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The USDJPY broke below psychological 130.00 support on Friday, hitting the levels last traded on Feb 10.

The pair is holding firmly in red, on track for the fourth consecutive weekly loss, fueled by increased safe-haven demand.

Growing uncertainty over the simmering crisis in banking sector sparked fresh sales of European banking shares on Friday, sending a shockwave through the markets and prompting traders to accelerate migration into safer assets.

Demand for safe-haven yen was additionally boosted by a record purchase of Japanese government bonds after the Bank of Japan kept its ultra-loose policy unchanged

Bears look for close below cracked supports at 130.00/129.74 (psychological / Fibo 76.4% of 127.22/137.90 rally) to confirm fresh negative signals and extend towards 128.08 (Feb 2 higher low) and key supports at 127.26/22 (50% retracement of larger 102.59/151.94 uptrend / 2023 low, posted on Jan 16).

Daily studies are in full bearish mode but overextended, suggesting that bears may pause for consolidation, before stronger push through 130.00 support.

Broken former strong support at 131.30 (Fibo 61.8% of 127.22/137.90) which recently kept bears limited for three straight days, reverted to significant resistance and expected to ideally keep the upside limited.

Res: 130.53; 130.93; 131.30; 132.21.
Sup: 129.74; 129.02; 128.08; 127.22.

The British pound is down considerably on Friday after mostly soft numbers out of the UK. In the European session, GBP/USD is trading at 122.13, down 0.60%.

PMIs down, retail sales jump

UK releases are a mixed bag on Friday. Business activity and manufacturing weakened in March. The Services PMI eased to 52.8, down from 53.5 in February and shy of the estimate of 53.0 points. Manufacturing fell to 48.0, versus 49.3 in February and an estimate of 52.8 points. Manufacturing has declined for eight straight months, with readings below the 50.0 level which separates contraction from expansion. Business activity continues to show modest expansion and is the driver behind economic growth in the UK.

Given the weak economic landscape, it’s no surprise that consumer confidence remains mired in negative territory. Double-digit inflation and high interest rates have sapped consumer optimism. In March, GfK Consumer Confidence came in at -36, as expected and a bit higher than the previous reading of -38 points. With consumers may in a sour mood, a strong retail sales report for February was that much more surprising, with a gain of 1.2%. This beat the upwardly revised January gain of 0.9% and crushed the estimate of 0.2%. Core retail sales jumped 1.5%, versus 0.9% in January, which was upwardly revised, and beat the estimate of 0.1%.

BoE raises rates by 25 bp

As expected the Bank of England raised rates by 25 basis points on Thursday. This marked an 11th straight hike, although the 25-bp move was the smallest increase since June. Is the BoE done with tightening? This week’s disappointing acceleration in inflation has increased the odds of at least one more hike, although BoE Governor Bailey was non-committal when asked about future hikes. Like the ECB, the BoE didn’t flinch from delivering an expected rate hike despite the banking crisis and I wouldn’t be surprised if more hikes are in store unless inflation shows clear signs of easing.

GBP/USD Technical

• There is resistance at 1.2324, followed by 1.2445
• GBP/USD has support at 1.2253 and 1.2132

After an impressive rally, the euro is falling for a second straight day. In the European session, EUR/USD is trading at 1.0739, down 0.86%.

German manufacturing falls, services rise

German PMIs were a mix in March. Let’s start with the good news. Business activity climbed to a 10-month high, as Services PMI rose to 53.9, versus 50.9 in February and 51.0 anticipated. Manufacturing was a different story, as the PMI slipped to 44.4, versus 46.3 in February and 47.0 anticipated. This was the lowest reading since May 2020. Manufacturing activity continues to decline, as companies remain cautious in the uncertain economic environment. The eurozone PMIs mirrored the German readings, indicating that business activity is driving economic growth as manufacturing continues to sputter.

The ECB took the plunge last week, delivering a 50 basis point hike despite the market turmoil due to the banking crisis. ECB President Lagarde had basically declared to the markets over the past few weeks that the ECB intended to raise rates by 50 bp, and had the ECB not carried through, it would have risked its credibility. The move also made sense as eurozone inflation came in at 8.5% in February, barely unchanged from the 8.6% gain a month earlier.

Lagarde seems intent on not getting trapped again with specific rate hike announcements and said this week that “with high uncertainty, it is even more important that the rate path is data-dependent”. She also noted that inflation is still high, which required a “robust strategy going forward”. Was that a hint at further rate hikes? The markets certainly thought so, as the euro jumped to a 5-week high after her comments. Earlier this week, Lagarde suggested that the recent market turmoil could actually help the ECB by lowering demand and thus reducing inflation.

EUR/USD Technical

• EUR/USD 1.0778. Next is 1.0890
• There is support at 1.0647 and 1.0535

UK PMI Manufacturing dropped from 49.3 to 48.0 in March. PMI Services dropped from 53.5 to 52.8. PMI Composite dropped from 53.1 to 52.2. All three were two-month lows.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, indicated that the UK economy has shown signs of growth in the first quarter, with the flash PMI surveys indicating a second consecutive month of rising output in March. The data suggests a modest quarterly GDP growth rate of 0.2%, which is a welcome change from the stagnation seen in the second half of the previous year.

Despite concerns over the banking sector, businesses remain optimistic about growth possibilities, and the improvement in order book growth suggests that a near-term recession has been averted. The upturn in companies' expectations for the year ahead indicates that firms are more focused on growth opportunities rather than banking sector challenges.

Full UK PMI release here.

GBPJPY has been losing ground after its 2023 advance got rejected at the 166.00 region in early March. Even though the pair attempted to rebound after finding its feet near the 50-day simple moving average (SMA), the upper boundary of the Ichimoku cloud and the 200-day SMA curbed the upside.

The momentum indicators are endorsing this bearish near-term bias. Specifically, the RSI is sloping downwards below its 50-neutral mark, while the MACD histogram dropped below both zero and its red signal line.

Should selling pressures persist, the March low of 158.54 could act as the first line of defense. Sliding beneath that floor, the pair could decline towards 156.72, or lower to test the 2023 bottom of 155.34. Even lower, the 152.53 barrier might provide downside protection.

On the flipside, if the negative momentum fades and the price reverses upwards, the pair could challenge the recent resistance of 163.32, which overlaps with the 200-day SMA. Should that barricade fail, the bulls could aim for 164.20 before the 2023 peak of 166.00 appears on the radar. A break above the latter may pave the way for the September high of 167.50.

In brief, GBPJPY retraced lower and traded sideways between the 50- and 200-day SMAs after its recent advance got rejected. However, this rangebound pattern broke to the downside and a potential fresh lower low could lead to an acceleration of the retreat.

Cable is standing at the back foot in early Friday’s trading after hitting new highest since early February on Thursday but failing to sustain post-BOE gains.

The Bank of England raised its interest rates by 25 basis points, in line with expectations, after unexpected inflation rise in February shifted earlier 50/50 split on rate outlook, to decision for 0.25% hike.

However, BOE’s 7/2 vote split and subsequent comments, in which policymakers said that further hikes would directly depend on evidence of more persistent pressure, were mainly seen by markets as dovish.

This tempered immediate market reaction, however, supportive factor for pound could be diverging inflation values, as US inflation remains in a downward trajectory for now, while Britain’s inflation rose again after easing in past couple of months.

If the gap widens, this would prompt the BOE to remain on hiking track, and offer support to sterling, while the US central bank already signaled it is likely close to the end of its policy tightening campaign.

Today’s better than expected UK retail sales data, which showed monthly retail sales jumping well above forecast in February and returning to pre-pandemic levels, while annualized figure signaled much lower than expected drop, may offer temporary support.

Technical view shows developing negative signals on daily chart, highlighted by long upper shadows on candles of past two days, which point to strong offers and warn of stall.

In addition, double failure to clearly break above Fibo barrier at 1.2295 (76.4% retracement of 1.2447/1.1802) is generating another negative signal – a bull-trap.

Contributing to negative near-term outlook is fading bullish momentum, as well as south-heading stochastic, which emerged from overbought territory, while today’s daily Ichimoku cloud twist, is also expected to be magnetic for fresh bears.

On the other hand, daily moving averages are still in full bullish setup and underpin the action for now.

The larger uptrend from 1.1802 (Mar 8 low) is intact, pointing to bullish scenario in which current pullback should be contained by strong supports at 1.2200 zone (broken Fibo 61.8% of 1.2447/1.1802, reinforced by rising 20-d moving average) to keep bulls in play and within already established consolidation range, ahead of fresh push higher.

Conversely, loss of 1.2200 handle would put bulls on hold and risk deeper pullback towards pivotal support at 1.2136 (Fibo 38.2% retracement of 1.1802/1.2343 rally).

Markets focus UK Mar PMI data, due today, which should provide fresh signals.

Res: 1.2295; 1.2343; 1.2402; 1.2447.
Sup: 1.2200; 1.2150; 1.2136; 1.2085.

The Euro started a fresh decline after a major rally towards the 1.0920 against the US Dollar. The EUR/USD pair traded below the 1.0875 level to move into a short-term bearish zone.

There was a clear move below the 1.0850 support zone and the pair even settled below the 50 hourly simple moving average. It is now consolidating losses, with an immediate resistance near the 1.0840 level.

The next major resistance is near 1.0860 on FXOpen. A break above the 1.0860 resistance level could start another increase. In the stated case, it could rise towards the 1.0900 resistance.

Conversely, the pair might resume its decline below 1.0800. The next key support is near 1.0775, below the pair could drop towards the 1.0740 level. Any more losses might send the pair towards the 1.0710 level in the near term.

Eurozone PMI Manufacturing dropped from 48.5 to 47.1 in March, hitting a 4-month low. However, PMI Services rose sharply from 52.7 to 55.6. PMI Composite rose from 52.0 to 54.1. Both PMI Services and Composite were the highest levels in 10 months.

According to Chris Williamson, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, the eurozone economy is experiencing a resurgence, with business activity in March growing at the fastest rate in ten months. The data indicates a 0.3% GDP growth in Q1, accelerating to a 0.5% rate in March. This growth is attributed to fading recession fears, easing inflation pressures, and significant improvements in supplier delivery times.

Despite these positive signs, inflationary pressures continue to be a concern, particularly in the service sector and rising wage costs. The growth remains unbalanced, with the service sector driving growth while manufacturing struggles to maintain production amid falling demand.

Full Eurozone PMI release here.

Also released, Germany PMI Manufacturing dropped further from 46.3 to 44.3 March, a 34-month low. But PMI Services rose from 50.9 to 53.9, a 10-month high. PMI Composite rose from 50.7 to 52.6, also a 10-month high.

France PMI Manufacturing ticked up from 47.4 to 47.7 in March. PMI Services rose from 53.1 to 55.5, a 10-month high. PMI Composite rose from 51.7 to 54.0, also a 10-month high.

In a interview with BBC, BoE Governor Andrew Bailey emphasized that the central bank expects inflation to decline sharply this year as the impact of last year's steep energy price increases drops from year-on-year price comparisons. He expressed relief that inflation had stabilized and noted some "encouraging signs" of progress. However, he urged continued vigilance, stating, "we have to be extremely vigilant on that front."

Bailey also issued a warning to businesses setting prices, cautioning that "if we get inflation embedded, interest rates will have to go up further." While acknowledging that companies must set prices according to the costs they face, he urged them to remember the anticipated decrease in inflation this year when setting prices: "we do expect inflation to come down sharply this year and I would just say please bear that in mind."

Daily Pivots: (S1) 159.85; (P) 160.86; (R1) 161.77; More...

Immediate focus in now on 158.54 support in GBP/JPY with today's decline. Current development suggests that fall from 165.99 is a falling leg of the whole decline from 172.11. Deeper decline is expected as long as 164.12 resistance holds. Break of 158.54 will target a retest on 155.33 low. However, break of 164.12 resistance will bring stronger rise back to 165.99 resistance.

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.