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Oil Prices Rebound Boosts Canadian Dollar; Risk Sentiment Improve
Dollar, Japanese Yen, and Swiss Franc are under selling pressure this week amid improving risk sentiment. Yen is particularly weighed down by the extended rebound in treasury yields, while Swiss Franc is pressured by sell-offs against Euro and Sterling. Currently, the Canadian Dollar leads the pack for the week, aided by recovering oil prices. Australian Dollar, however, lags behind as CPI data supports the possibility of an RBA pause next week.
With a light economic calendar and second-tier releases featured, the main focus remains on the overall development in risk markets. Concerns over the banking crisis could subside if no additional banks are reported to be in trouble. Attention will shift back to inflation data from the Eurozone and the US later in the week.
Oil prices experienced a surge earlier this week due to supply worries after Turkey halted crude pumping from Iraq's Kurdistan region via a pipeline. The decision followed an arbitration ruling confirming Baghdad's consent was necessary to ship the oil. These exports represent approximately 0.5% of global oil supply.
Technically, WTI's break of the 72.16 support-turned-resistance should confirm short-term bottoming at 64.19, supported by medium-term channel support. Immediate focus is on the 55day EMA (currently at 75.19). A firm break there would trigger a more robust rebound to 80.82 resistance, potentially aiding Canadian Dollar's recovery.
In Asia, at the time of writing, Nikkei is up 1.00%. Hong Kong HSI is up 2.12%. China Shanghai SSE is down -0.06%. Singapore Strait Times is up 0.18%. Japan 10-year JGB yield is down -0.0184 at 0.296. Overnight, DOW dropped -0.12%. S&P 500 dropped -0.16%. NASDAQ dropped -0.45%. 10-year yield rose 0.036 to 3.564.
Australia CPI slowed to 6.8% yoy, supports RBA pause next week
Australia's monthly CPI in February eased from 7.4% yoy to 6.8% yoy, below expectation of 7.2% yoy. CPI excluding volatile items such as fruit, vegetables, and automotive fuel also slowed from 7.5% yoy to 6.9% yoy.
Michelle Marquardt, Head of Prices Statistics at the Australian Bureau of Statistics (ABS), noted that "this marks the second consecutive month of lower annual inflation, also known as 'disinflation', from the peak of 8.4% in December 2022."
Although inflation remains well above RBA's target band of 2-3%, the start of disinflation process could increase the likelihood of a pause in the RBA's tightening cycle during their next meeting. The continued easing of inflationary pressures may prompt the central bank to take a more cautious approach in the near term.
AUD/NZD ready for downside breakout after AU CPI
AUD/NZD is trading slightly lower following the release of Australia's lower-than-expected monthly CPI data, which bolsters the case for a pause in RBA's tightening cycle next week. While there are talks of another 25bps RBA rate hike in May, taking rate to 3.85%, it would still be 90bps below RBNZ's current rate of 4.75%. Furthermore, RBNZ is expected to increase rates by an additional 25bps to 5.00% in April, further widening the gap between the two central banks.
Technically speaking, AUD/NZD's price movements from 1.0672 appear to be corrective in nature. Rejection by 4 hour 55 EMA suggests that the decline from 1.1085 could resume soon. A break below 1.0672 would confirm the resumption of the fall and target 61.8% projection of 1.1085 to 1.0672 from 1.0802 at 1.0547. In any case, outlook will remain bearish as long as 1.0802 resistance level holds.
Incoming BoJ Deputy Governor Uchida Stresses Importance of Trend Inflation in Monetary Policy
Incoming BoJ Deputy Governor Shinichi Uchida emphasized the significance of trend inflation in a parliamentary session today, stating that the central bank will conduct a comprehensive assessment of various data, including trend inflation developments, to guide monetary policy.
Uchida said that "trend inflation is an extremely important factor for us in judging on achievement of 2% inflation target in a stable manner." He also mentioned that the BoJ will "make comprehensive judgment by looking at various price indicators."
In addition, Uchida highlighted the importance of communication between the central bank and the markets, saying, "We will strive to communicate firmly with markets to gain understanding" regarding the BoJ's policy approach. This statement underscores the commitment of the BoJ to transparency and open dialogue in shaping its monetary policy.
Looking ahead
Germany Gfk consumer sentiment, Swiss Credit Suisse economic expectations, UK mortgage approvals and M4 money supply will be released in European session. Later in the day, US will publish pending home sales.
USD/CAD Daily Outlook
Daily Pivots: (S1) 1.3562; (P) 1.3628; (R1) 1.3665; More....
USD/CAD's break of 1.3629 support indicates that deeper pull back in underway. Intraday bias is back and break of 55 day EMA (now at 1.3586) will target 61.8% retracement of 1.3261 to 1.3860 at 1.3490. On the upside, above 1.3694 minor resistance will turn intraday bias neutral first. Overall, the corrective pattern from 1.3976 could be extending with another falling leg from 1.3860.
In the bigger picture, the up trend from 1.2005 (2021 low) is still in progress. Break of 1.3976 will confirm resumption and target 61.8% projection of 1.2401 to 1.3976 from 1.3261 at 1.4234. Firm break there will pave the way to long term resistance zone at 1.4667/89 (2016, 2020 highs). On the downside, break of 1.3261 support is needed to confirm medium term topping. Otherwise, outlook will remain bullish even in case of deep pull back.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 00:30 | AUD | Monthly CPI Y/Y Feb | 6.80% | 7.20% | 7.40% | |
| 06:00 | EUR | Germany Gfk Consumer Confidence Apr | -29 | -30.5 | ||
| 08:00 | CHF | Credit Suisse Economic Expectations Mar | -12.3 | |||
| 08:30 | GBP | Mortgage Approvals Feb | 42K | 40K | ||
| 08:30 | GBP | M4 Money Supply M/M Feb | 0.90% | 1.30% | ||
| 13:00 | CHF | SNB Quarterly Bulletin | ||||
| 14:00 | USD | Pending Home Sales M/M Feb | -2.20% | 8.10% | ||
| 14:30 | USD | Crude Oil Inventories | 1.8M | 1.1M |
Technical Outlook and Review
DXY:
The overall momentum of the DXY chart is currently weakly bearish with low confidence, as price is trading below a major descending trend line and the bearish Ichimoku cloud. This suggests that bearish momentum is potentially on the cards.
There is a potential for a bearish continuation towards the first support level, which is at 101.93. This level is a swing low support and also has the 78.60% Fibonacci retracement lining up with it, making it a strong level to keep an eye on. If price were to break below this level, it could potentially drop down to the second support level at 100.82, which is also a swing low support.
On the upside, the first resistance level is at 103.48. This level is a pullback resistance and also coincides with a 38.20% Fibonacci retracement, making it a strong level of resistance. If price is able to break above this level, it could potentially trigger a bullish acceleration towards the second resistance level at 104.60, which is an overlap resistance.
It’s worth noting that while the current momentum of the DXY chart is weakly bearish with low confidence, it’s always important to keep an eye on the support and resistance levels. A break below the first support level at 101.93 could trigger a move down to the second support level at 100.82, while a break above the first resistance level at 103.48 could trigger a move up to the second resistance level at 104.60.
EUR/USD:
Looking at the EUR/USD chart, the overall momentum of the chart is weakly bearish with low confidence, as price is currently below a major descending trend line, which suggests the potential for further bearish momentum.
If the bearish momentum continues, price could potentially drop towards the 1st support level at 1.07417, which is an overlap support. If price were to break below this level, the next support level to watch out for would be the 2nd support at 1.06893, which is also an overlap support.
On the other hand, if price were to reverse, it could potentially rise towards the 1st resistance level at 1.09277, which is a swing high resistance. Traders should keep an eye on this level, as a break above it could signal a potential bullish reversal.
It’s worth noting that the current momentum of the EUR/USD chart is weakly bearish, and traders should remain cautious and keep an eye on support and resistance levels. A break below the 1st support level could trigger a move down to the 2nd support level, while a break above the 1st resistance level could trigger a move up to higher resistance levels.
GBP/USD:
The GBPUSD chart is showing weak bearish momentum with low confidence. This is due to the fact that the price is currently below a major descending trend line, suggesting a potential for further bearish momentum.
Price could potentially continue its bearish trend towards the 1st support level at 1.21854, which is a good level to watch as it is an overlap support. Another potential support level to keep an eye on is the 2nd support at 1.21276, which is also an overlap support and aligns with the 38.20% Fibonacci retracement.
On the other hand, the 1st resistance level is at 1.23434, which is a swing high resistance level and a strong level to watch. If price were to break above this level, the next resistance level to look out for would be the 2nd resistance at 1.24459, which is another overlap resistance level.
It’s worth noting that while the overall momentum of the chart is weak bearish, traders should keep an eye on the support and resistance levels. A break below the 1st support level at 1.21854 could trigger a move down to the 2nd support level at 1.21276, while a break above the 1st resistance level at 1.23434 could trigger a move up to the 2nd resistance level at 1.24459.
USD/CHF:
The USD/CHF chart is currently showing weak bearish momentum, with low confidence. This is due to the fact that price is below a major descending trend line, which suggests that bearish momentum is likely to continue.
Looking at potential price movements, there is a possibility of a bearish reaction off the first resistance level at 0.92089, which is an overlap resistance. This could cause prices to drop down towards the first support level at 0.91201, which is a swing low support. If prices were to break through this level, they could potentially drop further towards the second support level at 0.90597, which is also a swing low support.
On the other hand, if prices were to break above the first resistance level, they could potentially rise towards the second resistance level at 0.93353, which is a swing high resistance.
Traders should take note of the key support and resistance levels when making their trading decisions. The first support level at 0.91201 is a strong candidate for a potential bounce, as it is a swing low support. The second support level at 0.90597 is also a swing low support and could provide further support if prices were to drop further.
The first resistance level at 0.92089 is an overlap resistance level, while the second resistance level at 0.93353 is a swing high resistance level. If prices were to break above these levels, they could potentially rise further.
Overall, while the momentum of the chart is weakly bearish, traders should keep an eye on potential market movements and breakouts that could cause prices to rise towards the resistance levels or drop towards the support levels.
USD/JPY:
Based on the analysis of the USDJPY chart, the overall momentum of the chart is weak bearish with low confidence. This is due to the fact that the price is currently below a major descending trend line, indicating the potential for further bearish momentum.
However, in the short term, the price could potentially rise towards the 1st resistance at 132.818 before reversing off it and dropping towards the 1st support at 129.613. It’s worth noting that the 1st support level is a swing low support, while the 2nd support level at 128.038 is also a swing low support and could provide further support if prices were to drop further.
On the other hand, the 1st resistance level at 132.818 is an overlap resistance, and the 2nd resistance level at 134.559 is also an overlap resistance. These levels could potentially provide resistance to further price increases.
Traders should keep an eye on the chart for any potential breakouts or market movements that could cause prices to rise towards the resistance levels or drop towards the support levels.
AUD/USD:
The AUDUSD chart is currently displaying a bullish momentum. This is because price is within the bullish Ichimoku cloud, which usually indicates a good support in place.
In the short term, price could potentially continue its bullish trend towards the 1st resistance level.
The 1st support is at 0.66402 and is a good level due to being an overlap support. The 2nd support is at 0.65493 and is also an overlap support.
On the other hand, the 1st resistance is at 0.67744 and is a good level due to being an overlap resistance and coinciding with the 38.20% Fibonacci retracement. The 2nd resistance is at 0.68764, which is an overlap resistance and coincides with the 50% Fibonacci retracement.
Overall, the bullish momentum in the AUD/USD chart suggests that price may continue to rise towards the 1st resistance level at 0.6774. However, it’s important to monitor the support levels at 0.6640 and 0.6549 in case of a price drop.
NZD/USD:
The NZDUSD chart is showing strong bullish momentum with price currently above the bullish Ichimoku cloud. This suggests that there is good support in place and the potential for a bullish continuation towards the first resistance level.
The first support level is located at 0.61802 and is a good level due to it being an overlap support. Additionally, there is a second support level at 0.61446 which is also an overlap support.
On the resistance side, the first resistance level is at 0.62666 and is also an overlap resistance. The second resistance level is located at 0.63880 which is another overlap resistance level.
If the bullish momentum continues, price could potentially reach the first resistance level. It’s important to keep an eye on these support and resistance levels as they can provide valuable insights into potential price movements.
Overall, the chart for NZDUSD is showing bullish momentum and traders should be aware of these support and resistance levels as they plan their trades.
USD/CAD:
The USDCAD currency pair has been in a bearish momentum, with low confidence, as price is currently trading below the bearish Ichimoku cloud and a major descending trend line. This suggests that the bearish momentum could continue in the near term.
In terms of potential price action, there could be a bearish continuation towards the first support level at 1.35602. This support level is significant as it has acted as an overlap support in the past, and it coincides with the 50% Fibonacci retracement level. If the bearish momentum persists, the pair could potentially drop further towards the second support level at 1.35214, which is also an overlap support.
On the other hand, if the bears take a breather, the price may see some bullish retracements towards the first resistance level at 1.36574, which is another significant overlap resistance. If the bulls take control, the price could potentially rise further towards the second resistance level at 1.38040, which is also an overlap resistance.
In conclusion, the USDCAD currency pair has a bearish bias and could potentially continue its bearish momentum towards the first support level at 1.5602. However, if the price sees a bullish retracement, it may face resistance at the first resistance level at 1.36574. Traders should keep an eye on the key levels mentioned above and wait for a clear confirmation of the trend before making any trading decisions.
DJ30:
The DJ30 chart currently shows a neutral momentum, indicating that there is no clear direction or trend at present. However, it is likely that the price may fluctuate between the 1st resistance and 1st support levels in the short term.
The 1st support level is located at 32247.39 and is a significant level as it is an overlap support and is also at the 38.20% Fibonacci retracement level. This level has the potential to provide a strong bounce for the price in case of a drop.
The 2nd support level is situated at 31754.50 and is another overlap support level. It could be a significant support level if price continues to drop below the 1st support level.
On the resistance side, the 1st resistance level is located at 32629.99 and is an overlap resistance. Additionally, it is also at the 38.20% Fibonacci retracement level. This level could pose as a significant barrier for the price in case of a bullish move.
The 2nd resistance level is situated at 33502.17 and is also an overlap resistance. It could be a significant resistance level if price continues to rise above the 1st resistance level.
In summary, the DJ30 chart shows a neutral momentum with price currently fluctuating between the 1st support and 1st resistance levels. The 1st support level at 32247.39 and the 1st resistance level at 32629.99 are key levels to watch out for as they are significant and could have a strong impact on price action.
GER30:
Overall, the momentum of the GER30 chart is bullish, as price is currently above the bullish Ichimoku cloud. This suggests that there is good support in place, contributing to the bullish momentum.
Price could potentially make a bullish continuation towards the first resistance level. However, it’s important to note that the overall momentum of the chart is always subject to change.
The first support level is located at 14960.89, which is an overlap support level. If the price falls towards this level, it is likely to find support and bounce back up. The second support level is at 14807.31, which is another overlap support level and coincides with the 61.80% Fibonacci retracement level. This support level may also provide a good buying opportunity.
On the other hand, the first resistance level is at 15241.58, which is an overlap resistance level. If the price rises towards this level, it is likely to face some selling pressure. The second resistance level is at 15488.32, which is also an overlap resistance level. If the price manages to break above this level, it could signal a strong bullish momentum and potential buying opportunity.
In summary, the overall momentum of the GER30 chart is bullish, and the price could potentially make a bullish continuation towards the first resistance level. The first and second support levels are at 14960.89 and 14807.31, respectively, while the first and second resistance levels are at 15241.58 and 15488.32, respectively. These levels are important to keep an eye on for potential buying or selling opportunities.
BTC/USD:
According to our analysis, BTCUSD could potentially make a bearish continuation towards the first support level at 25966.02. This support level is a significant area of interest as it coincides with the 38.20% Fibonacci retracement level, making it a strong support level. The second support level is at 24526.74 and is also an overlap support level and coincides with the 50% Fibonacci retracement level.
On the resistance side, the first resistance level is at 28198.81, which is also an overlap resistance level. The second resistance level is at 29373.96, which is a swing high resistance level.
It is worth noting that due to the high volatility in the cryptocurrency market, these support and resistance levels can quickly become invalid. Traders and investors should always use appropriate risk management strategies, such as stop-loss orders, when trading or investing in cryptocurrencies.
In conclusion, the BTCUSD chart’s overall momentum is bearish, and prices could potentially drop towards the first support level at 25966.02 or the second support level at 24526.74. Traders and investors should keep a close eye on price action and adjust their positions accordingly.
US500
The US500 index is showing bullish momentum overall, with price currently trading above the bullish Ichimoku cloud. This suggests that there is good support in place. In the short-term, price could potentially continue its bullish momentum towards the first resistance level.
The first support level is at 3903.06 and is a good level of support due to it being an overlap support and a 38.20% Fibonacci retracement. A break below this level could signal a shift in momentum to bearish.
The second support level is at 3843.60 and is also a good level of support due to it being an overlap support. If price were to drop to this level, it could potentially be a good buying opportunity for traders.
The first resistance level is at 4012.00 and is a good level of resistance due to it being an overlap resistance. A break above this level could signal further bullish momentum.
The second resistance level is at 4077.26 and is also a good level of resistance due to it being an overlap resistance. This level could potentially act as a strong barrier for price to break through.
Overall, traders should keep an eye on the support and resistance levels mentioned above, as they could play important roles in determining the short-term direction of the US500 index.
ETH/USD:
As the overall momentum of the chart for ETHUSD is bullish, with price being above the bullish Ichimoku cloud, we could potentially see a bullish continuation towards the first resistance level.
The first support level is at 1667.31, which is a strong level of support as it coincides with the 38.20% Fibonacci retracement level. The second support level is at 1558.42, which is also an overlap support level.
On the other hand, the first resistance level is at 1852.01, which is a strong level of resistance as it is an overlap resistance level. Therefore, if price manages to break through this resistance level, we may see further bullish momentum towards higher price levels.
WTI/USD:
WTI crude oil has been in a weak bullish trend, with low confidence. However, in the short term, price could potentially make a bearish reaction off the first resistance level, dropping towards the first support. The first support is located at 71.464, which is an overlap support.
If the price breaks below this level, it could continue to fall towards the second support level, located at 66.986, which is also an overlap support level.
On the other hand, if price manages to break above the first resistance level, located at 74.077, which is an overlap resistance and the 61.80% Fibonacci retracement level, it could potentially reach the second resistance level at 77.392, which is another overlap resistance level.
Overall, the current market conditions suggest that traders should be cautious and keep an eye on the key support and resistance levels mentioned above. The weak bearish momentum indicates that there may be a potential for a bearish reaction at resistance, but traders should wait for confirmation before entering any trades.
XAU/USD (GOLD):
Gold prices have been exhibiting bullish momentum, supported by the fact that price is currently above the bullish Ichimoku cloud. In the near term, prices could potentially continue to rise towards the first resistance level.
The first support level is at 1936.102, which is an overlap support and a 38.20% Fibonacci retracement level. A breach below this level could lead to a further decline towards the second support level at 1910.270, which is also an overlap support and a 50% Fibonacci retracement level.
On the upside, the first resistance level is at 1980.699, which is an overlap resistance. A break above this level could lead to a further rise towards the second resistance level at 2002.947, which is also an overlap resistance.
Traders should keep an eye on price movements near these key levels to determine potential trading opportunities. A break above the resistance levels could signal a continuation of the bullish trend, while a break below the support levels could signal a reversal towards a bearish trend.
Australia February Monthly CPI Indicator
The Monthly CPI Indicator rose 6.8% in the year to February compared to Westpac’s 7.4%yr forecast and the market’s 7.2%yr. This represents a meaningful downside risk to our March CPI forecast of 1.5%qtr.
In finer detail the index rose just 0.2% in February compared to our 0.8% forecast; we assume the market median would have been around 0.6% given the 7.2%yr forecast. Compared to the average monthly increase of 0.9%mth through the last three months of 2022 the first two prints of 2023 represent a meaningful moderation in the inflationary pace; -0.4% in January and 0.2% in February.
The Monthly CPI Indicator can be very volatile month to month as it is not a true monthly index but rather the released of data from the quarterly CPI as it becomes available. This volatility is due to the timing of the various price surveys. This may be why the ABS references the annual pace of growth and not the monthly change.
Combined the January and February Monthly Indicators represent a significant downside risk to our current forecast for 1.5%qtr increase in the March quarter CPI. To achieve that forecast the Monthly CPI Indicator would need to increase by around 1.5% to 1.6% in March.
The most significant contributions to the annual rise in February: housing (9.9%yr), food & non-alcoholic beverages (8.0%yr), transport (5.6%yr) and recreation & culture (6.4%yr).
The ABS noted that the annual increase for the housing group in February (+9.9) was lower than January (10.4%). New dwellings grew 13.0%yr to February which is the slowest annual growth since February 2022 as price inflation for building materials continue to ease along with a the moderation in demand. Rents rose again due to the tight rental market, maintaining a 4.8%yr pace.
In the month housing costs lifted 0.3% on the back of a 0.7% gain in rents, 0.2% gain in new dwellings and flat electricity prices. The ABS is continuing to improve the monthly CPI indicator and each month it seems to add a new series. In February it was electricity with this series showing electricity prices up 17.2%yr. The ABS notes that the full impact of annual price reviews in July 2022 took time to flow through to many households as electricity rebates reduced electricity bills in WA, ACT, Qld and Tasmania between July and December last year.
Automotive fuel prices rose 5.6%yr, down from January’s 7.5%yr. While fuel prices drove the increase in transport, annual inflation for fuel is the lowest it has been in two years. In the month transport prices increased 1.8% while fuel prices lifted 4.1%.
The largest downside surprise for us was the 14.6% fall in holiday travel in February. We had been looking for a 6.0% fall in the month. This doubled the size of the fall in recreation & culture from our forecast 3.1%mth decline to -6.0%. While we do expect something of a reversal in March history tells us we should not expect it to make up for the 9% fall in recreation & culture in the first two months of 2023.
We are processing the Monthly CPI Indicator data to incorporate it into a complete Q1 CPI preview. Our current published inflation forecast for Q1 are 1.5%qtr/7.2%yr for the CPI and 1.3%qtr/6.6%yr for the Trimmed Mean. For now, we can state the January and February Monthly CPI Indicator results presents a meaningful downside risk to that forecast.
AUD/NZD ready for downside breakout after AU CPI
AUD/NZD is trading slightly lower following the release of Australia's lower-than-expected monthly CPI data, which bolsters the case for a pause in RBA's tightening cycle next week. While there are talks of another 25bps RBA rate hike in May, taking rate to 3.85%, it would still be 90bps below RBNZ's current rate of 4.75%. Furthermore, RBNZ is expected to increase rates by an additional 25bps to 5.00% in April, further widening the gap between the two central banks.
Technically speaking, AUD/NZD's price movements from 1.0672 appear to be corrective in nature. Rejection by 4 hour 55 EMA suggests that the decline from 1.1085 could resume soon. A break below 1.0672 would confirm the resumption of the fall and target 61.8% projection of 1.1085 to 1.0672 from 1.0802 at 1.0547. In any case, outlook will remain bearish as long as 1.0802 resistance level holds.
Australia CPI slowed to 6.8% yoy, supports RBA pause next week
Australia's monthly CPI in February eased from 7.4% yoy to 6.8% yoy, below expectation of 7.2% yoy. CPI excluding volatile items such as fruit, vegetables, and automotive fuel also slowed from 7.5% yoy to 6.9% yoy.
Michelle Marquardt, Head of Prices Statistics at the Australian Bureau of Statistics (ABS), noted that "this marks the second consecutive month of lower annual inflation, also known as 'disinflation', from the peak of 8.4% in December 2022."
Although inflation remains well above RBA's target band of 2-3%, the start of disinflation process could increase the likelihood of a pause in the RBA's tightening cycle during their next meeting. The continued easing of inflationary pressures may prompt the central bank to take a more cautious approach in the near term.
Incoming BoJ Deputy Governor Uchida Stresses Importance of Trend Inflation in Monetary Policy
Incoming BoJ Deputy Governor Shinichi Uchida emphasized the significance of trend inflation in a parliamentary session today, stating that the central bank will conduct a comprehensive assessment of various data, including trend inflation developments, to guide monetary policy.
Uchida said that "trend inflation is an extremely important factor for us in judging on achievement of 2% inflation target in a stable manner." He also mentioned that the BoJ will "make comprehensive judgment by looking at various price indicators."
In addition, Uchida highlighted the importance of communication between the central bank and the markets, saying, "We will strive to communicate firmly with markets to gain understanding" regarding the BoJ's policy approach. This statement underscores the commitment of the BoJ to transparency and open dialogue in shaping its monetary policy.
Gold Price Continues To Struggle Near $2K, Oil Price Recovers
Key Highlights
- Gold price is facing a strong resistance above $2,000.
- A connecting bullish trend line is forming with support near $1,945 on the 4-hours chart.
- Crude oil price climbed higher and recovered above $71.20.
- EUR/USD and GBP/USD might aim more upsides.
Gold Price Technical Analysis
Gold price failed again to gain pace above the $2,000 resistance against the US Dollar. The price corrected lower and traded below the $1,965 support zone.
The 4-hours chart of XAU/USD indicates that the price tested the $1,940 zone. It remained stable above the $1,932 support, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).
It is now consolidating, with an immediate resistance near the $1,975 level. The next major resistance is near the $1,988 level.
The main resistance is near the $2,000 zone. A successful weekly close above the $2,000 resistance start a strong increase. In the stated case, the price might test $2,065 or even $2,120.
On the downside, an initial support is near the $1,945 level. There is also a connecting bullish trend line forming with support near $1,945 on the same chart. The next major support is near the $1,932 level, below which there is a risk of a move towards the $1,915 level.
The next major support is near the $1,900 level, below which gold price might struggle to stay above the $1,880 zone. In the stated case, gold price could slide towards the $1,850 support.
Looking at EUR/USD, the pair might soon attempt an upside break and it could even clear the 1.0900 resistance zone.
Economic Releases to Watch Today
- US Pending Home Sales for Feb 2023 (YoY) - Forecast -29.4%, versus -24.1% previous.
Will PCE Inflation Numbers Add Credence to Fed Pivot Bets?
Following last week’s FOMC decision, market participants are assigning a decent chance for the Committee to take the sidelines at its upcoming gathering. More importantly, they anticipate a series of rate reductions for the remainder of the year, despite the new dot plot and Fed Chair Powell indicating otherwise. Now, dollar traders may closely watch upcoming economic numbers, especially the PCE inflation figures due out on Friday as they are the Fed’s favorite inflation gauge.
Fed hints at pause, investors see cuts by year end
Last Wednesday, Fed officials decided to deliver another 25bps hike, but in the statement accompanying the decision, there was a change in forward guidance that was interpreted as hinting that they are on the verge of pausing due to the recent turbulence in the banking sector.
Instead of noting that “ongoing increases in the target range will be appropriate”, they said that “some additional policy firming may be appropriate”. The word ‘may’ was interpreted as opening the door to a pause, and that’s why the dollar fell. Currently, investors are evenly split between taking the sidelines and delivering another quarter-point hike at the upcoming meeting in May, while they are anticipating a series of rate cuts in the next 8 months, seeing interest rates ending the year at around 4.15%.
So, apart from trying to figure out whether another hike is warranted, market participants will also try to better assess the probability of rate reductions. At the press conference following the decision, Fed Chair Powell said that they don’t expect any rate cuts this year, adding that if they have to raise rates further, they will.
Will the data corroborate the pivot view?
Thus, upcoming data could constitute another piece of information to the rate-path riddle. Traders may pay more attention to the PCE inflation numbers for February, which are considered the Fed’s preferred inflation metric and come alongside the personal income and spending data for the month. Both income and spending are forecast to have slowed notably, but with retail sales sliding during the month, the risks surrounding spending may be tilted to the downside. A potential slowdown in income is corroborated by a slowdown in the monthly average hourly earnings. As for the PCE rates, currently, there is no forecast for the headline, but the core is expected to have held steady at 4.7% y/y.
That said, judging by the slowdown in the core CPI for the month, a similar outcome in this release may not come as a surprise. So, a further slowdown in the core PCE could add more credence to investors’ view that a pause is nearing, thereby weighing again on the US dollar and Treasury yields. At the same time, equities could benefit as expectations of rate cuts later this year mean lower borrowing costs for firms and higher valuations. And with the full effect of the prior hikes not fully transmitted into the real economy, investors could maintain the view that inflation could continue to cool in the coming months.
Other data on the calendar this week include the Conference Board consumer index for March, due out on Tuesday, the pending home sales for February on Wednesday, and on Thursday, the final GDP for Q4.
Fed speakers to enter the spotlight as well
Apart from the data, expectations around the Fed’s future course of action could also be affected by policymakers’ remarks. On Thursday, traders will get to hear from Richmond Fed President Thomas Barkin, while on Friday, after the PCE numbers, New York Fed President John Williams will step onto the rostrum. It will be interesting to see whether they will sing from Powell’s choir sheet and push back against rate cuts bets, but also whether the market will be convinced.
Even the smallest hint that they could consider reductions at some point this year could reinforce the market’s interpretation and magnify the dollar’s losses, especially against the yen, which has been attracting haven flows recently due to the latest banking turmoil. Also, with Japanese companies agreeing with unions to raise wages by the most in about three decades, the chances for the BoJ to remove further accommodation in the coming months may have increased.
Dollar/yen may be poised to continue drifting south
From a technical standpoint, dollar/yen has been in a sliding mode since March 8, when it hit resistance near the 138.15 barrier, which is marked by the peak of December 15. Currently, the pair is hovering near the round number of 130.00, where a clear break could allow the bears to test the low of January 16 at 127.20. A move lower would confirm a lower low on the bigger timeframes and may see scope for declines all the way down to the low of March 30, at 121.25.
For the picture to brighten, the pair may need to climb above the 138.15 area. Should that happen, a higher high will be confirmed and the bulls may feel confident to aim for the peak of November 21 at around 142.25. If they don’t stop there, their march may extend until they meet the 145.65 area, which provided support between October 24 and November 9.
Sunset Market Commentary
Markets
Markets today initially continued building on yesterday’s positive momentum as stress in the banking sector/financial stability subsided further. Trading was mainly sentiment/order driven with again hardly any data with market moving potential scheduled for release. First national EMU CPI data (Germany, Spain, Belgium) will only be published on Thursday. The first estimate for core and headline EMU will be released on Friday. Friday afternoon the US PCE deflators also might help to decide whether markets will give more weight to CB’s anti-inflationary narrative. US yields initially rebounded up to about 7 bps, but sentiment dwindled as US investors joined. US yields currently rise between 4.0 bps (5-y) and 0.5 bps (30-y). The US 2-y yield tries to regain the 4.0% barrier. Contrary to yesterday, German bonds underperform the US Treasuries with yields rising 4-5 bps across the curve (was 8.00/10.0 bps earlier today). ECB’s Muller repeated recent ECB mantra that underlying inflation remains an area of concern. Intra-EMU spreads versus Germain remained era of relative calm even during recent period of heightened market stress. Changes in 10-y spreads against Germany were again modest today (Italy + 3 bps, Greece +4 bps). In a broader perspective, the Italian 10-y spread versus Germany still holds the rather tight range roughly between 170 and 200 bps which is already in place since the start of the year (cf graph infra). For now financial stability concerns didn’t really affect sentiment on intra-EMU bond markets. Later today we still keep an eye at the US consumer confidence release and a $ 43 bln sale of US 5-y US Treasuries. (European) equites again opened about 0.8% higher, but gains gradually evaporated. The 4200 area apparently is a hard nut to crack. US indices even open with a moderate loss. If even financial stability concerns subside, the combination of yields staying higher than recently assumed while at the same time growth concerns continue to linger, might temper enthusiasm to really push a new protracted upleg in risk assets.
Even as the rally in risk assets subsided intraday, it again didn’t really help the dollar. DXY dropped further to trade in the 102.5 area. After a one day, risk-on correction yesterday, the yen again shows resilience today (USD/JPY 130.8 from a close at 131.6 yesterday). EUR/USD in a protracted intraday uptrend currently trades near 1.084 (from 1.08 early this morning). However, the 1.093 correction top for now stays out of reach. Sterling started strong this morning (EUR/GBP 0.8775 area) after record yearly rise in the BRC shop price index (8.9%). However, initial gains could not be sustained. In a hearing before Parliament, BoE’s Bailey indicated that recent developments might cause some tightening of financial conditions which the BoE takes into account when deciding on monetary policy.News & Views
European Union energy ministers have backed a plan to extend gas demand reductions by a year in a bid to ensure enough supplies for next winter. The current voluntary 15% gas demand cut is about to phase out by the end of the month. With the extension, it now applies until March 2024. The target could become binding if there are severe supply shortages. The rules were introduced last year after Russia’s invasion sparked concerns for shortages during the winter. In the period between August and January, the European bloc succeeded a 20% gas demand cut.
The Hungarian central bank kept its base rate steady at 13%. It also keeps a range of emergency measures in place, including the O/N tender (de facto policy) rate at 18%, as it improves the monetary policy transmission. To that end, it further raised the reserve requirement ratio to 10%. A system of tiered interest rates will be applied to the reserve account, which encourages an increase in the share of liquidity tied up on a long-term basis, further enhancing monetary policy transmission. The MNB has been saying for some months now that it takes persistent changes in risk perceptions into account when setting the parameters of its (emergency) instruments. It sheds some light on the rationale of today’s decision as investor sentiment deteriorated recently. Today’s meeting was also accompanied by new forecasts. GDP is seen increasing by 0-1.5% this year with growth picking up in the second half of the year. The expansion in 2024 is seen at 3.5-4.5% and 3-4% in the year thereafter. Inflation should ease slowly first before the pace accelerates in coming months. CPI is projected to be 15–19.5% in 2023, 3–5% in 2024 and 2.5–3.5% in 2025. The forint outperforms peers today. EUR/HUF eases from 386.3 to 381.57 currently. Hungarian swap yields extend an intraday advance, adding between, 10.3-29.5 currently with the front end underperforming.