuck to its ultra-loose policy setting and vowed to conduct daily operations to defend its “near-zero” target for 10-year bond yields. Moreover, the BoJ Governor Haruhiko Kuroda said that risks to the economy are skewed to the downside and showed readiness to ease policy further if necessary.

Despite the supporting factor, the GBP/JPY cross, so far, has struggled to attract strong follow-through buying amid diminishing odds for aggressive Bank of England rate hikes. Weak UK Retail Sales figures released last week highlighted that high inflation might have already started taking its toll on consumer spending. Adding to this, the flash PMI prints showed that the UK economy is under stress from the soaring cost of living.

The mixed fundamental backdrop makes it prudent to wait for sustained strength above the 164.00 mark before positioning for an extension of this week's solid bounce from the monthly low. In the absence of any major market-moving economic releases, the USD price dynamics will play a key role in influencing sterling. Traders will also take cues from the broader market risk sentiment for some short-term opportunities around the GBP/JPY cross.

Technical levels to watch

Open interest in crude oil futures markets went up for the third consecutive session on Thursday, now by nearly 19K contracts according to advance prints from CME Group. Volume followed suit and rose by 157.3K contracts, fading the previous day’s retracement.

WTI now targets April tops around $109.00

Prices of the WTI extended the weekly recovery on Thursday. The move was accompanied by rising open interest and volume, paving the way for the continuation of this bounce to, initially, the April high just above the $109.00 mark per barrel in the very near term.

The Eurozone economy expanded by 0.2% on the quarter in the three months to March of 2022, missing 0.3% expected and 0.3% prior, the preliminary estimate showed on Friday. 

On an annualized basis, the bloc’s GDP rate rose by 5.0% in Q1 vs. 4.7% booked in the fourth quarter of 2021 while matching 5.0% expectations.

Also read: Eurozone Preliminary Inflation rises 7.5% YoY in April vs. 7.5% expected

FX implications

EUR/USD was last seen trading at 1.0575, up 0.78% on the day. The euro failed to react to the Eurozone GDP and inflation data, as the correction in the US dollar leads the way.

About Eurozone Preliminary GDP

The Gross Domestic Product released by Eurostat is a measure of the total value of all goods and services produced by the Eurozone. The GDP is considered as a broad measure of the Eurozone's economic activity and health. Usually, a rising trend has a positive effect on the EUR, while a falling trend is seen as negative (or bearish).

The annualized Eurozone Harmonised Index of Consumer Prices (HICP) rose by 7.5% in April, coming in higher than the previous reading of 7.4%, the latest data published by Eurostat showed on Friday. The consensus forecast was for a reading of 7.5%.

The core figures arrived at 3.5% YoY in April when compared to 3.2% expectations and 2.9% booked in March.

The Euro area figures are reported a day after Germany’s annual inflation for April arrived at 7.8%, beating expectations of 7.6% following a 7.6% increase reported in March.

The bloc’s HICP figures hold significance, as it helps investor assess the chances that the European Central Bank (ECB) might signal a faster than an expected path for policy tightening. 

Key details (via Eurostat)

“Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in April (38.0%, compared with 44.4% in March), followed by food, alcohol & tobacco (6.4%, compared with 5.0% in March), non-energy industrial goods (3.8%, compared with 3.4% in March) and services (3.3%, compared with 2.7% in March).”

EUR/USD reaction

EUR/USD paid little heed to the mixed Eurozone inflation figures. The spot is adding 0.77% on the day, currently trading near-daily highs of 1.0578.

The index hit another record high, as the Russian invasion of Ukraine pushed fuel and natural gas prices to all-time highs.

• AUD/USD witnessed a short-covering bounce amid a sharp USD slide from the multi-year high.
• The risk-on impulse undermined the safe-haven USD and benefitted the perceived riskier aussie.
• Any further upside seems limited ahead of the RBA/FOMC monetary policy decisions next week.

The AUD/USD pair built on its steady intraday recovery move through the first half of the European session and climbed to a fresh daily high, around the 0.7160 area in the last hour.

The pair gained strong positive traction on the last day of the week and moved further away from its lowest level since early February, around mid-0.7000s touched the previous day. The US dollar witnessed aggressive long-unwinding trade and for now, seems to have snapped a six-day winning streak to the five-year peak. This, along with the risk-on mood, extended support to the perceived riskier aussie and triggered some short-covering around the AUD/USD pair.

Apart from this, a goodish pickup in commodity prices offered additional support to the resources-linked Australian dollar amid expectations for an early rate hike by the Reserve Bank of Australia. The Australian Bureau of Statistics reported on Wednesday that consumer prices surged at the fastest annual pace in two decades during the first quarter. The data fueled speculations that the RBA could start the policy tightening cycle as soon as next week.

It, however, remains to be seen if bulls are able to capitalize on the move or the AUD/USD pair meets with a fresh supply at higher levels amid the prospects for rapid interest rate hikes in the US. The markets have been pricing in a 50 bps rate hike at the upcoming FOMC meeting on May 3-4. The US central bank is also expected to continue tightening its monetary policy when it meets again in June and July, and ultimately lift rates to around 3.0% by the end of the year.

Hence, the market focus will remain glued to the upcoming central bank event risks - the RBA policy update on Tuesday and the highly anticipated FOMC decision on Wednesday. In the meantime, traders might refrain from placing aggressive bets, making it prudent to wait for some follow-through buying before positioning for any further gains. Nevertheless, the AUD/USD pair seems all set to end in the red for the fifth successive week and remains at the mercy of the USD price dynamics.

Technical levels to watch

Considering preliminary readings from CME Group for gold futures, open interest increased by more than 7K contracts on Thursday, reversing the previous pullback. Volume, instead, left behind Thursday’s build and shrank by nearly 11K contracts.

Gold: Next hurdle comes around $1930

Thursday’s decent gains in gold prices were amidst rising open interest, allowing for the continuation of the upside momentum in the very near term and with the immediate target at the 55-day SMA around $1930 per ounce troy.

Here is what you need to know on Friday, April 29:

The US Dollar Index (DXY) turned south following a six-day rally, during which it gained more than 3%, early Friday with investors finally looking to book their profits on the last trading day of April. First-quarter Gross Domestic Product (GDP) and April HICP inflation data from the euro area will be watched closely by market participants ahead of the Personal Consumption Expenditures (PCE) Price Index, Personal Income and Personal Spending figures from the US.

Although the dollar continued to outperform its rivals despite the disappointing growth data on Thursday, it is having a difficult time finding demand ahead of the weekend. The improving market mood, as reflected by strong gains seen in major European equity indexes, seems to be playing a role in recent dollar weakness. 

US GDP Quick Analysis: Houston, we have contraction, but three reasons support dollar strength.

EUR/USD is trading at a fresh daily high above 1.0570 early Friday. In addition to the selling pressure surrounding the dollar, the euro's strength is helping the pair extend its rebound. The data from Germany revealed earlier in the day that the economy grew at an annualized rate of 3.7% on a yearly basis in the first quarter (calendar-adjusted) of 2022. This reading came in better than analysts' estimate of 3.6%.

After touching its lowest level since July 2020 near 1.2400 on Thursday, GBP/USD gained traction and was last seen rising nearly 0.8% on the day above 1.2550.

USD/JPY is pulling away from the fresh multi-decade high it set above 131.00 on Thursday and is trading below 130.00 in the early European session.

Gold registered modest gains on Thursday and gathered bullish momentum after breaking above $1,900 early Friday. The benchmark 10-year US Treasury bond yield is trading flat on the day near 2.84%, allowing XAU/USD to capitalize on the dollar weakness.

Bitcoin rose above $40,000 but failed to close there on Thursday. BTC/USD trades with modest losses near $39,500 on Friday. Ethereum lost its bullish momentum before reaching $3,000 and was last seen fluctuating in a relatively tight range around $2,900.

• EUR/USD regains the smile and targets 1.0600.
• EMU flash April CPI next of note on Friday.
• US inflation tracked by the PCE comes next in the dockewt.

Finally, some light at the end of the tunnel for the European currency, as EUR/USD regains some upside traction and manages to break above the 1.0500 mark on Friday.

EUR/USD focuses on EMU, US inflation data

After six consecutive day pullbacks, EUR/USD rebounds with some conviction and now approaches the key barrier at 1.0600 the figure amidst the corrective decline in the greenback and the mixed performance in yields.

On the latter, US yields advance modestly and remain close to weekly highs, while German 10y bund yields fade part of Thursday’s decent advance.

In the domestic calendar, flash GDP Growth Rate in Germany showed the economy is expected to expand 3.7% YoY and 0.2% inter-quarter. Later in the European morning, advanced inflation and GDP figures in the broader Euroland will be in the limelight.

Across the pond, all the attention is predicted to be on the inflation figures gauged by the PCE and Core PCE along with Personal Income/Spending and the final U-Mich Index.

What to look for around EUR

EUR/USD leaves behind part of the recent multi-session sharp selloff and rebounds from 5-year lows around 1.0470 (April 28). The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany, EMU Flash Q1 GDP Growth Rate, EMU Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Second round of the presidential elections in France (April 24). Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is up 0.72% at 1.0574 and faces the next hurdle at 1.0936 (weekly high April 21) seconded by 1.1000 (round level) and finally 1.1142 (100-day SMA). On the other hand, a break below 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017).

• A combination of factors prompted aggressive selling around USD/CAD on Friday.
• Rising oil prices underpinned the loonie and exerted pressure amid a weaker USD.
• Traders now eye Canadian GDP/US PCE inflation data for a meaningful impetus.

The USD/CAD pair added to its heavy intraday losses and dived to a three-day low, around the 1.2725 region during the early part of the European session.

Spot prices extended the previous day's sharp retracement slide from the 1.2875-1.2880 region, or the highest level since March 9 and witnessed aggressive selling on the last day of the week. This marked the third successive day of a negative move for the USD/CAD pair and was sponsored by a combination of factors.

The risk-on mood prompted some long-unwinding around the safe-haven US dollar, which, for now, seems to have snapped a six-day winning streak to the five-year peak touched the previous day. Apart from this, an uptick in crude oil prices underpinned the commodity-linked loonie and exerted pressure on the USD/CAD pair.

Concerns that falling output in sanctions-hit Russia - the world's second-biggest exporter - will tighten supply extended some support to crude oil. Adding to this, the increased likelihood that Germany will join other European Union member states in an embargo on Russian oil provided modest lift to the black liquid.

That said, fears that prolonged COVID-19 lockdowns could dampen fuel demand should keep a lid on any meaningful upside for crude oil prices. On the other hand, the prospects for a more aggressive policy tightening by the Fed and the deteriorating global economic outlook should help limit deeper losses for the safe-haven buck.

The fundamental backdrops favour the USD bulls and support prospects for the emergence of some dip-buying around the USD/CAD pair. Hence, any subsequent decline below the 1.2700 round-figure mark is more likely to find support and remain limited near the very important 200-day SMA, currently around the 1.2650-1.2640 area.

Market participants now look forward to Friday's economic docket, highlighting the release of the US Core PCE Price Index - the Fed's preferred inflation gauge - and the Canadian GDP report. This, along with the USD/oil price dynamics, will influence the USD/CAD pair and allow traders to grab some short-term opportunities.

Technical levels to watch

Swiss National Bank Chairman Thomas Jordan said on Friday that higher inflation in Switzerland has not yet justified an interest rate hike, as reported by Reuters.

Additional takeaways

"Seeing Swiss inflation as moderate and likely to decline in foreseeable future."

"We do not react mechanically to every case of upward pressure on the Swiss franc."

"Higher inflation abroad means Swiss economy can cope with a stronger franc."

"Higher inflation abroad and stronger Swiss franc cancel each other out."

Market reaction

USD/CHF pair edged lower despite these comments and was last seen trading at 0.9693, where it was down 0.3% on a daily basis.

• German economy expanded by 3.7% (YoY) in the first quarter.
• EUR/USD clings to strong daily gains above 1.0550 after the data. 

The data published by Germany's Destatis revealed on Friday that the economy grew by 3.7% on a yearly basis in the first quarter (calendar-adjusted) of 2022. This reading came in slightly better than the market expectation of 3.6% and followed the 1.8% expansion recorded in the previous quarter.

On a quarterly basis, the GDP rose by 0.2%, compared to analysts' estimate of 0.1%. 

Market reaction

EUR/USD preserves its bullish momentum after these data and it was last seen trading at 1.0570, where it was up 0.72% on a daily basis. Meanwhile, Germany's DAX 30 is gaining more than 1% on the day, reflecting the upbeat market mood.

Economists at ANZ Bank expect the GBP/USD pair to regain ground through the second half of the year. For next week’s Bank of England (BoE), they expect the “Old Lady” to deliver a 25bp rate hike.

Gradual appreciation to unfold in the second half of 2022

“We expect the BoE will raise rates by 25bp at its May meeting and signal the potential for rates to rise further, although it is unlikely to match the Fed. We still think an appreciation in GBP is a desirable outcome for the BoE, given that the UK imports around 80% of consumer durables.” 

"Our expectation that the USD may be close to peaking versus EUR is also relevant to our GBP outlook. In the second half of the year, we expect gradual GBP/USD appreciation to unfold.”

The US dollar’s strength has been broad-based lately. Economists at UBS expect additional USD strength in the coming weeks.

Fed’s faster policy normalization to keep US dollar supported

“Intensifying global growth concerns are likely to keep the USD on a stronger path than almost all currencies during 2Q.”

“The Federal Reserve's determination to act decisively to curb inflation should also keep the US dollar supported, particularly against the currencies of central banks like the European Central Bank that continue to lag in monetary tightening. Despite greater uncertainty, the yen is likely to stay weak due to the BoJ’s dovish monetary policy stance and deteriorating external balances.”

“Despite near-term weakness due to global growth concerns, commodity prices are likely to remain elevated, which should give commodity-exporting countries some leeway in their monetary policy and support their currencies.”

“We continue to expect more US dollar strength in the second quarter, and we have accordingly lowered our EUR/USD forecast for June to 1.05 (from 1.11 previously). Having said this, the case for USD strength in the second half of the year is certainly not set in stone. Whether there is additional USD strength or some reversal of fortune depends very much on a sequential global growth recovery in 3Q.”

• DXY faces some selling sentiment and retests the 103.00 area.
• US yields trade in an inconclusive fashion near recent peaks.
• US Inflation PCE will take centre stage later in the NA session.

The greenback, in terms of the US Dollar Index (DXY), faces a corrective downside and comes all the way down to revisit the 103.00 neighbourhood at the end of the week.

US Dollar Index now looks to PCE

The index trades on the defensive after six consecutive daily advances and returns to the vicinity of 103.00 after hitting fresh cycle tops just pips away from the 104.00 hurdle on Thursday.

From the US cash markets, yields trade without a clear direction so far, although they manage to keep business in the upper end of the recent range on Friday.

In the meantime, the dollar remains well underpinned by speculations of a tighter normalization of the Fed’s monetary conditions, which is expected to kick in with a 50 bps rate hike at the May 4 event.

Later in the NA session, inflation figures tracked by the PCE (the Fed’s preferred gauge) will be the salient event seconded by Personal Income/Spending and the final Consumer Sentiment for the month of April.

What to look for around USD

The dollar faces some correction following Thursday’s 19-year highs near the 104.00 barrier. The Fed’s more aggressive rate path continues to be the main driver behind the robust bullish stance in the dollar, which also appears reinforced by the current elevated inflation narrative and the solid health of the labour market. Collaborating with the latter appear bouts of geopolitical tensions as well as the move higher in US yields.

Key events in the US this week: Core PCE, PCE, Final Consumer Sentiment, Personal Income/Spending (Friday).

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

US Dollar Index relevant levels

Now, the index is retreating 0.68% at 102.98 and faces the next support at 99.81 (weekly low April 21) seconded by 99.57 (weekly low April 14) and then 97.68 (weekly low March 30). On the upside, the breakout of 103.92 (2022 high April 28) would open the door to 104.00 (round level) and finally 105.63 (high December 11 2002).

Cable has come a long way very quickly and has now reclaimed the big 1.25 level. GBP/USD could climb back to the 1.26 area on a stronger EUR/USD fueled by robust eurozone Consumer Price Index (CPI) data, economists at ING report.

Overcooked?

“Short-term financial fair value models have gone a little awry, where yield curves and equity markets are now bigger drivers of sterling than rate differentials. In other words, it looks as though sterling is being traded more on growth prospects at the moment.” 

“European FX could get a small lift today if eurozone CPI surprises on the upside and the ECB hawks come out in force. That could carry EUR/GBP back to 0.8450/60, but a stronger EUR/USD could carry GBP/USD back to the 1.2570/2600 area on the day.”

See – Eurozone HCPI Preview: Forecasts from six major banks, not peaking yet

• EUR/USD gained positive traction on Friday and snapped a six-day losing streak to the multi-year low.
• The risk-on impulse undermined the safe-haven USD and prompted short-covering around the pair.
• Concerns about the economic fallout from the Ukraine crisis should continue to cap gains for the euro.
• Traders now eye the flash Eurozone CPI and the US Core PCE Price Index for some meaningful impetus.

The EUR/USD pair built on its steady intraday recovery move through the early European session and climbed to a fresh daily high, closer to mid-1.0500s in the last hour.

The pair witnessed some short-covering move on the last day of the week and for now, has snapped a six-day losing streak to the five-year low, around the 1.0470 area touched the previous day. A turnaround in the global risk sentiment - as depicted by a generally positive tone around the equity markets - prompted undermined the safe-haven US dollar. This was seen as a key factor that extended support to the EUR/USD pair, though any meaningful upside still seems elusive amid concerns about a brewing energy crisis in Europe.

The worries resurfaced after Russia announced a plan to halt gas flows to Poland and Bulgaria amid a standoff over fuel payments from “unfriendly” buyers in rubles. It is worth mentioning that the EU gets about 40% of its gas and 30% of its oil from Russia, and has no easy substitutes if supplies are disrupted. This could make it difficult for the European Central Bank to tighten its monetary policy, leaving it lagging far behind the Fed, which, in turn, should act as a headwind for the shared currency and cap the EUR/USD pair.

The Fed is expected to hike interest rates by 50 bps when it meets on May 3-4, and again in June and July, and ultimately lift rates to around 3.0% by the end of the year to curb soaring inflation. The bets were reaffirmed by hawkish remarks from influential FOMC members last week, including Fed Chair Jerome Powell. This, along with the deteriorating global economic outlook amid prolonged COVID-19 lockdowns in China, should continue to benefit the buck and attract fresh selling around the EUR/USD pair at higher levels.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent bearish trend has run its course and positioning for further intraday gains for the EUR/USD pair. Market participants now look forward to the release of the flash Eurozone consumer inflation figures for a fresh impetus. Later during the early North American session, traders will take cues from the release of the Fed's preferred inflation gauge - the core PCE Price Index, which should produce some trading opportunities.

Technical levels to watch

Having briefly dipped under 1.05 yesterday, EUR/USD has regained a little composure today. For today, the focus will be on European April CPI, where economists at ING see upside risks. Regarding the EUR/USD pair, they expect some consolidation.

Upside risks to April CPI

“We see upside risks to today's April eurozone CPI release, where consensus sits at 7.5% YoY for the headline reading and 3.2% for the core. An above consensus figure will no doubt draw out the ECB hawks. However, the eurozone money market already prices in 87bp of tightening this year – pricing which has done little to help the euro.” 

“There is a case to be made that in the event of an abrupt shut-off in European gas, the ECB will struggle to deliver more than a 50bp rate hike – effectively normalising the deposit rate to zero.

“The international environment (stronger Asia) favours some consolidation in EUR/USD short-term. That could mean a limited correction to 1.0560/70, with outside risk to 1.0650.”

See – Eurozone HCPI Preview: Forecasts from six major banks, not peaking yet

• GBP/USD refreshes intraday high while extending the bounce off two-year low.
• Clear break of three-day-old trend line, 50-HMA favor buyers.
• 100-HMA, multiple hurdles established since Tuesday test recovery.

GBP/USD takes the bids to renew intraday high around 1.2530 as British traders await Friday’s bell in London.

In doing so, the cable pair buyers stretch the previous day’s U-turn from the lowest levels since June 2020.

The rebound also gains support from the bullish MACD signals, as well as the quote’s ability to cross the nearby previous resistance line and the 50-HMA.

As a result, GBP/USD buyers currently approach a downward sloping trend line from Wednesday, near 1.2535 at the latest.

However, a convergence of the 100-HMA and a three-day-old horizontal area, near 1.2600, appears tough nut to crack for the pair bull.

Meanwhile, the resistance-turned-support and an ascending trend line connecting the latest lows offer strong short-term support to the pair around 1.2485-80.

Following that, a downward trajectory towards the latest low of 1.2411 and the 1.2400 threshold can’t be ruled out.

GBP/USD: Hourly chart

Trend: Bearish

Consensus expects a 200bp Russian rate cut today. Furthermore, markets will be closely watching the central bank eases capital controls, which could put depreciation pressure on the rouble, economists at ING report.

Interest to see whether the central bank eases any capital controls in light of rouble strength 

“The Russian central bank is widely expected to cut rates 200bp today to 15%. The rate cut is expected now that USD/RUB is artificially trading very low at 72 – driven by no natural buyers (foreigners cannot sell Russian assets and Russian imports have collapsed) and continued selling of energy FX receipts.”

“No change is expected on controls for foreigners but enforced FX sales for the Russian export community have recently been softened up. Any loosening on controls for domestics could see the rouble weaken on a sign that Russian authorities want a weaker rouble for budgetary purposes.” 

A stunning move from Indonesia has further upended global food markets already shaken by Russia’s invasion of Ukraine. Indonesia's palm oil export ban jolts global food inflation and could backfire, economists at Natixis report.

The ban will likely further push up food prices

“Indonesian President Joko Widodo announced a ban on the export of palm oil. The ban covered both crude and refined palm oil exports. The government implemented the export ban to mitigate rising food prices and quell local unrest, but the fallout may upend the country’s economy anyway while forcing global prices even higher.”

“The impact of higher palm oil prices will reverberate across the globe. The trend is negative for food inflation, and that means worse purchasing power for everyone.”

“For Indonesia, while the ban may push down domestic cooking oil costs, it puts depreciating pressure on the IDR as palm oil is its key export earning product. Meanwhile, imports are getting more expensive as the depreciating IDR adds to cost pressure through the pass-through of a weaker FX. As such, its ban of palm oil export is well-intentioned but may backfire.”

The expectations for today’s publication of Mexican growth in Q1 are not exactly breathtaking. Economists at Commerzbank expect weak data to reduce Banxico’s rate hike expectations and weigh on the peso.

Slow start into the year to intensify Banxico's dilemma in the fight against inflation

“The analysts polled by Bloomberg (consensus) expect a rise of 1% QoQ on a seasonally adjusted basis: the economy stagnated during the previous quarter and thus remained below pre-pandemic levels. Consensus YoY expectations stand at 1.6%, following 1.1% in the previous quarter.”

“The Mexican central bank had reduced its growth projections in its last quarterly report. It expects growth of 2.4% for the current year, which will rise slightly to 2.9% for 2023. This seems too optimistic when measured against Bloomberg consensus expectations of 2% and just above for this year and next.” 

“A slow start into the year is likely to intensify Banxico's dilemma in the fight against inflation, which has shot up to above 7%. A significant surprise in the GDP release to the downside today might cause some to reduce their rate expectations for Banxico and would weigh on the peso.”

Russia’s central bank is widely expected to cut its policy interest rate at a scheduled meeting today. Economists at Commerzbank do not expect the interest rate decision to have an impact on the Russian rouble.

CBR’s rate meeting of tangential interest

“The consensus anticipates a 200bp cut, but we would not be surprised with 300bp either.”

“Although current inflation is still running in the 16%-17% YoY region, there is no scope to cut rates further just yet – nevertheless, the stable exchange rate affords CBR the luxury to preempt lower inflation in the months ahead and turn more supportive for the real economy by lowering rates already now. And once the real economy begins to take precedence, a larger rate cut can easily be justified.” 

“We do not see much implication of the size of the cut today on the (artificial) rouble exchange rate that we observe on our screens.”

USD/CHF extends the early Asian session pullback from the highest levels since May 2020, marked the previous day, as sellers attack the 0.9700 threshold during the early Friday morning in Europe.

In doing so, the Swiss currency (CHF) pair ignores the hawkish signals portrayed by the options market, via risk reversal (RR). That said, a one-month risk reversal (RR) of USD/CHF, a gauge of calls to puts, rises for the second consecutive month, as well as for the second week, by the press time. Also portraying the options market's hawkish mood is the daily RR print of 0.050, a fourth positive figure in a row.

It’s worth noting, however, that the latest pullback in the USD/CHF prices could be linked to the US dollar’s retreat from the 20-year high ahead of the US Core Personal Consumption Expenditures (PCE) Price Index for March, expected to ease to 5.3% YoY versus 5.4% prior. The data is known as the Fed’s preferred gauge of inflation.

Also challenging the USD/CHF bulls is the cautious sentiment ahead of a speech from the Swiss National Bank’s (SNB) Chairman Thomas Jordan.

Read: USD/CHF juggles around 0.9720 as investors await SNB’s Jordan speech

The Riksbank delivered in April and has shifted towards a more restrictive monetary policy. Krona was only able to benefit briefly though. Economists at Commerzbank expect the EUR/SEK to move sideways for the moment.

Riksbank is actively trying to prevent a wage-price spiral

“Riksbank raised the key interest rate to 0.25% and expects two or three more steps this year. Moreover, it will start reducing its asset holdings already from the middle of the year.”

“With its interest rate hikes, the Riksbank intends to counteract the high inflation becoming entrenched in price-setting and wage-formation, and ensure that inflation returns to the target after some time. The Riksbank is thus actively trying to prevent a wage-price spiral.”

“The Riksbank still expects solid growth. However, following the rapid recovery after the pandemic, it now expects growth to be somewhat slower. The Riksbank has therefore lowered its forecasts.”

“I expect EUR/SEK to move sidewards, for now, a development that will be mainly affected by further developments in the Ukraine conflict and thus risk aversion.”

EUR/USD is trading at weak levels. In the opinion of economists at Commerzbank, it is possible that the EUR exchange rates are reflecting the market’s doubts as to whether the European Central Bank (ECB) really will hike interest rates soon. 

Doubts in ECB lift-off?

“The end of the Russian gas supplies to Poland and Bulgaria is likely to have intensified concerns that Russia might stop delivering gas to other EU countries and in an extreme case to the entire EU. If we were to see a complete end of supplies a lift-off in the eurozone is likely to be off the agenda. At the same time inflation is likely to remain at high levels.”

“High inflation levels, as well as the risk of economic weakening, which might cause the ECB not to take action, are putting depreciation pressure on EUR.”

“If the FX market had more certainty that the ECB will fight high inflation EUR would probably benefit. However, as long as there is a risk of an energy crisis hawkish comments from ECB members are going to do little to overcome any doubts though.”

See – Eurozone HCPI Preview: Forecasts from six major banks, not peaking yet

• EUR/JPY fades two-day rebound from amid mixed concerns.
• Sluggish sentiment, pre-data anxiety challenge buyers but monetary policy divergence favors upside momentum.
• Risk catalysts from Russia, China are also important for near-term direction.

EUR/JPY remains sidelined, recently easing from the daily top to 137.40, while fading the recent recovery moves heading into Friday’s European session.

The cross-currency pair’s latest pullback could be linked to the mixed headlines concerning the risk appetite, as well as an off in Japan. It’s worth noting, however, that the pair gains major attention amid the riskier markets, especially ahead of the preliminary Gross Domestic Production (GDP).

Japan celebrates Showa Day Holiday and restricts bond moves in Asia, which in turn challenges the EUR/JPY prices. Also testing the pair traders is the indecision among the Euro buyers and yen sellers as market sentiment dwindles.

The reason could be linked to the recently mixed comments from the ECB policymakers and fears of the economic fallout of the bloc due to the Russian invasion of Ukraine. However, the Bank of Japan’s (BOJ) double-down on easy money keeps the monetary policy divergence between the BOJ and the European Central Bank (ECB), which in turn favor the EUR/JPY bulls.

Moving on, the initial readings of German and Eurozone GDP for Q1 2022 will be the key for EUR/JPY traders. the Eurozone Gross Domestic Product (GDP) is likely to improve to 5.0% YoY versus 4.6% prior, per the seasonally adjusted Q1 2022 figures. For Germany, the YoY GDP Figures may rise to 3.6% versus 1.8% prior.

Should the bloc manages to print upbeat growth numbers, the buyers can keep the reins as equities in the US and Asia seems to underpin the early optimism in Europe. However, concerns over the bloc’s economic growth and oil embargo on Russia may limit the quote’s upside moves.

Technical analysis

Unless providing a daily closing below an upward sloping trend line from March 25, around 135.55 by the press time, EUR/JPY remains on its way to the 140.00 key hurdle comprising the monthly high and a two-month-old previous support line.

• The greenback bulls have sensed barricades at 161.8% Fibonacci extension at 131.00.
• A range shift has been witnessed in the RSI (14), which indicates no more strength left now.
• The asset has slipped below the 20-EMA, which adds to the downside filters.

The USD/JPY pair is witnessing a minor pause post a stalwart rally as the asset is showing some signs of exhaustion after reaching over-extended levels. The asset has printed a two-decade high at 131.25 on Thursday and is experiencing some profit-booking as momentum indicators turned extremely overbought on the intraday timeframe.

The major is facing barricades after reaching 61.8% of the Fibonacci arc (placed from April 19 high at 129.41 to weekly lows at 126.95) placed at the round level resistance of 131.00. A sense of exhaustion can be clearly witnessed in a range of 130.40-131.25. The asset has slipped below the 20-period Exponential Moving Average (EMA) at 130.56, which adds to the downside filters.

The Relative Strength Index (RSI) (14) has shifted from the bullish range of 60.00-80.00 to the consolidation range of 40.00-60.00, which signals a loss of confidence in the greenback bulls for a while.

Going forward, a slippage below the psychological support of 130.00 will drag the asset towards April 19 high at 129.41, followed by April 20 low at 127.46.

On the flip side, greenback bulls may resume their upside journey if the asset oversteps the two-decade high at 131.25, which will send the pair towards the round level resistance at 132.00. A breach of the latter will drive the asset towards the 4 April 2022 high at 133.16.

USD/JPY hourly chart

The eurozone will release its April Harmonised Index of Consumer Prices (HICP) report on Friday, April 29 at 09:00 GMT and as we closer to the release time, here are the expectations forecast by the economists and researchers of six major banks regarding the upcoming EU inflation print.

Expectations are for HICP to rise further to 7.5% YoY in April (prev. 7.4%), with the core metric (ex-food and energy) seen rising to 3.3% YoY (prev. 3.2%).

Commerzbank

“The inflation rate in the euro area is expected to remain unchanged at 7.4% in April. Oil and gas prices have fallen again somewhat after the dramatic increase in March, and some countries are relieving consumers with discounts at the pump station or tax cuts. Therefore, consumer prices for energy in April are likely to have risen somewhat less YoY than in the month before. However, the rise in energy prices is increasingly reflected in the prices of other goods. In addition, the renewed lockdowns of megacities in China are exacerbating global supply problems and driving up the cost of intermediate goods. Accordingly, the core inflation rate is likely to have risen from 2.9% to 3.4% in April. The inflation rate in the euro area is not expected to fall sustainably until the summer, provided that energy prices start to fall again as we expect. However, the underlying upward pressure on prices will probably continue to strengthen.”

Danske Bank

“Inflation risks remain skewed to the upside despite the latest stabilization in oil, gas and electricity prices. We look for a further climb in the headline HICP rate above 8%, with core inflation remaining elevated at 3.1%, keeping the pressure high on ECB to proceed with its policy normalisation.”

ING

“The eurozone is anxiously awaiting the next inflation figure, which will no doubt be above 7% again. The question is mainly whether it is again higher than the 7.5% seen in March or whether the decline in oil and gas prices since early March has translated into a small drop in headline inflation. We expect the former to be the case, also because of second-round effects from energy prices on core inflation.”

SocGen

“After nine months of consecutive increases, we expect HICP to fall by 0.1pp to 7.3% in April. Conversely, we think core inflation will continue to accelerate to 3.3% YoY, up from 2.9% in March.”

Nomura

“We forecast only a small further rise in euro area HICP inflation in April to 7.6%, with lower fuel prices (petrol prices fell during the month as oil prices dropped) counteracting somewhat our assumption of a rise in core inflation.”

Citibank

“Energy price likely dropped sharply in April and while the peak in energy inflation may be behind, we still expect strong MM prints for food HICP and non-energy goods. Domestically-generated services inflation to remain subdued but overall, headline inflation should tick higher to 7.6% and core to 3.4% YoY.”

It is a story of USD strength at the moment. However, economists at ANZ Bank expect NZD/USD to move back higher later in the year. 

It will be difficult for the NZD to outperform against the AUD

“We view the USD as overvalued based on our fair value estimate, although it’s hard to push back against USD strength right now in the context of rapidly rising central bank expectations.”

“Given strong commodity prices and higher interest rates, we should see the NZD strengthen against the USD later in the year as the USD softens.”

“With markets bringing forward expectations for hikes by the RBA, it’ll be difficult for the NZD to outperform against the AUD for now.”

Gold Price rebounds from two-month lows. A good selling opportunity? FXStreet’s Dhwani Mehta reports.

Gold Price eyes acceptance above Fibonacci 23.6% 

“XAUUSD has recaptured the $1,902 hurdle, which is the Fibonacci Retracement (Fibo) level of the correction from April 18 highs of $1,998 to the two-month troughs of $1,872. If bulls manage to find a strong foothold above the latter on a daily closing basis, then the recovery could extend towards the April 26 highs of $1,911. Further up, the Fibo 38.2% of the same decline at $1,921 will challenge the bearish commitments.”

“The 14-day Relative Strength Index (RSI) is edging higher but remains well below the midline, suggesting that the bearish bias remains intact in the near-term. Also, a bear cross confirmed Wednesday is in play, adding credence to the resumption of the downtrend.”

“Selling resurgence could see a retest of the daily lows at $1,892, below which the April 27 low of $1,881 will be targeted. Thursday’s low of  1,872 will be the level to beat for XAUUSD bulls should bears keep their sights on the $1,850 psychological barrier.”

• AUD/USD seesaws around intraday high, recovers from two-month low.
• Further upside remains questionable as 200-HMA also challenges bulls.
• Short-term support line holds the key to further downside.

AUD/USD takes rounds to 0.7150 while struggling to keep the daily gains ahead of Friday’s European session.

In doing so, the Aussie pair holds onto the recovery from a two-month low, as portrayed by an immediate rising trend line. However, the 100-HMA and a one-week-old descending resistance line, respectively around 0.7150 and 0.7165, challenge the quote’s rebound.

Even if the AUD/USD prices rally beyond 0.7165, the 0.7200 threshold and 200-HMA level of 0.7260 will act as additional upside filters to challenge the further recovery.

On the flip side, pullback moves may initially test the aforementioned support line from the latest multiday low, near 0.7130 by the press time.

Following that, the 0.7100 round figure and a downward sloping trend line from April 25, close to 0.7030, could test the AUD/USD sellers.

It’s worth noting, however, that the pair’s declines past 0.7030 will make it vulnerable to decline towards January’s low surrounding 0.6965.

AUD/USD: Hourly chart

Trend: Pullback expected

• EUR/GBP fades the previous day’s rebound from weekly low.
• Mixed sentiment ahead of the key data challenges the cross-currency pair.
• The fourth delay in Brexit checks adds to the bearish bias.
• Headlines from Russia, China should also be watched for fresh impulses.

EUR/GBP takes offers to refresh intraday low near 0.8415 heading into the London open on Friday.

The cross-currency pair portrayed a volatile session the previous day while refreshing the weekly low before closing with mild gains. However, pre-data caution and mixed sentiment relating to the Russia-Ukraine crisis, as well as China’s covid woes, seem to have recalled the EUR/GBP bears of late.

Although private companies from the bloc are bracing for the Russian energy payment in the ruble, the bloc’s policymakers remain on their way to exerting more pressure on Moscow via an oil embargo. The same raises doubts about the economic performance of the old continent. On Thursday, European Central Bank (ECB) Economic Bulletin mentioned that Russia’s aggression in Ukraine is causing enormous suffering.

On the other hand, the UK pushed back the Brexit border checks for the fourth time after the historical move, which in turn seems to have helped the GBP a bit during a lackluster session. “Boris Johnson’s government has scrapped the introduction of planned post-Brexit inspections on food coming into the UK from the EU, cabinet minister Jacob Rees-Mogg has announced,” per Reuters.

However, the bears need to remain cautious as the Eurozone and Germany are both up for releasing Q1 2022 GDP figures. Also likely to challenge the EUR/GBP bears are comparatively more hawkish ECB policymakers than their BOE counterparts.

That being said, the Eurozone Gross Domestic Product (GDP) is likely to improve to 5.0% YoY versus 4.6% prior, per the seasonally adjusted Q1 2022 figures. For Germany, the YoY GDP Figures may rise to 3.6% versus 1.8% prior.

Additionally, geopolitical and covid-linked headlines from Russia and China will also act as the catalysts and need the attention of the EUR/GBP pair traders.

Technical analysis

Despite bouncing off the 100-DMA, around 0.8375, EUR/GBP failed to cross a downward sloping resistance line from December 2021, close to 0.8465, which in turn redirects bears towards the stated DMA support. However, any further downside will make the pair vulnerable to drop towards the 0.8300 round figure.

• USD/CAD tumbles below 1.2800 as oil heads north on supply concerns.
• The DXY is witnessing a mild correction after a juggernaut upside move.
• A vote from Germany in favor of the embargo on Russian oil has bolstered the happing of the event.

The USD/CAD pair is moving sharply lower in the Asian sessions as the US dollar index (DXY) loses upside momentum and oil prices surge on renewed supply concerns. The asset witnessed a bearish open test-drive move on Friday. After a minor bounce at open, the pair attracted offers at 1.2813 and displayed a south-sided move to a low of 1.2758.

The DXY is witnessing a minor correction after printing a fresh 19-year high at 103.93 however, the market participants should not consider the minute pullback as a reversal as the tailwinds of a jumbo rate hike by the Federal Reserve (Fed) has not changed.  The uncertainty over the interest rate decision announcement by the Fed next week will continue to loom over the Fx domain. As per the market consensus, an interest rate elevation by 50 basis points (bps) looks certain but investors will also focus on the dictations for balance sheet reduction and a roadmap for returning interest rates to neutral rates.

Meanwhile, oil prices are heading north as renewed supply concerns amid progressive footprints of the European Union (EU) towards an embargo on Russian oil. The expectations of a European embargo got bolstered after Germany surrendered its opposition to the prohibition of Russian oil imports. Germany would have found alternatives for its abundant oil and energy demand now but shifting to a new exporter would need significant blood and sweat. Higher oil prices have also underpinned the loonie against the greenback. It is worth noting that Canada is the biggest exporter of oil to the US.

• Palladium prices struggle to extend three-day recovery from 200-DMA.
• Sluggish RSI portrays traders’ indecision inside a trend continuation pattern.

Having reversed from a monthly low during the early week, palladium (XPD/USD) prices remain sidelined at around $2,230 ahead of Friday’s European session.

In doing so, the precious metal holds onto the recovery moves from the 200-DMA but stays inside a symmetrical triangle formation established on March 18.

On an immediate basis, the 61.8% Fibonacci retracement (Fibo.) of December 2021 to March 2022 upside, near $2,260, restricts the quote further upside.

Following that, the upper line of the aforementioned triangle will join the 50% Fibo. to highlight the $2,475 as a tough nut to crack for the XPD/USD bulls.

Meanwhile, pullback moves may retest the 200-DMA level surrounding $2,133, a break of which will direct the palladium bears towards breaking the triangle’s support line, at $2,090 by the press time.

Also acting as the downside filter are the bottoms marked so far in April and March, respectively around $2,080 and $2,045.

Palladium: Daily chart

Trend: Sideways

• Asia-Pacific shares print mild gains amid mixed clues during mostly quiet session.
• Markets in Japan observe Showa Day Holiday, China will also have multiple offs the next week.
• BOJ’s easing, fears that coronavirus will push for more easing in China favor buyers.
• US equities gained amid strong earnings, mixed GDP data.

Asia-Pacific equities track Wall Street gains during the mixed session on early Friday. Even so, MSCI’s index of Asia-Pacific shares ex-Japan stays on the way to post the worst monthly performance, around 7.5% MoM, since early 2020.

The market’s recent rebound could be linked to the recovery in the US shares, mainly due to the upbeat earnings and mixed US Gross Domestic Product (GDP) data for Q1 2022. Also likely to favor the corrective pullback is the absence of Japanese traders and a pullback in the US dollar.

However, firmer oil prices and looming fears of widespread covid resurgence, recently spreading in China, challenge the buyers.

On Thursday, the US Q1 2022 GDP dropped to -1.4% annualized from 6.9% prior, versus the 1.1% forecast. Additionally, the tech giants on Wall Street, like Amazon, Microsoft, Apple and Alphabet, also posted notable gains and underpin the corrective pullback in the Asian session.

It’s worth noting that China’s Politburo announced multiple measures to tame the covid outbreak in the world’s second-largest economy, which in turn seems to help the Asian buyers as well.

Amid these plays, stocks in China and New Zealand print around half a percent of daily gains while those from Australia rise 0.70%, as represented by ASX 200. Indian equities are also up by nearly 0.50% intraday whereas the S&P 500 Futures drops 0.40% at the latest.

Moving on, the preliminary readings of Eurozone GDP for Q1 2022 and the US Core Personal Consumption Expenditures Price Index for March, known as the Fed’s preferred inflation gauge, will be crucial to watch for investors.

Also read: S&P 500 rallies nearly 3.0% to reclaim 4,300 as strong Meta earnings provide much needed lift to sentiment

• USD/INR has slipped below 76.00 as the DXY entered into a corrective wave.
• The risk-off impulse seems to fade away as global indices rebound.
• Oil prices are sustaining above $100.00 on renewed supply concerns.

The USD/INR pair has witnessed some significant offers at the open after failing to sustain above the round level resistance of 76.00. The asset is moving lower as the US dollar index (DXY) showed some signs of exhaustion in the Asian session after printing a 19-year high at 103.93 on Thursday. A rebound has been witnessed in the risk-on impulse, which is supporting the risk-perceived currencies and declining the safe-haven appeal.

The strength in the Indian rupee banks upon a minor correction in the DXY and a rebound in the Indian indices. Bulls are returning to Dalal Street, which is also fetching foreign funds and henceforth strengthening the Indian rupee. The pair is expected to remain volatile going forward ahead of the monetary policy meeting by the Federal Reserve (Fed) next week. A jumbo rate hike is likely to be featured by the Fed to leash the roaring inflation.

On the oil front, renewed supply concerns on the progress of Russian oil embargo talks by the European Union (EU) have thrust the oil prices higher. The oil prices have firmly established above $100.00 as investors underpinned the supply concerns against the demand worries led by the resurgence of the Covid-19 in China. Germany, which remained the major critic of a sudden embargo on Russian oil, has withdrawn its opposition, which will quicken the process of Russian oil prohibition.

Chinese conveyed comments from Politburo during early Friday, mostly citing economic fears from the latest coronavirus round and the Russia-Ukraine crisis while also showing readiness to tackle the challenges.

Key comments

Market implications

The news fails to gain any major attention from the markets amid an off in Japan and cautious sentiment ahead of the key data from the US and Eurozone.

That being said, the USD/CNH prices remain firmer around the highest levels in 17 months, around 6.6680 at the latest.

Also read: USD/CNH Price Analysis: Refreshes 17-month high amid overbought RSI

• GBP/USD bulls move in at multi-year lows as month-end consolidation takes place. 
• Sterling has come under pressure as BoE expectations have eased and US dollar rallies to 20-year highs. 

GBP/USD is up to some 0.22% at the time of writing as the US dollar starts to lose traction across the G10s into month-end sessions. Investors have piled into the greenback this week and the price is expensive ahead of the key events coming up. 

The US dollar hit its highest level since 2002 while Wall Street rose and European shares moved off six-week lows as strong earnings reports offset some of the gloomy US economic data. Additionally, US government bonds rose ahead of the Federal Reserve next week despite the tightening expectations that have been robust leading into the meeting.

Markets are looking for at least a 50 bp hike at the May 3-4 meeting and again at the June 14-15 meeting. This is fully priced in, with nearly 25% odds of a possible 75 bp move in June. the surprise will come if there is anything short or above this consensus at next week's meeting. 

''Looking ahead, swaps market is pricing in 275 bp of tightening over the next 12 months that would see the policy rate peak near 3.25%. While this almost meets our own call for a 3.5% terminal rate, we continue to see risks that the expected terminal rate moves even higher if inflation proves to be even more stubborn than expected,'' analysts at Brown Brothers Harriman said.

As for data, the advance estimate of Q1 Gross Domestic Product dropped 1.4% saar, versus consensus expectations for a 1.0% lift. However, the details remain robust, with personal consumption up 2.7% saar, disposable income rising 4.8% and gross private investment up 2.3%. 

''So underlying private demand growth remains firm,'' analysts at ANZ Bank argued. However, other components of GDP swamped those gains. Excessive domestic demand drove a 17% saar lift in imports, while exports contracted 5.9%. That meant net trade subtracted 3.2% from GDP.''

As for domestics, BOE tightening expectations have eased a bit. ''WIRP suggests another 25 bp hike to 1.0% is fully priced in for the next meeting May 5, while swaps market is pricing in 175 bp of tightening over the next 12 months vs. 200 bp at the start of this week that would see the policy rate peak near 2.5%,'' the analysts at BBH said.

• EUR/USD recovers from five-year high but stays inside bearish chart pattern.
• 50-HMA, bearish MACD signals add strength to the downside bias.
• Oversold RSI on D1 underpins corrective pullback, multiple hurdle test the buyers.

EUR/USD holds onto the initial Asian session recovery from the lowest levels since 2017 around 1.0520 during the very early European morning on Friday.

Although recently bullish MACD signals on the hourly chart favor the pair buyers, the resistance line of a one-week-old descending trend channel and the 50-HMA challenges the further upside around 1.0540-45.

EUR/USD: Hourly chart

Trend: Bearish

Even if the quote rises past 1.0545, 161.8% Fibonacci retracement of the previous month’s up-moves, near 1.0585, will challenge the EUR/USD bulls.

Also acting as the upside filter is the previous support line from November 2021, close to 1.0600 by the press time.

Alternatively, the latest bottom surrounding 1.0470 and the bearish channel’s lower line, near 1.0400, will test the short-term bears.

In a case where the EUR/USD prices drop further below 1.0400, the year 2017 trough surrounding 1.0340 will be in focus.

EUR/USD: Daily chart

Trend: Corrective pullback can’t be ruled out

Also read: EUR/USD rebounds from five-year low towards 1.0550 ahead of Eurozone GDP, US PCE inflation data

According to a Reuters poll of 32 economists, the Reserve Bank of Australia (RBA) is expected to raise its official cash rate (OCR) by 15 basis points to 0.25% from a record low of 0.10% at its May 3 meeting.

Key takeaways

“Half of 32 economists forecast a rise in the cash rate to 0.25% at the meeting and four predicted a hefty 40 basis points increase to 0.50%.”

“The remaining 12 respondents expected no change.”

“Economists in the poll also expected the RBA to pick up the tightening pace.“

“Over two-thirds of the economists - 23 of 32 - forecast the RBA would raise the cash rate to 0.50% in June; four forecasts it would move the rate up to 0.75% or higher by then.”

“Median forecasts showed the benchmark rate would rise to 1.00% by end-September and to 1.50% by year-end, double the 0.75% predicted in the previous survey.”

• AUD/USD looks to reclaim day’s high at 0.7140, US Core PCE eyed

• AUD/USD is marching higher to recapture day’s high, focusing on US Core PCE for further guidance.
• The Fed is all set to push rates higher by 50 bps next week.
• A hawkish tone can be dictated by the RBA next week amid a higher inflation print.

The AUD/USD pair moved higher at day’s open to 0.7138 but faced barricades and surrendered most of its initial gains. Now, the aussie bulls are regaining control and are driving the major higher. The asset is likely to remain uncertain ahead of the monetary policy announcement by the Federal Reserve (Fed) next week.

Next week, Fed is all set to upthrust the interest rates by 50 basis points (bps). The aggressive hawkish move by the Fed would quicken the shift into an era of tight monetary policy and liquidity contraction from helicopter money and grounded policy rates. No doubt, the cautious move from the Fed is highly required to leash the roaring inflation.

Meanwhile, the US dollar front (DXY) has displayed some signs of exhaustion after printing a fresh 19-year high at 103.93 on Thursday. The market participants are focusing on Core Personal Consumption Expenditure (PCE) which is due in the New York session. The monthly Core PCE is seen at 0.3% against the prior print of 0.4% while the annual figure is expected to release at 5.3%, lower than the previous figure of 5.4%.

On aussie front, a higher Consumer Price Index (CPI) figure at 5.1% has triggered the data-dependent approach of the Reserve Bank of Australia (RBA) for an interest rate hike. In its last meet, the RBA dictated that the central bank doesn’t see any price pressure that could weigh rate teasing. Now, a much higher inflation figure could compel the RBA to a slightly hawkish tone.

• USD/CNH rises to the highest levels since November 2020 despite USD pullback.
• Overbought RSI conditions, key Fibonacci retracement levels also challenge the bulls.
• 200-DMA, previous resistance from March 2021 appear strong support.

USD/CNH remains on the front foot around a 1.5-year high surrounding 6.6900 during Friday’s Asian session.

In doing so, the offshore Chinese yuan (CNH) ignores the overbought RSI conditions, as well as the broad US dollar pullback from a 20-year peak, marked the previous day, amid worsening covid conditions in China.

That said, a pullback remains elusive until the quote stays beyond the 38.2% Fibonacci retracement (Fibo.) of May 2020 to February 2022 downside, near 6.6500.

Following that, April 2021 peak close to 6.5870 and 23.6% Fibo. level near 6.5165 may lure the USD/CNH bears.

However, the 200-DMA and the resistance-turned-support line from early 2021, respectively around 6.4050 and 6.3985, will challenge the pair’s further downside.

On the contrary, a 50% Fibonacci retracement level of 6.7520 will be on the USD/CNH bull’s radar during the quote’s further upside.

Should the USD/CNH buyers remain dominant past 6.7520, the November 2020 peak of 6.7746 will be in focus.

USD/CNH: Daily chart

Trend: Pullback expected

US Treasury Secretary Janet Yellen warned Thursday, the coronavirus pandemic and the Russia-Ukraine war pose risks of big economic shocks, with downturns “likely to continue to challenge the economy,” per AP News.

Key quotes

With “large negative shocks” inevitable, she said, policymakers have learned from the Great Recession that it’s imperative to exit economic downturns “as quickly as possible.”

“Countries will fare better if their economies are more resilient and less fragile.”

“Improved understanding of breaks in supply chains, increases in commodity prices, bursting of asset bubbles, and labor and productivity shocks can help policymakers implement reforms that bolster our economic resilience.”

Related reads

• US Dollar Index retreats from two-decade high on mixed concerns, US PCE Inflation eyed

• US economy shrinks by 1.4% annualised in Q1 versus 1.1% expected growth

Analysts at Goldman Sachs believe that the decline in the Japanese yen is likely to continue amid a dovish Bank of Japan (BOJ), adding that any forex intervention will have little to no impact on stemming the yen falls.

Also read: USD/JPY Price Analysis: How far can this rally go?

Key quotes

“The depreciation of the yen will continue as long as the BOJ sticks with its loose monetary policy and its yield curve control and US yields continue to rise.”

“We find it hard to see intervention driving a sustained appreciation without any shift in yield curve control expectations.”

“With risks to yields still skewed to the upside, FX intervention seems likely to be less effective.”

“There is a high risk of intervention. But says yen strength will come if the BOJ reviews its YCC settings and the rate differential to the US drops by 40 or bps.”

• GBP/JPY balances in a 162.81-163.25 range, sees more upside on BOJ’s dovish tone.
• The BOJ kept its interest rates unchanged at -0.1% and dictated dovish guidance.
• Investors are focusing on the extent of the rate hike by the BOE next week.

The GBP/JPY pair is gyrating in a 44-pip range in the Asian session amid an absence of any potential trigger that could provide a rationale for further direction. A directionless move in the cross has come after a stalwart rally, delivered on Thursday, after the Bank of Japan kept its interest rates unchanged at -0.1%.

The decision of a neutral stance by the BOJ came on the grounds of lower inflation and aggregate demand in Japan. The Consumer Price Index (CPI) figure in Japan is 1.2%, which is not sufficient for the BOJ to sound aggressive. Also, the growth rate in the Japanese economy has yet not reached its pre-pandemic levels, therefore prudent guidance has been conveyed by BOJ Governor Haruhiko Kuroda to spurt the aggregate demand.

Meanwhile, the pound bulls are outperforming against the Japanese yen on higher odds of a rate hike by the Bank of England (BOE) next week. The BOE will announce an interest rate decision next week, which is likely a rate hike by 25 basis points (bps). The UK inflation has recorded at 7% in March. In BOE’s last monetary policy meeting, BOE Governor Andrew Bailey elevated their interest rates by 50 basis points (bps) as inflation is galloping faster and in order to contain the inflation mess, the BOE can feature one more 50 bps rate hike, beyond the market consensus.

China's highly influential media outlet, Global Times, reports the country’s National Health Commission, citing that it will not depart from the covid zero policy.

“Practice of dynamic zero-COVID strategy over the past two years has proved effective, has been China’s “secret weapon” to prevent and control the epidemic, and also the best choice and bottom-line that we must guard: health authorities,” the Commission said.

Additional takeaways

These comments come as Shanghai reported its first rise in covid infections in six days, threatening the reopening optimism amidst the stringent lockdown measures.

The financial hub reported 9,970 infections and 52 deaths for Thursday, slightly up from 9,764 cases on Wednesday, per Bloomberg.

Meanwhile, Beijing reported 49 cases for Thursday vs. Wednesday’s 50, suggesting a mass-testing drive in the capital is yet to find signs of a wider outbreak. 

Market reaction

Risk sentiment remains tepid amid closed markets in Japan while disappointing earnings for Amazon and Apple stocks have raised concerns about technology stocks. The S&P 500 futures are down 0.45% on the day.

• USD/JPY bears are moving in and the daily W-formation is compelling. 
• The bulls, however, may only be a correction away. 

USD/JPY is likely due for a correction, but that is not to say that the monthly rally can't carry on in due course. Casting eyes back over the monthly charts, albeit well into the past, in 1998, the yen rallied for three consecutive months and tallied gains of some 24% from when USD/JPY fell from 147.67 to 111.88:

(USD/JPY monthly chart)

For the meanwhile, the DXY chart could be regarded as moving into a phase of meanwhile distribution, which is common ahead of major events such as the Federal reserve and Nonfarm Payrolls at the end of the month:

(DXY H1 chart)

This leaves scope for a meanwhile correction in USD/JPY:

The daily chart has painted a W-formation which is a reversion pattern and the price would be expected to revert towards the neckline, near the 50% mean reversion level around 129 the figure. 

• NZD/USD rebounds from two-year low, snaps six-day downtrend.
• Oversold RSI favors the recovery moves targeting January’s low.
• Three-week-old resistance line adds to the upside filters, bears aim for descending support line from August 2021.

NZD/USD retreats from intraday high as it flashes 0.6500 the figure during Friday’s Asian session. Even so, the kiwi pair prints the first daily gains, up 0.20% by the press time, in six days while bouncing off the lowest levels since June 2020.

Although the oversold RSI conditions seem to have triggered the latest rebound, the quote remains below the previous low of 2022, marked in January, which in turn keeps the sellers hopeful.

In addition to the 0.6530 hurdle, a downward sloping trend line from April 05 also challenges the NZD/USD buyers, around 0.6700 at the latest.

Meanwhile, a fresh downside will initially aim for the latest low surrounding 0.6450 ahead of the 0.6400 threshold.

Should NZD/USD bears keep reins past 0.6400, lows marked during June 2020, around 0.6380, as well as an eight-month-old support line near 0.6370, will be on their radar.

Overall, NZD/USD remains on the seller’s radar despite the latest recovery moves.

NZD/USD: Daily chart

Trend: Further downside expected

• EUR/USD refreshes intraday high while snapping six-day downtrend near the lowest levels since 2017.
• Off in Japan, cautious mood ahead of the key data triggers consolidation of recent losses.
• Eurozone GDP is likely to improve during Q1 2022, US PCE Price Index may ease to 5.3% YoY.
• Hawkish comments from ECB policymakers, recently mixed US GDP can strengthen recovery moves.

EUR/USD renews intraday high around 1.0530 while portraying the corrective pullback near the lowest levels since 2017 during Friday’s Asian session.

The major currency pair’s recent gains could be linked to the US dollar’s pullback amid an absence of bond moves and the market’s cautious sentiment ahead of the key Eurozone and the US data.

A Showa Day Holiday in Japan turns down bond traders on Friday and limits the strong positive catalyst for the US dollar, namely the US Treasury yields.

The bond coupons eased 4.2 basis points (bps) to 2.82% by the end of Thursday’s US session. The pullback in the Treasury yields, as well as the US dollar, could also be linked to the mixed US Gross Domestic Product (GDP) release.

The Q1 2022 US GDP dropped to -1.4% from 6.9% prior, versus the 1.1% forecast. However, the details concerning the personal consumption, inventories and net trade which flashed positive signs seemed to have helped the EUR/USD bears on Thursday.

It’s worth noting that the Eurozone GDP is likely to improve to 5.0% YoY versus 4.6% prior, per the seasonally adjusted Q1 2022 figures, which in turn shows a better number than the US and hence may favor the EUR/USD rebound. Also likely to underpin the recovery moves are the hawkish comments from the European Central Bank (ECB) policymakers. Recently,  European Central Bank (ECB) Vice President Luis de Guindos said on Thursday that the “surge in energy prices is reducing demand and raising production costs.”

On other hand, the Fed’s preferred inflation gauge, from the US Core Personal Consumption Expenditures Price Index for March, expected to ease to 5.3% YoY versus 5.4% prior, will also be important to watch for near-term EUR/USD directions.

Additionally, Russia’s tussles with the West and Ukraine, as well as China’s covid woes, are additional catalysts for the EUR/USD traders to watch.

Also read: EUR/USD Forecast: Euro remains bearish with a strong support above 1.0460

Technical analysis

Unless rising back beyond a five-month-old descending trend line, around 1.0600 by the press time, EUR/USD prices are directed towards the year 2017 trough surrounding 1.0340.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.6177 vs. the estimate of 6.6127.

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.

• US Dollar Index snaps six-day uptrend as bulls take a breather at multi-year high.
• Cautious mood ahead of the Fed’s preferred inflation gauge, off in Japan challenge DXY upside.
• Risk catalysts, hawkish Fed and upbeat details US GDP keep buyers hopeful.

US Dollar Index (DXY) extends its pullback from a 20-year high towards 103.50 during Friday’s Asian session. In doing so, the greenback gauge consolidates recent gains amid the absence of bond moves and cautious sentiment ahead of the Fed’s preferred inflation gauge.

Showa Day Holiday in Japan limits the bond moves in Asia and allows the greenback buyers to pause at the highest levels since 2002. Also challenging the DXY are the mixed concerns raised after the US Gross Domestic Product (GDP) release.

The DXY rose for the sixth consecutive day to refresh a multi-year high on Thursday even after the Q1 2022 US GDP dropped to -1.4% from 6.9% prior, versus the 1.1% forecast. The reason could be linked to the details concerning the personal consumption, inventories and net trade which flashed positive signs.

Despite the mixed data, the CME’s FedWatch Tool showed around a 96% probability of a 0.50% rate hike during the May monthly meeting. Also favoring the DXY bulls are the US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data.

Read: US inflation expectations brace for fresh all-time high ahead of US PCE Price Index

It’s worth noting that the greenback’s safe-haven demand, amid the Russia-Ukraine crisis and China’s covid woes, add to the US Dollar Index strength.

Even so, the recently sluggish markets and an absence of Japanese traders, not to forget fears of disappointment from the US Core Personal Consumption Expenditures Price Index for March, expected to ease to 5.3% YoY versus 5.4% prior, weigh on the DXY prices of late.

Moving on, the DXY is likely to remain firmer amid hawkish Fed and risk-off mood. However, any disappointment from the US data may activate the much-awaited pullback ahead of the May Fed meeting.

Technical analysis

Although overbought RSI the year 2017 peak of 103.82 probes the DXY bulls, the US Dollar Index downside becomes elusive until the quote drops below a three-month-old immediate support line, near 102.30 by the press time.

• WTI sees more upside as Germany surrendered its opposition to the embargo on Russian oil.
• Finding a substitute for bulk exports of oil from Russia won’t be easy for the EU.
• The announcement of more stimulus from the PBOC has raised hopes of oil demand recovery.

West Texas Intermediate (WTI), futures on NYMEX, are trading near Thursday’s last traded price at $104.16. The oil prices have witnessed a strong rebound this week as supply worries overpowered the demand concerns. Supply concerns due to the prohibition of Russian oil by the Western leaders and demand worries due to the Covid-19 resurgence in China were resulting in a tug of war. Although bulls got underpinned and are likely to advance further as European Union (EU) progressed on the embargo on Russian oil.

The EU is aiming to prohibit the imports of oil from Russia sooner after Germany dropped its opposition. In earlier discussions, Germany was leading the criticism against the embargo on Russian oil overnight amid its higher dependency on fossil fuels and energy from Russia. Now, the major automobile exporter has surrendered its opposition, so the EU will do the required paperwork at the earliest. This may fuel the supply worries as a substitution of bulk Russian oil exports will not be a cakewalk. So probation of Russian oil by the eurozone in an already tight market will weigh pressure on the bulls.

Meanwhile, the announcement of prudent monetary policy guidance by the People’s Bank of China (PBOC) will reduce the demand worries in the dragon economy due to the Covid-19 resurgence. More liquidity infusion by the PBOC in its economy will ram-up the aggregate demand and henceforth the demand for oil. It is worth noting that China is the largest importer of oil and demand recovery in China will have a positive impact on oil prices principally.

• AUD/USD bulls are moving in and the 38.2% Fibo of the daily bearish impulse is eyed. 
• The US dollar has moved into consolidation and the Fed is on the agenda. 

AUD/USD is moving into a phase of consolidation following the volatility in forex this week and a rampant US dollar that reached a 20-year high on Thursday:

(DXY, H1 chart)

The US dollar could be in for some consolidation and a break of the trendline could result in a significant correction in the coming days. The Bank of Japan was the final nail in the coffin for markets and traders have now started to take profits off the table into the weekend and end of the month. The next catalyst will likely be the Federal Reserve so there could be some calm before the storm and relief for the high beta AUD. 

The following illustrates the prospect of a significant correction if not some time above water for the bulls taking into account the market structure on the daily chart and the Fibonacci scale:

AUD/USD daily chart

As seen, the price is in a demand zone and this is resulting in a phase of accumulation that could see the price recent back to test prior lows in the coming days. 

AUD/USD H1 chart

From an hourly perspective, the schematic will be monitored by the bulls for a bullish structure from which an optimal entry to target higher could present itself in the coming seasons:

• USD/CHF oscillates in a narrow range of 0.9717-0.9723 ahead of SBN’s Jordan and US Michigan CSI.
• SNB’s Jordan could sound hawkish in his speech amid higher inflation.
• The uncertainty over the rate hike announcement by the Fed will dominate the Fx domain.

A back and forth move show has been displayed by the USD/CHF pair in the Asian session. The asset is consolidating in the six-pip range ahead of the speech from the Swiss National Bank (SNB)’s Thomas J. Jordan, which is due on Friday.

The speech from the SNB’s Jordan will dictate the likely monetary policy action in June. The SNB has been sticking to its ultra-loose monetary policy for a prolonged period. However, investors could find a surprise this time as SNB policymakers could sound a little hawkish this time. The Swiss Consumer Price Index (CPI) has climbed above the 13-year high at 2.2%, well above the targeted inflation rate of 2%. Although a neutral stance will be the announcement, guidance could be a little aggressive.

Meanwhile, the US dollar index (DXY) is facing a time correction after a firmer upside journey. The DXY is balancing around 103.65 and is waiting for a trigger to head the upside direction. The uncertainty over the announcement of an interest rate decision by the Federal Reserve (Fed) next week is going to dictate the prices ahead. Investors should brace for a jumbo rate hike as the Fed is cautious over soaring inflation. In today’s session, investors will focus on the Michigan Consumer Sentiment Index (CSI), which is likely to land at 62 against the prior print of 65.7.

• Silver bounces off four-month-old ascending support line after six-day downtrend.
• Off in Japan, absence of major news and cautious mood ahead of the Fed’s preferred inflation gauge restrict market moves.
• USD strength, covid woes in China keep sellers hopeful.

Silver (XAG/USD) prices challenge the previous six-day downtrend following a bounce off the short-term key support line while defending the $23.00 during Friday’s Asian session. In doing so, the bright metal rebounds from the lowest levels since February 11 by picking up bids to $23.15 by the press time.

With the US Dollar’s rally to a two-decade high, the XAG/USD recently witnessed a heavy downturn due to its inverse relationship with the greenback.

Also exerting downside pressure on the silver prices are the fresh covid-led lockdowns in China. This could be linked to the bright metal’s industrial usage and Beijing’s stand as the world’s biggest industrial player.

Additionally challenging the metal are the geopolitical fears emanating from Russia and the global central bankers’ rush towards policy normalization (ex-China and Japan).

Amid these plays, traders rush to the US dollar in search of safety. However, the US Dollar Index (DXY) recently rally to 20-year high finds headwinds amid an absence of bond moves in the Asia-Pacific session, due to Japan’s off. Also challenging the USD bulls, as well as supporting silver buyers, is the cautious mood ahead of the Fed's preferred inflation gauge, namely the US Core Personal Consumption Expenditures Price Index.

Forecasts suggest the US Core PCE inflation data ease to 5.3% YoY versus 5.4% prior, which in turn may add to the pullback moves of the US dollar if easing more than expected. However, any further strength in the US inflation gauge may not hesitate to propel the DXY towards a fresh multi-month high due to the current greenback demand amid a risk-off mood and hawkish Fed signals.

Technical analysis

Although an upward sloping trend line from mid-December challenges silver sellers around $22.90, bearish MACD signals and sustained trading below the 200-DMA level, at $23.80 by the press time, restricts the XAG/USD bulls from entering the game.

Silver: Daily chart

Trend: Bearish