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EURJPY has reversed back down again after finding resistance at the 11-week high of 145.55 achieved at the end of December. However, the market is still developing above the short-term uptrend line that has been drawn from the beginning of January.

Technically, the momentum indicators are pointing to a neutral to positive bias in the short term with the RSI just above the uptrend line and the MACD standing above its trigger and zero lines.

Any losses should see the 20-day simple moving average (SMA) at 143.30 acting as a major support ahead of the 142.15 line. Marginally lower, the 50- and the 200-day SMAs at 141.75 would reinforce the bearish structure if the price breaks it and drops beneath the uptrend line at 141.00 as well.

In the event of an upside reversal, the 145.55 mark could act as a barrier before being able to re-challenge the 146.70 resistance. Further gains could lead the way towards the 147.70 and the 148.40 obstacles.

Summarizing, EURJPY is looking bullish in the near-term and only a selling interest below the ascending line may switch the outlook to bearish.

GBPUSD is making another attempt to climb the constraining 20-day simple moving average (SMA) at 1.2045, which has been capping bullish actions over the past week.

Although the pair seems to have secured a strong footing near January’s support area, where the 200-day SMA and the 23.6% Fibonacci retracement of the 1.0324-1.2445 upleg are positioned, the technical indicators have yet to show meaningful improvement. The RSI is sloping upwards, but it has yet to breach its neutral trajectory above its 50 neutral mark, while the MACD keeps fluctuating within the negative area and near its red signal line, both displaying a neutral-to-bearish bias.

Above the 20-day SMA, the 50-day SMA and the nearby 1.2175 resistance region could immediately cool upside pressures. If not, the pair could speed up to test the 1.2280 handle ahead of the key 1.2380-1.2400 barrier. Yet, only a sustainable move above the 1.2445 ceiling would activate new buying orders, likely boosting the price towards the 1.2600-1.2665 zone.

On the downside, a close below the 1.1945 floor may shift the spotlight to January’s trough of 1.1840. A step lower could face some congestion around 1.1740 before the door opens for the 38.2% Fibonacci zone of 1.1635. Should the bears persist, the pair could experience a freefall towards the 1.1465 level and the 50% Fibonacci of 1.1385.

In a nutshell, the technical picture in GBPUSD does not look bright despite the strong support developed around 1.1945. A close above 1.2045 could strengthen market sentiment, though only a rally above 1.2445 would violate the three-month-old range area. 

It's shaping up to be another relatively flat day in the markets as investors turn their attention to Capitol Hill ahead of Jerome Powell's first testimony.

The Fed Chair will appear before the Senate Banking Committee later today to testify on the semi-annual monetary policy report. These events naturally attract a lot of attention but the reality is the Chair's performance is usually quite polished and uncontroversial, and the occasion itself can drag on and frequently venture away from topic. In other words, we shouldn't assume we're about to get fireworks from Powell.

What may make this occasion different is the fact that there's so much uncertainty around the outlook for interest rates and inflation. While the Fed has maintained that rate hikes must continue, the economic data from January has forced markets to adjust to that reality too so there's every chance we get a hawkish offensive from Powell.

Considering the likelihood of the January data being a blip rather than a trend, I think it would probably be wiser for Powell to maintain his previous tone as he may risk spooking the markets but if the FOMC truly is weighing up a 50 basis point hike this month, this would be a good opportunity to lay the groundwork for it.

Nearing the end

The RBA appeared to soften its tone once more after hiking rates by another 25 basis points today. The central bank is now of the opinion that inflation has peaked and so multiple rate hikes may no longer be the base case. That said, the RBA will decide meeting by meeting and a lot can change in between. Markets are now pricing in at least one more hike in the cycle and maybe two. The Australian dollar is a little lower on the day as the decision was perceived to be a dovish hike.

Some promising signs

Chinese trade data highlighted some modest improvements but remain quite weak overall. The drop in imports can possibly be attributed to some one-off factors including Covid exit waves and the Lunar New Year and the data will surely improve over the coming months as the economy returns to normal. Exports remained under pressure, although the number was better than expected, indicating still soft global demand which aligns with what we've seen recently elsewhere.

Pushing the highs

Oil prices rebounded again on Monday, the second day in a row that they've reversed sizeable early losses to end the day in positive territory. They're now on a good run and traders were clearly not deterred by China's modest growth target for long. Against that backdrop, it may well be the case that Brent and WTI are about to test the upper end of their trading ranges that they've remained within since early December.

A break above $89 would be a very bullish signal for Brent while the same would be true of $83 in WTI. Whether they have the momentum to pull that off may well depend on Powell's dual testimonies and/or Friday's jobs data.

Tentatively higher

Gold is edging tentatively higher ahead of Powell's testimony, during which conditions could become much more volatile. The yellow metal has run into resistance around $1,860 this week which was always likely to be the first test to the upside. Above here, $1,890-$1,900 will be a big test, should it get that far.

Of course, all of this may simply depend on what Powell has to say. A hawkish testimony could wipe out any bullish momentum built up over the last week, at which point attention will shift back to the lows around $1,780-$1,800.

Hanging on in there

Bitcoin has been in consolidation since Friday's sell-off with traders seemingly fearful of further ripple effects but still willing to hang on for now just in case. It's been a fantastic year for crypto so far but events late last week were a quick reminder of the challenges facing the industry in the short term and the consequences of that. There'll also be an eye on Powell's testimony today as it may influence overall risk appetite in the markets.

The next few days could be wild and incredibly volatile for financial markets thanks to key central banks meetings, a semi-annual Congress appearance from Jerome Powell, and the latest US jobs data.

Asian shares edged higher on Tuesday morning following the mixed cues from Wall Street overnight as investors geared up for this week’s key risk events and economic releases. US and European futures seem to be pointing to a mixed open, with all attention directed towards commentary from Fed Chair Jerome Powell later today. In the FX space, the dollar remained subdued offering more space for G10 currencies to retaliate. Gold remains shaky this morning, and could be exposed to more pain if Powell strikes a hawkish tone later today.

In other news, the Reserve Bank of Australia hiked interest rates to the highest level in over 10 years. As expected, the central bank announced a 25-basis point hike, taking the cash rate to 3.6%. However, the RBA signaled a pause in its tightening cycle which triggered a selloff in the aussie. Taking a quick look at the technical picture, the AUDUSD remains under pressure on the daily charts with prices pressing against the 0.6700 support level. A solid bearish breakout beyond this level may open a path toward 0.6600.

Big week for USD as Powell and NFP eyed

It has been a choppy affair for the dollar over the past few days due to the absence of a fresh fundamental spark. But upcoming events could inject fresh life into the currency and set the tone for March.

Later today, Fed Chair Powell provides his semi-annual report to the Senate Banking Committee. Any hints around the Fed veering away from 25bp hikes in future meetings have the potential to move markets. The central bank head will address the House Financial Services Committee on Wednesday and is expected to reiterate a similar message. If Powell sounds hawkish, this could essentially revive dollar strength and rate hike bets. Alternatively, a dovish-sounding Powell may temper expectations around rates staying higher for longer, resulting in dollar weakness.

Before the main course and potential market shaker on Friday in the form of the NFP jobs data, investors will be served appetisers in the form of the ADP’s monthly report and the weekly initial jobless claims. Market sentiment could receive a slight boost if these reports exceed forecasts.

All eyes will be on the US jobs report at the end of the week, which is expected to show that the US added 215,00 jobs in February compared to the blowout 517,000 seen in January. Ultimately, another robust jobs report may reinforce expectations around the Fed holding rates higher for longer, in turn supporting dollar bulls. If the NFP report disappoints, this may raise questions about the dollar’s renewed strength, especially if rate hike bets cool.

Commodity spotlight - Gold

After bagging its best week since mid-January, gold has kicked off the new week on a shaky note.

The next few days promise to be eventful for the precious metal as investors brace for Powell’s Testimony and US economic data including the highly anticipated NFP. Price action suggests that gold bulls could be back in town. However, the risk events over the next few days may determine whether the current momentum results in a more pronounced bullish reversal or simply a dead cat bounce. A hawkish-sounding Powell coupled with another strong jobs report could spell nothing but trouble for gold. Alternatively, a cautious Powell and disappointing jobs report could keep the party going for gold bugs.

Taking a quick look at the technical picture, a strong daily close above the 50-day SMA around $1870 could encourage a move toward $1880 and $1900, respectively. Sustained weakness could open a path back towards $1845, $1825, and $1800.

The EURUSD currency pair seems to be forming a large corrective wave within the global impulse trend. Cycle correction IV, most likely, takes the form of a primary double zigzag Ⓦ-Ⓧ-Ⓨ.

The first actionary leg Ⓦ is completed in the form of a simple zigzag (A)-(B)-(C). A bearish intervening wave Ⓧ may be in the development stage now. It is also similar to the standard zigzag (A)-(B)-(C), which requires the last impulse sub-wave (C) to complete.

It is assumed that the price, along with impulse (C) going down, may fall to the 1.007 mark. At that level, impulse (C) will be at 123.6% of first impulse (A).

An alternative scenario suggests that the primary intervening wave Ⓧ will be short and perhaps it is already fully completed in the form of a zigzag (A)-(B)-(C).

Thus, the last upward movement of the price may indicate that the development of a new actionary wave Ⓨ has begun. Like the primary sub-waves Ⓦ and Ⓧ, the wave Ⓨ can take a zigzag shape (A)-(B)-(C), as shown in the chart.

There is a high probability that the first intermediate wave (A) will end near the February maximum, that is, at 1.149.

The Dow Jones 30 inches higher as bond yields pull back from their recent highs. A bounce off December’s low of 32500 and above 33000 has prompted short-term sellers to cover, turning the latter into a fresh support. As the RSI returns to the neutral area, follow-up buying could be expected from those who missed the initial pop. The index has recouped half of the losses from the mid-February tumble and 33800 is a key hurdle to clear before the bulls could hope for a sustained recovery towards the recent peak of 34500.

The New Zealand dollar softened after traders were underwhelmed by China's 5% growth target. On the daily chart, the kiwi came under pressure at 0.6280 on the 20-day SMA following its break below the January low of 0.6200. On the hourly time frame, 0.6160 at the base of the latest bullish momentum is an important support to gauge the strength of buying interest, and a bearish breakout would confirm a lack of it. Then 0.6070 would be the next stop on the way down with 0.6230 as a fresh resistance.

The US dollar retreats as the market awaits Fed Chair Jerome Powell’s testimony before Congress. A break above the first resistance of 1.0640 eased some of the downward pressure. Then the bulls managed to lift offers in the supply zone of 1.0690 from a previously faded rebound, opening the door for an extension to the previous spike at 1.0760. 1.0620 is a fresh support should the single currency need to consolidate its gains. 1.0550 is key in keeping the current bounce valid or a new round of sell-off could be triggered.

Markets

There was every reason to expect a calm session yesterday with Friday’s correction/consolidation on yield markets to continue into today’s appearance of Fed Powell before Congress. Eco data were few and second tier. However, calm was fiercely disturbed around noon. After ECB’s Wunsch on Friday, ECB’s Holzmann came up with some ‘out-of-the-box’ thinking on the ECB policy path. He advocated that the ECB might have to raise rates by 50 bps not only in March, but also in May, June and July. He considers that only 4.0% + levels will bring policy in a restrictive stance that will be effective enough to slow growth/demand and to bring (core) inflation down in a sustainable way. Holzmann’s view for sure isn’t the consensus. Yesterday, ECB’s lane and ‘dovish’ Portuguese member Centeno advocated a cautious, data-dependent approach. But it illustrates the lines along which the debate at next week’s meeting will evolve. European short-term yields made a sharp intraday U-turn. German yields closed between 10.1 bps (2-y) and 0.1 bp (30-y) higher. US yields lagged the sharp move in Europe. Even so, initial gains (in bonds) also crumbled and US yield closed between 0.5 and 3 bps higher. The impact of the yield rebound on other markets was modest. Even so, it capped further equity gains. The Euro Stoxx 50 closed 0.44% higher. US indices finished little changed. The jump in EMU yields this time also propelled the euro. EUR/USD closed at 1.0681 (from 1.0632). Euro strength also pushed EUR/GBP higher in the established range (close 0.8882). The likes of USD/JPY showed no clear directional trend (close marginally lower at 135.95).

This morning, Asian equities are trading mixed (Nikkei +0.22%, CSI 300 -1.28%). US Treasuries and the dollar are trading little changed with markets counting down to the appearance of Fed Chair Powell before the Senate later today. We expect the Fed Chair to reiterate that rates will have to be raised at least in line with the December dots. However, he might not be too specific with payrolls and CPI still to be released before the March 22 meeting. Such a ‘guarded’ hawkish stance might extend some further ST consolidation in US bond markets. A sustained break of the US 10-y above 4% probably has to come from the data (or auctions of LT US bonds this week) rather than from Powell’s guidance. Such a scenario also won’t help the dollar short-term. First importance resistance in EUR/USD (1.0803) is still some distance away. So, the technical picture shouldn’t change in a profound way.

News Headlines

Australia’s central bank (RBA) hiked policy rates by 25 bps to 3.6% this morning. It acknowledged the fact that inflation probably has peaked and should decline this year and the next to be around 3% in mid-2025. The RBA notes some divergence between decelerating goods price inflation and still-high services inflation. Household consumption adds to the latter but is nevertheless slowing due to tighter financial conditions and a softened housing outlook. In contrast, the business investment outlook is positive. The labor market remains strong and wage growth continues to pick up. The RBA does note that recent data suggest a lower risk of a wage-price spiral. Given elevated inflation and the additional economic cost it would take should this become entrenched in people’s expectations, the RBA thinks more monetary tightening is necessary. This time around however, the central bank introduced the possibility of a pause first instead of hiking back-to-back. This new element of timing dominated the market reaction. Australian money markets have largely priced out an April rate hike and have lowered the peak rate expectations from 4.15% to 4%. Swap yields in the region drop 5.8-14 bps with the front outperforming. The Aussie dollar retreats from AUD/USD 0.675 ahead of the decision to 0.67 currently. This level acts as important support.

Chinese exports dropped 6.8% in the first two months of 2023 from a year earlier. The biggest drag came from equipment used for data processing along with LCD displays and integrated circuits. Exports are expected to face continued downside pressures as global demand/trade weakens. The country also announced a more domestically focused approach yesterday, suggesting that exports lose significance as the economic stronghold. Imports on the other hand fell a stronger 10.2% over the same period, bringing about a trade surplus of $117bn. Weighing on imports were semiconductor parts and steel products. This contrasted with a jump in purchases of coal, rare earths and edible oil. China’s yuan trades subdued this morning. USD/CNY hovers around 6.936 opening levels.

The week started with worries that China setting its growth target to 5%, a meagre target for a post-pandemic kick-off, could mean a slower global growth ahead.

Today, the latest, and mixed trade figures further raised a couple of eyebrows regarding whether we are expecting too much from China. The decline in Chinese exports was less dramatic than expected, but imports fell more than 10% in February from a year ago.

Nasdaq’s Golden China Dragon index kicked off the week down, while the S&P500 was better bid at the open, with gains up to 1%. But the gains melted to the close and all three major US indices closed Monday’s session flat to very slightly positive. Still the S&P500 is heading to Powell’s semi-annual testimony above the 4000 mark.

Today, all eyes and all ears are on Federal Reserve (Fed) Chair Jerome Powell and what he thinks about the latest set of economic data.

Since the latest FOMC meeting, we saw a blowout NFP number, an uptick in inflation figures, lower-than-expected decline in the S&P500 earnings, and overall encouraging economic activity data.

And that’s a problem. The fact that the US jobs market, or economic activity don’t react to higher Fed rates is a problem for Fed, because it makes the Fed’s arms less efficient for fighting against inflation. Many would argue that changes in rates take time to filter into the economy but the Fed’s tightening campaign began in November 2021 - 17 months ago, the rate hikes began roughly a year ago. It’s about time we start seeing the impact of higher rates through data.

Alas, half-a-million NFP read, with the lowest unemployment rate of the past half a decade and uptick in inflation are indeed worrying.

US Crude above 100-DMA

Disenchanting growth target from China was expected to keep the oil bears in charge of the market, but the 100-DMA got surprisingly cleared to the upside yesterday.

Warning of tight global supply and rising Chinese demand from CERAWeek conference and Estonian foreign minister’s idea that the EU should halve the Russian oil cap helped pushing the price of a barrel above the critical 100-DMA level.

Tight global supply, war, sanctions on Russia oil and the rising Chinese and global demand tilt the balance for higher oil prices in the medium run. But higher energy prices mean higher inflation, and higher inflation means tighter monetary policies which, in return, increase the global recession odds, and could weigh on oil prices.

Elsewhere

The Reserve Bank of Australia (RBA) raised the rates by 25bp as expected and said that there could be more rate hikes on the pipeline depending on the data, but the AUDUSD slipped below 67 cents.

The EURUSD extended gains and flirted with the 1.07 mark yesterday on the back of a surprisingly softer US dollar into Powell’s testimony.

Gold sold off into the $1860 mark.

Hawkish Powell could reverse losses in the dollar later today.