CFD Markets News and Forecasts — 31-03-2022

• The US Dollar Index finished March with gains of 1.65%, boosted by a negative market mood.
• An extension of the Russia-Ukraine conflict could benefit safe-haven assets.
• Money market futures have priced in a 69.9% chance of a 50 bps rate hike by the Fed in the May meeting.
• DXY Price Forecast: The bias is upwards, but a break below 97.802 would open the door for further losses.

The US Dollar Index, a gauge of the greenback value against a basket of six currencies, also known as DXY, finished March positively, with a monthly gain of 1.65%, its highest since November of 2021. At press time, the US Dollar Index sits at 98.348.

The market mood on March’s last trading day was dismal. Failure to find a meaningful resolution to the Russia-Ukraine conflict keeps investors on their toes, boosting the buck’s prospects. Also, money market futures expectations that the Federal Reserve would hike 50-bps in May and June meetings loom, keeping the US dollar tilted upwards.

The CME FedWatch Tool has priced in a 69.9% chance of a 50 basis point rate hike in the May meeting, while June odds lie at 64%.

Source: CME FedWatch Tool

Thursday’s US economic docket featured the US Personal Consumption Expenditure (PCE), the favorite measurement of inflation of the Federal Reserve, for February, which rose by 6.4% y/y, higher than the previous 6% reading. Meanwhile, Core PCE, which excludes volatile items, rose by 5.4% y/y, better than the 5.5% foreseen by analysts.

At the same time, the US Department of Labor revealed Initial Jobless Claims for the week ending on March 26. The figure came at 202K, worse than the 197K estimated.

DXY Price Forecast: Technical outlook

The US Dollar Index remains upward biased but consolidates around the 97.800-99.418 range. The 50 and 200-day moving average (DMA) remain below the price with an upslope, meaning that the uptrend is still intact.

On the upside, the DXY first resistance is the 99.000 mark. Breach of the latter would expose the YTD high at 99.418, followed by the psychological 100.00 mark.

On the flip side, the DXY first support would be 98.000. A decisive break would expose 97.802, which in case of being broken, would pave the way towards 96.000, but it would find some hurdles on its way down. The following support would be the 50-DMA at 97.196, followed by 96.000.

Technical levels to watch

• Loonie bulls seek a death cross to attain a dominant position.
• The RSI (14) in a bearish range of 20.00-40.00 adds to the downside filters.
• Auctioning below the ascending triangle formation is making the loonie bulls hopeful.

The USD/CAD pair is balanced in a range of 1.2430-1.2593 from the last three trading sessions after remaining imbalance due to an intensified sell-off from March 15 high at 1.2871.

On the daily scale, the USD/CAD has settled below the ascending triangle formation whose upper end is capped around 1.2960 while the ascending trendline is placed from 18 May 2021 low at 1.2013. A breaking below an ascending triangle formation is followed by volume and volatility expansion in the asset. The death cross from the 50 and 200-period Exponential Moving Averages (EMAs) is in a queue and is likely to place around 1.2650.

The Relative Strength Index (RSI) (14) has settled in a 20.00-40.00 range, which signals an impulsive way and a dominant position for the loonie bulls going forward.

Should the asset drops below Thursday’s low at 1.2464, the major will be dragged towards the round level support at 1.2400, followed by the 29 October 2021 low at 1.2328.

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

USD/CAD daily chart

• The AUD/JPY begins the Asian session in a positive mood, but Asian futures point to a lower open.
• US equities ended March in the red for the second consecutive day.
• AUD/JPY Price Forecast: The bias is upwards, but a series of three straight days recording subsequent lower highs/lower lows keeps the pair pressured.

The AUD/JPY begins the Asian Pacific session barely up after Thursday’s price action, which portrayed an extension of a three-day fall in the cross-currency pair, courtesy of a downbeat market mood as Russia-Ukraine failed to find common ground that could put an end to the conflict, as Vladimir Putin plans said that Russia will fulfill their gas contracts, but in exchange have to be paid in roubles. At 91.22, the AUD/JPY reflects a risk-off sentiment.

Wall Street’s last trading day ended on the wrong foot for US equities, which recorded losses. Meanwhile, Asian stock futures are pointing to a lower open, meaning that safe-haven peers might find a bid on April’s first trading day in the FX space.

AUD/JPY Price Forecast: Technical outlook

Overnight, the AUD/JPY opened near the 92.00 mark, the Thursday high. However, it was followed by a dip below the 200-hour simple moving average (SMA), extending its losses to 90.76 before resuming the uptrend and reclaiming 91.00.

Despite that, the AUD/JPY bias is upwards. However, it’s worth noting that the price action in the previous three days recorded subsequent lower highs and lower lows, meaning that a possible consolidation lies ahead.

Upwards, the AUD/JPY first resistance would be 92.00. Once cleared, the next resistance would be March 30 92.64 daily high, followed by March 29 daily high at 93.12, and then the YTD high at 94.32.

On the flip side, the AUD/JPY first support would be 91.00. A breach of the latter would expose Pitchrofk’s central-parallel line around the 90.20-30 area, followed by the 90.00 mark.

Technicals level to watch

• EUR/USD tumbles on negative market tone as optimism on the Russia-Ukraine peace talks faded.
• Soaring inflation in Eurozone is advocating an interest rate hike by the ECB.
• EU’s Unemployment Rate is slightly higher at 6.8% than the expectation at 6.7%.

The EUR/USD pair has plunged sharply on Thursday after the risk-off impulse gained traction amid falling global equities and a higher print of the European Union (EU) Unemployment Rate. The asset eroded half of its gains made in the last three trading sessions.

The shared currency has been hit hard after the Eurostat reported Unemployment Rate at 6.8%, which remains in the mid of market consensus at 6.7% and the prior figure of 6.9%. Meanwhile, bets on an interest rate hike by the European Central Bank (ECB) are rising higher. Soaring inflation in Eurozone is compelling the ECB’s policymakers to raise the interest rate for the first time after the Covid-19 pandemic. The German annual inflation has climbed to 7.3%, the highest print in more than four decades. While the Consumer Price Index (CPI) in France has landed at 5.1% and the inflation number in Italy has reached 6.7%.

On the dollar front, the US dollar index (DXY) has reclaimed 98.00 comfortably despite a minor slippage in Core Personal Consumption Expenditure (PCE) inflation. The yearly Core PCE inflation landed at 5.4%, slightly lower than the estimate of 5.5% but higher than the prior print of 5.2%. The improvement in the safe-haven appeal after the optimism in the Russia-Ukraine peace talks faded has underpinned the greenback against the shared currency.

Going forwards, investors will focus on US Nonfarm Payrolls (NFP), which is due on Friday.

• Breakout of the descending triangle formation will be followed by volatility and volume expansion.
• The 200 EMA is offering a cushion to the greenback bulls.
• The RSI (14) in a 40.00-60.00 range has kept investors on the sidelines.

The USD/JPY pair is oscillating in a narrow range of 121.28-122.45 in the previous two trading sessions after recording a steep fall from March 25 high at 125.10. The asset is auctioning in a 10 pips range on Friday and is likely to witness a volatility expansion sooner.

On an hourly scale, USDJPY is sensing a cushion near the mighty 200-period Exponential Moving Average (EMA), which is trading at 121.60 at the press time. The major is auctioning in a descending triangle formation whose downward trending trendline is plotted from March 29 closing price at 123.21 while the horizontal line is placed from March 30 low at 121.31.

The 50 and 200-period EMAs have turned flat, which signals a consolidation going forward.

The Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which is likely to keep investors on the sidelines.

For further downside, yen bulls need to drag the asset below the establishment of the descending triangle formation at 121.28 decisively. This will expose the pair to more downside toward March 23 low and March 18 high at 120.59 and 119.40 respectively.

On the contrary, greenback bulls can obtain control if the asset advances above the 50 EMA at 122.00. This will drive the asset towards the March 29 closing price of 123.21, followed by the March 29 high at 124.31.

USD/JPY hourly chart

Reuters has reported that the Ukrainian President Volodymyr Zelenskyy on Thursday said ''the situation in the south and the Donbas region remained extremely difficult and reiterated that Russia was building up forces near the besieged city of Mariupol.''

"There will be battles ahead. We still need to go down a very difficult path to get everything we want," he said in a late night video address.

In markets, US stocks suffered steep declines into month-end as a key US inflation gauge shot higher while the Ukraine conflict continued. President Joe Biden also reportedly said there is "no clear evidence" that Russian President Vladimir Putin is pulling his forces out of Kyiv.

• Asset shows indecisiveness on ‘Spinning Top’ candlestick formation.
• The RSI (14) looks to violate 40.00 on the downside for the first time this year.
• Swiff franc bulls have faced barricades at 200 EMA.

The USD/CHF pair has been bounced back sharply after tumbling below the round level support of 0.9200. The major has witnessed a minor responsive buying from the 200-period Exponential Moving Average (EMA) at 0.9217, after a two-day intensified sell-off.

On the daily scale, the trendline placed from January 13 low at 0.9092, adjoining the February 21 low at 0.9150 is providing a cushion to the asset. The formation of the ‘Spinning Top’ candlestick pattern near the trendline placed signals an indecisiveness in the sentiments of the market participants. The asset is established below 50 EMA at 0.9264, which adds to the downside filters.

The Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range but is likely to skid below 40.00 for the first time this year, which will result in intensified selling by investors.

Should the asset drops below the ‘Spinning Top’ candlestick formation at 0.9195, a bearish trigger will drag the asset towards monthly lows and January 24 low at 0.9150 and 0.9109 respectively.

On the contrary, greenback bulls can obtain control if the asset advances above the 50 EMA at 0.9264. This will drive the asset towards March 28 high at 0.9293, followed by March 30 high at 0.9319.

USD/CHF daily chart  

• AUD/USD bears take charge and are moving in for the kill. 
• 0.7450 is the focus for the sessions ahead. 

AUD/USD is under pressure below a wall of resistance on the daily chart and is in the hands of the bears leaving the focus on the downside. The prior resistance has a confluence with the 50% mean reversion target while the 21-day moving average is aligned in this area as well for additional confluence:

AUD/USD daily chart

AUD/USD H4 chart

From a 4-hour perspective, the pair is making tracks to the downside following a test of the 61.8% Fibonacci retracement of the prior bearish impulse and the 21 moving average. Bears will be seeking a break of the 0.7450s for a faster trip to 0.74 the figure.

• The NZD/USD fell on the last day of March amid a downbeat market mood.
• Russia will fulfill natural gas agreements but must be paid in Russian roubles.
• US Core PCE, the Fed’s inflation gauge, rose by 5.4% y/y.
• NZD/USD Price Forecast: Two bearish signals suggest more US dollar strength lies ahead.

After Wednesday’s attempt to reclaim 0.7000 as trader’s book profits, the New Zealand dollar retreats amidst quarter and month-end flows, a risk-off market mood, and broad US dollar strength. At 0.6933, the NZD/USD reflects the aforementioned.

Geopolitical affairs dominate headlines and market mood as March ends

Meanwhile, as Wall Street closes, the market sentiment is negative, spurred by no meaningful resolution between Russia and Ukraine and Russian President Vladimir Putin reiterating to Europe that payments for natural gas need to be in roubles; otherwise, if demands are not met, active contracts would be halted. Later, the French Finance Minister, Le Maire, said that France and Germany are preparing for a probable scenario of a halt in Russian gas flows.

That headline tumbled oil prices and dragged commodity currencies like the Canadian dollar and the antipodeans.

Meanwhile, the greenback finished March on the right foot, as portrayed by the US Dollar Index, rising 0.53%, up at 98.361. Contrarily, US Treasuries recorded gains at the short-end of the curve, while the 10-year T-note benchmark rate is almost flat at 2.349%.

Aside from those developments, the NZD/USD pair traded as a risk-sensitive currency, weakening on Eastern Europe issues. Furthermore, the lack of economic news from New Zealand keep traders glued to their screens, as US macroeconomic data crossed the wires.

The US docket featured the Federal Reserve’s favorite measure of inflation, the Core Personal Consumption Expenditure (PCE), which excludes volatile items for February, which rose by 5.4% y/y, lower than the 5.5% estimated.

At the same time, the US Department of Labor revealed that US Initial Jobless Claims for the week ending on March 26 increased by 202K, higher than the 197K expected.

NZD/USD Price Forecast: Technical outlook

The NZD/USD daily chart is forming a bearish-engulfing candle at press time, per the last two-days price action. Also, failure to reclaim 0.7000, for the second time in the previous seven days, formed a double-top, which added to a fundamental bias of US Dollar strength as the Fed hikes rates aggressively, could send the NZD/USD aiming lower.

The NZD/USD first support level would be the 200-day moving average (DMA) at 0.6907. Breach of the latter could send the pair towards an upslope trendline drawn from February lows around 0.6811 and then the 50-DMA as the last line of defense at 0.6757.

• The GBP/JPY falls on sour market sentiment, courtesy of Russian President Putin, while the conflict persists.
• GBP/JPY Price Forecast: The cross-currency pair is upwards and just formed a bullish harami in the daily chart.

GBP/JPY slides for the third consecutive trading session amid a risk-off market sentiment, courtesy of the extension of the Russia-Ukraine conflict, now hitting five weeks of hostilities. At the same time, Russian President Vladimir Putin is likely to force Eurozone countries to pay for natural gas in roubles. At 159.84, the GBP/JPY portrays the appetite of safe-haven peers, particularly the Japanese yen.

What appears to be a market sentiment move could also be influenced by fiscal, quarter, and month-end flows towards the Japanese yen. However, the GBP/JPY posted its biggest monthly gain since October 2021, with the pair up near 3.7%.

Overnight the GBP/JPY rallied towards the daily high around 160.88, but once the European session began, a shift in market sentiment propelled a fall towards the daily low at 159.79.

GBP/JPY Price Forecast: Technical outlook

The GBP/JPY is in an uptrend, and Thursday’s price action is forming a “quasi” gravestone doji, which means indecision amongst traders after Wednesday’s 200-pip average daily range (ADR). Also, the combination of both days’ candlestick’s formed a bullish harami, also known as an inside bar, meaning that the GBP/JPY would resume its uptrend.

Additionally, the Relative Strength Index (RSI) is at 61.12; although aiming lower, it just got out of overbought conditions, it remains in the bullish territory (above 50-midline).

That said, the GBP/JPY first resistance would be 160.00. A sustained break would expose March 30 daily high at 161.36, followed by 162.00, and then March 29 daily high at 162.71.

Here is what you need to know on Friday, April 1:

The euro tumbled on Thursday as investors fretted about rising EU/Russia economic tensions after Russian President Vladimir Putin doubled down on a demand that European nations pay for Russian gas in roubles, exacerbating fears that Russia might block energy exports to the continent. This, coupled with a generalized paring back on recent optimism about alleged progress in Russo-Ukraine peace talks, which recommence on Friday, contributed to risk-off flows and downside in global bond yields, with these moves most acute in Europe. Thus, the euro was the worst performing G10 currency, with EUR/USD dropping 0.8% from intra-day highs near 1.1200 to current levels in the mid-1.1000s.

The weakness in EUR/USD helped give the DXY a lift, with the trade-weighted index of major USD pairs rallying 0.5% to around 98.30 from weekly lows in the 97.70 area. The upside had little to do with another rise in US inflation in February as per the Core PCE Price Index, or the latest very solid weekly jobless claims figures, both of which support the economic rationale behind the Fed’s recent hawkish pivot. Indeed, against the rest of the G10 currencies, the US dollar was fairly mixed, with focus now shifting to the release of the official US labour market report for March on Friday.

The best performing G10 currency was again the Japanese yen, with the safe-haven currency benefitting from the downside bias to global equity market trade and in global bond yields, thus extending on a much overdue month/quarter-end recovery after weeks of underperformance. USD/JPY stabilized below the 122.00 level, with the bears eyeing a retest of 120.00. GBP/USD, meanwhile, was a tad higher on the day, but remained within recent intra-day ranges in the mid-1.3100s and capped by its 21-Day Moving Average.

Finally, it was a mixed picture for the commodity-sensitive Aussie, kiwi and loonie. USD/CAD was flat and managed to shrug off sharp losses in the crude oil complex as a result of the announcement of a historic Strategic Petroleum Reserve release out of the US (1M barrels per day for the next six months). The pair remained underneath the 1.2500 level and not far below recent multi-month lows printed in the 1.2430 area earlier in the week. AUD/USD, meanwhile, dropped 0.3% to back below 0.7500 but remains well within recent ranges and near to multi-month highs in the mid-0.7500s, while NZD/USD fell 0.6% to back under 0.6950, putting the pair back near the middle of this week’s approximate 0.6875-0.7000 ranges.

• Risk-off flows in European equities coupled with downside in Eurozone yields weighed heavily on EUR/JPY on Thursday.
• The pair was last trading down 1.0% in the 154.50 area, a sharp reversal from intra-day highs closer to 157.00.

A sharp drop in Eurozone yields coupled with downside in major European equity bourses amid rising EU/Russia energy-related tensions dampened the appeal of the euro on Thursday, with the single currency amongst the worst performing currencies in the G10. While the euro’s losses against its major currency peers were broad, they were most acute against the rate-differential sensitive/safe-haven Japanese yen. As a result, EUR/JPY slumped roughly 1.0% on Thursday, its worst one-day performance since 4 March. That saw the pair drop all the way back from intra-day highs in the upper 156.00s to the mid-154.00s.

At current levels near 154.50, the pair now trades just 0.3% above key support in the form of the 2021 highs at 154.12. Should EU/Russia economic/energy tensions continue to ramp up into the end of the week (could Russia start blocking gas flows into the EU?), then the pair might well extend on the recent bearish move that has already seen it pullback over 2.0% from earlier weekly highs around 137.50. A break below 154.12 support would open the door to a push lower towards support in the 153.50 and 153.00 areas.

Big upside surprises in the preliminary Spanish, French and German HICP inflation estimates for March over the past two days have done little to halt the euro’s downside reversal, with the pair instead taking its cue from the aforementioned movements in yields and risk appetite. As things stand, the current inflationary environment of the Eurozone suggests that the euro is set to maintain a sizeable monetary policy divergence advantage over the yen.

That was a key factor lifting the pair as of late, but as economic uncertainty in the Eurozone continues to grow as a result of the Russo-Ukraine war, it's difficult to be certain that the ECB will stick by its current policy guidance (of QE ending in Q3 and rate hikes in Q4). Unless geopolitical uncertainty clears a little, this is likely to keep a lid on any EUR/JPY rebound.

• The S&P 500, the Dow Jones, and the Nasdaq Composite recorded losses in a risk-off market mood, courtesy of Russo-Ukraine tussles.
• Russia insists on receiving natural gas payments in roubles, threatens to block proceedings in euros/dollars.
• Gold and the greenback are rising, while US Treasury yields and oil are trading in the red.

US equities are recording losses in the North American session as Wall Street is about to finish March on a lower note. The S&P 500, the Dow Jones Industrial, and the tech-heavy Nasdaq Composite are falling between 0.30% and 0.43%, each one sitting at 4,576.32, 35075.94, and 15,014.01 respectively

A negative market mood weighed on US equities

A risk-off market mood courtesy of Russian President Vladimir Putin, and continued fighting between Russia and Ukraine, keep grabbing the headlines. Russian President Putin signed a decree establishing natural gas trade rules, like payments in roubles, new proceedings in euros and US dollar could also be blocked. If demands are not met, current contracts will be halted.

Meanwhile, the greenback rose on the headline. In fact, it remains firm, as portrayed by the US Dollar Index, up 0.43%, sitting at 98.256. Contrarily, US Treasury yields continue falling for the second consecutive day, down four basis points, down at 2.316%.

Aside from this, Utilities, Consumer Staples, and Real Estate are the leaders of the trading session, up 0.69%, 0.34%, and 0.27%. The laggards are Communication Services, Financials, and Consumer Discretionary, down 1.14%, 1.02%, and 0.78%.

In the commodities complex, the US crude oil benchmark, WTI, is losing 5.27%, trading at $101.73 BPD, weighed by news that the Biden administration would tap 1 Million BPD from the SPR oil reserves for a period of six months. Precious metals like gold (XAU/USD) are rising 0.61%, exchanging hands at $1944.55 a troy ounce, boosted by a risk-off sentiment.

The US economic docket featured the Fed’s favorite gauge of inflation, the Core PCE for February, which rose by 5.4% y/y, lower than the 5.5% estimated, while US Initial Jobless Claims for the week ending on March 26 increased by 202K, higher than the 197K expected.

On Friday, April 1, the US Department of Labor will reveal the Nonfarm Payrolls report for March. Even though the NFP is one of the most important economic indicators, now that the Fed is focused on inflation, it has taken a backseat, except for Average Hourly Earnings, which could shed some light on rising inflation.

Technical levels to watch

• GBP/USD on the verge of a bearish weekly close.
• Bears are seeking a fill of the weekly wick and a downside extension. 

The following illustrates the pound's bullish trajectory on the daily chart in an M-formation as per prior analysis and live updates:

GBP/USD daily chart

The chart above was from the prior day's close. The price attempts to recover towards the neckline of the formation:

GBP/USD live market

The price is making slower progress on Thursday and given that it has now made a significant correction, the weekly chart's doji candle should be considered as bears seek a weekly bearish close:

GBP/USD weekly chart

The pair has formed a weekly doji and bears will now be on the lookout for this week's close to print bearish. So far so good in this respect and the wick would be expected to be filled in next week with a move that could result in a downside continuation. 

• Silver approaches $25.00 for the third time in the week.
• Russia-Ukraine woes, Putin’s demanding payments for gas in Russian roubles, and falling yields boost precious metals.
• XAG/USD Price Forecast: Remains upward biased, but downside risks remain unless XAG bulls push the prices above  $25.40.

Silver (XAG/USD) is barely advancing for the second consecutive day amid a stronger US dollar courtesy of Russia-Ukraine jitters and Russian President Putin’s natural gas decree, triggering a downbeat market mood. During the North American session, XAG/USD is trading at $24.93 at the time of writing.

The market mood is downbeat, on Russo-Ukraine jitters, and Putin's decree of  natural gas payments

Global equity markets reflect investors’ negative sentiment as March is about to end. The greenback remains in the driver’s seat, as portrayed by the US Dollar Index, up 0.38%, sitting at 98.204, opposite to falling US Treasury yields, led by the 10-year benchmark note rate at 2.323%, three basis points down.

The Russia-Ukraine fighting continues, putting aside peace talks, as Russian troops are redeployed towards the Donbas region. Also, Russian President Vladimir Putin signed a decree in which the Russian natural gas will need to be paid in Roubles while saying that proceedings in euros or US dollars could also be blocked. If demands are not met, current contracts will be halted.

Meanwhile, oil prices fell in the announcement, while the greenback and safe-haven precious metals like gold and silver rose.

The US economic docket featured the Fed’s favorite gauge of inflation, the Core PCE for February, which rose by 5.4% y/y, lower than the 5.5% estimated, while US Initial Jobless Claims for the week ending on March 26 increased by 202K, higher than the 197K expected.

XAG/USD Price Forecast: Technical outlook

After Tuesday’s price action, which formed a large hammer in a downtrend, that touched the 200-day moving average (DMA), silver settled around the $24.50-$25.00 area for the last couple of days. That means that XAG/USD might consolidate before resuming the uptrend, as long as it stays above January 20 daily high, resistance-turned-support at $24.07, just above the 200-DMA.

That said, the XAG/USD first resistance would be $25.00. A decisive break would expose a downslope trendline, drawn from March highs, which confluences with November 16, 2021, daily high at $25.40, followed by March 24 daily high at $25.85 and the $26.00 mark.

Analysts at Rabobank see the USD/MXN pair trading between 19.85 to 20.20 in the coming weeks before returning north of 20.50 near half of the year. They expect the Mexican peso to play catch up with the rest of Latin American currencies. 

Key Quotes: 

“The Mexican peso has been the main underperformer within the LatAm region since the beginning of this year. One reason for this is MXN’s role as a risk proxy for EM and LatAm in general. If you’re reading this you are likely aware that MXN stands out in EM as the only full deliverable, convertible, and 24-hour tradeable LatAm currency.”

Providing further support for LatAm currencies has been the process of EM portfolios rebalancing away from CEE into LatAm. The recovery in risk appetite also shone a light on rate differentials which have supported LatAm currencies

“We expect MXN to play catch up with the rest of LatAm, but we would exercise caution. We don’t expect much further downside for USD/MXN and MXN is unlikely to surpass gains seen in the rest of the region in the short term. USD/MXN has broken down through the 20 handle and is currently trading in the price congestion region of 19.85 to 19.95. Below that, it is largely thin air down to 19.50 but as always with USD/MXN its risk proxy status leaves it vulnerable to a surge higher on any bout of risk aversion. And of course, the Russia/Ukraine war leaves markets facing a significant risk of such safe haven flows.”

“We have long cited a primary trading range of 20.50 to 21.50 this year for USD/MXN and so far the pair has averaged 20.5 but recent developments suggest that we are more likely to see the pair trade 19.85 to 20.20 in the coming weeks before returning north of 20.50 as we move towards the middle of the year. As always, however, USD/MXN takes the stairs down and the elevator up. Broad-based risk appetite will remain the key variable to watch for USD/MXN direction in the coming weeks and months.”

February marked the seventh straight month in which inflation outpaced income, raising doubts about consumer spending stamina, explained analysts at Wells Fargo commenting personal income and spending data released on Thursday. They noted that “even with inflation at a 40-year high, the 0.4% drop in real spending in February might be overstating the burden and be more of a reflection of an upward revision that made January one of the best months on record for real spending.”

Key Quotes: 

“The 0.4% drop in real spending in February comes on the heels of an already strong January gain that was revised much higher. In fact the 2.1% monthly jump in real PCE in January was the sixth largest increase in records going back more than 30 years. Of the five months that beat the January increase, four of them were pandemic-related surges tied either to major reopening months or to stimulus payments.”

“Diminished purchasing power will weigh on real spending. We do not wish to dismiss this risk, but we see some notable factors helping households today. Households are in decent financial shape and this should not be overlooked. Wage growth has been robust and shows few signs of slowing amid strong demand for labor. This is beneficial to households even if inflation is currently eating into much of the recent gain. More importantly, households can temporarily rely on their balance sheets. The personal saving rate rose to 6.3% last month, and since this was below the pre-pandemic rate of 7.8%, it implies a decline in 'excess' savings.”

“We expect households to save less in the near term to offset some of the hit to purchasing power from rising inflation. If they don't, spending could falter more than we presently forecast.”
 

• Gold has been on the front foot since the European morning, bouncing from the $1920 level into the $1940s.
• A ramping up of energy-related tensions between EU nations and Russia plus risk-off flows have benefitted the precious metal.

Even though the White House’s announcement of a historic crude oil reserve release has triggered downside in global oil markets, contributing to a modest easing of inflation fears, geopolitical concerns and further month-end downside in US yields are keeping gold supported. Spot prices (XAU/USD) found good support in the $1920 area during the European session and have since advanced into the $1940s to now trade with on-the-day gains of about 0.6%. Russian President Vladimir Putin announced on Thursday that he had signed an order that European nations would need to pay for Russian gas by opening rouble accounts at Russian banks starting from 1 April (this Friday).

The announcement marks a ratcheting up of economic tensions between Russia and Europe and seemingly increases the risk that Russian gas flows to Europe are halted. If Russia did halt gas flows into Europe, this would have a catastrophic impact on the Eurozone economy (likely throwing it into immediate recession). The implications for ECB policymaking would not be immediately clear, but the uncertainty of the whole situation has triggered a flight to safety. Stocks are down globally, as are bond yields as investors pair risk heading into the quarter-end, creating positive trading conditions for gold.

Energy-related tensions between EU nations and Russia come against a backdrop of waning optimism relating to recent alleged progress in Russo-Ukraine peace talks. Talks recommence on Friday, but if the broader geopolitical picture continues to darken, XAU/USD might be in with a shot of testing recent highs in the $1960s. Of course, US economic data remains a focus with the official jobs report for March coming on Friday.

Labour market data out already this week has been robust, indicating it should be a strong release, which should further solidify expectations for a 50 bps rate hike from the Fed at its next meeting. Given there is a lot of Fed hawkishness already in the price, it's questionable as to how much downside risk Friday’s US jobs report poses to gold.

According to analysts from Rabobank, the euro has scope for some appreciation versus the pound taking into account what market participants currently expect from the Bank of England (BoE). Also, consideration of a potential rate hike from the European Central Bank (ECB) before year-end should support the euro. 

Key Quotes: 

“The MPC had already voiced its concerns over the economic outlook at the last BoE policy meeting. Although interest rate were hiked in March on account of current tight labour conditions and the high headline inflation rate, the rhetoric from policy-makers was cautious. They predicted that “further out, inflation is expected to fall back materially, as energy prices stop rising and as the squeeze on real incomes and demand puts significant downward pressure on domestically generated inflation.” Policy-makers also forecast that the impact of real aggregate demand is likely to be larger than it forecast in February which is consistent with a weaker outlook for growth and employment.”

“We expect the money market to retrace some of the BoE rate hikes forecast for this year. As long as the market retains the view that the ECB will be able to hike rates before the end of the year, the EUR is likely to hold its ground. On that basis, we see scope for upside pressure in EUR/GBP in the coming months.”

The Canadian economy expanded 0.2% in January. Analysts at CIBC point out first-quarter GDP is now tracking roughly 4% annualized growth, well above “what most people had expected at the start of the year and higher than the Bank of Canada's January MPR forecast of 2%.” According to them, the figures provide further ammunition for rate hikes.

Key Quotes: 

“The Canadian economy certainly faired much better in Q1 than we had previously expected, and as a result we will be raising our forecast to around 4% annualized for the quarter. However, the impact of high inflation on household finances, potential supply chain issues in manufacturing stemming from Russia/Ukraine and China, and higher interest rates finally slowing the housing market, will mean that growth throughout the remainder of the year is slower than we had initially assumed. Because of that, our forecast for GDP growth in 2022 as a whole (roughly 3 1/2%) will be little changed.”

“The strong start to the year provides justification not just for further hikes, but potentially a 50bp move in April. That could mean a year-end rate that is 25bp above our current 1.5% forecast. However, with growth likely to slow in the second half of the year and inflation starting 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 2.25% in 2023.”

“While today's data, particularly the advance estimate for February, were better than expected and will lead to upward revisions in terms of Q1 growth, market reaction was very limited. That likely reflects the fact that the market is already pricing in a very quick tightening cycle from the Bank of Canada (to a 2.5% overnight rate by year-end) making it more susceptible to downside surprise rather than upside ones.”
 

Analysts at Rabobank see the AUD/USD pair not correlated to risk as it used to be. They forecast it will trade at 0.75 in three months. 

Key Quotes: 

“Measured since the start of the war in Ukraine, the AUD is the best performing G10 currency. In this time frame commodity currencies dominate the top of the performance table with the commodity importing currencies such as the JPY and European currencies trailing behind.”

“In addition to the boon coming from high commodity prices, there is pre-existing strength in Australia’s labour market. Concerns that this may result in higher wage inflation have increased the chances that the RBA will hike interest rates this year. The RBA has been one of the more dovish G10 central banks, but markets are anticipating that this will change in the coming months.  Even in the best case scenario of a peace deal for Ukraine, it is likely that Europe will continue to strive for more energy independence from Russia. This suggests higher prices for alternative energy sources for some time, which is likely to maintain support for currencies such as the AUD.”

“We have brought forward our 6 month 0.75 AUD/USD forecast to a 3 month view and expect a move towards 0.76 in 6 months.”
 

• The Loonie losses traction for the first time in the week though it keeps trading with gains.
• Russia-Ukraine tussles and Putin’s natural gas decree weighs on market mood.
• The US would tap 1 M barrels per day of their SPR reserves.
• USD/CAD Price Forecast: Unless the pair trades above 1.2613, where the 200-DMA lies, the trend is downwards.

The USD/CAD snaps two days of losses and recovers some ground amidst a stronger US dollar,  continuing hostilities between Russia and Ukraine, and lower oil prices. The Canadian dollar weakens vs. the greenback on the back of those factors but remains flat in the week. At the time of writing, the USD/CAD is trading at 1.2486.

Donwbeat market mood and falling oil prices weigh on the USD/CAD

Global equities keep trading in the red for the second straight day as Russia’s President Vladimir Putin signed a decree on natural gas, which has to be paid in Roubles and would begin on April 1. Furthermore, Putin’s added that proceedings in euros or US dollars could also be blocked while emphasizing that Russia will supply gas at agreed-upon volumes and prices. However, he reiterated that active contracts will be halted if demands are not met.

As a reaction to the headline, market sentiment turned sour, with the S&P heading lower, as market players turned towards the safe-haven US dollar.

The US Dollar Index, a gauge of the greenback’s value vs. a basket of its rivals, advances 0.19%, sitting at 98.021, weighs on the Loonie, also dragged down by falling oil prices.

Western Texas Intermediate (WTI), the US crude oil benchmark, fell from daily highs to the $102 mark on an announcement that the White House would tap its oil reserves and release 1 million BPD over six month period.

Macroeconomic-wise, the Canadian docket featured the GDP for January, which rose by 0.2%, in line with estimations, and higher than December’s 2021 reading. On the US front, the US central bank’s favorite gauge of inflation, the Core PCE for February, rose by 5.4% y/y, lower than the 5.5% estimated, while US Initial Jobless Claims for the week ending on March 26 increased by 202K, higher than the  197K expected.

USD/CAD Price Forecast: Technical outlook

The USD/CAD keeps trading downwards, as shown by the daily chart. Thursday’s price action reached a daily high at around 1.2533, but in the North American session, it gave back those gains and meandered around the 1.2480s highs. That said, the downtrend is intact unless the USD/CAD breaks above 1.2613, the 200-day moving average (DMA), and the top of the  1.2450-1.2600 range.

The USD/CAD first support would be March 25 daily low at 1.2465. A breach of the latter would expose January 12 low at 1.2447, followed by November 10, 2021, daily low at 1.2387.

• Euro among worst performers on Thursday.
• DXY rises after two days of declines, off highs.
• EUR/USD’s recovery finds resistance below 1.1135.

The EUR/USD bottomed at 1.1067 after the beginning of the American session and then rebounded to the 1.1135 area as stocks trimmed losses in Wall Street. The greenback lost momentum as US yields remain near daily lows.

The euro is the worst G10 performer on Thursday, hit by a decline in German yields and concerns about rising inflation in the Eurozone. The CPI is due on Friday, and it could reach 7%.

In the US, data showed the Core PCE rose to 5.4% (year-over-year), Initial Jobless Claims rose modestly to 202K from the lowest since 1969, and the Chicago PMI rose from 56.3 to 62.9. The figures were mostly ignored by market participants. On Friday, the US official employment report is due. Marker consensus points to an increase in payroll of 490K and a drop in the unemployment rate from 3.8% to 3.7%.

US yields look steady on Thursday, hovering near recent lows. The 10-year yield stands at 2.32% and the 30-year at 2.45%. The Dow Jones drops 0.36%, and the Nasdaq loses 0.27%.

Testing the 20-SMA in 4-hour chart

The correction of EUR/USD from the highest level in four weeks near 1.1200, alleviated the bullish pressure, but so far, it did not change the current positive outlook for the euro. The pair rebounded and managed to remain above the 20-Simple Moving Average in four hours chart (currently at 1.1080) and recovered 1.1100.

A firm break under 1.1080 would change the current bias to neutral. The immediate, relevant support might be seen at 1.1035/40.  On the upside, the 1.1135 zone has become a critical resistance again. If the euro rises above a test of the weekly high at 1.1185 should not be ruled out.

Technical levels

• Oil markets continue to trade in choppy fashion and with large on-the-day losses after the US SPR release announcement.
• 1M BPD will be released for the next six months, keeping the pressure on WTI, which currently trades near $102.
• OPEC+ agreed on a 432K BPD output hike from May, helping keep WTI supported above $100 alongside waning Russo-Ukraine optimism.

Choppy conditions in global oil markets have continued during US trading hours, with prices continuing to trade with sharp on-the-day losses after the White House issued a statement confirming recent speculation regarding a historic crude oil reserve release. The White House said that it would be releasing 1M barrels of crude oil from the Strategic Petroleum Reserve (SPR) every day for the next six months and that it would then restock the SPR once prices are lower. Front-month WTI futures currently trade in the $102.00s, down slightly less than $5 on the day after earlier finding strong support in the $100 area.

Opposition politicians/commentators accused the White House of timing the release specifically to attempt to lower gas prices right before the November mid-term elections and, in doing so, jeopardizing long-term US energy security. Analysts at Goldman Sachs said the move would help the oil market rebalance in 2022, but was cautioned that it wasn’t a permanent fix and “would therefore not resolve the structural supply deficit, years in the making”.

The US SPR release aside, crude oil traders have also had plenty of other themes to monitor on Thursday. As expected, OPEC+ agreed on a 432K barrel per day (BPD) output quota hike from May, resisting continued calls from major oil-importing/consuming nations for the likes of Saudi Arabia and the UAE to lift output at a faster pace. Meanwhile, optimism regarding progress in Russo-Ukraine peace talks has waned a little as Russian attacks have continued and officials expressed skepticism. For now, these two factors seem to be underpinning WTI above the $100 mark.

The Biden Administration will release 1M barrels per day in oil from the US Strategic Petroleum Reserve (SPR) over the next six months, according to a statement released by the White House on Thursday. The White House statement continued that the President will call on Congress to pass his plan to speed the transition to clean energy that is made in America and that President Joe Biden will issue a directive authorising the use of the defense production act to secure American production of critical materials to bolster the domestic clean energy economy. 

The EUR has clawed back some of its recent losses vs. the NOK in recent weeks. However, economists at Rabobank expect the EUR/NOK pair to grind lower towards 9.50 the next quarter.

Eurozone economy is faced with more risks than the Norwegian

“Due to energy security, the eurozone economy is faced with more risks than the Norwegian. Additionally, wage inflation and over-heating risks are larger for Norway.”

“We expect EUR/NOK to continue to trend lower in 2022. We see scope for a move back to the 9.50 area on a three-month view.”

• NZD/USD drifted lower on Thursday and reversed the overnight gains to the YTD peak.
• Fed rate hike bets, a softer risk tone benefitted the safe-haven USD and exerted pressure.
• Retreating US bond yields did little to dent the USD bullish sentiment or lend any support.

The NZD/USD pair maintained its offered tone through the early North American session and was last seen trading near the daily low, around the 0.6940 region.

Having faced rejection near the 0.7000 psychological mark, the NZD/USD pair witnessed some selling on Thursday and snapped two days of the winning streak to the highest level since November 2021. The US dollar made a solid comeback and has now reversed the previous day's losses to a nearly two-week low. This, in turn, was seen as a key factor that exerted downward pressure on spot prices.

The incoming geopolitical headlines dashed hopes for a breakthrough in the Russia-Ukraine peace talks. . This, along with the growing prospect of new Western sanctions against Russia, tempered investors' appetite for riskier assets. This was evident from a fresh leg down in the equity markets, which drove some haven flows towards the greenback and weighed on the perceived riskier kiwi.

Apart from this, expectations that the Fed would adopt a more aggressive policy stance to combat high inflation acted as a tailwind for the buck. In fact, the markets have been pricing in a 50 bps Fed rate hike move at the next two meetings. The bets were reaffirmed by Thursday's release of the US Core PCE Price Index, which rose to 5.4% YoY in February from the 5.2% in the previous month.

The combination of supporting factors helped offset the ongoing decline in the US Treasury bond yields, which, so far, did little to hinder the intraday USD positive move or lend support to the NZD/USD pair. It, however, would be prudent to wait for strong follow-through selling before confirming that the pair has topped out in the near term and positioning for a deeper correction.

Technical levels to watch

A Western official said on Thursday that they don't think "we" are seeing any signs there is a really serious attempt at finding a compromise in Russo-Ukrainian peace negotiations, reported Reuters. It is incredibly difficult for Russia to stop selling oil and gas to Western Europe, the official continued, noting his skepticism that these threats will be seen through. 

Peace talks between Russia and Ukraine recommence on Friday and come after Tuesday's allegedly "constructive" round of talks that was seen at the time as raising the likelihood of a Presidential level meeting and of a ceasefire agreement being reached. However, optimism that a deal might be near has waned in recent days, with Russian President Vladimir Putin reportedly not in the mood for compromise and Ukraine still not offering to fulfill all of Russia's demands. 

German Economy Minister Robert Habeck said in a speech in Berlin on Thursday that, regarding gas payments, Germany will not be blackmailed by Russian President Vladimir Putin and reiterated that gas payments will be made in euros. Putin had earlier announced that payments for gas must be made in roubles as of 1 April. 

French Finance Minister Bruno Le Maire, speaking alongside Habeck, said that France and Germany are preparing for a possible scenario that Russian gas flows are halted and that both countries are prepared for anything Putin might decide on gas. We are totally determined to protect households from the fallout of the current energy crisis, Le Maire noted. 

• AUD/USD dipped back under 0.7500 but remains well within this week’s ranges as focus shifts to Friday’s US jobs data.
• The Aussie remains resilient against the backdrop of “structurally” higher commodity prices and expectations for a hawkish RBA policy shift.

AUD/USD dipped back to the south of the 0.7500 level on Thursday, though remains robustly supported near the big figure and well within this week’s approximate 0.7460-0.7540ish ranges. The pair was little moved by the latest batch of US data which saw inflation (according to the Core PCE Price Index) rise again in February and further evidence of a robust labour market one day ahead of the release of the official US jobs report. Despite the data and Fed rhetoric this week supporting the Fed’s recent hawkish shift in stance this week, month/quarter-end selling means the buck has had a tough time.

As a result, AUD/USD has been able to hold near the 0.7500 level this week, with the short-term bulls eyeing a test of Q4 2021 highs in the 0.7560 area. The Australian economy's geographical removal from the war in Ukraine and positive exposure to the resultant sharp recent rise in commodity prices has been a key tailwind for the Aussie as of late, analysts argued. “If we are right the war leads to a structural increase in energy prices, there is more upside to AUD this year,” said currency strategists at CBA. “We expect AUD/USD will soon break above its resistance near $0.7516 and lift higher to $0.7673,” they continued.

Such a move may have to wait until after Friday’s official US jobs report, with trading conditions ahead of this key data release normally non-committal. In the meantime, recent strong Australian data should keep the pair support above this week’s mid-0.7400 lows. For reference, new homes building approvals surging a massive 43.5% MoM in February, more than recovering January's 27.1% MoM drop, while data showed job vacancies rose 6.9% in the quarter to February to hit a record 423,500. Recent data underpins expectations that RBA will soon catch up with many of its other G10 central bank peers by announcing a hawkish policy shift. 

• EUR/GBP retreated sharply from the fresh YTD peak touched earlier this Wednesday.
• The inverted head and shoulders breakout supports prospects for some dip-buying.
• Sustained break below 0.8400 is needed to negate the near-term positive outlook.

The EUR/GBP cross witnessed an intraday turnaround on Thursday and retreated around 60-65 pips from the fresh YTD peak - levels just above the 0.8500 psychological mark. The cross, for now, seems to have snapped three successive days of the winning streak and was seen trading around mid-0.8400s during the second half of the European session.

The British pound's relative outperformance followed the release of a better-than-expected UK GDP print, which showed that the economy expanded by 1.3% in A4 2021 as against the 1% estimated. On the other hand, the shared currency stalled its recent bullish run amid fading hopes of diplomacy in Ukraine, which revived fears about the economic fallout from the crisis.

From a technical perspective, the strong move up witnessed since the beginning of this week confirmed a bullish breakout through a resistance marked by the neckline of an inverted head and shoulders pattern. A subsequent move beyond the very important 200-day SMA further added credence to the constructive set-up and supports prospects for the emergence of some dip-buying.

Hence, any further decline could be seen as an opportunity for bullish traders and is more likely to find decent support near the 0.8400 mark. The said handle should act as strong base for the EUR/GBP cross, which if broken decisively might negate the bullish outlook. The corrective slide could further get extended towards the next relevant support near the 0.8335 region.

On the flip side, the 0.8500-0.8510 region now seems to act as an immediate hurdle. This is followed by a downward sloping trend-line extending from April 2021, around the 0.8535-0.8540 zone, which if cleared would set the stage for additional gains. The momentum could then allow the EUR/GBP cross to aim back to reclaim the 0.8600 round-figure mark.

EUR/GBP daily chart

Technical levels to watch

The ongoing geopolitical and macroeconomic instability is driving safe-haven fund flows into gold. Economists at TD Securities expect the yellow metal enjoy further upside amid this backdrop.

Hawkish Fed backdrop still poses downside risks

“So long as material progress on ceasefire talks and de-escalation remains elusive, haven flows are likely to keep the yellow metal propped up against an increasingly hawkish Fed backdrop.”

“The 2y-10y curve flirting with inversion has further fueled talk of recession on the horizon, offering another positive dynamic for the gold market.”

“Rates markets are readying for the Fed to deliver a hawkish surprise to markets. On this front, with markets only pricing in roughly a 73% chance of a 50bp move in May, there is still room for the market to price in the full move that we are expecting, which could increase macro outflow pressures for precious metals markets.” 

Russian President Vladimir Putin announced on Thursday that Russia is to halt gas contracts if buyers don't pay in roubles, reported Bloomberg. Active contracts will be immediately halted if these demands are not met, Putin continued, noting that buyers of gas should open accounts in Russian banks. Putin said that he had signed an order on these new gas trading rules, which come into force as of 1 April. Putin pledged that Russia would continue providing gas at the already set volumes and prices and will move to increase settlements in national currencies. 

Putin explained that by continuing to sell gas in euros and dollars, assets that could easily be frozen by the West, Russia deems the risk of providing gas for free as unacceptable. The switch to rouble payments is meant to strengthen Russia's sovereignty, he continued, before lambasting Europe for being ready to ignore the interests of its own citizens. 

• EUR/USD drifts lower following new tops around 1.1180.
• The 8-month resistance line emerges as the next hurdle of note.

EUR/USD corrects lower after reaching new 4-week tops in the 1.1180/85 band on Thursday.

That said, immediately to the upside comes the temporary resistance at the 55-day SMA, today at 1.1198 ahead of the 1.1250 region, where the 100-day SMA and the 8-month line coincide. Beyond this area, the selling bias is expected to subside and allow for extra gains in the short-term horizon.

The medium-term negative outlook for EUR/USD is expected to remain unchanged while below the key 200-day SMA, today at 1.1488.

EUR/USD daily chart

AUD/CAD rally rums out of momentum around 0.9450. The pair needs to extend its race higher above this region to enjoy further gains, economists at Scotiabank report.

AUD/CAD rally is starting to flag

“Choppier price action and waning bullish momentum suggest the AUD rally is starting to flag. A narrow range (so far) this week rather supports that impression.” 

“AUD/CAD is still finding demand on short-term dips but will have to extend gains above 0.9450/60 sooner rather than later (by next week, we estimate) in order to extend gains or downside risks will increase for a test of support in the mid-0.92s (40-day MA).”

CAD/MXN tests major weekly support at 15.89. A weekly close below here would open up additional losses to the 15.60 area, economists at Scotiabank report.

CAD/MXN to recover some ground on a weekly close above 15.89

“A weekly close below 15.89 should be enough to maintain pressure on the CAD in the near-term and drive the cross back to the 15.60 area – lows from the middle of last year.”

“If 15.89 holds through the close of the week, the CAD/MXN may be able to recover some ground but a move back above 16.20/25 is needed to confer any sort of near-term technical strength on this market.”

EUR/CAD has reached the 1.37 level. The pair may consolidate but downside risks remain, economists at Scotiabank report.

Minor EUR/CAD rallies are liable to attract better selling interest

“We could certainly see some consolidation in the EUR in the short run but absent a more significant rebound – back through 1.4250 – medium-term risks will remain geared towards low, or lower, levels prevailing.”

“A high close on the week may signal more short-term gains/consolidation but trend momentum oscillators are bearishly aligned across medium, long and very long-term timeframes, meaning minor EUR rallies are liable to attract better selling interest.”

GBP/USD holds unchanged in narrow trading. Economists at Scotiabank expect cable to move downward as there is little room to rebuild the Bank of England’s (BoE) expectations.

Break under 1.31 faces limited support until 1.3050/60

“With a quiet data and events calendar ahead meaning that there is little to rebuild BoE expectations on next week, we may see further GBP weakness in the coming day.”

“A resumption of bearish pressure that sees the GBP break under the 1.31 zone faces limited support until 1.3050/60, the Tuesday lows.”

“Resistance past yesterday’s peak of ~1.3180 is the 1.32 figure area.”

EUR/USD has endured a correction, slipping from resistance at 1.1180 to below 1.11. Economists at Socitbank highlight that the world’s most popular currency pair needs to close above the 1.11 level to resume its gains.

EUR’s picture still looks positive

“Price action over Tue/Wed still leaves the EUR picture looking relatively positive, but a close above 1.11 may be needed to maintain the recently bullish tone.”

“The 50-day MA at 1.1180 will act as resistance alongside 1.1190/00.”

“Support is 1.1090/00 followed by 1.1070/75 and the mid-1.10s.”

• DXY’s downside failed to break below the 97.70 region.
• Further recovery looks to regain 99.00 and above.

The index reclaims ground lost in the last couple of sessions and regains the area beyond 98.00 the figure on Thursday.

DXY manages well to rebound from the decent contention area in the 97.70 zone and the ongoing rebound is expected to target the 99.00 neighbourhood and above in the near term.

The current bullish stance in the index remains supported by the 6-month line near 96.20, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 94.83.

• A combination of diverging forces failed to provide any impetus to USD/JPY on Thursday.
• Fading hopes for diplomacy in Ukraine underpinned the safe-haven JPY and capped gains.
• The emergence of aggressive USD buying extended support and helped limit the downside.

The USD/JPY pair seesawed between tepid gains/minor losses through the early North American session and held steady around the 121.80-121.85 region post-US macro data.

Speculations that authorities would intervene and respond to the recent sharp decline in the Japanese yen, along with fading hopes for diplomacy in Ukraine, acted as a headwind for the USD/JPY pair. Bearish traders further took cues from the ongoing decline in the US Treasury bond yields, though resurgent US dollar demand helped limit the downside for spot prices, at least for the time being.

Following the recent fall to a nearly two-week low, the USD made a solid comeback amid acceptance that the Fed would hike interest rates by 50 bps at the next two meetings to combat high inflation. The market bets were reaffirmed by Thursday's release of the US Core PCE Price Index, which accelerated to a 5.4% YoY rate in February from the 5.2% reported in the previous month.

This, however, was slightly below consensus estimates pointing to a reading of 5.5%. Additional details revealed that Personal Spending decelerated sharply and rose 0.2% in February, though was offset by an upward revision of the previous month's increase from 2.1% to 2.7%. Separately, the US Weekly Initial Jobless Claims also missed expectations and edged higher to 202K from 188K.

The mixed economic data did little to impress the USD bulls or provide any meaningful impetus to the USD/JPY pair. That said, it will still be prudent to wait for strong follow-through selling below the weekly low, around the 121.20-121.15 region, before positioning for an extension of this week's sharp pullback from the highest level since August 2015, around the 125.10 region.

Thursday's US economic docket also features the release of Chicago PMI, though is likely to pass unnoticed as the focus remains glued to developments surrounding the Russia-Ukraine saga. Apart from this, trades will take cues from the US bond yields, which will influence the USD price dynamics and produce some short-term opportunities around the USD/JPY pair.

Technical levels to watch

Personal Income in the US rose by 0.5% MoM in February whist Personal Spending rose by 0.2%, the latest data release by the Bureau of Economic Analysis and Department of Commerce showed on Thursday. The latter thus came in in line with the expected gain of 0.5% MoM, while the former came in lower versus the expected MoM gain of 0.5%. 

Market Reaction

The latest batch of US data has not provoked a reaction in FX markets, given that market participants are viewing February data as "out of date" given geopolitical developments that took place late last month. 

• Annual US inflation according to the Core PCE Price Index was a little weaker than expected in February at 5.4%. 
• But with the data viewed as out of date given geopolitical developments late last month, FX markets have not reacted. 

Annual inflation in the US rose to 5.4% in February according to the latest Core PCE Price Index reading released by the US Bureau of Economic Analysis on Thursday. That was a tad below the expected reading of 5.5% YoY, but above January's 5.2% reading. The MoM gain in prices according to the Core PCE Price Index was 0.4%, in line with expectations and a tad lower versus January's 0.5% MoM gain. The Core PCE Price Index is the Fed's favoured measure of underlying US inflationary pressures. 

The headline PCE Price Index rose at a pace of 6.4% YoY and 0.6% MoM in February. The slightly lower than forecast YoY reading in February for the Core PCE Price Index will do little to ease inflation fears. Indeed, given the onset of the Russo-Ukraine war at the end of last month and its subsequent impact on global commodity prices and supply chains, inflation is expected to have surged in March. This is exactly what has been seen in the timelier Eurozone HICP inflation data released this week for March. Given the US' lower economic exposure to the Russo-Ukraine conflict, the surge in prices in the US shouldn't be quite so acute. 

Market Reaction

The idea that the latest PCE Price Index figures are out of date means that markets have not seen any notable reaction to the data. The DXY is broadly unmoved versus pre-data levels just above 98.00.    

Initial Jobless Claims in the week ending on 26 March came in at 202,000, a tad above the expected reading of 197,000 and up versus the previous week's 188,000 print. Continued Jobless Claims fell to 1.307M in the week ending on March 19, below the expected rise to 1.35M from 1.342M the week prior. The Insured Unemployment Rate fell to 0.9% in the week ending on March 19 from 1.0% a week earlier.

Market Reaction

Further robust US labour market data underpins the notion that the jobs market in the US right now is hot and that Friday's official jobs report should be a good one. FX markets have not reacted to the latest data, as the current strength of the US labour market right now is widely understood and known to be strong, and is well priced in by markets. Indeed, assumptions of continue labour market strength underpin the Fed's recent shift towards signalling faster and larger interest rate hikes in the coming years. 

Gold’s status as a safe-haven asset has shone brightly over the past month. It is likely the market will have a long period of uncertainty. With such a backdrop, gold is likely to find plenty of support from investors, economists at ANZ Bank report.

Gold remains an effective hedge against geopolitical uncertainty

“While geopolitical crises do not last forever, we expect the secondary impacts of the Russia-Ukraine crisis to provide a strong level of support for gold prices this year.”

“The broader isolation of Russia will see a structural shift in the energy sector, which will be inflationary. There is also a higher risk of weaker economic growth (particularly in Europe). This should create a positive backdrop for investor demand. As such, we see the gold price staying above $1,900/oz, despite the prospects of an aggressive rate hike cycle by the Fed.”

OPEC+ agreed as expected to increase oil output quotas by 432,000 barrels per day (BPD) from May, as had broadly been expected by analysts, and as had been recommended by the group's Joint Ministerial Monitoring Committee, whose meeting concluded just minutes ago, reported Bloomberg on Thursday. The next OPEC+ meeting will be held on May 5. 

Thursday's OPEC+ meeting came against the backdrop of a large intra-day decline in oil prices as a result of sources reporting that the White House is considering a record oil reserve release of up to 180M barrels over the next several months (allegedly amounting to about 1M BPD). OPEC+ nations have up until now ignored calls from the US and other major oil-consuming nations (like India) to increase output at a faster pace.  

Market Reaction

Oil prices remain choppy and continue to trade close to session lows just above the $100 per barrel mark as traders weigh up evolving geopolitical risk, potential near-term supply increases as a result of large oil reserve releases and OPEC+ output policy. 

US PCE Price Index Overview

Thursday's US economic docket highlights the release of the February Personal Consumption Expenditure (PCE) Price Index, scheduled later during the early North American session at 12:30 GMT. The headline gauge is expected to have accelerated from 6.1% YoY in January to 6.7% during the reported month. The core reading is also anticipated to rise from 5.2% to 5.5% YoY in February and come in at 0.4% on a monthly basis, down from 0.5% in January.

How Could it Affect EUR/USD?

A strong than expected reading will reaffirm market bets that the Fed would hike interest rates by 50 bps at the next two meetings. This should be enough to push the US Treasury bond yields higher and assist the US dollar to capitalize on its intraday gains. Conversely, a softer print is more likely to be overshadowed by concerns about the Ukraine crisis and do little to dent the intraday USD bullish sentiment. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside.

Eren Sengezer, Editor at FXStreet, outlined important technical levels to trade the EUR/USD pair: “On the downside, 1.1100 (200-period SMA) aligns as key support and buyers could take action in case the pair retreats toward that level. If that support fails, however, the near-term technical outlook could turn bearish and the pair could face interim support at 1.1080 (Fibonacci 61.8% retracement of the latest downtrend, 20-period SMA) before targeting 1.1040 (Fibonacci 50% retracement, 50-period SMA, 100-period SMA).”

“The first resistance is located at 1.1200 (psychological level) ahead of 1.1230 (Static level). If the pair starts using the latter as support, it could stretch higher toward 1.1270 (static level),” Eren added further.

Key Notes

  •   US February PCE Inflation Preview: Will inflation data confirm 50 bps May hike?

  •   EUR/USD Forecast: US inflation data could derail euro's rally

  •   EUR/USD fades the spike to weekly highs around 1.1180

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.

The OPEC+ Joint Ministerial Monitoring Committee, which typically meets ahead of the main OPEC+ meeting of oil ministers, agreed to recommend that the group raise its output quotas by 432,000 barrels per day (BPD) from May, as expected. Focus now shifts to the OPEC+ meeting of oil ministers, which allegedly just begun. Likely, as has been the case in meetings over the last few months, a deal will be struck quickly. 

The OPEC+ meeting comes against the backdrop of a large intra-day decline in oil prices as a result of sources reporting that the White House is considering a record oil reserve release of up to 180M barrels over the next several months (allegedly amounting to about 1M BPD). OPEC+ nations have up until now ignored calls from the US and other major oil consuming nations (like India) to increase output at a faster pace.  

• GBP/USD is consolidating in the 1.3100s ahead of key US data releases as traders monitor geopolitical developments.
• BoE dovishness in contrast to the Fed is keeping the pair capped under its 21DMA for now.

Amid a lack of fresh UK fundamental developments to drive any independent movements in sterling, and as US dollar markets consolidate ahead of key US data releases as market participants monitor geopolitical developments, GBP/USD is trading subdued in the low-1.3100s. At current levels in the 1.3120s, the pair trades flat and well within this week’s approximate 1.3050-1.3200 ranges. Notably, the 21-Day Moving Average continues to act as a barrier to further progress for the pair, suggesting the near-term technical bias remains tilted to the downside.

Many strategists have noted the stark divergence between the BoE, which has been sounding ever more dovish on the need for further tightening as worries switch more to economic weakness as a result of the growing cost-of-living squeeze in the UK as opposed to rampant inflation, and Fed. Indeed, further strong data releases this week plus more hawkish rhetoric from monetary policymakers has solidified expectations for a 50 bps rate hike in May. Though this hasn’t prevented some month-end weakness in the US dollar and yields, the combination of which helped lift GBP/USD from earlier weekly lows in the mid-1.3000s, it is likely a key factor preventing the pair from advancing above its 21DMA.

US February Core PCE inflation data, February Personal Income and Spending figures and the latest Weekly Jobless Claims report will all be released at 1330BST. The data is likely to underpin the narratives of high inflation/a tight labour market in the US, meaning further USD weakness is unlikely. In the absence of further pricing out of geopolitical risk related to the Russo-Ukraine war, GBP/USD’s near-term upside prospects look somewhat limited.

NATO Secretary General Jens Stoltenberg said on Thursday that though NATO has heard that Russia will scale down its attacks in Ukraine, Russian units have not been withdrawing, but have been repositioning instead, reporter Reuters. Thus, we can expect more Russian attacks in Ukraine, which will bring more suffering, Stoltenberg added. 

Russia announced earlier in the week that it would be scaling down its military operations around the northern cities of Kyiv and Chernihiv, which it said was to foster better negotiating conditions, but the US and its allies have said is a redeployment/regrouping strategy. Russia has said it wants to focus its military efforts on key fronts and the "liberation" of Donbass. Peace talks between the two sides recommence on Friday after the last "constructive" round of constructive talks ended on Tuesday. 

• EUR/JPY adds to Wednesday’s losses and approaches 135.00.
• Further down comes a Fibo level around 134.40.

EUR/JPY keeps correcting lower following Monday’s fresh cycle highs and trades at shouting distance from the 135.00 neighbourhood.

The underlying upside momentum in the cross remains unchanged, although further retracement should not be ruled out in the very near term. Against that, there is an interim support at a Fibo level (of the March rally) at 134.44 prior to the former 2022 high at 133.15 (February 10).

In the meantime, while above the 200-day SMA at 130.08, the outlook for the cross is expected to remain constructive.

Economist at UOB Group Barnabas Gan reviews the latest interest rate decision by the Bank of Thailand (BoT).

Key Takeaways

“The Bank of Thailand (BOT) held its policy rate steady at 0.50% for its 15th consecutive meeting on 30 Mar 2022. The last time it made a move was in May 2020, when the benchmark rate was cut by 25 bps.”

“Given the immediate growth headwinds and higher domestic prices, policymakers downgraded its 2022 GDP growth outlook to 3.2% (from a previous 3.4%), while expecting inflation to surge to 4.9% (up from 1.7%) this year.”

“We expect BOT to inject a token 25 basis point rate hike in 2022, possibly as early as 3Q22, in response to higher inflation risk and the faster-than-anticipated FOMC rate hike for the year ahead. Notwithstanding the projected 25bps hike later this year, we continue to view the monetary policy stance of BOT to be accommodative, especially against the backdrop of potentially higher global interest rates.”

• USD/CAD caught aggressive bids on Thursday and was supported by a combination of factors.
• A slump in oil prices undermined the loonie and extended support amid resurgent USD demand.
• Traders now eye the OPEC+ meeting, US/Canadian macro data, geopolitics for a fresh impetus.

The USD/CAD pair built on its steady intraday ascent through the first half of the European session and climbed to a three-day peak, around the 1.2530-1.2535 region in the last hour.

A combination of supporting factors assisted the USD/CAD pair to regain positive traction on Thursday and recover further from its lowest level since November 2021 touched in the previous day. A sharp fall in crude oil prices undermined the commodity-linked loonie and acted as a tailwind amid strong pickup in the US dollar demand.

Reports that the US is considering a massive release of up to 180 million barrels from its strategic petroleum reserve (SPR) over several months triggered a steep decline in crude oil prices. Apart from this, fears that fresh COVID-19 restrictions in China could impact fuel further exerted downward pressure on the black liquid.

On the other hand, expectations for aggressive policy tightening by the Fed, along with fading hopes for diplomacy in Ukraine assisted the USD to reverse the overnight slide to a nearly two-week low. In fact, the markets seem convinced that the Fed would deliver a 50 bps rate hike at the next two meetings to combat high inflation.

The fundamental backdrop favours bulls and supports prospects for a further intraday appreciating move, though traders preferred to wait for important macro releases from the US and Canada. Thursday's economic docket highlights the US Core PCE Price Index and the monthly Canadian GDP print, due later during the early North American session.

Traders will take cues from the OPEC+ meeting, which, along with fresh developments surrounding the Russia-Ukraine saga will influence oil price dynamics. Apart from this, the US bond yields and the broader market risk sentiment, will drive the USD demand and produce short-term trading opportunities around the USD/CAD pair.

Technical levels to watch

European Central Bank (ECB) Vice President Luis de Guindos said on Thursday that inflation in the euro area was expected to continue to rise over the next several months, as reported by Reuters.

On the same matter, "it is also plausible that medium-term inflation will not revert to the pre-pandemic below-target equilibrium but, conditional on appropriately-calibrated monetary policy, rather may stabilise around the ECB’s 2% target," ECB Chief Economist Philip Lane said earlier in the day.

Market reaction

The shared currency stays on the back foot on Thursday and the EUR/USD pair was last seen losing 0.5% on the day near 1.1100.

An adviser for Ukrainian President Volodymyr Zelenskyy said on Thursday that Russia has destroyed practically all of Ukraine's defence industry, as reported by Reuters.

"A peace agreement always involves compromises on both sides," the adviser added.

Market reaction

The market mood remains mixed following these remarks. The Euro Stoxx 600 Index was last seen posting small daily gains. Meanwhile, the S&P Futures trade flat on the day and the Nasdaq Futures rise by 0.4%. 

The US Dollar Index, which tracks the dollar's performance against a basket of six major currencies, stays in positive territory above 98.00 ahead of US data releases. 

• USD/CHF gained some positive traction on Thursday, though lacked follow-through buying.
• Fading hopes for diplomacy in Ukraine drove some haven flows to the CHF and capped gains.
• The emergence of aggressive USD buying helped limit the downside, at least for the time being.

The USD/CHF pair retreated a few pips from the daily high touched during the early European session and was last seen trading around the 0.9235-0.9240 region, up less than 0.10% for the day. 

The pair attracted some buying in the vicinity of the very important 200-day SMA on Thursday and recovered a part of the overnight slump to over a three-week low. The uptick, however, lacked bullish conviction and ran out of steam near the 0.9260 area amid fading hopes for a diplomatic solution to end the war in Ukraine, which benefitted drive haven flows towards the Swiss franc.

In fact, a Kremlin spokesperson said that they have not noticed anything that looks like a breakthrough in negotiations. Moreover, an adviser to Ukraine’s President noted that Russia is transferring forces from Kyiv to encircle troops and launch attacks in the eastern part of the country. This, along with prospects of new Western sanctions against Russia, underpinned safe-haven assets.

The downside, however, seems cushioned, at least for the time being, amid the emergence of aggressive buying around the US dollar, bolstered by hawkish Fed expectations. The markets seem convinced that the Fed would adopt a more aggressive policy stance and hike rates by 50 bps at the next two meetings to combat stubbornly high inflation. This, in turn, underpinned the buck.

Even from a technical perspective, it will be prudent to wait for sustained break below a technically significant moving average before positioning for an extension of the recent pullback from the YTD top. Market participants now look forward to the US economic docket, highlighting the release of the Core PCE Price Index, though the focus will remain on geopolitical developments.

Technical levels to watch

• GBP/JPY witnessed good two-way price moves through the first half of the European session.
• Better-than-expected UK GDP print underpinned sterling and extended support to the cross.
• Fading hopes for diplomacy in Ukraine benefitted the safe-haven JPY and acted as a headwind.

The GBP/JPY cross seesawed between tepid gains/minor losses through the first half of the European session and was last seen trading in the neutral territory, around the 160.00 mark.

The cross showed some resilience below the 200-hour SMA and attracted some dip-buying near the 159.45 region on Thursday, though the uptick lacked bullish conviction. The British pound drew some support from an upward revision of the UK GDP print, showing that the economy expanded by 1.3% during the final quarter of 2021 as against the 1% estimated previously. This, along with the emergence of some selling around the Japanese yen, extended support to the GBP/JPY cross.

That said, speculation that officials were uncomfortable and would respond to the Japanese yen's recent weakness, along with fading hopes for diplomacy in Ukraine acted as a headwind for the GBP/JPY cross. In fact, a Kremlin spokesperson said that they have not noticed anything that looks like a breakthrough in negotiations. Moreover, an adviser to Ukraine’s President noted that Russia is transferring forces from Kyiv to encircle troops and launch attacks in the eastern part of the country.

Apart from this, the growing prospect of new Western sanctions against Russia tempered investors' appetite for perceived riskier assets. This was evident from the prevalent cautious mood around the equity markets, which tends to benefit traditional safe-haven assets, including the JPY. Moreover, the fact that the Bank of England had softened its tone on the need for further rate hikes should further hold back bulls from placing fresh bets around the GBP/JPY cross.

Nevertheless, the pair, for now, has stalled its recent sharp pullback from the 164.65 area, or the highest level since May 2016 touched earlier this week and remains at the mercy of developments surrounding the Russia-Ukraine saga. The incoming geopolitical headlines will play a key role in driving the broader market risk sentiment and demand for the safe-haven JPY, which, in turn, should provide some impetus to the GBP/JPY cross.

Technical levels to watch

Will Japan’s MoF/BoJ halt yen’s slide? In the view of economists at Citibank, there are 3 ways by which the Japanse yen may be able to halt its slump.

US Treasury yields may enter a period of consolidation

“UST yields enter a period of consolidation – there may be some hint of this in the brief UST 2-10Yr curve inversion seen in Monday’s session and as the UST curve as a whole rapidly approaches a flattening bias which may be a signal that US yields are close to topping out.”

“Political pressure on the BoJ from the Kishida government ahead of Japan’s upper house elections in July – unlikely for now given recent comments from the PM and his cabinet colleagues.”

“Criticism from the US Treasury as JPY REER trades at historical lows – unlikely for now given the current heightened geopolitical tensions require Japan’s political support for the US against Russia.”

The US Dollar Index (DXY) is struggling near-term as markets price out the Ukraine war premium. Once the dust settles the USD’s unmatched yield credentials and a fiercely hawkish Federal Reserve should deliver sustained DXY tailwinds, according to economists at Westpac.

USD upside potential remains in scope 

“Once the dust settles USD’s unmatched yield credentials should come to the fore. Admittedly recent days have seen some minor erosion of the USD’s yield support, but USD has yet to fully capitalise on the broader surge in yield support that has unfolded this year.” 

“DXY could test yet lower levels if momentum toward de-escalation in Ukraine continues, but sustained weakness beyond 97.00 unlikely to develop with the Fed sticking resolutely to a hawkish path.” 

“DXY 100+ on the cards in coming weeks.”

Further downside could drag USD/CNH to the 6.3530 region in the next weeks, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the decline in USD could extend to 6.3660 first before stabilizing’. We did not expect the rapid decline that sent USD to a low of 6.3563. USD could weaken further but any decline is expected to encounter solid support at 6.3530. Resistance is at 6.3660 followed by 6.3710.”

Next 1-3 weeks: “Yesterday (30 Mar, spot at 6.3760), we highlighted that USD is likely to trade between 6.3530 and 6.4000. We did not anticipate the sharp and rapid drop to 6.3563. Downward momentum has improved and USD is likely to trade with a downward bias towards 6.3530, possibly 6.3450.On the upside, a breach of the ‘strong resistance’ (level currently at 6.3770 would indicate that the current downward pressure has eased.”

Ukraine will continue to dominate eurozone sentiment. Meanwhile, prospects for eurozone ending NIRP have gained traction. Economists at Wespact expect the EUR/USD pair to alleviate downside pressure on a close above the 1.1175/90 zone. 

Support has lifted to the 1.1000/50 area

“Outcome of Russia/Ukraine negotiations and the stance of the West remain critical. However, potential for ECB ending NIRP has risen and is lifting prospects for EUR.” 

“EUR/USD will remain vulnerable, but support has lifted to the 1.1000/50 area”. 

“Should EUR/USD manage to close above the 1.1175/90 area, prospects for a higher trading range would increase and raise potential for retracements towards 1.1475/1.1500.”

• Silver edged lower on Thursday and extended the overnight pullback from the $25.00 mark.
• The set-up favours bearish traders and supports prospects for a further depreciating move.
• Sustained strength beyond the $26.00 mark is needed to negate the near-term bearish bias.

Silver remained depressed through the early part of the European session and was last seen trading around the $24.75-$24.70 region, down over 0.50% for the day.

The overnight rejection near the 38.2% Fibonacci retracement level of the $22.00-$26.95 move up and the subsequent downtick favours bearish traders. Adding to this, the recent break through a confluence support, comprising the 200-hour SMA on the 4-hour chart and the lower end of an ascending trend channel, adds credence to the negative outlook.

Moreover, technical indicators on daily/4-hour charts have just started driting into the bearish territory and support prospects for a further near-term depreciating move. That said, traders are likely to wait for some follow-through selling below the 50% Fibo. level support, around mid-$24.00s before placing fresh bearish bets around the XAG/USD.

The downward trajectory could then drag spot prices back towards challenging the 61.8% Fibo. level support, around the $23.95-$23.85 region. The XAG/USD would then turn vulnerable and extend the fall towards testing the next relevant support around the $23.40-$23.35 region before eventually dropping to the $23.00 round-figure mark.

On the flip side, the 38.2% Fibo. level, around the $25.05 area, might continue to act as an immediate hurdle. Sustained strength beyond could allow the XAG/USD to accelerate the momentum and surpass the $25.40-$25.50 intermediate hurdle. The upward trajectory could further get extended towards reclaiming the $26.00 round-figure mark.

Silver 4-hour chart

Technical levels to watch

A 1.2% rise in the S&P 500 on Tuesday left the index less than 4% below its all-time high and just 2.8% down year-to-date. Economists at UBS expect the S&P 500 Index to move slightly higher towards 4,700 by end-2022.

S&P 500 to soar towards 5,100 on an early end of the war in Ukraine

“Our base case now is for only modest upside for stocks, with our year-end forecast for the S&P 500 at 4,700, less than 2% higher than current levels. This partly reflects risks to corporate profits, and we have recently scaled back our outlook for global earnings growth to 8% (from 10%) for this year, and to 5% (from 7%) in 2023.”

“In our upside scenario of an early end to the conflict and disruptions to commodity markets, we see greater upside for the S&P 500, for a year-end of around 5,100.”

“On the downside, with a protracted conflict, the index could end the year close to 3,600.”

Norges Bank announced that they will sell 2bn NOK each day on behalf of the government in April 2022. EUR/NOK is unsurprisingly up after this announcement. In the view of economists at Nordea, the window for a stronger Norwegian krone has closed.

EUR/NOK unlikely to see more downside than 9.50

“Norges Bank announced that they will sell 2bn NOK each day on behalf of the government in April 2022. After today’s announcement, we believe that the window for a stronger NOK has closed.”

“EUR/NOK will unlikely see more downside than 9.50 even if oil prices come up and risk sentiment is good.” 

“The first impression is that EUR/NOK around 9.75 in 3M and 10.00 by year-end 2022 seems reasonable.”

“Upside risks to our EUR/NOK call are lower oil and gas prices, while downside risks for EUR/NOK are even higher energy prices during the winter.”

It has been a week of consolidation for the aussie, trading around 0.75. According to economists at Westpac, persistent energy price strength means AUD/USD may probe fresh multi-month highs around 0.7550, but the Reserve Bank of Australia (RBA) statement may disappoint some eager for rate hike signals.

Resilience in Australia’s export commodity price basket 

“Equity support for AUD has improved but some of the heat is out of commodities, for however long. We expect resilience in Australia’s export commodity price basket multi-week.” 

“Yield spreads have moved a little in A$’s favour in recent days but we doubt the RBA April meeting will encourage markets already aggressively priced for tightening starting after the (expected) May election.” 

“We look for broadly sideways trade n/t, perhaps a dip on the RBA but commodity prices leaving open the chance of a break of 0.7556 resistance.”

NZD/USD retains upward momentum for the week ahead, targeting a break above 0.70, economists at Westpac report. The kiwi is helped by the NZ commodity price outlook and the OCR outlook.

Multi-month, NZD/USD could reach the October high of 0.72

“NZD/USD retains upward momentum, targeting a break above 0.70 during the week ahead.”

“Multi-month, we target 0.72 – the October high.” 

“Expectations of the RBNZ meeting on 13 April are running high, with an 80% chance of a 50bp hike priced in.”

The Bank of Japan (BOJ) publishes its quarterly schedule of outright purchases of Japanese government bonds (JGBs), as we head towards the second quarter of 2022.

Key takeaways

BOJ to conduct four market operations per month for 1-3-year JGBs, buy 475 bln yen at each operation (vs. 4 times in Jan-March, 450 bln yen per operation).

To conduct four market operations for 3-5-year JGBs per month, buy 475 bln yen at each operation (vs. previous 4 times, 450 bln yen per operation).

To conduct four market operations per month for 5-10-year JGBs, buy at each operation 500 bln yen (previous 4 times, 425 bln yen).

To conduct two market operations per month for 10–25-year JGBs, buy 125.0 bln yen at each operation (vs. previous 1 time, 150 bln yen).

To conduct two market operations per month for JGBs with over 25 -year until maturity, 50.0 bln yen at each operation (vs. previous 1 time, 50 bln yen).

Market reaction

USD/JPY is looking to recapture the 122.00 level, higher by 0.12% on the day. The spot hit a daily low of 121.35, with volatility on the rise thanks to the BOJ’s operations.

• EUR/USD clinches fresh tops in the 1.1180/85 band.
• Germany Unemployment Change dropped less than estimated.
• US PCE, weekly Claims next of importance in the NA session.

EUR/USD embarked on a corrective downside soon after hitting fresh weekly highs in the 1.1180/85 band on Thursday.

EUR/USD looks to USD, geopolitics

EUR/USD now comes under some selling pressure following three consecutive daily gains on the back of the now better tone in the greenback and in response to lower-than-expected results from the German labour market.

On the latter, Germany’s Unemployment Change dropped by 18K persons in March (vs. -20K forecast) and the Unemployment Rate stayed put at 5.0%. Earlier in the session, and still in Germany, Retail Sales expanded 0.3% MoM in February and 7% over the last twelve months.

The knee-jerk in spot comes in line with the recovery in the demand for bonds in the global markets, with the German 10y bund yields now easing to the 0.62% area following Tuesday’s cycle peaks near 0.75%.

Also lending some legs to the buck appears renewed concerns from the Ukraine war after the initial optimism from peace talks on Wednesday seems to have faded away.

Later in the session, the Unemployment Rate is due in the broader Euroland along with a speech by ECB’s De Guindos. Across the pond, inflation figures gauged by the PCE will take centre stage seconded by usual weekly Claims, Personal Income/Spending and the Chicago PMI.

What to look for around EUR

EUR/USD extends recent gains and advances to the vicinity of the 1.1200 mark earlier in the session. Pockets of strength in the single currency should appear reinforced by the speculation of the start of the hiking cycle by the ECB at some point by year end, while higher German yields, elevated inflation, the decent pace of the economic recovery and auspicious results from key fundamentals in the region are also supportive of a rebound in the euro.

Key events in the euro area this week: Germany Retail Sales, Unemployment Change, Unemployment Rate, EMU Unemployment Rate (Thursday) – Final EMU, Germany Manufacturing PMI, EMU Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Presidential elections in France in April. Impact of the geopolitical conflict in Ukraine.

EUR/USD levels to watch

So far, spot is losing 0.25% at 1.1130 and faces the next up barrier at 1.1184 (weekly high March 31) followed by 1.1195 (55-day SMA) and finally 1.1248 (100-day SMA). On the other hand, a drop below 1.0944 (weekly low March 28) would target 1.0900 (weekly low March 14) en route to 1.0805 (2022 low March 7).

European Central Bank (ECB) Chief Economist Philip Lane said on Thursday that he believes the euro area inflation may stabilize around the 2% target, adding that the central bank is ready to revise the policy settings.

Key quotes

“It is especially important to remain data-dependent.”

“Optionality needs to be two-sided.”

“ECB should be fully prepared to revise policy settings in the event of energy price shock.”

“It is plausible that medium-term inflation will not revert back to pre-pandemic levels.”

USD/JPY’s rally appears over and it could now navigate within the 121.00-124.50 range in the next weeks, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “We expected USD to ‘trade between 121.50 and 122.70’ yesterday. We underestimated the volatility as USD traded within a wider range than expected (121.30/123.20). The underlying tone firmed somewhat and USD could move higher to 123.30. The major resistance at 124.50 is not expected to come into the picture. Support is at 121.60 followed by 121.30.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (30 Mar, spot at 122.80). As highlighted, the recent USD rally has come to an end. USD appears to have moved into a consolidation phase and is likely to trade between 121.00 and 124.50 for now.”

• GBP/USD edged higher for the third straight day on Thursday amid modest USD weakness.
• Better-than-expected UK macro releases extended additional support to the British pound.
• Fed rate expectations, BoE’s dovish outlook warrants caution for aggressive bullish traders.

The emergence of some USD selling during the early European session pushed the GBP/USD pair back closer to the mid-1.3100s in the last hour, though the uptick lacked bullish conviction.

Following the previous day's pullback from the 1.3180-1.3185 region, the GBP/USD pair attracted some buying near the 1.3110 area on Thursday and turned positive for the third successive day. The US dollar languished near the two-week low amid the ongoing retracement slide and was seen as a key factor that extended some support to the GBP/USD pair.

The British pound was further underpinned by better-than-expected UK macro data, showing that the economy expanded by 1.3% during the final quarter of 2021 as against the 1% estimated previously. Adding to this, the UK Current Account deficit fell sharply to £7.3 billion in Q4 2021 from the upwardly revised reading of £28.9 billion in the previous quarter.

That said, a combination of factors helped limit any deeper USD losses and capped the upside for the GBP/USD pair, at least for now. The incoming geopolitical headlines dashed hopes for a diplomatic solution to end the war in Ukraine. This, along with the growing prospect of new Western sanctions against Russia, extended some support to the safe-haven buck.

In the latest developments surrounding the Russia-Ukraine saga, a Kremlin spokesperson said on Wednesday that they have not noticed anything that looks like a breakthrough in negotiations. Moreover, an adviser to Ukraine’s President noted that Russia is transferring forces from Kyiv to encircle troops and launch  attacks 
in the eastern part of the country.

Apart from this, expectations that the Fed will adopt a more aggressive policy stance to combat high inflation favour the USD bulls. In fact, the markets have been pricing in a 50 bps rate hike move at the next two meetings. Conversely, the Bank of England has softened its tone on the need for further rate hikes. This, in turn, should keep a lid on the GBP/USD pair.

Market participants now look forward to the US economic docket, highlighting the release of the Core PCE Price Index - the Fed's preferred inflation gauge. The focus, however, will remain on fresh developments surrounding the Russia-Ukraine saga. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the GBP/USD pair.

Technical levels to watch

• DXY remains under pressure around 97.70.
• US yields extend the corrective downside on Thursday.
• Weekly Claims, PCE, next of relevance in the US docket.

The greenback remains under pressure so far this week and now trades in the area of multi-week lows around 97.70 when tracked by the US Dollar Index (DXY) on Thursday.

US Dollar Index looks to Ukraine, data

The index sheds ground for the third session in a row and navigates the 97.70 region amidst a cautious stance in the broader risk appetite trends and the renewed demand for bonds.

On the latter, US yields continue to lose momentum and grind lower following recent peaks, with the US 10y benchmark down for the third consecutive session to the 2.30% region (from Friday’s peaks around 2.55%).

Regarding the geopolitical front, rising scepticism prevails in response to the apparent progress in the latest Russia-Ukraine peace talks in Turkey, which have so far lacked any meaningful follow through.

In the US data space, Initial Claims are due seconded by inflation measured by the PCE, Personal Income/Spending and the Chicago PMI. In addition, NY Fed J.Williams  (permanent voter, centrist)is also due to speak.

What to look for around USD

The index remains on the defensive and retests the initial support zone around 97.70. In the meantime, very near-term price action in the greenback continues to be dictated by geopolitics, while the case for a stronger dollar in the medium/long term remains well propped up by the current elevated inflation narrative, a potential more aggressive tightening stance from the Fed, higher US yields and the solid performance of the US economy.

Key events in the US this week: PCE Price Index, Initial Jobless Claims, Personal Income, Personal Spending (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Manufacturing PMI, ISM Manufacturing PMI (Friday).

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

US Dollar Index relevant levels

Now, the index is down 0.05% 97 78 and a break above 99.41 (2022 high March 7) would open the door to 100.00 (psychological level) and finally 100.55 (monthly high May 14 2020). On the flip side, the next down barrier emerges at 97.68 (weekly low March 30) seconded by 97.03 (55-day SMA) and then 96.58 (100-day SMA).

NZD/USD could still extend the upside to the 0.7025 level in the next weeks, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “While we expected NZD to advance yesterday, we were of the view that ‘a clear break of 0.6960 is unlikely’. The anticipated advance exceeded our expectations as NZD soared to a high of 0.6999 before closing on a firm note at 0.6975 (+0.57%). Further advance is not ruled out but the major resistance at 0.7025 is unlikely to come under threat (0.7000 is already quite a strong level). Support is at 0.6960 followed by 0.6940.”

Next 1-3 weeks: “The breach of our ‘strong resistance’ at 0.6960 yesterday has invalidated our view for the “pullback in NZD to extend to 0.6850”. The strong rise to 0.6999 has gathered momentum and NZD could advance further to 0.7025. At this stage, a sustained advance above this level appears unlikely. Overall, only a break of 0.6920 would indicate that the current build-up in momentum has fizzled out.”

• A combination of factors dragged USD/JPY lower for the third successive day on Thursday.
• Fading hopes for diplomacy in Ukraine benefitted the JPY and exerted downward pressure.
• Retreating US bond yields kept the USD bulls on the defensive and contributed to the slide.

The USD/JPY pair edged lower through the early European session and dropped to a fresh daily low, below mid-121.00s in the last hour.

The pair struggled to capitalize on its modest intraday uptick, instead met with a fresh supply in the vicinity of mid-122.00s on Thursday and turned lower for the third successive day. Speculation that officials were uncomfortable and would respond to the Japanese yen's recent weakness turned out to be a key factor that acted as a headwind for the USD/JPY pair.

Moreover, the incoming geopolitical headlines dashed hopes for a diplomatic solution to end the war in Ukraine and further benefitted the safe-haven Japanese yen. Bearish traders further took cues from the ongoing decline in the US Treasury bond yields, which undermined the US dollar and exerted downward pressure on the USD/JPY pair, though the downtick remains cushioned.

The markets seem convinced that the Fed would tighten its monetary policy at a faster pace and deliver a 50 bps rate hike at the next two policy meetings to combat high inflation. Conversely, the Bank of Japan is expected to stick to its ultra-loose policy for a prolonged period. This, in turn, supports prospects for the emergence of some dip-buying around the USD/JPY pair.

The fundamental backdrop makes it prudent to wait for strong follow-through selling below the weekly low, around the 121.20-121.15 region before confirming that the USD/JPY pair has topped out. This would set the stage for an extension of the sharp pullback from levels just above the 125.00 psychological mark, or the highest level since August 2015 touched earlier this week.

Market participants now look forward to the US economic docket, highlighting the release of the Core PCE Price Index - the Fed's preferred inflation gauge. The focus, however, will remain on fresh developments surrounding the Russia-Ukraine saga. The incoming geopolitical headlines would influence the broader market risk sentiment and provide some impetus to the USD/JPY pair.

Technical levels to watch

The first monetary policy meeting of the Czech National Bank since the outbreak of the Ukrainian conflict will take place today. According to economists at ING, the CNB should hike by 75bp. However, a dovish press conference could make the CZK vulnerable. 

CZK vulnerable to any dovish CNB outcome

“A rate hike in the 50-100bp range is likely to be on the table today. Our main scenario calls for a 75bp hike in line with market expectations. Surveys prefer a 50bp hike.”

“Despite the hawkish decision, we can expect a dovish press conference highlighting stagflation and geopolitical risks. We expect that Governor Rusnok will mention that this rate hike may be the last, which we believe may lead to market disappointment.” 

“EUR/CZK has moved to the lowest levels in a month on optimism over a de-escalation in the Ukraine war, making the pair vulnerable to any dovish CNB outcome.”

EUR/USD clings to modest daily gains above 1.1150 after managing to post impressive gains in the previous two days. In the opinion of economists at ING, the pair may hold on to gains after strong eurozone inflation readings.

Holding on to gains

“The news of US oil possibly being released is a positive for the euro, given the eurozone’s dependence on energy exports, but it is still unlikely to drive crude prices sustainably lower, keeping the prospect of material recovery in the battered eurozone’s terms of trade as quite remote. We continue to see the terms of trade shock as likely to keep EUR/USD upside limited in the medium-term.”

“We think that high eurozone inflation readings and the benign external environment – albeit still highly reliant on Russia-Ukraine peace negotiations – can keep EUR/USD in the 1.11/1.12 area for today.” 

EUR/USD clings to modest daily gains above 1.1150 after managing to post impressive gains in the previous two days. Although economists at ABN Amro expect the dollar to enjoy less upside against the euro, they still forecast the world's most popular currency pair to sink toward 1.05 by end-2022.

Widening rate spread should still support the dollar versus the euro

“We now expect investor sentiment to be cautious as opposed to negative, and as a result, we think that there is less upside for the dollar versus the euro. However, the widening rate spread should still support the dollar versus the euro.”

“The eurozone economy will continue to be much more negatively affected by the Ukraine war than the US economy. So we are still positive on the US dollar versus the euro, but we see less upside than the parity we indicated a few weeks ago.” 

“Our new year-end forecast for EUR/USD is 1.05.”

Could the euro’s exchange rate collapse? Economists at Natixis do not believe so, at least if the Russia-Ukraine conflict does not spread to European Union countries. 

Clear monetary policy divergence between the US and the eurozone

“We should expect a marked monetary policy divergence between the United States (interest rate hikes, shift to a policy of reducing the central bank's balance sheet) and the eurozone (whatever the ECB may still say, no marked monetary policy tightening). The financial markets do not yet fully expect this divergence, so the euro will depreciate further against the dollar.”

“If the conflict does not spread to Europe, however, we should not expect the euro to collapse, due to the excess savings of the eurozone and the solid international demand for euro-denominated assets (except very temporarily at the outbreak of the war in Ukraine), due to the structural strengthening of Europe.” 

Here is what you need to know on Thursday, March 31:

Despite the risk-averse market atmosphere, the dollar continued to weaken against its rivals on Wednesday and the US Dollar Index fell more than 0.5% before going into a consolidation phase early Thursday. The US Bureau of Economic Analysis will release the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, for February alongside Personal Income and Personal Spending Figures. The weekly Initial Jobless Claims will also be featured in the US economic docket. In the second half of the day, month/quarter-end flows could also cause the market volatility to rise. Finally, the OPEC’s full ministerial meeting will take place later in the day.

US February PCE Inflation Preview: Will inflation data confirm 50 bps May hike?

Although markets became hopeful for a diplomatic solution to the Russia-Ukraine conflict after Tuesday’s talks, Wednesday’s headlines forced investors to turn cautious. A spokesperson for Kremlin said that they have not noticed anything that could be assessed as a “breakthrough” in their negotiations with Ukraine. Ukraine's Defense Ministry noted that Russian forces were preparing to resume offensive operations and the Pentagon stated Russia was beginning to reposition about only 20% of the troops it has arrayed around Kyiv.

Earlier in the day, the data from China showed that the business activity in the manufacturing and service sectors contracted in March. AUD/USD and NZD/USD pairs came under modest bearish pressure after these data and edged lower during the Asian trading hours.

For the fourth consecutive day on Thursday, the Bank of Japan (BOJ) conducted an unlimited buying of 10-year Japanese government bonds (JGBs) at 0.25%. After closing the previous two trading days in the negative territory, USD/JPY edged higher during the Asian trading hours but fell back below 122.00 in the European morning.

GBP/USD retreated toward 1.3100 earlier in the day but regained its traction on upbeat data. The UK's Office for National Statistics reported Thursday that the Gross Domestic Product expanded by 6.6% on a yearly basis in the fourth quarter, surpassing the flash estimate and the market expectation of 6.5%.

EUR/USD clings to modest daily gains above 1.1150 early Thursday after managing to post impressive gains in the previous two days. Germany's Destatis announced that Retail Sales rose by 0.3% on a monthly basis in February, compared to analysts' estimate of 0.5%.

Gold declined toward $1,920 during the Asian session on Thursday but erased a portion of its daily losses with the benchmark 10-year US Treasury bond yield turning south and losing nearly 1% on the day.

Bitcoin continues to fluctuate in a narrow range near $47,000 for the second straight day on Thursday. Ethereum struggled to find direction on Wednesday and stays relatively quiet at around $3,400 early Thursday.

FX option expiries for March 31 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0900 432m
• 1.0950 612m
• 1.1000 3.1b
• 1.1050 485m
• 1.1070 716m
• 1.1100 1.6b
• 1.1125 759m
• 1.1200 2.2b

- USD/JPY: USD amounts                     

• 121.60 670m
• 123.50 455m
• 124.00 350m

- GBP/USD: GBP amounts        

• 1.3200 669m
• 1.3315 304m

- USD/CHF: USD amounts        

• 0.9050 456m
• 0.9200 397m
• 0.9300 580m
• 0.9385 450m

- AUD/USD: AUD amounts

• 0.7400 501m
• 0.7500 1.7b
• 0.7550 579m
• 0.7600 445m

- USD/CAD: USD amounts       

• 1.2500 658m

Gold price is beaten down once again, as it heads towards the $1,900 mark this Thursday. As FXStreet’s Dhwani Mehta notes, XAU/USD could resume downtrend amid a bearish wedge.

Bearish wedge suggests more pain for gold bulls

“The US Core PCE price index is due for release later on Thursday. Hotter inflation is likely to seal in a 50-basis points May Fed rate hike. Although concerns over a potential recession, in the face of the recent yield curve inversion and aggressive Fed’s tightening could have a major impact on the dollar and gold valuations.”

“Gold price has confirmed a bearish wedge formation on the four-hour chart. If the bearish momentum extends, XAU/USD could fall further towards the $1,900 mark, below which a test of the March 29 lows of $1,890 will be inevitable.”

“Any recovery attempt will meet initial resistance at the 21-Simple Moving Average (SMA) at $1,927. If bulls manage to crack that barrier, then the confluence of the wedge support and the horizontal 200-SMA at $1,933 will emerge as a tough resistance.”

Will the prices continue to rise? The European Central Bank (ECB) has not made a clear commitment to combat inflation yet. Until then, the euro is set to remain under pressure, economists at Commerzbank report.

The Fed will take action against inflation in an aggressive and rapid manner

“The Fed has already made it very clear that it will not remain idle but will take action against inflation in an aggressive and rapid manner. The ECB has yet to make this commitment. If we do get it, the euro is likely to benefit. The sooner, the better for the euro.”

“Until the risk of an energy crisis and considerable economic effects as a result of the Ukraine war have not been banished, the ECB is likely to hesitate to make a clear commitment. And as a result, it will also be a while before the euro can appreciate on a sustainable basis.”

Germany has declared the first stage in the emergency plan for gas supply. The greatest impact in the event of gas supply stoppages would be expected in industry. Economists at Deutsche Bank distinguish between first, second and third-round effects.

Early warning stage for gas supply: Industry on alert

“In the first round, there would be targeted and announced shutdowns of specified individual large consumers, potentially for a long period.”

“In the second round, the consumers of products from energy-intensive manufacturing would also be affected, i.e. the classic capital goods manufacturers (automotive, mechanical engineering, electrical engineering).”

“Third-round effects would include job and income losses in the affected sectors. In addition, even higher energy prices and corresponding negative effects on disposable incomes would be expected. The savings ratio could rise for precautionary reasons and dampen private consumption.”

Since the onset of the Russia-Ukraine conflict, NZD/USD has reversed its course from a 0.6530 low to see gains around 3%. The kiwi is now approaching cloud resistance at 0.7024. Above here lies a resistance zone at 0.7074-0.7108, Benjamin Wong, Strategist at DBS Bank reports.

Still grinding higher

“NZD’s uptrend remains intact given a move over 200-day moving average 0.6911 which places a potential test of weekly Ichimoku cloud resistance at 0.7024. The latter opens up further at a resistance zone at 0.7074-0.7108.”

“Further upside wiggle room is to be expected before NZD runs off its tarmac in May – May is typically a weaker month for NZD bulls to navigate.”

• Gold witnessed fresh selling on Thursday, though the downtick lacked bearish conviction.
• Modest USD strength, hawkish Fed expectations exerted downward pressure on the metal.
• Fading hopes for diplomacy in Ukraine extended some support to the safe-haven XAU/USD.

Gold came under some renewed selling pressure on Thursday and fell to the $1,920 region heading into the European session, reversing the overnight modest gains. The US dollar drew some support from expectations for a more aggressive policy tightening by the Fed and was seen as a key factor that acted as a headwind for the dollar-denominated commodity. In fact, the markets have been pricing in the possibility of a 50 bps Fed rate hike move at the next two meetings, which further undermined the non-yielding yellow metal.

The downside, however, remains cushioned amid fading hopes for a diplomatic solution to end the war in Ukraine. In fact, a Kremlin spokesperson said that they have not noticed anything that looks like a breakthrough in negotiations. Moreover, an adviser to Ukraine’s President noted that Russia is transferring forces from Kyiv to encircle troops in the east. Apart from this, the growing prospect of new Western sanctions against Russia tempered investors' appetite for perceived riskier assets and should extend support to the safe-haven gold.

The mixed fundamental backdrop warrants caution before positioning for the resumption of the recent sharp pullback from the vicinity of the all-time high, around the $2,070 region touched earlier this month. Market participants now look forward to the US economic docket, highlighting the release of the Core PCE Price Index - the Fed's preferred inflation gauge. The focus, however, will remain on the closely-watched US monthly jobs report (NP), which will influence expectations about the Fed's policy outlook. Apart from this, developments surrounding the Russia-Ukraine saga should assist investors to determine the next leg of a directional move for gold prices.

Technical outlook

From a technical perspective, the commodity's inability to capitalize on this week's recovery from over a two-month low favours bearish traders. That said, repeated failures to find acceptance below the $1,900 mark make it prudent to wait for some follow-through selling before confirming the negative outlook. In the meantime, the $1,914 area could act as immediate support ahead of the $1,895-$1,890 region. A convincing break through the latter would set the stage for a slide towards the next relevant support near the $1,872-$1.870 region.

On the flip side, the overnight high, around the $1.938 zone, closely followed by the $1,944-$1,945 region should cap the immediate upside. Sustained strength beyond could trigger a short-covering move and push gold prices to the $1,956-$1.957 area. The momentum could further get extended towards the $1,985-$1,988 region, above which bulls could aim to reclaim the key $2,000 psychological mark.

Gold daily chart

Key levels to watch

Economists at ABN Amro have made significant changes to their macro outlook following the Russian invasion of Ukraine in late February. They continue to expect the conflict to trigger a lasting global trade re-alignment. Subsequently, the economists update their three scenarios outlining how they expect this to play out.

Base case: Energy and commodity supply shock lasting one-year

“Sanctions and self-sanctioning leads to significant reduction in oil, some gas (LNG), and other commodity imports from Russia. Prices are persistently elevated, with supply disruptions lasting around one year until alternative supplies are secured. EUR/USD: Move to 1.05. Energy (2022-23 averages) Brent: $110-130/bbl WTI: $105-125/bb.”

Negative scenario: Supply disruptions last up to two years

“As in the base case, but Russian oil and gas supply is completely cut-off, either through official embargoes or Russian retaliation to sanctions. Trade re-alignment takes longer, leading to more persistent supply disruptions of up to two years.  EUR/USD: Move to parity or below. Energy (2022-23 averages) Brent: $130-160/bbl WTI: $125-155/bbl.”

Positive scenario: More rapid and/or smoother trade re-alignment; disruptions lasting 6 months

“Trade flow s realign more quickly, shortening disruption to energy and other supplies to around 6 months. The US and perhaps some OPEC countries raise oil output to fill the gap left by Russia, and/or Russian oil is bought by eg. China, freeing non-Russian supply to go to Europe. Same applies to other commodities. EUR/USD: 1.10. Energy (2022-23 averages) Brent: $80-110/bbl WTI: $75-105/bbl.”

In light of preliminary readings from CME Group for natural gas futures markets, open interest rose for the second session in a row on Wednesday, this time by around 13.4K contracts. Volume followed suit and rose by around 24K contracts, extending the choppy performance for yet another session.

Natural Gas now targets $6.00 and beyond

Prices of natural gas flirt with 2022 highs around $5.60 region so far this week. Wednesday’s gains were accompanied by increasing open interest and volume, all supportive of further gains in the very near term and with immediate barrier at the $6.00 mark per MMBtu.

• German Retail Sales arrived at 7.0% YoY in February vs. 6.1% expected.
• Retail Sales in Germany stood at 0.3% MoM in February vs. 0.5% expected.

Germany's Retail Sales rose by 0.3% MoM in February versus 0.5% expected and 0% last, the official figures released by Destatis showed on Thursday.

On an annualized basis, the bloc’s Retail Sales came in at 7.0% in February versus 6.1% expected and 10.4% booked in January.

FX implications

The euro is little changed on the mixed German data. At the press time, the major trades at 1.1168, up 0.10% on the day.

About German Retail Sales

The Retail Sales released by the Statistisches Bundesamt Deutschland is a measure of changes in sales of the German retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. The positive economic growth usually anticipates "Bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

• AUD/USD has plunged below 0.7500 amid the underperformance of China Manufacturing PMI.
• A short-lived pullback in DXY is likely to find sellers soon.
• Going forward, US Core PCE inflation data will be the key event to watch out for.

The AUD/USD pair has remained lackluster this week amid a low trading range of around 82 pips as the asset awaits a potential trigger to continue marching towards the north. The major has displayed a negative double distribution trading session as the asset has slipped lower after forming a range at open and is auctioning back and forth again in a range of 0.7478-0.7486.

Aussie dollar has been hammered in the Asian session after the China Federation of Logistics and Purchasing (CFLP) reported a poor monthly Manufacturing Purchasing Managers Index (PMI) on Thursday. The monthly Manufacturing PMI printed at 49.5 lower than the estimate and previous print of 49.9 and 50.2 respectively. It is worth noting that Australia is a leading exporter to China and underperformance from Chinese economic indicators has eventually impacted the antipodean.

Apart from that, Australian Building Permits data has failed to underpin the aussie against the greenback. The monthly Building Permits data has landed at 43.5% much higher than the street projection of 10% and prior print of -27.9%.

While the US dollar index (DXY) has observed a short-lived pullback after plunging consecutively for two trading sessions. The DXY is oscillating in a narrow range of 97.68-97.94 ahead of the Core Personal Consumption Expenditure (PCE) inflation on Thursday. A preliminary estimate for monthly and annual Core PCE inflation is 0.4% and 5.5% respectively.

The British economy expanded 1.3% on quarter in the final quarter of 2021, higher than the 1.0% growth in the previous period and above forecasts of 1.0%, the final revision published by the Office for National Statistics (ONS) showed Thursday.

The annual figures showed that the UK GDP rose by 6.6% in Q4 vs. 6.5% previous and 6.5% expected.

For the 2021 full year, the economy expanded by 7.5%, the most since 1941, recovering from a lower base, having contracted 9.4% in 2020. 

Meanwhile, the Current Account data for the fourth quarter of 2021 came in at GBP-7.3B vs. GBP-17.6B expected and GBP-28.917B previous.

Market reaction

GBP/USD holds steady around 1.3130 on the upbeat UK economic data.

Copper prices have held up relatively well during the first three months of the year. In the view of economists at ING, the upside risks still dominate the copper market in the next quarter.

Copper leans to the upside into next quarter

“Currently, the market still faces large uncertainties around the inflation trajectory and the Fed’s policy path, the Ukraine war and China’s covid battle. Spikes in market volatility cannot be ruled out while liquidity is thin.”

“As a base case, we currently expect the price to average around $10,000 in the next quarter, and a more bullish scenario is for the price to re-test the highs seen back in early March before moderating later this year.”

“The largest downside risks could be that a forceful policy required to curb inflation negatively spills over to financial sentiment and the real economy, and a prolonged covid combat could hurt demand harder as Beijing insists on its current policies on the virus.”

According to FX Strategists at UOB Group, cable is expected to trade in a consolidative fashion in the next weeks.

Key Quotes

24-hour view: “We expected GBP to ‘trade within a range of 1.3050/1.3150’ yesterday. However, it rose to a high of 1.3181 before pulling back. Upward momentum has improved a tad and GBP could test the 1.3195 resistance from here. For today, a sustained advance above this level is unlikely. The next resistance is at 1.3250. On the downside, a breach of 1.3120 followed by 1.3090.”

Next 1-3 weeks: “Two days ago (29 Mar, spot at 1.3100), we noted that downward momentum has improved slightly but we were of the view that GBP has to close below 1.3050 before a sustained decline is likely. We highlighted that the chance for GBP to close below 1.3050 is not high but it would remain intact as long as GBP does not move above 1.3195. GBP rose to a high of 1.3181 during NY hours and while 1.3195 is not breached, the build-up in momentum has fizzled out. In other words, GBP is not ready to head lower and it is likely to trade between 1.3050 and 1.3250 for now.”

• GBP/JPY is likely to pull back near 158.00 after a prolonged consolidation breakout.
• Rising 20 and 200-period EMAs add to the upside filters.
• The RSI (14) has settled in a 60.00-80.00 range, which signals more gains ahead.

The GBP/JPY pair has surrendered its weekly gains after facing resistance above 164.00. The selling pressure at elevated levels seems to be a corrective pullback after a winning streak of three trading weeks.

On the weekly scale, the asset has asset given a breakout of nine months of prolonged consolidation last week. The cross was auctioning in a flat channel, which signals an extreme volatility contraction. The asset has advanced higher after given a breakout of the consolidation, which placed in a range of 148.46-158.22.

The 20 and 200-period Exponential Moving Averages (EMAs) at 155.43 and 147.26 respectively are scaling higher, which adds to the upside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a bullish range of 60.00-80.00, which indicates a fresh impulsive wave going forward.

Should the asset test the upper end of the flat channel near 158.00, the cross will start advancing towards the previous week’s high at 161.50, followed by monthly highs at 164.65.

On the contrary, yen bulls may dictate the price if the cross drops below the previous week’s low at 156.38, which will drag the asset towards the round level support at 154.00. Breach of the latter will send the asset towards the 50 EMA at 152.71

GBP/JPY weekly chart

CME Group’s flash data for crude oil futures markets noted traders added nearly 11K contracts their open interest positions on Wednesday. Volume, instead, went down by around 219K contracts after three consecutive daily builds.

WTI: Next on the upside comes $115.00

Prices of the WTI extended the rebound on Wednesday in tandem with rising open interest, allowing for the continuation of the recovery in the very near term. That said, the commodity is expected to face the next target at the weekly high near the $115.00 mark (March 24).

FX Strategists at UOB Group noted EUR/USD could advance to the 1.1240 region once 1.1190 is cleared.

Key Quotes

24-hour view: “Our view for EUR to consolidate yesterday was incorrect as it rose to 1.1170 before closing on a firm note at 1.1156 (+0.64%). While upward momentum has not improved much, there is room for the advance in EUR to extend above 1.1190 first before easing. The next resistance at 1.1240 is not expected to come under threat. Support is at 1.1130 followed by 1.1100.”

Next 1-3 weeks: “We highlighted yesterday that the risk for EUR has shifted to the upside. We added, ‘a clear break of 1.1140 could lead to EUR strengthening to 1.1190’. EUR subsequently broke above 1.1140 and rose to a high of 1.1170. We continue to hold a positive EUR view and if EUR can break 1.1190, it would increase the chance for further EUR strength to 1.1240. The positive EUR outlook is intact as long as it does not move below 1.1055 (‘strong support’ level was at 1.1000 yesterday). On a shorter-term note, 1.1100 is already a strong support level.”

Open interest in gold futures markets reversed three consecutive daily pullbacks and increased by around 4.7K contracts on Wednesday considering advanced prints from CME Group. On the other hand, volume shrank sharply by around 192.8K contracts, the largest single day drop since February 25.

Gold: Upside remains capped by $1960

Wednesday’ uptick in prices of gold was amidst rising open interest, which is indicative of further gains in the very near term. Against this, the precious metal is expected to extend the side-lined trading for the time being with the upper end of the range around the $1960 region.

• USD/CAD has delivered a bullish open-drive as oil prices nosedive more than 5%.
• Biden aims for a massive oil release to corner the soaring inflation.
• The DXY has observed a dead cat bounce on weak Asian cues.

The USD/CAD pair has witnessed a strong buying interest from the market participants after sliding below 1.2450 on Wednesday. The major has displayed a bullish open-drive session on Thursday in which the asset initiates moving towards the north right from the first tick.

Loonie bulls have displayed a poor show on Thursday after the oil prices plunge like a house of cards. West Texas Intermediate (WTI), futures on NYMEX, is auctioning around $100.00 at the press time. The oil prices plunged after US President Joe Biden announced that its team is considering a massive oil release to the tune of 180 million barrels to counter the impact of soaring inflation as per Reuters.

Oil bears were eyeing a catalyst that could pump more oil into the global supply and for that Biden’s adherence to bringing price stability to the oil market by increasing the oil supply, has done its effect.

Meanwhile, the International Energy Agency (IEA) countries will decide on a collective oil release on Friday, Reuters reports, citing a statement from New Zealand’s Energy Minister’s office this Thursday has fueled the weakness in the oil prices. While writing the article, the WTI US oil has nosedived 5.33% in the Asian session. It is worth noting that Canada is the largest exporter of oil to the US and slippage in oil prices hurts the inflows to Canada and eventually their fiscal target.

On the dollar front, the US dollar index (DXY) has witnessed a dead cat bounce and has jumped near 98.00 on weak Asian markets.

Quek Ser Leang at UOB Group’s Global Economics & Markets Research comments on the recent performance of US 10y yields.

Key Quotes

“US 10-year yields started to rally sharply in early Mar and on Monday (28 Mar) it rose to a near 3-year high of 2.557%. The subsequent decline from the higher appears to have breached a rising trend-line support on the daily chart and this has increased the risk of deeper corrective pullback. Furthermore, daily MACD is dropping quickly and daily RSI is unwinding from deeply overbought levels.”

“While the shorter-term bias is on the downside and a breach of the 21-day exponential moving average (currently at 2.200%) would not be surprising, the major support zone between 1.998% and 2.070% is unlikely to come under threat, at least not within this one month or so. On the upside, if the 10-year yield advances above 2.557%, it will face a major long-term declining trend-line resistance connecting the highs of June 2007 and Oct 2018 (level is currently at 2.620%).”

• EUR/USD’s upside breakout challenges the 50-DMA roadblock at 1.1181.
• The US dollar attempts a bounce amid broad risk-aversion, recovery in yields.
• Bullish RSI suggests any pullback could be short-lived, focus on US/EU inflation.

EUR/USD is feeling the pull of gravity, as the US dollar recovers lost ground across the board amid a risk-off market profile.

Chinese business activity returns to a contraction in March, accentuating concerns over China’s economic slowdown while the country battles the latest covid outbreak.

Further, Ukraine’s President Volodymyr Zelenskyy’s comments that the Ukrainian military is preparing for a new Russian offensive in the eastern region of the country also added to the dour mood, reviving the dollar’s safe-haven appeal.

Meanwhile, a recovery in the US Treasury yields across the curve also aids the renewed upside in the greenback, limiting EUR/USD’s gains.

On the euro side of the story, concerns over soaring inflation pushed the euro area peripheral yields through the roof, backing the rally in EUR/USD a day before. As for Thursday’s trading so far, the main currency pair is taking cues from the dollar’s price action and the broader market sentiment.

Although the downside in the spot could be limited amid the 5% slump in oil prices on reports of the US mulling a massive oil reserves release. Meanwhile, markets will look forward to the German Retail Sales and US PCE Inflation due later this Thursday for fresh trading opportunities. Friday’s Eurozone Preliminary inflation data and the US NFP report will also hold the key.

EUR/USD: Technical outlook

As observed on the daily chart, EUR/USD is retreating after facing stiff resistance at the downward-sloping 50-Daily Moving Average (SMA) at 1.1181.

The downturn in the 14-day Relative Strength Index (RSI) is backing the pullback in the price. Although the bullish potential remains intact, as the leading indicator is holding well above the midline. Acceptance above the latter will put the bearish 100-DMA at 1.1250 at risk.

If bulls face rejection at the 50-DMA, then a fresh downswing towards Wednesday’s low of 1.1082 could be in the offing. Ahead of that the 1.1100 round figure could be challenged.

EUR/USD: Daily chart

EUR/USD: Additional levels to consider

• A fresh bull cross from 20 and 200-period EMAs is pointing more upside ahead.
• Auctioning near 61.8% Fibo retracement signals that the upside is intact.
• Bulls need to violate 0.7000 for a firmer rally.

The NZD/USD pair has attracted some offers near the psychological resistance at 0.7000 and is oscillating near 61.8% Fibonacci retracement (placed from 21 October 2021 high at 0.7219 to January 28 low at 0.6529.), which is at 0.6954.

On the daily scale, the kiwi bulls have witnessed a strong upside move after violating the horizontal trendline plotted from the 24 December 2021 high at 0.6890. The trendline placed from January 28 low at 0.6529, adjoining the February 14 and February 24 low at 0.6593 and 0.6630 respectively will continue to cushion the major.

A fresh bull cross from 20 and 200-period Exponential Moving Averages (EMAs) at 0.6885 is signaling a positive impulsive wave going forward.

Meanwhile, the Relative Strength Index (RSI) is oscillating in a bullish range of 60.00-80.00, which coincides with other upside filters.

Violation of the psychological resistance at 0.7000 will expose the asset to an upside towards the round level resistance at 0.7050, followed by a 15 November 2021 high at 0.7082.

On the flip side, greenback bulls can be worthy if the asset drops below weekly lows at 0.6876 decisively, which will send the pair towards March 17 low at 0.6823. Breach of the latter will expose the asset to more downside near round level support at 0.6800.

NZD/USD daily chart

The International Energy Agency (IEA) countries will decide on a collective oil release on Friday, Reuters reports, citing a statement from New Zealand’s Energy Minister’s office this Thursday.

Earlier on, Reuters cited some sources, saying that US President Joe Biden's team is considering a massive oil release to the tune of 180 million barrels to counter the impact of soaring inflation.

Market reaction

WTI price is extending its sell-off, with the $100 mark at risk, on these above headlines. The US oil is down 5.30% on a daily basis.

• WTI Price Analysis: Bears taking up the driving seat, eye break below $100bbls

• USD/INR is volatile at open as investors await the OPEC meeting.
• The DXY has been hammered on multiple catalysts.
• The optimism over the progress of the Russia-Ukraine peace talks seems to fade away.

The USD/INR pair has witnessed a decent buying interest near 75.54 as a ceasefire expectation between Russia and Ukraine faded despite a constructive outcome from the peace talks on Tuesday.

The first face-to-face peace discussions between the officials of Russia and Ukraine in Turkey resulted in a withdrawal of Russian military activity from northern Ukraine and Kyiv against the proposition of neutral status by Ukraine and the promise of abstaining from alliances. This had led to a firmer rally in the risk-sensitive assets and eventually in the Indian rupee. However, the later statement from Moscow's lead negotiator cautioned that Russia's promise to decrease military operations did not represent a ceasefire and a formal agreement with Kyiv had a long way to go, as per Reuters faded the optimism of a truce between the Russian rebels and Ukraine defenders.

On the oil front, West Texas Intermediate (WTI), futures on NYMEX, have slipped near $100 ahead of the OPEC meeting. The major discussion of the OPEC cartel is likely on filling the demand-supply gap to bring price stability. Also, the Indian rupee may display a positive correlation with the oil prices on Thursday.

Meanwhile, the US dollar index (DXY) is dropping on multiple factors. Broadly stabled market sentiment, weak US economic data, and uncertainty over the yield curve inversion are weighing pressure on the might greenback.

The Australian government announced on Thursday that it will impose tariff increases on all imports from Russia.

The Russian imports will be hit with 35% tariffs, effective from April 25.

• Gold price resumes decline, as risk-aversion revives the US dollar’s haven demand.
• Gold traders closely watch the action in US yields, Ukraine news ahead of US data.
• Four scenarios for big moves in precious metals markets.

Despite Wednesday’s rebound, gold price remains exposed to downside risks amid hopes for diplomacy on the Ukraine crisis while Russia continues its hostilities on the ground. Meanwhile, the price action in the US Treasury yields will continue to have a significant impact on the non-yielding gold price, in the face of recession risks and soaring inflation. Gold price now awaits the US PCE inflation and Friday’s Nonfarm Payrolls for fresh insights on the Fed’s next interest rates move. XAU/USD is set to end the quarter as well as the month with a gain of 5.6% and 1% respectively.

Read: Nonfarm Payrolls Preview: Three reasons for a downside surprise, triggering dollar buy opportunity

Gold Price: Key levels to watch

The Technical Confluences Detector shows that gold price is challenging bids at $1,924, which is the convergence of the SMA10 four-hour, Fibonacci 61.8% one-day and pivot point one-week S1.

The next bearish target is envisioned at $1,920, the pivot point one-day S1. Further south, the bears will test the bullish commitments at the previous day’s low of $1,916.

Should the selling pressure intensify, a fresh drop towards the previous week’s low of $1,911 will be on the cards.

Alternatively, gold bulls need to crack a dense cluster of healthy resistance levels around $1,932, where the Fibonacci 61.8% one-week, Fibonacci 23.6% one-month and SMA200 four-hour intersect.

Acceptance above the latter will call for a retest of the previous high four-hour and SMA10 one-day at $1,935.

The previous day’s high of $1,939 will be next on the bulls’ radars, as they remain poised for the additional upside towards the Fibonacci 38.2% one-week at $1,945.

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.

• GBP/USD has attracted offers from 1.3144 as investors await UK’s GDP and US Initial Jobless Claims.
• The DXY is responding more to the economic data after the hangover of the Russia-Ukraine peace talks.
• US Initial Jobless claims are likely to underperform while UK’s GDP will remain flat.

The GBP/USD pair has witnessed a steep fall in the Asian session after tumbling below the consolidation, which placed in a narrow range of 1.3125-1.3144. The cable is indicating a negative double distribution trading session going forward as the asset has slipped lower after forming a range at open and is likely to auction back and forth again on the downside.

Pound bulls are facing barricades on the upside as investors are waiting for the UK’s quarterly and yearly Gross Domestic Product (GDP) numbers, which are due on Thursday. The quarterly GDP is likely to print at 1% similar to the prior figure. However, a preliminary estimate for the yearly GDP is 6.5%.

Meanwhile, the dollar index (DXY) is trying to catch a breath after tumbling below 98.00. The DXY initiated its downside journey on an upbeat market sentiment when the first face-to-face negotiations between Russia and Ukraine resulted in a constructive outcome. However, the responsive selling due to risk-on impulse turned into initiative selling on poor economic data. Weak US annualized GDP (Q4) numbers and ADP Employment Change on Wednesday closed all doors of optimism for the greenback.

Adding to that, investors are also worried about the yield curve inversion. In response to that market participants are keeping an eye on the 10-year and two-year US Treasury yields.

On Thursday, the US docket will report Initial Jobless Claims, which are likely to surge by 197k against the previous addition of 187k.

• AUD/USD is struggling to resist above 0.7500 amid disappointing China’s PMIs.
• Risk-aversion, sell-off in commodities price limit aussie bulls.
• The US dollar licks its wounds amid poor data, weaker yields and Ukraine hopes.

AUD/USD remains on a slippery slope around 0.7500 so far this Thursday, having failed to find acceptance above the latter amid broad risk-aversion.

The higher-yielding aussie bears the brunt of a contraction in the Chinese Manufacturing and Services PMIs. It’s the first time since September 2020 that both indicators have contracted together.

The official manufacturing Purchasing Managers' Index (PMI) fell to 49.5 from 50.2 in February, the National Bureau of Statistics (NBS) said, while the non-manufacturing PMI eased to 48.4 from 51.6 in February.  

Concerns over the Chinese economic slowdown amid the latest covid outbreaks coupled with soaring inflation worldwide are sapping investors’ confidence. This is helping put a fresh bid under the US dollar, as it licks its wound after Wednesday’s huge sell-off, triggered by a steep correction in the Treasury yields across the curve. A slowdown in the US ADP jobs creation and a downward revision to the Q4 GDP collaborated with the downside in the dollar.

Additionally, a slump in oil prices is leaving AUD/USD vulnerable to the additional downside. WTI prices crashed over 4% after Reuters reported that US President Joe Biden's team is weighing a massive oil release to combat inflation. The total release may be as much as 180 million barrels, the sources said.

Next of relevance for the major remains the US PCE inflation data and the incoming updates on the Ukraine conflict, as the peace talks are likely to resume online on April 1.

AUD/USD: Technical levels to consider

Japan’s Chief Cabinet Secretary Hirokazu Matsuno warned on Thursday about the ill effects of the ongoing depreciation in the yen on the economy.

Key quotes

Read: BOJ offers to buy unlimited amounts of 10-Year JGBs at 0.25%

Market reaction

As of writing, USD/JPY is trading around 122.10, up 0.27% on the day.

• EUR/JPY is off the highs but remains strongly bid on BOJ’s action.
• A bull flag breakout on the daily chart remains in the offing.
• But overbought RSI conditions point to a minor pullback.

EUR/JPY is holding gains above 136.00, tracking the renewed weakness in the Japanese yen after the Bank of Japan (BOJ) conducted its unlimited bond-buying operation yet again on Thursday.

Despite the upbeat momentum, the cross is off the daily highs of 136.84, as the correction in the US Treasury yields and the risk-off market mood is keeping the upside limited, for now.

From a short-term technical perspective, EUR/JPY is primed for a massive breakout to the upside, as it charts a bull flag formation on the daily sticks.

Daily closing above the falling trendline resistance at 136.85 will confirm the bull flag, fuelling a fresh upswing to test 150.00, the pattern target. Ahead of that, Monday’s high of 137.54 will be put to test.

EUR/JPY: Daily chart

With the 14-day Relative Strength Index (RSI), however, lying in the overbought zone, a minor pullback in the EUR/JPY price cannot be ruled out before the bulls flex their muscles.

Failure to resist above the falling trendline support at 134.69 will invalidate the bullish formation, opening floors for a test of Monday’s low at 134.00.

EUR/JPY: Additional technical levels to watch

• EUR/USD marches towards 1.1200 on rising bets over an interest rate hike by the ECB.
• A higher preliminary inflation figure in Germany advocates a rate hike sooner rather than later.
• Other than fuel and food, ECB’s Lagarde sees no other factor compelling a hawkish stance.

The EUR/USD pair has added gains on Thursday after surpassing Tuesday’s high at 1.1171. The shared currency has remained a decent performer in the past few trading sessions amid rising bets over an interest rate hike for the first time since the Covid-19 pandemic.

Soaring inflation in Eurozone is compelling the European Central Bank (ECB)’s policymakers to elevate the interest rate. A preliminary estimate of the German Consumer Price Index (CPI) displays that German annual inflation could climb to 7.3%, the highest print in more than four decades. This advocates an interest rate hike by the ECB sooner rather than later.  

Russia’s invasion of Ukraine has spurred the oil and gasoline prices in Europe due to its higher dependency on Moscow’s oil and energy. ECB’s President Christine Lagarde spoke on the inflation outlook at an event hosted by the Bank of Cyprus on Wednesday, citing that other than fuel and food no other catalyst is indicating inflation. However, food and energy prices should be barricaded now.

Meanwhile, the US dollar index (DXY) has started reacting to the economic indicators after the optimism over the Russia-Ukraine peace talks faded. The DXY has slipped below 98.00 on weak annualized Gross Domestic Product (GDP) (Q4) numbers and Automatic Data Processing (ADP) Employment Change.

Going forward, investors will focus on the European Union (EU)’s Unemployment data, which is likely to land at 6.7% against the previous figure of 6.8% on Thursday. While the US docket will offer Nonfarm payrolls (NFP), which claims a preliminary estimate of 480k against the prior figure of 678k, which is due on Friday.

• WTI bears take control in Asia and eyes are on the further downside. 
• The daily dynamic support is in focus as bears move towards $100 the figure. 

The price of oil is a focus considering the sudden drop in the Asian session: US Pres. Biden team weighs a massive oil release to combat inflation, oil heavily offered

The following illustrates a bearish bias as the price falls below critical supports. 

WTI hourly chart

The hourly chart is seeing the price drop below the support line which is now the counter trendline and would be expected to resistance attempts back to the upside. This leaves the focus on a break of $100bbls for the sessions ahead, as illustrated on the daily chart below:

WTI daily chart

The bears are in control as the price is rejected from the golden 61.8% ratio and embarks on a test of the dynamic daily trendline support. A break there opens risk to the prior daily lows near to $95 figure and slightly beyond, $92.40. 

Further ahead, however, the monthly candle is drawing to a bullish close. If the wick remains as long as it is, then there could be prospects of a move higher next month as the correction reverses:

For the fourth consecutive day on Thursday, the Bank of Japan (BOJ) conducted an unlimited buying of Japanese government bonds (JGBs).

The Japanese central bank offers to buy unlimited amounts of 10-year JGBs at 0.25%.

The BOJ on Wednesday, conducted an emergency market operation on Wednesday, in a desperate attempt to restrict the yields from piercing the 0.25% target.

Market reaction

USD/JPY fades a spike to daily highs of 122.45 following the BOJ’s operation, now trading at 122.13, still up 0.28% on the day.

The monthly Manufacturing and Non-manufacturing PMIs were released as follows:

• China Manufacturing PMI March: 49.5 (est 49.8; prev 50.2).
• Non-Manufacturing PMI March: 48.4 (est 50.3; prev 51.6).
• China march official composite PMI at 48.8.

There was no major reaction in markets to the data, despite moving into contraction territory, although AUD/USD is a touch softer, by a handful of pips and turning negative for the day at 0.7505. 

About China Manufacturing

The monthly manufacturing PMI is released by China Federation of Logistics and Purchasing (CFLP) on the last day of every month. The official PMI is released before the Caixin Manufacturing PMI, which makes it even more of a leading indicator, highlighting the health of the manufacturing sector, considered as the backbone of the Chinese economy. The data is of high relevance for the financial markets throughout several asset classes, given China’s influence on the global economy.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3482 vs. the last close of 6.3485.

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 Pres. Biden's team weighs a massive oil release to combat inflation and oil is heavily offered as the administration figures to release 1 million barrels of oil per day for months. The total release may be as much as 180 million barrels, the people said.

Meanwhile, President Joe Biden will give remarks on Thursday on his administration's actions to reduce gasoline prices in the United States, the White House said, as Russia's invasion of Ukraine and sanctions on Moscow have driven up the cost of oil.

President Biden recently announced a ban on Russian oil imports into the US, amid growing calls from bipartisan lawmakers to take action. The US will also ban imports of Russian natural gas and other energy sources, Biden said. 

As a result, CAD is offered and oil has sunk 5.4%. 

• The DXY has plunged below 98.00 after a weak performance from the US GDP and ADP Payrolls.
• Risk-on impulse has diminished the appeal of safe-haven assets.
• The US NFP and Russia-Ukraine peace talks are major events this week.

The US dollar index (DXY) is facing the heat of subdued performance from the US economic indicators and rising demand for risk-sensitive assets after a constructive outcome from the first face-to-face Russia-Ukraine peace talks between their respective officials in Turkey. The mighty greenback-based index has plunged below 98.00, which has acted as a major cushion in the past few weeks.

US GDP and ADP Employment Change

The subdued performance from the US economic indicators on Wednesday has brought an intense sell-off in the mighty dollar. The US Bureau of Economic Analysis reported Gross Domestic Product (GDP) (Q4) growth on an annualized basis at 6.9%, slightly lower than the estimates and previous print of 7%. While the Automatic Data Processing (ADP) recorded Employment Change at 455k lower than the market consensus of 450k and earlier print of 486k.

The constructive outcome of the Russia-Ukraine peace talks

A cut-off in Russian troops in northern Ukraine and the capital Kyiv after the negotiations between Russia and Ukraine has underpinned the positive market sentiment. Risk-perceived assets are gaining traction amid an upbeat market tone as investors have considered the event as a positive step toward a ceasefire. While Ukraine has proposed an adaptation of a neutral status amid abstaining from alliances. The nations will resume their peace talks on April 1 via the web.

Key events this week: Core Personal Consumption Expenditure, Initial Jobless Claims, Nonfarm Payrolls (NFP), Unemployment Rate, and ISM Manufacturing PMI.

Eminent issues on the back boiler: Russia-Ukraine Peace Talks, OPEC Meeting, Fed President John C. Williams speech.

• USD/CAD bears throwing in the towel in an area of historic demand. 
• The bulls are picking up the pieces in familiar support territory.

USD/CAD is accumulating in what could be the end of a spree of supply that started in the middle of the month on the back of surging oil and commodity prices. The following illustrates the prospects of a significant correction of the bearish impulse that is made up of nine consecutive days of selling:

USD/CAD Daily chart

USD/CAD has formed an M-formation on the daily chart, as illustrated above. This is a reversion pattern that would be expected to lure in the bulls all the way to the prior lows or even as far as the neckline of the structure. The first resistance structure is near the 38.2% Fibonacci level while the next structure above is where the neckline meets the 61.8% Fibonacci retracement level.

• AUD/USD is auctioning near the upper surface of the rising channel pattern.
• The asset has turned below 20 EMA, which indicates uncertainty for aussie bulls.
• The RSI (14) has slipped into a 40.00-60.00 range, which doesn’t favor an upside anymore.

The AUD/USD pair is balanced in a 0.7500-0.7536 area from Wednesday. The asset seems losing strength amid multiple failed attempts in overstepping March 28 high at 0.7540. The asset has witnessed a bearish open rejection-reverse trading session on Thursday as the asset moves higher gradually after opening around 0.7507. However, the major has faced significant offers near 0.7518 as investors prefer a ‘sell on rise’ approach.

On a four-hour scale, AUD/USD is trading near the upper surface of the rising channel whose lower end is placed from to January 28 low at 0.6966 while the upper end is plotted from the January 13 high at 0.7315.

The asset is hovering around the 20-period Exponential Moving Average (EMAs) at 0.7505.

The Relative Strength Index (RSI) (14) has shifted into a 40.00-60.00 from a bullish range of 60.00-80.00, which signals a consolidation ahead.

Should the asset drops below March 29 low at 0.7455, the major will start declining towards March 10 high at 0.7369, followed by the round level support at 0.7300.

On the flip side, aussie bulls can dictate the price if the asset surpasses March 28 high at 0.7541, which will send the asset towards the round level resistance at 0.7600, followed by the 17 June 2021 high at 0.7646.

AUD/USD four-hour chart