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SNB Vice Chairman Martin Schlegel emphasized the central bank's commitment to price stability in an interview with Swiss broadcaster SRF yesterday. He stated, "Our mandate is crystal clear, and that is price stability," adding that SNB will do everything possible to bring inflation back to the target range of 0 to 2%.

Although Schlegel refrained from making any forecasts, he noted that SNB's inflation forecasts are higher now than they were in December, adding that the central bank is prepared to "continue to raise interest rates" if necessary.

Schlegel also addressed SNB's willingness to sell foreign currencies in order to strengthen Swiss franc. He said, "We said quite clearly at the last assessment that we are also prepared to sell foreign currencies, to actually strengthen the franc."

He revealed that SNB had already sold CHF 27B worth of foreign currencies in the last quarter, asserting that the bank will continue to monitor the exchange rate and intervene if necessary.

In a speech yesterday, Fed Governor Lisa Cook discussed her considerations for the future path of monetary policy, weighing the implications of stronger economic momentum against potential headwinds from recent banking developments.

Cook explained, "On the one hand, if tighter financing conditions restrain the economy, the appropriate path of the federal funds rate may be lower than it would be in their absence. On the other hand, if data show continued strength in the economy and slower disinflation, we may have more work to do."

Regarding Fed's strategy on rate hikes, Cook mentioned that FOMC has been raising rates in smaller increments, aiming for a sufficiently restrictive monetary policy to return inflation to 2% over time. She emphasized the benefit of taking smaller steps, as it allows Fed to observe economic and financial conditions and evaluate the cumulative effects of their policy actions.

Cook also touched on FOMC's recent adjustments to its forward guidance on the path of the policy rate in its March statement. The committee shifted from anticipating "ongoing increases" to stating that "some additional policy firming may be appropriate." Cook believes this communication is suitable as Fed seeks to calibrate monetary policy amid uncertainty about the economic outlook.

Full speech of Fed Cook here.

Key Highlights

• GBP/USD started a steady increase above the 1.2300 resistance.
• A key rising channel is forming with support near 1.2300 on the 4-hours chart.
• EUR/USD also climbed higher above the 1.0850 resistance zone.
• Crude oil price remained strong above the $79.20 support zone.

GBP/USD Technical Analysis

The British Pound started a major increase above the 1.2200 resistance zone against the US Dollar. GBP/USD climbed higher above the 1.2300 resistance zone to move into a positive zone.

Looking at the 4-hours chart, the pair settled well above the 1.2300 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

The pair even spiked above the 1.2400 level. It seems like the pair is well supported for more gains above the 1.2400 level. The next key resistance is near the 1.2500 zone.

A clear move above the 1.2500 resistance might send the pair towards the 1.2620 zone. Any more gains might send the pair towards 1.2700.

On the downside, an immediate support is near the 1.2350. The next major support is near the 1.2320 level and the channel zone, below which the pair might test the 100 simple moving average (red, 4-hours).

Looking at oil price, the price gained pace above the $80 level and there are chances of more upsides in the near term.

Economic Releases

• US Factory Orders for Feb 2023 (MoM) - Forecast -0.5%, versus -1.6% previous.

• USDCAD under the bearish pressure
• Likely to fall to support level 1.3300

USDCAD under the bearish pressure after the price broke the key support level 1.3555 (which has been reversing the price from the middle of 2021, as can be seen below), intersecting with the 50% Fibonacci correction of the upward impulse from the start of February.

The price then broke the long-term support trendline from June – which accelerated the active ABC correction 2.

USDCAD can then be expected to fall further toward the next support level 1.3300 (base of the Morning Star from the middle of February).

• EURAUD reversed from resistance level 1.6235
• Likely to fall to support level 1.5880

EURAUD recently reversed down from the major resistance level 1.6235 (which has been reversing the price from the middle of 2021, as can be seen below)

The resistance level 1.6235 was strengthened by the upper weekly and the daily Bollinger Band.

Given the overbought weekly Stochastic indicator, EURAUD can then be expected to fall toward the next support level 1.5880 (former resistance from the end of 2022).

In March Brent crude oil has once again nosedived below $80, levelling all the systematic price growth from December 2022 to March 2023 in one fell swoop.

There are no fundamental reasons severe enough for such a substantial drop in prices. However, fears of a possible recession in the financial sector, which could spill over to other economic sectors and lead to a global slowdown, push energy prices down.

Where is the promised expansion of China’s economy? This article attempts to answer the question.

What happened with oil supply and demand?

According to the latest IEA report, oil supply has increased only slightly. OPEC+ added about 170,000 bpd.

As a result oil supply has jumped to 830,000 bpd, mainly thanks to the US and Canada. IEA expectations for oil production this year remain optimistic at +1.6M bpd.

US commercial crude oil inventories have risen to 480.1 mb. The Strategic Petroleum Reserve hasn't changed and remains at 371.6 mb.

The US has been draining its storage facilities for 1.5 years - from June 2020, till December 2022. With the cold winter, energy shortages, and the acute period of overcoming dependence on Russian oil and gas over, the realization that the US will not be left with no oil at all has ushered the market into a new phase.

Unexpected OPEC+ decision

At the beginning of April, some OPEC+ countries decided to cut oil production by approximately 1.5M bpd. Russia and Saudi Arabia accounted for the most significant reductions by 500K bpd each.

The OPEC was in no hurry to enter a market with supply restrictions. Now mostly, Saudi Arabia gave a signal to the future interference. For OPEC, the most comfortable price is around $90-$100. So, in the worst-case scenario, if prices do not stabilize, OPEC will enter the arena once more.

In reaction to the OPEC+ decision, the price instantly jumped to $85 and broke several resistance levels, including the cluster between $80 and $80.50 and then $83.

For a short-term trader, it’s clear that the price may soon close this gap, but from the fundamental point of view, we may face a bullish reversal.

The consequences of oil price growth

Everything has its price. The growth in oil prices may lead to the following consequences:

1. Inflation growth. It means that the Fed won’t have room for further rate hikes.
2. EURUSD decreasing
3. American stock markets decline. Here it’s better to pay attention to energy companies because high oil prices may positively impact their financial results.

How much will China take?

Judging by the external macroeconomic backdrop, China's economy is starting to pick up gradually:

• The February PMI showed a substantial gain of 52.6 points, and the PMI for the services sector went above the 56-point level.
• Industrial production also started rising in February (+2.4% VS +1.3% in January).
• After several months of decline, retail sales showed strong growth of 3.5% for the first time.

The Energy Information Administration expects China's oil demand to grow by 730,000 b/d this year.

However, concerns have been raised that China continues to actively build up its oil reserves, importing mostly Russian grades at a reasonably high discount - imports from Russia to China amount to about 1.94M bpd.

Consequently, most analysts still prefer to lower the average oil price in 2023.

Oil market summary

The price value in March should be considered only a market reaction to an unexpectedly surfaced black swan in the form of a bank collapse - a sort of energy market RISK-OFF.

The probability of growth resumption and price stabilization at $80-90 is relatively high. But, given the fullness of Chinese storage facilities, the prospect of reaching $100 per barrel remains murky.

The March ISM Manufacturing Index registered 46.3, well short of expectations calling for a 48.0 print. The index fell 1.4 percentage points (pp) from February's reading of 47.7.

New orders and new export orders fell 2.7 pp and 2.4 pp, respectively, to 44.3 and 47.6.

The backlog of orders sub-index fell to 43.9, down 1.2 pp from February's 45.1 print.

The production index rose 0.5 pp to 47.8, while the employment index edged down another 2.2 pp to 46.9.

The supplier deliveries sub-index fell to 44.8 from 45.2 in February – the lowest reading since March 2009. Amid cooling demand and falling raw material prices, the prices index pulled back 2.1 pp to 49.2 in March – indicating falling raw materials prices.

Six of 18 manufacturing industries reported growth in March. The industries reporting growth are Printing & Related Support Activities; Miscellaneous Manufacturing; Fabricated Metals Products; Petroleum & Coal Products; Primary Metals; and Machinery.

Key Implications

Another tough month for the manufacturing sector – albeit one that was expected. As the Fed keeps borrowing costs high to fight inflation, interest rate sensitive goods are bearing the brunt of the demand reduction. Moreover, as the hangover from the pandemic goods buying binge slowly wears off, shifting consumer preferences continue to weigh on goods demand.

Unfortunately for the manufacturing sector, the outlook for the rest of the year doesn't look much better. Recession jitters came out in force early in March as turmoil in the banking sector rattled markets. Looking forward, we expect consumer demand for durable goods to begin to fall, weighing on the sector overall. The one silver lining is the ongoing improvement on supply chains may help relieve the pent-up demand in the automotive sector over the coming year.

With the banking crisis reviving fears that the Fed may need to start cutting rates later this year, market participants may look for their next clue on whether this could be true or not in the US employment report for March, scheduled to be released on Friday at 12:30 GMT. Such expectations have weighed on the US dollar recently, but will a positive surprise in the jobs report be enough to bring the currency back to life?

Investors maintain Fed cut bets

Despite Chair Powell pushing against rate cut expectations at the press conference following the last FOMC meeting, investors put no faith in his words. They kept selling the US dollar, spellbound by the change in the Committee’s forward guidance. Instead of repeating that more rate increases are needed, Fed officials noted that “some additional policy firming may be appropriate”. The word ‘may’ was interpreted as opening the door to a pause as soon as at the May gathering, although the updated dot plot continued pointing to another quarter-point hike and essentially no rate cuts in 2023.

In the aftermath of the meeting, several policymakers kept the door open to more rate increments, with Boston and Minneapolis Fed Presidents Susan Collins and Neel Kashkari saying that there is more work to be done to bring inflation down to the 2% target. However, Kashkari is a well-known advocate of higher rates and thus, his comments came to no one’s surprise. Collins added that despite remaining strong and resilient, banks are likely to pull back on offering credit following the latest turmoil, which may partially offset the need for additional rate increases. The same view was shared by Richmond Fed President Thomas Barkin.

Combined with the further slowdown in the core PCE index for February, the Fed’s favorite inflation metric, these remarks allowed market participants to maintain their rate cut bets, while being evenly split on whether the Fed should hike by another 25bps in May or not. Headlines over the weekend that Saudi Arabia and other OPEC+ oil producers agreed to output cuts, tipped the scale towards hitting the hike button one last time, with the probability rising to 65%, but 50bps worth of rate cuts by the end of the year remained firmly on the table.

US labor market remains tight

On Friday, nonfarm payrolls are expected to have slowed to 238k in March from 311k, but combined with an unemployment rate of 3.6%, that number seems consistent with a still-tight labor market. What’s more, the S&P Global composite PMI survey said that the rate of total job creation was the fastest in six months in March and thus, the risks surrounding the NFP print may be tilted to the upside.

Average hourly earnings are expected to have slowed to 4.3% y/y from 4.6%, but the S&P survey pointed to greater wage bills during the month, so, there may be upside risks. With inflationary pressures in the US easing notably since peaking during the summer, this could mean further improvement in real wage growth. That said, improving wages could also translate into improving consumer confidence and demand in the coming months, which could refuel inflation.

Therefore, a report pointing to further tightening of the labor market could increase the probability for another 25bps hike at the upcoming Fed meeting, with market participants perhaps scaling back some of the rate cut basis points they are anticipating.

Dollar could strengthen, but too early for a bullish reversal

This could prove supportive for the US dollar, but calling for a bullish reversal would still seem unwise. Ahead of the May FOMC meeting, market participants will still have to digest the CPI numbers for March, as well as the first GDP estimate for Q1. Downside surprises in these releases and/or new headlines spreading fresh fears about the stability of the banking sector could very well prompt market participants to start pricing in a May pause again and more rate cuts towards the end of the year.

For now, any dollar strength resulting from Friday’s employment data could be seen as a corrective recovery. Euro/dollar could slide back below 1.0800, but with the ECB expected to continue hiking more aggressively than the Fed, the bulls could recharge from near the crossroads of the 1.0710 barrier and the uptrend line drawn from the low of September 28. They could aim for another test at around 1.1035, marked by the peak of February 2, or even at the 1.1175 zone, which offered strong support between November 24, 2021, and February 25, 2022, and acted as resistance on March 31, 2022. If the pair emerges above that zone, the uptrend may then extend towards the 1.1480 area, which stopped the bulls between January 14 and February 11, 2022.

For the near-term outlook to turn bearish, a decisive break below 1.0475 may be needed. Euro/dollar will be already below the pre-discussed uptrend line, while the break below 1.0475 will confirm a lower low on both the daily and weekly charts. The sellers could then get encouraged to dive towards the low of November 21 at 1.0215, the break of which may allow them to put parity back on their radars.

With the market gradually preparing for a much-needed break due to the Easter festivities, the RBNZ will meet this week. The market is looking for another rate increase, but there is a widespread feeling that we are close to the peak of this hiking cycle. Inflation is still elevated, but the aftermath of Cyclone Gabrielle might have affected the RBNZ’s hawkish appetite. Could the kiwi be assisted by the RBNZ and continue its recovery against the US dollar?

RBNZ in the spotlight

At its first meeting for 2023 on February 22, the RBNZ announced a rate hike of 50 bps. The Official Cash Rate (OCR) stands at 4.75%, 450 bps higher than June 2021, when the first rate move was announced. Almost 40 days after the February meeting, the RBNZ is facing a different world. The banking sector woes appear to have somewhat affected the desire of central banks for further aggressive rate moves, despite elevated inflation. Luckily for them, we continue to see signs of headline inflation cooling off globally. But this is only half of the story as core inflation remains abnormally high and thus is the main concern among central bankers.

The domestic situation is also a difficult puzzle for Governor Orr et al to solve. The scarce indicators available to us, to monitor underlying price pressures in various sectors, continue to highlight that the RBNZ’s inflation problem remains at large. The downside surprise in the fourth quarter GDP most likely produced some smiles at the Monetary Policy Committee, but the strong retail sales and the record low unemployment rate are still troubling them. The RBNZ, at some stage, will really start to be concerned about second-round effects due to strong wages that would complicate even further the monetary policy outlook options.

The market is pretty confident about another rate hike 

The market is assigning a 90% probability for a 25 bps rate move at Wednesday’s meeting and a total of 49 bps rate hikes until July 2023. This is 25 bps lower than the February unchanged projected rate path by the RBNZ showing a peak of 5.5% in the second quarter of 2023. Considering the recent events, it seems unlikely that the RBNZ will make dramatic changes to its forecasts. A hawkish surprise could clearly inspire the kiwi bulls. In addition, during April we will get the RBNZ’s advice on amending its remit. Although it sounds like moving the goalposts amidst a game, the RBNZ has a history of remit revisions in its attempt to keep ahead of developments. Chances are that the current dual mandate of promoting price stability and supporting maximum sustainable employment will be maintained. However, we might see a more explicit comment about climate change that appears to disproportionately affect this island country.

What is next for the kiwi?

The kiwi managed to stay on the sidelines during the banking sector shenanigans and recorded a mixed monthly performance. However, it managed to outperform both its aussie neighbour and, more importantly, the US dollar. With New Zealand facing high imported inflation, some degree of the domestic currency appreciation might be desirable by the RBNZ.

The kiwi/dollar pair has been on an upwards path since the 2.5-year low of 0.5511 on October 13, 2022. It survived the February attack by the dollar bulls, and since the middle of March it has resumed its gentle upward move. The overall technical picture appears to favour the kiwi at this juncture, but the pair is hovering at a rather busy area. The relative tightening of the Bollinger bands and the convergence of the simple moving averages (SMAs) are signs that the biggest battle is yet to occur. Kiwi bulls would love a break higher towards the 0.6591 level and the RBNZ decision could offer significant assistance. On the other hand, a bearish show on Wednesday morning could prompt a retest of the 200-day SMA and the October 13, 2022 upward trendline.