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The Canadian dollar has steadied on Wednesday, after sliding 1% a day earlier. Later today, the Bank of Canada meets for its monthly meeting.

BoC likely to pause

The Bank of Canada is widely expected to take a pause at today’s meeting and maintain the cash rate at 4.50%. This would mark the first pause in rate hikes since the current tightening cycle began in January 2022. The BoC has raised rates by 425 basis points during this time and the tightening has had a dampening effect on the economy – GDP in Q4 flattened out and inflation has fallen under 6%.

There is a possibility that the BoC will continue to hold rates, but that will depend on the data, particularly inflation and employment. The shift in policy is bearish for the Canadian dollar, especially with the Federal Reserve expected to continue raising rates. Currently, there is only a 25-bp differential in rates between the US and Canada, but if the Fed keeps raising and the BoC stays on the sidelines, the divergence in rates will weigh on the Canadian dollar, which has plunged some 3% since its February high.

It’s a very different story south of the border, where the US economy is churning out strong numbers and the disinflation process appears to be on hold. In his testimony on Capitol Hill, Fed Chair Powell noted that the latest (January) data was stronger than expected and signalled that the Fed would respond with higher rates than it had previously anticipated. Although the January numbers may have been a blip, the markets are marching to the Fed’s tune and have now priced in a 50-bp hike at the March 22 meeting at 75%, up from 25% prior to Powell’s testimony, according to the CME Group.

USD/CAD Technical

• 1.3701 and 1.3784 are the next resistance lines
• 1.3571 is a weak support line, followed by 1.3478

Gold plummeted in the face of Powell’s hawkish interest rate rhetoric on Tuesday, reversing March’s gains from 1,858 to pause at 1,809 earlier today.

Encouragingly, the precious metal seems to have formed a doji morning star candlestick near its recent lows in the four-hour chart, with traders waiting to see whether the market can confirm the bullish pattern with another strong green candlestick. The oversold signals from the RSI and the Stochastics are also raising hopes for an upside reversal, though with the MACD having dived into the negative area, downside pressures could limit potential gains.

The 1,818 number resumed its resistance role yesterday. Therefore, a decisive close above that bar might be required for an advance to 1,830, where the 50-period simple moving average (SMA) is flattening. Moving higher, the price may encounter the 20-day SMA at 1,837 and the 1,847 constraining zone before speeding up to 1,860.

If the bears retake control, the price may seek shelter near February’s low of 1,804. A continuation lower could strengthen towards the upper surface of the broken channel seen around 1,793, a break of which could find immediate support near 1,785 and then somewhere between 1,773-1,767.

Summing up, gold’s latest sharp decline seems to be overdone, making an upside reversal likely. For that to happen though, the yellow metal will need a bullish extension above 1,818.  

Market picture

Bitcoin fell on Tuesday amid falling equity indices and a rising US dollar. BTC updated three-week lows below $22K, losing 2% in the past 24 hours. Risky assets fell sharply amid a hawkish speech from Fed chief Jerome Powell, after which markets began to price in the chances of a 50-basis point rate hike later this month.

BTCUSD re-entered the area of the February lows. However, the dynamics in the FX market were much more capitulatory than in cryptocurrencies, where intraday moves continue to mark buying on dips. Touching levels just below $22K took the price back to the 61.8% Fibonacci retracement of the December-February rally. Consolidation below $21.5K would be a strong signal to move lower.

However, more buying is likely at the end of the medium-term correction in such situations, and the bulls will only celebrate victory once the price returns above $22.5K.

News Background

According to CoinGecko, Tether’s (USDT) share of the stackable coin market has surpassed 54% for the first time since November 2021, when the cryptocurrency market hit all-time highs.

El Salvador’s president, Nayib Buquele, said the legalisation of bitcoin had boosted the country’s tourism sector by 95%, improving the economy as a whole.

Ethereum co-founder Vitalik Buterin began selling his meme crypto assets MOPS, CULT and SHIK. The sale of tokens severely affected their value, and investors suffered losses.

WeChat, China’s largest social network, integrated digital yuan into its payment platform WeChat Pay.

The Australian dollar has stabilized on Wednesday after a dreadful outing a day earlier. In the European session, AUD/USD is trading just below the 0.66 line.

AUD/USD sustained its second most bearish day this year on Wednesday, with a staggering decline of 2.1%. Earlier today, the Australian dollar touched a low of 0.6567, its lowest level in four months. A combination of a dovish rate hike by the Reserve Bank of Australia and hawkish comments from Fed Chair Powell sent the Australian dollar reeling.

The RBA hike of 25 basis points was practically business as usual, but investors picked up on the removal of a reference to raising rates “over the months ahead”, a possible signal that the RBA could be near the end of the current rate-tightening cycle. The rate statement explicitly said that inflation had peaked, clearly a dovish signal from policy makers.

Earlier today, Governor Lowe used a second “p” word which weighed on the Australian dollar, saying that a pause in rate increases was closer. Does that mean that the April meeting will be a “one and done”? Perhaps, but Lowe has said previously that the Bank will make its rate decisions on a meeting-by-meeting basis, after evaluating the data. This means that the next inflation and employment reports will have a critical impact on what the RBA does at next month’s meeting.

In the US, Fed Chair Powell remained in hawkish mode in his testimony on Capitol Hill. Powell pointed to the recent string of strong releases and said the Fed would likely need to raise rates more than it had anticipated. Powell said that the Fed would evaluate the need to increase the pace of rate hikes based on the “totality of the data”. The remarks caused a huge shift in market pricing, with the likelihood of a 50-bp at the March 22 meeting rising to 70%, up from 25% prior to Powell’s testimony, according to the CME Group.

AUD/USD Technical

• 0.6565 is a weak support line. Below, there is support at 0.6402
• There is resistance at 0.6626 and 0.6749

BoE dove Swati Dhingra warned in a speech that overtightening posses a more material risk now. She called for holding interest rate unchanged.

"Overtightening poses a more material risk at this point, through potential negative impacts from increased borrowing costs and reduced supply capacity going forwards," she explained. "It risks unnecessarily denting output at a time when the economy is weak and deepening the pain for households when budgets are already squeezed through energy and housing costs."

"In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution. This would avoid overtightening and return the economy sustainably to our 2% inflation target in the medium-term."

"Overall, the evidence does not point to persistent cost-push inflation becoming embedded in wages and margins," she said. "Even after a year and a half of above-target inflation, there is little evidence for such cost-push inflation beyond what might be expected following an unprecedented terms of trade shock."

"Consumption remains weak and many of the tightening effects of monetary policy are yet to fully take hold," she added.

Full speech here.

Powell sent the USD much higher yesterday and hinted for a potential 50bp increase on next meetings as inflation is still the main issue while the economy is doing well. However, today Powell has another testemony at 15.00GMT when again we may see an important volatiliy. Before that ECB legarde is scheduleted to speak at 10GMT when we cna also expect hawkish comments, so EURUSD may potential try to stabilize for a bit, which would make sense as drop from 1.0695 is in five waves. Trend is down, no doubt so nay boucne in three waves will signal for further weakenss. Resistance is at 1.0570 then 1.0620.

USDJPY jumped into the green territory during the early US trading hours on Tuesday after the Fed chief Jerome Powell told Senate lawmakers that a return to bigger rate hikes is likely.

The pair closed moderately above the 38.2% Fibonacci retracement of the 151.93-127.21 downleg, which had been limiting bullish actions over the past couple of sessions around 136.65. But the bulls will also need to win the battle against the 200-day simple moving average (SMA) and the 138.00 round level in order to speed up to the next Fibonacci level of 139.60. Slightly higher, the 140.30 region may attract some attention before all eyes turn to the 142.20 barrier.

The bullish intersection between the 20- and 50-day SMAs is promoting the rally from January’s seven-month low, while the positive slope in the RSI and the Stochastic oscillator is also endorsing the aforementioned bullish scenario. Yet the indicators are currently only a short distance below their overbought levels, suggesting that upside pressures may fade soon. Should the price pull below 136.65, the 20-day SMA could immediately come to the rescue around 135.00. The 23.6% Fibonacci zone of 133.00 could be the next target, while lower, the pair may attempt to pivot within the frequently tested support area of 131.50-130.50.

In brief, USDJPY is looking cautiously bullish as the pair is trading within a constraining territory. A decisive close above 138.00 could further bolster buying appetite. 

NZDUSD sank to a fresh three-and-half month low of 0.6080, earlier today after the aggressive selling interest on Tuesday. The price is currently holding beneath the 200-day simple moving average (SMA) and the 0.6130 key level as well as below the bearish cross within the 20- and the 50-day SMAs.

According to the technical oscillators, the RSI indicator dived towards the 30 level and is flattening, while the MACD is strengthening its bearish momentum below its trigger and zero lines. Both are confirming the recent negative structure.

Should prices decline, immediate support could be found around the 0.6000 psychological mark before tumbling towards the 0.5840 support, shifting the outlook to strongly bearish.

However, if the market manages to pick up speed, the 0.6130 resistance and the 200-day SMA at 0.6165 could pose as a nearby barrier. A significant close above the latter would break the 20-day SMA at 0.6230 and the 0.6270 line, raising chances for further increases.

Summarizing, the outlook remains negative in the short-term timeframe since prices hold below all the moving average lines and near the recent low.

Daily Pivots: (S1) 161.55; (P) 162.71; (R1) 163.37; More...

Intraday bias in GBP/JPY remains neutral first. Further rally is still expected as long as 161.18 support holds. As noted before, corrective fall from 172.11 should have completed at 155.33 already. Break of 165.99 will target 169.26 resistance first, and then 172.11 high. However, break of 161.18 support will dampen this view and turn bias to the downside for 156.70 support instead.

In the bigger picture, corrective decline from 172.11 medium term should have completed at 155.33. With 38.2% retracement of 123.94 (2020 low) to 172.11 (2022 high) at 153.70 intact, medium term bullishness is retained. That is, larger up trend from 123.94 (2020 low) is still in progress. Break of 172.11 high to resume such up trend is expected at a later stage.

Daily Pivots: (S1) 144.35; (P) 144.90; (R1) 145.23; More....

Intraday bias in EUR/JPY remains neutral as consolidation from 145.55 is extending. Further rally is expected as long as 142.13 support holds. Corrective fall from 148.38 has completed at 137.37 already. Break of 145.55 will resume the rise from 137.37 to 146.71 resistance and then 148.38 high.

In the bigger picture, as long as 55 week EMA (now at 139.42) holds, larger up trend from 114.42 (2020 low) is still in progress for 149.76 long term resistance. However, firm break of 55 week EMA will bring deeper fall to 38.2% retracement of 114.42 to 148.38 at 135.40. Sustained break there will raise the chance of trend reversal, and target 61.8% retracement at 127.39.