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The Australian dollar has started the week with slight gains, after sliding 0.86% on Friday. In the European session, AUD/USD is trading at 0.6530, up 0.24%.

PBoC move sends Aussie sharply lower

The Australian dollar ended the week with sharp losses after China’s central bank set the daily fixing of the Chinese yuan lower than expected on Friday. The PBoC weakened the yuan in order to boost China’s struggling economy and the move led to an AUD/USD sell-off on Friday. China is Australia’s number one trading partner, and currency interventions such as the PBoC move can have a major impact on the Australian dollar.

It’s a light day on the data calendar, which means we can expect a quiet day for AUD/USD. The only tier-1 event is US New Home Sales, which is expected to rise to 680,000 in February, up from 661,000 in January.

Australia releases Westpac Consumer Sentiment on Tuesday, with the markets braced for a decline of 1.6% for March. This follows a sparkling 6.2% gain in February, as consumer confidence climb sharply after the Reserve Bank of Australia held interest rates earlier in February. Consumers expressed optimism that the RBA had winded up its rate-tightening cycle.

In the US, the markets have high hopes for three rate cuts this year, and the Fed’s “dot plot” projection at last week’s meeting also projected three cuts this year. However, Atlanta Federal Reserve bank President Raphael Bostic dampened the mood on Friday when he said that he expects only one quarter-point cut this year. Bostic said that he was “definitely less confident than I was in December” that inflation will continue to drop towards the 2% target.

AUD/USD Technical

• AUD/USD is testing resistance at 0.6534. Above, there is resistance at 0.6558
• There is support at 0.6490 and 0.6466

ECB Chief Economist Philip Lane, in a podcast published today, conveyed a sense of confidence among policymakers regarding wage growth trends. Lane articulated that policymakers are "confident" that wages growth is "on track" to return to normal.

"If this assessment is confirmed, then we will start looking more closely at reversing some of the rate increases we've made," he added.

Adding to the conversation, Governing Council member Fabio Panetta addressed an audience at a separate event, underscoring the feasibility of a rate cut given the current inflation trend.

"The consensus emerging - especially in recent weeks - within the ECB governing council points in this direction," Panetta noted.

• Gold moves horizontally within 2,145-2,195
• MACD and RSI lose steam

Gold prices have been moving lower over the last couple of days after the bullish spike towards the all-time high of 2,222.68 that was posted in the preceding week. The market has been developing within a narrow range of 2,145 to 2,195 since March 7 with the technical oscillators confirming a weakening bias. The MACD is holding beneath its trigger line well above the zero level, while the RSI is ticking down after the climb to 70 level.

If the market retreats further, then it may hit the lower boundary of the sideways move at 2,145 before touching the 20-day SMA at 2,131. Slipping further, the 2,088-2,100 region may halt the bearish movements.

On the other hand, a successful attempt above the 2,195 resistance could open the way for a retest of the all-time peak of 2,222.68. Immediate resistance could be found at the 161.8% Fibonacci extension level of the down leg from 2,079.19 to 1,810 at 2,245. Even higher, the price may challenge the next psychological marks such as 2,300 and 2,400.

All in all, gold is moving horizontally in short-term timeframe, but the broader outlook remains positive.

Market picture

The crypto market cap rose 4.5% over 24 hours to $2.56 trillion, roughly where it was a week ago, with an active rally over the last three days.

Bitcoin is up 4.7%, and Ethereum is up 4.3% in 24 hours. Their momentum has encouraged even more robust growth in smaller coins. Dogecoin is up 15% in 24 hours and 100% in 30 days, Solana is up +9.5% and 86%, and BNB remains stronger at +6.7% and 54% respectively.

Bitcoin rose to $67.1K, a third day of strength from an area near the 61.8% Fibonacci retracement of the rise from the January lows to the March highs. The correction from the peak has removed overbought conditions on a daily timeframe, making room for growth and easing the psychological impact on potential buyers as many are more comfortable buying the asset after a drawdown.

The fundamental development of this pattern suggests further growth towards the previous high of $73.7K. If it is successfully breached, the next target for growth could be $95.5K.

News background

Despite the recent correction in bitcoin, the asset is in “overbought territory”, notes JPMorgan. As the halving approaches, profit-taking is likely to continue.

Retail traders have temporarily lost interest in bitcoin, according to Zaye Capital Markets. With the halving approaching, BTC could see a major correction and fall below $50K.

BlackRock’s clients have little interest in investing in cryptocurrencies, except for Bitcoin and Ethereum, the firm said.

The SEC delayed a decision on Grayscale’s Ethereum futures ETF until 30 May, citing the need for more time to review it.

US authorities have filed claims against FTX. The US government’s claim on the collapsed exchange’s assets is expected to be between $3bn and $5bn.

Ripple CEO Brad Garlinghouse suggested that the SEC will fail in its attempts to classify Ethereum as a security.

Solana will surpass Ethereum in the number of consumer decentralised applications (dapps), predicts Matty Taylor, co-founder of Colosseum and former head of growth at the Solana Foundation.

From the point of view of technical analysis of BTC/USD, on Friday evening the price of Bitcoin was near the lower boundary of the ascending channel (shown in blue). This was alarming as it indicated that the market action could result in a weekly bearish candle forming with the price of BTC down by around 5% — something that hasn't happened since August of last year.

However, this did not happen, as the price recovered over the weekend, forming rebounds from the lower border of the channel. The lower shadows of the candles are a sign of demand forces. Moreover, the bulls have broken through the downward trend line (shown in black). Will the bulls be able to return the price of Bitcoin to an upward trajectory within the specified trend?

Doubts remain.

→ Bitcoin “still looks overbought,” JPMorgan strategists warned, predicting a decline to USD 42k.

→ Bloomberg writes about record capital outflows from Bitcoin ETFs last week.

→ The level of 70k looks like an important psychological resistance. Above it, the Bitcoin price formed a double top pattern with an all-time high at point A, after which the bears clearly became more active. They successfully pushed the price to minimum B, breaking the support of the channel median line.

The price of Bitcoin starts the new week around the 50% retracement from the decline A→B (about -16%). This gives reason to assume the development of consolidation.

But if the price again falls to the lower border of the channel, then this will more clearly indicate the inability of the bulls to resume the upward trend — and therefore put the lower border of the channel at risk of a bearish breakout.

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• A less dovish Fed with a surprise cut by SNB has triggered a bout of US dollar strength since last Thursday, 21 March.
• China’s central bank, PBoC responded with a lower-than-expected daily fixing on the onshore yuan (CNY) last Friday, 22 March which led the offshore yuan (CNH) to plunge by -0.8% against the US dollar to a two-month low.
• Further CNH weakness may trigger a currency war which in turn can trigger a potential negative feedback loop back into risk assets.

In the past two weeks, China, and Hong Kong benchmark stock indices (CSI 300, Hang Seng Index, Hang Seng TECH Index & Hang Seng China Enterprises Index) have traded sideways after recording gains of between +16% to +24% from their respective early February lows to recent mid-March highs.

These recent bouts of positive performances have propelled China and Hong Kong to be the top-performing major stock markets in February and are supported by the absence of a strong US dollar environment that reduces the risk of capital outflows as China remains mired in a deflationary risk spiral as well as ongoing high tech trade war with the US since 2018.

Hence, the recent rallies and outperformance of the key China and Hong Kong benchmark stock indices have been indirectly supported by a stable Chinese yuan where the CNH (offshore yuan) has traded in a tight range of 0.7% against the US dollar between 5 February to 12 March.

SNB surprised rate cut may trigger a currency war

Last Thursday, 21 March, the Swiss National Bank (SNB) engineered a surprise on market participants by enacting a rate cut of 25 basis points (bps) to 1.5% on its key policy rate, its first cut in nine years, and ahead of the US Federal Reserve, Bank of England (BoE), and European Central Bank (ECB).

One of the push factors for enacting an earlier rate cut by SNB other than a clear deceleration in inflationary trend (annualized core inflation rate has remained below 2% since May 2023) is the persistent strength of the franc that could erode the competitiveness of Swiss goods and services which in turn put a dent on economic growth in Switzerland.

The EUR/CHF cross pair has accelerated its decline in the past three years where it tumbled by -17% to print a close of 0.9270 on 5 January 2024, a fresh all-time low on a closing level basis since the surprise EUR/CHF unpeg on 15 January 2015 (intraday low of 0.8600 with a daily close of 0.9753).

The CHF tumbled after the surprise SNB’s decision; it fell by -1% against the EUR to its weakest level since July 2023. Also, it dropped -1.2% against the US dollar to hit a fresh four-month low.

Interestingly, the offshore yuan (CNH) tumbled by -0.8% against the US dollar to print a two-month low last Friday, 22 March after the China central bank, PBoC set a weaker-than-expected daily fixing on the onshore yuan (CNY).

This latest set of FX policy moves by PBoC is likely to have signaled a willingness to sacrifice some form of capital outflows over maintaining exports’ competitiveness to drive economic growth, and to fill the gap in the absence of robust domestic demand.

If the US dollar continues to strengthen due to the Fed’s less dovish stance (in no hurry to cut rates), it may lead to a bout of engineered currency devaluations among major exporters such as South Korea and Singapore which is likely to put pressure on PBoC to weaken the CNH further to make up for a further potential loss of trade competitiveness.

Overall, a persistent US dollar strength trend may trigger “beggar-thy-neighbour” currency war-liked monetary policies among exporters.

A weaker CNH does not bode well for risk assets

Fig 1: CNH/USD direct correlation with CSI 300, HSCEI & HSI as of 25 Mar 2024 (Source: TradingView, click to enlarge chart)

In the past two years, periods of significant weakness in the CNH (offshore yuan) against the US dollar have triggered a negative feedback loop back into the China and Hong Kong stock markets but to a lesser extent in emerging stock markets excluding China (see Fig 1).

Therefore, the recent softness seen in the CNH may trigger another round of potential multi-week bearish movements in the CSI 300, Hang Seng China Enterprises Index, and Hang Seng Index.

Bearish momentum has resurfaced in the Hang Seng Index

Fig 2: Hong Kong 33 Index major trend as of 25 Mar 2024 (Source: TradingView, click to enlarge chart)

Fig 3: Hong Kong 33 Index short-term trend as of 25 Mar 2024 (Source: TradingView, click to enlarge chart)

The price actions of the Hong Kong 33 Index (a proxy on the Hang Seng Index futures) have staged a bearish breakdown below its former ascending channel support in place since the 22 January 2024 low and its 20-day moving average on last Friday, 22 March.

In addition, the daily RSI momentum has also broken below its key parallel ascending support and just breached below the 50 level which indicates a potential revival of medium-term bearish momentum.

In the lens of technical analysis, this latest set of bearish elements suggests the recent rally of +16% from the 22 January 2024 low of 14,777 has taken the form of a “bearish flag” configuration, aka countertrend rebound motion within its major and long-term secular bearish trend phases (see Fig 2).

Last Friday’s bearish breakdown seen in the “bearish flag” and its daily RSI suggested a likelihood that the bearish impulsive down move sequence has resumed.

If the 16,960 key short-term pivotal resistance is not surpassed to the upside, the Index may see a further potential decline to expose the next intermediate supports at 16,135 (also the 50-day moving average), and 15,730 (see Fig 3).

However, a clearance above 16,960 negates the bearish tone to see a retest on the 17,230 minor swing high area of 13 March 2024, and above it sees the medium-term pivotal resistance coming in at 17,570/600.

• EURUSD breaks SMAs to the downside
• Immediate support at rising trend line
• MACD and RSI suggest more negative movements

EURUSD is showing some strong selling interest over the last couple of days, following the pullback from the 1.0940 resistance level. The price is also falling beneath the 50- and the 200-day simple moving averages (SMAs) with the next support coming from the 1.0795 bar and the medium-term ascending trend line which may act as a turning point.

Looking at the technical oscillators, the RSI is pointing south, crossing the 50 level to the downside, while the MACD is losing momentum beneath its trigger line and near the zero level.

In case of a rebound near the ascending trend line, the pair may meet again the next resistance of 1.0940 ahead of the 1.0980-1.1000 restrictive region.

On the other hand, a successful drop beneath the diagonal line may change the broader outlook to a more neutral one, hitting the 1.0695 support level. Below that, the market may find some pushback near the 1.0655 hurdle before heading lower again.

Summarizing, EURUSD is looking bullish in the medium-term window, despite the latest bearish correction in the very short-term view.  

Markets

The path of least resistance on yields markets on Friday still was south. Investors after Wednesday’s Fed meeting/press conference clearly saw the glass half empty, rather than half full. The dots suggested otherwise with both growth and inflation forecasts upwardly revised. However, markets drew ‘dovish comfort’ from the fact that the median dot for the 2024 rate path (narrowly) kept the ‘guidance for 75 bps cumulative rate cuts. At the same time, Powell didn’t show worry about the ongoing easing of financial conditions even as (dis)inflation was on a more bumpy path. He also suggested that the Fed’s dual mandate could bring it in a position where it, if labour market data were to deteriorate, can start cutting rates even before a full return to the 2% target has been achieved. Markets again fully consider the option of a first Fed rate cut in June (currently +/- 85%). US yields drifted further away from recent YTD top levels, losing 4.7 bps (2-y) to 7 bps (5 & 10-y). Question remains whether Powell’s ‘selective’ assessment of recent data (and of the dots) will be confirmed by the data and whether his soft view has the backing of a majority within the MPC. Looking at the distribution of the interest rate dots, we’re not convinced. Atlanta Fed president Bostic on Friday indicated that he only sees room for one rate cut this year as he is becoming less confident on inflation. European and UK yields declined in lockstep. German yields ceded between 4.8 bps (2-y) and 8.4 bps (30-y). UK yields eased between 5.6 bps (2-y) and 6.7 bps (10-y) as the focus within the BoE now fully turned to the timing of a rate cuts. We also take notice that the decline in yields this time didn’t really help equities (S&P 500 -0.14%, a tentative sign of fatigue?). On FX markets, the dollar remained in the driver’s seat. DXY returned north of 104 (104.43 close). EUR/USD came within reach of the 1.08 big figure (close 1.0808). USD/JPY lost a few ticks as markets were on alert for (verbal) interventions as the yen again neared multi-year lows (close 151.41).

This morning, Chinese and Japanese officials indeed started an offensive to prevent further currency losses. Japan’s vice finance minister of economic affairs this morning warned that current weakening of yen is not in line with fundamentals and is clearly driven by speculation. He concluded that authorities will take appropriate action against excessive fluctuations. USD/JPY eases marginally this morning (151.35). The yuan also rebounded back to the USD/CNY 7.20 area after breaking this key technical barrier last week as the PBOC via a strong fixing suggested its discomfort with a weaker currency. Today, the eco calendar in US and EMU only contains sector tier releases. Later this week, US data include consumer confidence and durable goods orders (Tues), jobless claims and Chicago PMI (Thurs) and the February PCE deflators (Friday). In EMU, members states from Wednesday on will release March CPI data. We  look out however the ‘Powell bond rally’ has room to go. The technical picture for the dollar (DXY and EUR/USD) strengthens. A break below EUR/USD 1.0796 would open the way to the YTD low (1.0695).

News & Views

NBP governor Glapinski in an interview with the Financial Times held out an olive branch to prime minister Tusk. Tusk accuses PiS-appointee Glapinski of politically motivated rate cuts ahead of the October elections at a time when inflation was still way too high. His lawmakers have recently also drawn up charges for alleged wrongdoings related to unlawful buying (at the primary market) of government bonds and misleading accounting (projecting a sizeable profit - which turned into a loss eventually - for 2023, allowing the former PiS government to factor in a big dividend in its pre-election budget). The NBP governor denies all charges and said he understands that accusing the (previous) government and central bank of causing inflation was the easiest way to manage the election campaign. But with the ballot now over Glapinski calls for talks in a bid to end a feud that is hurting the country’s international image.

Slovakia’s Korcok pulled off a surprise victory in the first round of the presidential elections over the weekend. The pro-European former diplomat secured 42.5% of the votes vs the 37% for Pellegrini. Pellegrini is the leader of the Hlas party, which has joined a government coalition led by prime minister Fico and his Smer party in the wake of the October 2023 elections. Slovakia’s president can veto legislation and appoint government officials, judges and central bankers. With Pellegrini as head of state, the Fico-led government’s ability to push through an agenda that’s increasingly raising European concerns rises dramatically. The final presidential round will take place April 6.

In focus today

The week starts out without any major data releases today. ECB president Lagarde and Fed's Bostic and Cook will speak today.

Later this week we look out for local inflation prints from Spain, France, and Italy that will give clues of where we can expect the euro area HICP print on Wednesday next week to come in. The PCE inflation from the US is due on Good Friday. The Central Bank of Hungary will announce its monetary policy rate decision on Tuesday.

Economic and market news

What happened over the weekend

In Russia a terrorist attack took place Friday night near Moscow. More than 130 people are confirmed dead, and more than 180 persons were wounded in the attack. The Islamic militant group Islamic State has claimed responsibility for the attack, however, Kremlin seemed eager to involve Ukraine in at least being partly responsible for the attack. Ukraine as well as American intelligence service have denied that Ukraine had any role in the attack. Russian President Putin claimed Saturday that the attackers were caught trying to escape to the Ukrainian border, not mentioning Islamic State in connection with the attack.

In Poland, a Russian missile violated Polish airspace early Sunday. The violation happened after Russia launched a massive air strike between Saturday and Sunday broadly on Ukraine including Kyiv and the western Lviv region bordering Poland. Polish and allied aircraft were activated early on Sunday as a reaction. The Polish government has demanded an explanation from Russia.

In the US, President Biden signed a USD 1.2 trillion spending bill to keep the US government funded and avoiding a partial government shutdown, which did not come as a surprise. The bill was signed after Congress voted in favour of the bill early Saturday. These bills fund only the government and are separate from, for example, the package including further support to Ukraine.

What happened Friday

In the US, Fed's Bostic (voter) said that he now expects only one 25bp rate cut in 2024, instead of the two cuts he had projected earlier, sounding quite hawkish on inflation, saying that he is less confident than in December that inflation will fall to Fed's 2 percent target. The 2024 dot plot signals three rate cuts, in line with our forecast, with the Fed delivering the first rate cut at the May meeting.

In the euro area, ECB's Centeno said that "We are at the end of this inflationary process." "Inflation is back at levels below 3% - monetary policy has to follow that reality as is evident, and will do it." ECB's Scicluna spoke as well and would not leave out a rate cut already in April. Both have typically leaned dovish. We still consider June close to a done deal for the first rate cut.

In Germany, the March Ifo print rose more than expected to 87.8. Despite the higher than expected number, Ifo is still at a very low level indicating a weak German economy. The assessment of the current situation rose to 88.1 (cons: 86.8, prior: 86.9) and expectations rose to 87.5 (cons: 84.7, prior: 84.1). The rise in expectations and the business situation give some ray of light for the economy but we still expect it to be weak near-term likely with another quarter of negative growth in Q1 2024.

In Japan, the largest union group Rengō says average wage hike was seen at 5.25% after the second tally. This is only slightly lower than the first tally, indicating that wage growth is more broad-based and supporting the BoJ's narrative for exiting NIRP. That said, two tallies more are ahead and smaller businesses are not a part of the data yet.

Equities: Global equities were marginally lower last Friday, dragged down by US markets despite some of the US heavy-weight sectors such as tech outperforming and Nasdaq ending higher. Friday weakness did not change yet another strong week for equities, up 2%, with cyclicals outperforming defensives by 2%, momentum outperforming the market by 2% and min vol underperforming. Small cap was in line with large cap as the two narratives of 'soft landing' and 'high-for-longer' were basically a neck-to-neck last week. In the US on Friday, Dow -0.8%, S&P 500 -0.1%, Nasdaq +0.2% and Russell 2000 -1.3%. Asian markets are mostly lower this morning though India and China are both higher. US and European futures are mostly lower.

FI: The bond markets is becoming more convinced regarding the first rate cut from the global central banks after last week's central bank meeting. The consensus is gathering around June on the back of comments from both ECB and Federal Reserve. This also drove the rally on Friday where European bonds yields decline, Bunds outperformed EU semi-core and periphery as well as Bund ASW-spread which widened after the prolonged tightening.

FX: After an eventful central bank week last week that included both a historical rate hike (BoJ) and a rate cut (SNB) within the G10 sphere the most notable development was still the strengthening of the USD and the sell-off in the CNY. The 'greenback' ended the week as the clear winner in Major's space and EUR/USD is back to the 1.0800 level after having almost reached 1.0950 after the FOMC meeting. CNY fell sharply towards the end of last week amid speculations of the authorities allowing for a weaker CNY but this morning USD/CNY has fallen back towards 7.20 amid a lower-than-expected fixing. Both SEK and NOK had a poor week with EUR/SEK and EUR/NOK trading above 11.40 and 11.65, respectively.

The Bank of Japan’s (BoJ) decided to hike the interest rates for the first time after 17 years but the yen has been weakening since then, on fear that this would be a ‘one and done’ cut. As a result, not only that the yen bulls are nowhere to be found but some traders revised their USDJPY forecasts to 155 for the next 3 months, to 150 for the next 6 months and 145 for the next 12 months post the BoJ meeting. Last week’s BoJ meeting and the market reaction to the meeting was a complete disappointment for the yen bulls who thought that the long yen would be the trade of the year. Finally, authorities had to step in this Monday and warn against speculative moves. The yen is stronger this morning, the Nikkei is down by nearly 1%. The FX warnings could limit the seller’s appetite, but will unlikely bring the yen bulls back.

Up, up and away

The Federal Reserve (Fed) policymakers didn’t sound much concerned about the latest blip in inflation at their last week meeting. The latter sent the US 2-year yield lower, and the dollar weakened in the immediate aftermath of the meeting, but the dollar index rebounded to close the week at the highest levels since February as the strong US economic data brought the Fed doves to doubt the Fed’s ability to cut the rates as soon as in June.

This week, the US will reveal its latest GDP update for the Q4 and the US economy is expected to have grown more than 3% in the final quarter of last year. That’s down from near 5% growth the quarter before, but the number is well above average growth for an economy which is preparing to see its monetary policy loosen.

The US equity markets remain on a euphoric mode on the back of soft Fed and robust data. The S&P500 had a slow session on Friday, but the index had its best week of the year – and it hasn’t been a bad year so far! The index is up by 12% since the year started and nearly 30% since last October – on track for its biggest-ever advance since 1970 ahead of a likely policy easing cycle according to Bloomberg. You bet it is, look at the Fed’s balance sheet, worth more than $7.5 trillion as of today.

And the stats are in favour of a further rise for the S&P500. Over the past 12 rate-cut cycles, the S&P500 climbed 15% on average – again according to Bloomberg. The positive trend is also true for sovereign and corporate bonds. Two major themes emerge into Q2: rate cuts and the AI adoption – both are favourable for stock valuations.

In Europe, the stocks had a record-breaking week, as well. Despite mounting headaches regarding the European luxury stocks and European Central Bank (ECB) Chief Lagarde’s warning that they can’t commit to more rate cuts beyond a June cut – which now sounds like an evidence – the Stoxx 600 advanced and closed the week above 500. In Switzerland, the SNB cut rates in a surprise move. The franc weakened and the SMI also extended gains last week. In contrast to the American and the European stocks, the Swiss equities are well below their post-pandemic peak. But given that around 90% of the SMI revenues are made abroad, a softer franc should clearly help the Swiss stocks healing from an extended period of strong franc. As per franc, there is room for depreciation. The dollar-franc tests the 0.90 psychological resistance to the upside. This is also the major 38.2% Fibonacci retracement on 2022 to end of 2023 drop. The pair will step into a medium term bullish consolidation zone above this level, but the franc’s weakness will be limited by the dovish outlook of its major peers. Against the euro, the parity is the most plausible target but again, franc depreciation will likely be slow and gradual.

This week, some Eurozone countries will reveal their latest inflation figures this week, but the aggregate number is not due before next Wednesday. The EURUSD has been having a rough time despite a more dovish Fed decision and a more hawkish ECB vibes. But I still think that the dollar’s strength will be limited by the dovish Fed talk and that the EURUSD will see support near 1.08 and rebound.

On the corporate calendar, Reddit and Galderma were the biggest IPOs of last week. Both went relatively well as conditions were ideal for a first day. And this week, Trump’s Truth Social will become a publicly traded company by as early as this week according to the latest news. The shareholders of DWAC approved the merger last week. TMGT – Trump Media and Technology Group – will replace DWAC. Note that DWAC has been subject speculation and high volatility since Trump is back on the political scene. Those who like risk and speculation will be well served.