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The Fed’s balance sheet shrank by 17.6 bn last week to 8,615 bn. Down 119bn over three weeks, the balance sheet is still 275bn higher than at the start of March.

Pumping liquidity into the financial system helps to support demand for risky assets, as it reduces stress in the financial system and creates more optimistic expectations for the banking sector and the market.

A shrinking balance sheet is only good news for the dollar in theory. In practice, the ECB is more disciplined in reducing its balance sheet. Moreover, comments from European officials are shaping expectations that the next ECB rate hike will also be a 50bp hike. Markets are currently pricing in a 69% probability of the Fed’s 25bp hike and a 31% probability of no hike.

The situation with US banks in March highlighted the Fed’s flexibility and willingness to change course as circumstances dictate. This is good news for the economy, commodities, and equity markets but also a negative agenda for the dollar. The US is clearly in the lead regarding policy tightening, while the ECB is raising interest rates and selling assets from its balance sheet more actively.

We expect this to continue, putting moderate pressure on the USD against its major rivals. On the macro monetary policy, 2022 is similar to 2002, when the EURUSD began a strong recovery, and the pair rose by more than 50% in less than three years.

New Zealand manufacturing declines

New Zealand wrapped up the week on a sour note, as Manufacturing PMI for March slipped to 48.1, after a downwardly revised 51.7 in February and below the estimate of 51.0. A reading above 50.0 indicates expansion; below 50.0 indicates contraction. The manufacturing sector has been struggling across the globe due to weak economic conditions and supply chain issues, and the market reaction to the weak release was muted.

Inflation remains the Reserve Bank of New Zealand’s number one priority. The central bank has taken off the gloves and has been very aggressive, including a 50-basis point hike last week which completely blindsided the markets. The benchmark cash rate is currently at 5.25%, but inflation remains stubbornly high at 7.2%. The markets are bracing for inflation to rise to 7.5% for the first quarter, and RBNZ Governor Orr will have a lot of explaining to do if inflation accelerates despite the relentless rise in interest rates.

The US releases March retail sales later today, with the markets projecting soft numbers. Headline retail sales is expected to decline by 0.4% for a second straight month, while the core rate is forecast to fall by 0.3%, after a -0.1% read in February.

Currently, the odds of a 25-bp hike are 69%, with a 31% chance of a pause, according to the CME Group. The retail sales release could impact on the movement of the US dollar. A strong release would make a rate hike more likely, which is bullish for the greenback, while a soft release would raise expectations of a Fed pause and weigh on the dollar.

NZD/USD Technical

• NZD/USD is putting pressure on support at 0.6282. Below, there is support at 0.6192
• 0.6356 and 0.6446 are the next resistance lines

Daily Pivots: (S1) 0.8796; (P) 0.8817; (R1) 0.8843; More...

Intraday bias in EUR/GBP stays neutral first as it's staying below 0.8864 resistance despite current recovery. On the upside, break of 0.8864 will target 0.8924 resistance first. Firm break there should resume larger rise from 0.8545 through 0.8977 high. However, decisive break of 0.8717 support will resume the decline from 0.8977 instead.

In the bigger picture, outlook remains rather mixed for now, except that price actions from 0.9267 (2022 high) are part of the long term range pattern from 0.9499 (2020 high). With 0.8720 support intact, rise from 0.8545 is in favor to continue through 0.8977. However, firm break of 0.8720 will argue that such rebound has completed, and open up deeper fall through this support level.

Daily Pivots: (S1) 1.6218; (P) 1.6332; (R1) 1.6399; More...

Intraday bias in EUR/AUD remains neutral and outlook is unchanged. Decisive break of 1.6434 resistance will carry larger bullish implications. Nevertheless, considering bearish divergence condition in 4H MACD, firm break of 1.6216 should confirm short term topping, after rejection by 1.6389/6434 cluster resistance zone. Intraday bias will be back on the downside in this case, to 1.6033 support and possibly below.

In the bigger picture, focus stays on 1.6389/6434 cluster resistance (38.2% retracement of 1.9799 to 1.4281 at 1.6389). Sustained break there should confirm that whole down trend from 1.9799 (2020 high) has completed. Further rally should then be seen to 61.8% retracement at 1.7691. However, rejection by this cluster resistance will make medium term outlook neutral at best.

Daily Pivots: (S1) 146.07; (P) 146.48; (R1) 146.87; More....

No change in EUR/JPY's outlook and intraday bias stays on the upside. Current rise from 137.37 is in progress and further further rally should be seen back to retest 148.38 high. On the downside, below 145.13 minor support will turn intraday bias neutral. But outlook will stay cautiously bullish as long as 142.53 support holds, in case of retreat.

In the bigger picture, as long as 55 week EMA (now at 139.78) holds, larger up trend from 114.42 (2020 low) is still in progress for 149.76 long term resistance. However, sustained break of 55 week EMA will bring deeper fall to 38.2% retracement of 114.42 to 148.38 at 135.40. Decisive break there will raise the chance of trend reversal, and target 61.8% retracement at 127.39.

Daily Pivots: (S1) 165.35; (P) 166.09; (R1) 166.77; More...

Intraday bias in GBP/JPY is turned neutral with current retreat and some consolidations could be seen. But outlook will stay cautiously bullish as long as 162.75 support holds. Above 166.82 will resume the larger rebound form 155.33 to 169.26 resistance next.

In the bigger picture, as long as 38.2% retracement of 123.94 (2020 low) to 172.11 (2022 high) at 153.70 holds, 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) 0.9798; (P) 0.9828; (R1) 0.9857; More...

Intraday bias in EUR/CHF remains on the downside for the moment. Fall from 0.9995 is possibly another leg of the whole corrective pattern from 1.0067. Deeper decline would be seen to 0.9074, and possibly below. On the upside, though, break of 0.9889 minor resistance will turn intraday bias back to the upside for stronger rebound.

In the bigger picture, prior rejection by 55 week EMA (now at 1.1002) and 38.2% retracement of 1.1149 to 0.9407 at 1.0072 suggests that medium term outlook is staying bearish. That is, down trend from 1.2004 is not completed yet and is in favor to resume through 0.9407 at a later stage. However, decisive break of 1.0095 resistance will raise the chance of bullish trend reversal. Rise from 0.9407 should then target 1.0505 cluster resistance (2020 low at 1.0505, 61.8% retracement of 1.1149 to 0.9407 at 1.1484).

Daily Pivots: (S1) 1.0993; (P) 1.1031; (R1) 1.1084; More...

Intraday bias in EUR/USD remains on the upside for the moment. Up trend from 0.9534 is in progress for 1.1273 fibonacci level. Break there will target 61.8% projection of 0.9534 to 1.1032 from 1.0515 at 1.1441. On the downside, below 1.0972 support will turn intraday bias neutral and bring consolidations first. But near term outlook will stay bullish as long as 1.0830 support holds.

In the bigger picture, rise from 0.9534 (2022 low) is in progress for 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273. Sustained break there will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high). This will now remain the favored case as long as 1.0515 support holds, even in case of deeper pull back.

Daily Pivots: (S1) 1.2489; (P) 1.2513; (R1) 1.2547; More...

Intraday bias in GBP/USD remains on the upside at this point. Current up trend from 1.0351 should target 1.2759 fibonacci level first. Firm break there will target 61.8% projection of 1.0351 to 1.2445 from 1.1801 at 1.3095. For now, outlook will remain bullish as long as 1.2343 support holds, in case of retreat.

In the bigger picture, the rise from 1.0351 medium term term bottom (2022 low) is in progress for 61.8% retracement of 1.4248 (2021 high) to 1.0351 at 1.2759. Sustained break there will add to the case of long term bullish trend reversal. Further break of 61.8% projection of 1.0351 to 1.2445 from 1.1801 at 1.3095 could prompt upside acceleration to 100% projection at 1.3895. For now, this will remain the favored case as long as 1.1801 support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.8845; (P) 0.8910; (R1) 0.8960; More...

USD/CHF's decline is still in progress and intraday bias stays on the downside. Current down trend from 1.0146 should target 61.8% projection of 1.0146 to 0.9058 from 0.9439 at 0.8767, which is close to 0.8756 long term support. Strong support is expected there to bring rebound, at least on first attempt. On the upside, above 0.0973 minor resistance will turn intraday bias neutral first.

In the bigger picture, fall from 1.1046 (2022 high) is in progress for 0.8756 support (2021 low). But overall, this fall is still as a leg in the long term range pattern from 1.0342 (2016 high). So, downside should be contained by 0.8756 to bring reversal. Sustained break of 0.9058 support turned resistance will be the first sign of medium term bottoming. However, decisive break of 0.8756 will carry larger bearish implications.