Sample Category Title

Richmond Fed President Thomas Barkin said yesterday, "the best short-term path for us is to move rapidly to the neutral range and then test whether pandemic-era inflation pressures are easing, and how persistent inflation has become. If necessary, we can move further."

He added that the actions to combat inflation doesn't "necessarily require a hard landing." In fact, "it might help avoid one by convincing individuals and firms that the Fed is committed to our target, thereby cementing inflation expectations."

Barkin also said that the Fed needs to be "crystal clear that a growing economy requires stable prices, and that we will remain committed to addressing inflationary gusts."

RBNZ Monetary Policy Review, April 2022

• The Reserve Bank raised the OCR by 50 basis points to 1.50%.
• The increase was larger than the majority of economists (including us) were expecting, but was more in line with what financial markets had priced in.
• The RBNZ reiterated that its key concern is that the current spike in inflation doesn’t become embedded in longer-term price-setting behaviour.
• The Committee noted that the current level of the OCR is still stimulatory, and that further increases will be needed to achieve its mandate.
• However, it indicated that its view on the peak in the OCR is unchanged compared to the February Monetary Policy Statement.
• As such, today’s decision was described as earlier, rather than more, monetary tightening.

Implications

While the RBNZ’s decision was more in line with market pricing on the day, it emphasised that there is a key difference regarding the OCR outlook over the longer term. In recent weeks, financial markets have pushed towards pricing in an ever-higher peak in the OCR for this cycle, now getting towards 4%. In contrast, the RBNZ viewed today’s decision as a “stitch in time saves nine” approach: hiking interest rates earlier will reduce the risk of having to go even higher in the long term. The reasoning is sound; we’re just left wondering why it didn’t hold sway at the February review, with much the same information available.

The RBNZ statement was very much focused on explaining today’s decision rather than providing a signal for upcoming reviews. That said, there was nothing in the statement that explicitly argued against a follow-up 50 basis point hike in May, so we wouldn’t be surprised if the market moves to fully price that in.

We will review our OCR forecasts and update them in our bulletin later today.

Key Highlights

• Gold price started a fresh increase from the $1,920 support.
• A key bullish trend line is forming with support near $1,940 on the 4-hours chart.
• EUR/USD is still below 1.0950, and GBP/USD is consolidating near 1.3000.
• The US CPI increased 8.5% in March 2022 (YoY), up from +7.9%.

Gold Price Technical Analysis

Gold price formed a base above the $1,900 level against the US Dollar. The price settled above the $1,920 level to start a fresh increase.

The 4-hours chart of XAU/USD indicates that the price was able to clear a couple of key hurdles near the $1,950 level. There was a proper close above the $1,950 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

The price climbed above the 76.4% Fib retracement level of the main decline from the $1,966 swing high to $1,890 low. It even broke the $1,966 swing high.

On the upside, the price might face resistance near $1,984. It is near the 1.236 Fib extension level of the main decline from the $1,966 swing high to $1,890 low. The next key resistance could be $1,992, above which the bulls might aim a move above $2,000.

If there is a downside correction, the price might find support near $1,950. The next major support is near the $1,940 level. There is also a key bullish trend line forming with support near $1,940 on the same chart.

Fundamentally, the US Consumer Price Index for March 2022 was released by the US Bureau of Labor Statistics. The market was looking for an increase of 8.4% in March 2022, compared with the same month a year ago.

The result was in line with the forecast, as the US CPI increased 8.5%, up from 7.9%. Besides, the US Core CPI increased 6.5%, whereas the market was looking for 6.6%.

Looking at EUR/USD, the pair is consolidating losses below the 1.0950 pivot level. Besides, GBP/USD is fighting hard to stay above the 1.3000 level.

Economic Releases to Watch Today

• UK Consumer Price Index for March 2022 (YoY) – Forecast +6.7%, versus +6.2% previous.
• UK Core Consumer Price Index for March 2022 (YoY) – Forecast +5.4%, versus +5.2% previous.
• BoC Interest Rate Decision – Forecast 1%, versus 0.5% previous.

Gold prices finished positive in the previous week and have ascended to reach a new monthly high in the current, creating further excitement for market participants. Despite Gold’s price remaining nearby familiar levels for the past several weeks, we could say that the recent move higher could be encouraging for further price action to prevail. In this report we aim to bring forth the key fundamentals surrounding the Gold market and a technical perspective of the price action.

Yesterday Monday the 11th, Gold performed its fourth consecutive daily session moving upwards. Along with Gold other precious metals like Palladium where also on the rise with a number of reports pointing to the ongoing war in Ukraine. According to Reuters, during the past Friday Russian platinum and palladium was suspended from trading in London increasing supply bottleneck concerns to the broader market. A disruption of any precious metal supply could elevate economic risks substantially and force traders to trade the risk averse Bullion. Supply bottlenecks have concerned the global economy during the pandemic and have pushed Gold prices to new all-time high levels confirming traders prefer the fast-moving metal during times of unprecedented uncertainty. The Russian war in Ukraine seems to keep traders in an active state allowing us to consider the subject as one of the most important currently for the Gold market.

On a side note, concerns over the trajectory of the US economy seem to be ongoing. Yesterday Federal Reserve Bank of Chicago President Charles Evans stated the Federal Reserve may choose a more aggressive interest rate increase noting specifically a 50-basis points rate hike is a possibility in the upcoming FOMC meeting in May. In the past days, the USD index a measure of the greenback’s strength against other major currencies surged and reached a new 2022 high level. Despite the greenback and Gold prices keeping mostly a negative correlation in play, they have both managed to remain higher in recent sessions. The correlation between Gold and the USD may be questionable currently and, in our opinion, may not be reliable for understanding future price action.

With a rather packed economic calendar for the rest of the week Gold traders could have interesting sessions to work with in the days ahead. On Thursday the 14th of April we get the US Retails Sales rate for March along with the weekly initial jobless claims figure and the very important Preliminary University of Michigan Economic Sentiment for April. On Friday the 15th we get the Industrial production rate for March and in the next week on Tuesday the 19th we get the Housing Starts Number for March.

We end this report by noting that today’s release of the U.S. inflation data could create substantial volatility for the precious metal. Traditionally, higher inflation rates tend to support Gold prices, as bullion has been used as a measure to counter higher good prices. However, caution is advised, and we would suggest that traders keep an open mind as to the actual market reaction. In addition, on Monday inflationary pressures in China were confirmed to be elevated in March possibly adding further to Gold’s upsurge.

Technical Analysis

XAUUSD H4 chart

Gold is currently trading between our (R1) 1970 resistance and our (S1) 1940 support level. On Monday a brief upward movement sent the price action reaching the (R1) yet a correction lower was soon carried out. However, the (R1) 1970 line has not been tested since March the 14th making it a strong buying indicator for traders, if the level is to be actually surpassed. In an extended buying trend scenario, traders could also target the (R2) 2000 resistance level or even higher the (R3) 2020 barrier. In the opposite side, a selling scenario could force the price action towards the (S1) 1940 support level which was targeted various times in the past week and was used as both a resistance and a support. Lower the (S2) 1915 support is the lowest level Gold has dropped to in April making it an accurate metric for a selling trend. If the (S2) is breached, the price action could be signaling a change of trend to a selling one making the (S3) 1895 a target. Overall, our personal view is that Gold remains in a sideways motion but due to the recent high it jumped to on Monday, it could also be driven by some bullish tendencies. Besides, the RSI indicator below our chart is currently running across the 63 level, implying some bullish appetite may still be in play.

[php_everywhere instance="1"]

• WTI reversed from key support level 93.50
• Likely to rise to resistance level 105.00

WTI crude oil today reversed up sharply from the key support level 93.50 (which formed the daily Mornign Star in March) – standing near the 38.2% Fibonacci correction of the upward price impulse from December.

The upward reversal from the support level 93.50 stopped the previous ABC correction (2).

Given the multi-month uptrend – WTI crude oil can be expected to rise further toward the next resistance level 105.00 (top of the previous wave (ii)).

• AUDCHF reversed from pivotal support level 0.6900
• Likely to rise to resistance level 0.7000

AUDCHF currency pair today reversed up sharply from the pivotal support level 0.6900 (which stopped the previous corrective wave (iv) at the end of March).

The support zone near the support level 0.6900 is strengthened by the 38.2% Fibonacci correction of the upward price impulse from the end of February.

Given the strong daily uptrend – AUDCHF currency pair can be expected to rise further toward the next round resistance level 0.7000.

The dollar index edged lower on Tuesday, following a multiple failure to sustain probes above psychological 100 barrier.

Traders sold dollar after US inflation rose further in March and made a biggest multi-year rise, but some signs add to expectations that inflation may have peaked and may start to ease that would reduce needs of the US Federal Reserve to be aggressive in tightening monetary policy in the second half of the year.

Daily studies show fading bullish momentum and stochastic emerging from overbought territory, opening way for correction, as bulls faced headwinds from psychological 100 level Fibo barrier at 100.34 (76.4% of 103.80/89.15 downtrend).

More evidence of pullback is still needed, with today’s close in red seen as initial signal, which would look for confirmation on close below pivots at 99.59/41 (Monday’s low / former top of Mar 7).

Rising 10DMA (99.22) marks next support, followed by converging 20/30DMA’s at 98.87/77, broken Fibo 61.8% at 98.20 and key support at 97.72 (Mar 30 trough).

Cracked 100 level marks initial resistance, followed by 100.34 Fibo level, violation of which would signal bullish continuation.

Res: 100.00; 100.20; 100.34; 101.01
Sup: 99.59; 99.41; 99.22; 98.87

Markets

Early this morning, it looked that the congruent sell-off in bond and equity markets would simply continue going into the US March inflation release. At 2.83%, the US 10-y yield touched the highest level since December 2018. Asian equities mostly closed in the red, China being the exception to rule. European equities at the open also tumbled almost 2.0% (EuroStoxx50). European yields set new cycle peak levels. However, momentum wasn’t as strong as it was over the previous days. The yield rally already ran into resistance during the European morning session. US bond investors also shifted to a wait-and-see attitude going into the CPI release. Equities left the intraday lows. German ZEW investor confidence dropped further with the expectations measure (-41.0 from -39.3) nearing the lows set early in the pandemic. Even so, both the decline in the current conditions and expectations measure was less than feared. US headline CPI printed as expected at 1.2% m/m and 8.5% Y/Y (was 0.8% and 7.9% in February). Core inflation (excluding food and energy) printed slightly softer than expected at 0.3% M/M and 6.5% (from 6.4%). Price rises were still broad-based with gains for energy (7.5% M/M), services (0.5% M/M and 5.1% Y/Y), including housing (0.7% M/M) still continuing, amongst others. Prices of used cars which rose sharply over the previous year, this time eased 3.8% M/M, contributing to the ‘softer’ core inflation. The market reaction was interesting. Over the previous months, inflation data mostly surprised on the upside. This not being the case today, apparently triggered some relief among investors US bonds were captured in a corrective short squeeze. US yields are easing between 7.5 bps (5-y) and 2.0 bps (30-y), the belly of the curve outperforming. A bit strange, real yields decline more than inflation expectations. For now, we don’t draw any firm conclusions. A correction after a stretched directional move. European bond markets joined the US reaction, but clearly underperformed. German yields are losing between 4.2 bps (5-y) and 1.0 bp (30-y). Changed in euro swap yields even are close to non-existent with investors looking forward to Thursday’s ECB meeting. Today’s pause also provided some further relieve for peripheral European bond markets with 10-y spreads narrowing up to 3 bps (Italy, Spain, Portugal). European equities further reversed this morning’s losses, but currently fail to return in to positive territory (EuroStoxx50 -0.2%). US equities are gaining up to 2% (Nasdaq).

On FX, the correction in US yields hardly hurt the dollar. USD/JPY is testing the 125 handle. DXY is holding close to the 100 pivot. Euro bulls also should be disappointed with EUR/USD reaction. The pair briefly touched the 1.09 area, but currently even trades marginally lower near 1.0875. Sterling trades with a minor positive intra-day bias (EUR/GBP 0.8340, cable 1.3040) despite mixed labour market data this morning. UK CPI data will be published tomorrow morning.

News Headlines

The World Trade Organization (WTO) said Russia’s war with Ukraine will slow the economy’s rebound from the pandemic. Already stretched supply chains are being pressured further with trade disruptions visible everywhere from commodities over metals to energy. In addition, China answers any Covid outbreaks with new lockdowns. This again disrupts seaborne trade, according to the organization. Global trade in goods was revised lower from 4.7% to 3% for 2022. In 2023, trade could grow with 3.4% though there were downside risks to that estimation, including food insecurity. The WTO also shaved 1.3 ppts of previously expected GDP growth, to 2.8% before picking up to 3.2% next year.

Ireland is mulling to lower the VAT on energy bills as it seeks way to cushion an escalating cost-of-living crisis, resorting to measures that were already taken by a number of other European countries. The plan under discussion would lower the rate on electricity and gas from 13.5% to 9% on a temporary basis, Ireland’s national broadcaster reported today.

The US consumer price index has updated its record since 1981, accelerating to 8.5% y/y from 7.9% a month earlier and slightly stronger than the 8.4% average analysts forecast. However, yesterday’s White House warning of “extraordinarily elevated” inflation data set the numbers even higher.

Yesterday’s sell-off in equity markets and the pull into the dollar is essentially an attempt by traders to build upon the higher numbers after the “insider” from the White House, which gets the numbers a day early.

The core price index (excluding food and energy) rose weaker than expected, rising to 6.5% y/y.

The markets got a breath of fresh air as they saw signs that inflation was not on as destructive a trajectory as feared. In this environment, markets can bounce back from some overly extreme positioning.

We noted that yesterday markets laid down a 37% chance that the Fed would raise rates by 125 points over the next two meetings. The reassessment to a more realistic outlook provides local support to the equity market and forms a pullback of the dollar from the extremes reached yesterday.

In the longer term, one must consider that even with more down-to-earth expectations of 6 hikes of 25 points by the end of the year, combined with active asset sales from the balance sheet, a mix hardly compatible with a relentless bull market.