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On the night of Thursday into Friday, reports emerged that Israel had attacked Iran following Iran's attack on Israel over the weekend.

Let's remember that we wrote on Monday that after a 300 drone and missile attack on Israel over the weekend, the price of Brent oil did not rise. Perhaps this happened because Iran's attack was then expected after the attack on its diplomatic mission, and warnings were published in the media.

And the initial reaction of financial markets to the escalation tonight looked more dramatic - there was a jump in prices for protective assets:

→ gold rose in price to USD 2,410 and above;

→ the Swiss franc and the Japanese yen have risen in price;

→ oil and US Treasury bonds rose in price.

There was also a sale of risky assets — Bitcoin, for example, fell below the USD 60k level. Moh Siong Sim, currency strategist at the Bank of Singapore, told Reuters: "It's pretty obvious the market is nervous. I think markets are at this stage in a flight-to-safety mode.”

As the morning approached, new information began to appear in Europe:

→ An Iranian official told Reuters that there was no missile attack;

→ CNN writes that Iranian air defenses intercepted three drones, and the United States did not approve of the Israeli attack;

→ According to the IAEA, there was no damage to Iran’s nuclear facilities after the Israeli strike.

→ According to ABC News, air traffic has resumed in Iran.

As a result, prices moved towards the closing levels of yesterday's trading — V-like patterns formed on the charts of the mentioned instruments.

The oil market can be considered the most susceptible to the influence of nightly news, since Iran is one of the top 10 countries in oil production.

Technical analysis of the Brent oil chart shows that:

→ the price rebounded from the level of the lower border of the ascending black channel (as we wrote yesterday);

→ however, supply forces intensified and returned the price closer to the lower border;

→ at the same time, a bearish inverted V pattern has formed on the Brent price chart today, and the median line of the channel shows signs of resistance;

→ it is also acceptable to expect that the former support at USD 88.50 will provide resistance when the price attempts to rise.

If a further round of escalation between Iran and Israel does not occur, it is possible that the Brent price will break down the current black ascending channel. And this may be welcomed by the US administration, where presidential elections are getting closer and closer.

• GBPJPY is in the red today, not far from its recent high
• It continues to hover inside a rectangle structure
• Momentum indicators are in waiting mode for the next key events

GBPJPY is trading lower today as the market is digesting the latest developments in the Middle East and the lower Japanese inflation prints, and also prepares for next week’s BoJ meeting. Following an aggressive pace of ascension, GBPJPY appears to have settled inside a rectangle with the upper boundary set by the July 21, 2005 low of 192.57. The barrage of verbal interventions by Japanese officials could have also contributed to this range trading activity, which is clearly depicted in the momentum indicators.

More specifically, the Average Directional Movement Index (ADX) remains stuck below its 25-threshold, signaling a trendless market. Similarly, the RSI continues to hover around 50, confirming the current indecisiveness of market participants. More importantly, the stochastic oscillator is trying to edge above its moving average, but such a move needs to pick up pace in order to be seen as a strong signal.

Should the bulls remain confident, they could test the resistance set by the July 21, 2005 low at 192.57 and then try to lead GBPJPY back above the January 2, 2024 ascending trendline. They could then have the chance to record a new 2024 high, above the current 193.52 high, with the next plausible target being in the 195.00 area.

On the other hand, the bears are desperate to regain market control and gradually push GBPJPY towards the 189.61-190.66 range, which is populated by the March 31, 2004 low and the 50-day simple moving average (SMA). If successful, they could then have a go at testing the support set by the 185.65-187.68 area that is defined by the August 22, 2023 high and the 100- and 200-day SMAs.

To sum up, range trading in GBPJPY continues as market participants have taken a back seat due to the geopolitical developments monopolizing the newsflow.

• USDCAD pauses aggressive bull run near five-month high
• Faces resistance around 1.3800, but remains supported above 1.3690

USDCAD attempted to re-enter the 1.3800 territory earlier today after its pullback from a five-month high of 1.3844 on Wednesday. But upside forces faded soon, forcing the price to pull back to Thursday’s closing price of 1.3765.

The RSI and the stochastic oscillator have exited the overbought territory, justifying the latest negative turn in the price. That said, the RSI is still comfortably elevated above its 50 neutral mark and the MACD is well above its red signal line, providing a ray of hope that the bulls could still show up.

Should the bears break below the 78.6% Fibonacci retracement of the November-December downleg at 1.3743, there is a possibility of another decline to retest the upper band of the broken bullish channel at 1.3690. An extension lower could stabilize somewhere between the 20-day simple moving average (SMA) and the 1.3600 round level. If not, the sell-off could continue towards the 50-day SMA at 1.3565.

In the positive scenario, where the pair closes back above 1.3800, it may face another tough battle within the 2023 peak area of 1.3860-1.3898. Once the border is successfully penetrated, the next target will be the 2022 top of 1.3976, while higher, the bulls might encounter resistance somewhere between the 1.4040 barrier seen in May 2020 and the psychological level of 1.4100.

To summarize, USDCAD has switched to a neutral mode and is awaiting a decisive move above 1.3800 or below 1.3690 to determine its next direction.

The decline in investor expectations regarding a change in the vector of the Fed's monetary policy contributes to the fall of not only European, but also commodity currencies. So, in recent weeks:

• AUD/USD has lost more than 200 points and is testing the extremes of 2023 near 0.6400
• USD/CAD is trading at three-year highs and has managed to strengthen by 300 points

What may affect the pricing of the main currency pairs on the market in the coming trading sessions:

• speech by the President of the Federal Reserve Bank of Chicago, Austan Goolsbee (today at 17.30 GMT+3.00)
• publication on the number of active drilling rigs from Baker Hughes (today at 20.00 GMT+3.00)
• announcement on the base lending rate from the People's Bank of China (Monday at 4.15 GMT+3.00)

USD/CAD

The USD/CAD currency pair has come close to the important range of 1.3970-1.3800, above which the price has not risen since 2020.

Technical analysis of USD/CAD indicates the possibility of a downward correction in the short term, since a dark clouds combination has been formed on the daily timeframe, the development of which could lead to a breakdown of yesterday’s low at 1.3740 and a further test of 1.3650-1.3620. If the upward movement resumes, the price may break through the recent high at 1.3840 and continue to rise in the direction of 1.3970-1.3880.

AUD/USD

A couple of days ago, a bullish harami combination was formed in the AUD/USD pair on the daily timeframe. This formation allowed buyers of the pair to correct to 0.6460. However, it was not possible to start a larger upward correction, and today the recent low at 0.6390 was updated. If this level becomes resistance, the price may decline to the 2023 lows at 0.6290-0.6270.

Short term Elliott Wave view in EURUSD suggests that cycle from 12.28.2023 high is in progress as a zigzag Elliott Wave structure. Down from 12.28.2023 high, wave A ended at 1.0694 and rally in wave B ended at 1.098. Wave C lower is in progress as a 5 waves impulse Elliott Wave structure. Down from wave B, wave ((i)) ended at 1.072 and rally in wave ((ii)) ended at 1.0885. Pair extends lower in wave ((iii)) with internal subdivision as another 5 waves in lesser degree. Down from wave ((ii)), wave (i) ended at 1.0846 and wave (ii) ended at 1.0866.

Wave (iii) lower ended at 1.071 and rally in wave (iv) ended at 1.0756. Final wave (v) lower ended at 1.06 which completed wave ((iii)). Wave ((iv)) rally is unfolding as an expanded Flat structure. Up from wave ((iii)), wave (a) ended at 1.065 and dips in wave (b) ended at 1.06. Wave (c) higher ended at 1.069 which completed wave ((iv)). Pair then extends lower again in wave ((v)). While below 1.069, expect pair to extend lower in wave ((v)) to complete wave C of (2) before pair turns higher.

EURUSD 60 Minutes Elliott Wave Chart

EURUSD Elliott Wave Video

https://www.youtube.com/watch?v=lJnCbjidda4

Markets

After a brief correction Wednesday, core yields again turned north yesterday. US yields added between 6.2 bps (5-y) and 3 bps (30-y). The Philly Fed business outlook printed much strong than expected (15.5 from 3.2).Weekly jobless claims (212k) confirmed the narrative of a resilient US labour market. Fed governors turn ever more guarded on any possible rate hikes this year. Fed’s Bostic favours a scenario of 1 cut at the end of this year. Fed’s Kashkari repeated the Fed needs more confidence that inflation is declining further. It is possible to delay a rate cut to 2025. Bunds gained slightly less, between 2.8 bps (30-y) and 3.8 bps (2-y) as ECB officials try to find how much autonomous rate cuts are possible if the Fed stays on hold for longer. Equites traded mixed (EuroStoxx 50 +0.46%, Nasdaq minus 0.52%). Even so, EMU and US indices remain in a sell-on-upticks dynamics with first relevant support levels coming closer. Higher (US) yields also helped the dollar to reverse early softness. EUR/USD closed at 1.0643 (from 1.0673). USD/JPY tested multi-year peak levels in the 154.70/80 area. DXY regained the 106 barrier.

Markets this morning are thrown in risk-off modus on headlines of an Israeli attack on Iran. In a first reaction, Asian equities spiked lower, but currently are unwinding part of the initial losses. Safe haven flows propelled US Treasuries with yields briefly declining more the 10 bps, but a reversal currently limits the decline between 4.5 (2-y) and 6.5 (10-y) bps. EUR/USD briefly dropped to the 1.061 area, but the 1.06 support remains intact for now (currently 1.063). The yen briefly strengthened below USD/JPY 154, but also this move could not be sustained (154.3). Brent oil jumped from $87 p/b to temporary trade above $90 p/b, but also eases back to $88.75. Later today, the developments in the Middle East probably will continue to dominate the market dynamics as there are no important data on the agenda. The market reaction on Friday last week suggested that a reaction to attacks between Iran and Israel could stay modest as long markets don’t anticipate a large scale escalation. We assume any setback in yields to stay limited. Higher oil or commodity prices even might further raise the inflation expectations component/risk premium for yields a longer maturities. The dollar maintains a positive momentum. A break of EUR/USD below 1.06 would suggest further losses/USD gains. This morning, UK March retail sales printed slightly softer than expected (headline 0.0% M/M and 0.8% Y/Y). EUR/GBP gains a few ticks post the release (0.8565).

News & Views

Japanese inflation eased in March. Headline prices rose 2.7%, down from 2.8% in February. The BoJ’s preferred gauge excluding fresh food came in at 2.6% vs 2.8% the month before while a measure ignoring energy prices as well eased from 3.2% to 2.9% - the first sub 3% reading since November 2022. While all gauges fell short of expectations (0.1 ppt), they remain above the 2% BoJ target for two years running. Services price growth slowed to 2.1% but should stay supported going forward on the biggest wage negotiation (>5%) outcome in decades. Coupled with the country’s weak(ening) currency – the Japanese yen recently hit a new 34-y low against the dollar – and the government’s decision to phase out utility subsidies from May (creating base effects), inflation could easily go up again in coming months. Today’s numbers aren’t going to change the BoJ’s widely expected status quo at the April 26 meeting. But upward revisions to the inflation forecast (+2% at the end of the policy horizon?!) may lay the groundwork for another rate hike later this year. The yen completely ignored the CPI outcome with geopolitical events dominating trading this morning. USD/JPY dropped to an intraday low of 153.59 after Israel retaliated for an Iranian strike last weekend in a tit-for-that response that risks escalating. The pair quickly pared losses to 154.31.

Yesterday’s European summit revealed sharp opposition against a France-led push for reforms to deepen financial market integration and central supervision. The project at stake, Capital Markets Union, mostly puts larger economies including Germany, Italy, Spain and the Netherlands against smaller countries that are wary to cede national oversight and regulatory powers to Brussels. The idea to create a CMU was already floated a decade ago but stranded quickly. Major challenges including the green transition and defense spending renewed momentum (for some at least) for an overhaul, believing that it would help tap private capital to fund the investments.

In the UK, retail sales volumes was unchanged in March, falling short of the modest 0.3% mom growth anticipated by analysts. The performance within the retail sector was varied: automotive fuel and non-food store sales saw increases of 3.2% and 0.5%, respectively, which were offset by declines in food stores and non-store retailers, dropping by 0.7% and 1.5%.

On a quarterly basis, retail sales volumes rising 1.9% in the three months to March, a recovery attributed to the bounce back from particularly low sales volumes experienced during the Christmas shopping season.

Full UK retail sale release here.

Daily Pivots: (S1) 191.90; (P) 192.34; (R1) 192.77; More..

GBP/JPY is still bounded in established range despite today's volatility. Intraday bias remains neutral. On the upside, break of 193.51 will resume larger up trend to 195.86 long term resistance. Nevertheless, decisive break of 189.97 support will indicate that it's at least correcting the rise from 178.32, and target 38.2% retracement of 178.32 to 193.51 at 187.70.

In the bigger picture, current rally is part of the up trend from 123.94 (2020 low), and is in progress for 195.86 long term resistance (2015 high). Break of 187.94 support is needed to be the first sign of medium term topping. Otherwise, outlook will remain bullish in case of retreat.

Daily Pivots: (S1) 164.32; (P) 164.64; (R1) 164.91; More...

Range trading continues in EUR/JPY despite huge volatility. Intraday bias remains neutral first. On the upside, firm break of 165.33 will resume larger up trend towards 169.96 key resistance next. However, decisive break of 162.26 support will argue that it's at least correcting the rise from 153.15, and target 38.2% retracement of 153.15 to 165.33 at 160.67.

In the bigger picture, current rally is part of the up trend from 114.42 (2020 low), which is still in progress. Next target is 169.96 (2008 high). Break of 160.20 support is needed to be the first sign of medium term topping. Otherwise, outlook will stay bullish in case of retreat.

Daily Pivots: (S1) 0.8549; (P) 0.8560; (R1) 0.8570; More...

Outlook in EUR/GBP remains unchanged as range trading continues. Intraday bias stays neutral at this point. On the downside, firm break of 0.8529 support will argue that the corrective recovery from 0.8497 has completed at 0.8601. Intraday bias will be back on the downside for retesting 0.8497 low next. On the upside, break of 0.8601 will resume the rebound instead.

In the bigger picture, there is no clear sign that down trend from 0.9267 has completed, despite loss of downside momentum as seen in D MACD. As long as 0.8601 resistance holds, the down trend will remain in favor to resume through 0.8491 low at la later stage.