Sample Category Title

New Zealand's Westpac McDermott Miller Consumer Confidence Index rose slightly by 2.1 points to 77.7 in March, but still remains well below the long-term average of 108.8. The President Conditions Index and the Expected Conditions Index also increased, but are still far below their long-term averages of 106.1 and 100.6, respectively.

Despite the slight uptick in confidence, Westpac notes that households across the country continue to grapple with the increasing costs of living, higher mortgage rates, and a downturn in the housing market. The Expected financial situation has improved, but remains negative at -3.8, while the 1-year economic outlook has only slightly improved to -41.1, and the 5-year economic outlook has dropped to -10.8.

The mounting financial pressures are already affecting household spending, and as they become more pronounced, Westpac expects to see an increasing number of households winding back their spending over the next year. This weakness in consumer confidence could have significant implications for the overall economy, as household spending is a major driver of economic growth.

Full Consumer Confidence release here.

Between October 2022, and January 2023, the Japanese Yen outperformed several other currency pairs, resulting in over a thousand pips move on pairs like EURJPY, GBPJPY, and 2000-plus pips on USDJPY. Considering that the BOJ has recently experienced a leadership change, and the JPY is at a pivotal zone on most charts, it seems a good time to analyze the charts for trading opportunities.

USDJPY

USDJPY seems to be reacting from the trendline support on the daily already. However, as we can see from the chart based on the bearish alignment of the Moving averages, it confirms the possibility of a bearish movement.

Analysts’ Expectations:

• Direction: Bearish
• Target: 129.410
• Invalidation: 135.470

CADJPY

CADJPY initially reacted to a demand zone even though the MAs are inclined in a bearish array. The break of structure, demand zone, and Fibonacci levels point to the possibility of price returning to the supply zone at the 200-Day MA before heading back down.

Analysts’ Expectations:

• Direction: Bullish
• Target: 100.060
• Invalidation: 95.70

EURJPY

I believe the price intends to react from a trendline resistance on the daily timeframe of EURJPY. The fact that the resistance trendline falls in line with the supply zone and 88% Fibonacci retracement zone gives me a reason to believe it would be a great point of entry for a sell order.

Analysts’ Expectations:

• Direction: Bearish
• Target: 145.430
• Invalidation: 137.30

GBPJPY

GBPJPY looks very similar to EURJPY. I see the price heading towards and reacting from either of the two zones I have already marked out. Based on the alignment of the MAs, I will be opting for a sell order from either supply zone.

Analysts’ Expectations:

• Direction: Bullish
• Target: 161.000
• Invalidation: 164.520

CONCLUSION

The trading of CFDs comes at a risk. Thus, to succeed, you have to manage risks properly. To avoid costly mistakes while you look to trade these opportunities, be sure to do your due diligence and manage your risk appropriately.

• GBPNZD broke resistance level 1.9650
• Likely to rise to resistance level 2.0000

GBPNZD recently broke the resistance level 1.9650 (earlier strong resistance from February) standing close to the 50% Fibonacci correction of the downward ABC correction from the start of October.

The breakout of the resistance level 1.9650 accelerated the active short-term impulse wave 3, which belongs to the intermediate impulse wave (3) from the start of this month. GBPNZD currency pair can then be expected to rise further toward the next round resistance level 2.0000.

• Gold under bearish pressure
• Likely to fall to support level 1900.00

Gold under the bearish pressure after the earlier downward reversal from the round resistance level 2000.00 (likely upward target set in our previous forecast for this precious metal) standing close to the upper weekly Bollinger Band.

The active downward reversal from the resistance level 2000.00 is similar to the earlier times when the initial contact with this price level is followed by the sharp downward correction.

Given the clear bearish divergence on the weekly Stochastic, Gold can then be expected to fall further toward the next support level 1900.00.

The Canadian dollar is slightly lower on Tuesday. In the North American session, USD/CAD is trading at 1.3687, up 0.17%.

Canada’s CPI continues to ease

Canada’s headline inflation fell to 5.2% y/y in February, down from 5.9% y/y in January and beating the consensus estimate of 5.4%. This was the largest deceleration since April 2020 and the lowest inflation rate since January 2021. This is clearly good news, but it’s still premature for the Bank of Canada to pat itself on the bank for a job well done. Food prices continue to outpace overall inflation and jumped 10.6% y/y, a grim reminder that consumers are feeling the price pain every time they go to the supermarket. Core inflation remains sticky, with the three core rate measures coming in at 5.3%, slightly better than the 5.5% gain in January.

The Bank of Canada left rates unchanged at 4.5% at its meeting earlier this month, the first time it has paused during the current rate-tightening cycle which began last year. Governor Macklem has made clear that the Bank will remain in pause mode only if the data supports such a move, and today’s inflation data appears to support another pause at the April 8^th meeting.

The BoC was one of six major central banks to announce on the weekend that they would coordinate to boost US dollar liquidity in order to head off further contagion of the global banking system. The financial markets were in a near-panic last week as three US banks collapsed and Swiss banking giant Credit Suisse had to be rescued by UBS in an emergency merger. The BoC had telegraphed today’s rate pause well in advance and there really wasn’t any uncertainty ahead of the decision. Still, like other central banks, the BoC will have to tread carefully with its rate path in the current unstable financial environment.

USD/CAD Technical

•  1.3648 was tested in support earlier in the North American session. 1.3567 is the next support line
• 1.3732 and 1.3813 are the next resistance lines

Markets

Risk-on following the Credit Suisse take-over entered its second day. Sentiment got an additional boost by reports of the US considering to temporarily guarantee all deposits (including those above the $250k threshold) if tensions rise again. And new proposals emerged to help out a fourth US bank in trouble, First Republic Bank, suggesting all parties involved are keen on finding a solution. European shares rise 1.5% with the Euro Stoxx 50 taking out lost neckline support-turned-into-resistance at around 4172. Just yesterday, the index risked breaking below the symbolic 4k barrier. US stocks add about 0.75%. Core bonds tumble. US yields add 4.2 (30y) to 14.6 bps (2y), yet money markets are still not sure whether the Fed’s going to hike tomorrow by 25 bps (4/5) or not (1/5). And if it does, it is probably the last one according to current pricing. German yields advance 6.1 (30y) to 15.0 bps (2y) with European swap yields following at a distance (3.9-9.1 bps). In both core countries, important support for the 10y yield at respectively 3.319% (previous 2023 correction low) and 1.92% (June 2022 interim high) survived thanks to a sharp U-turn yesterday and today’s follow-through rebound. Short-term yields experienced a huge amount of volatility, but there too support areas around 4% and 2.5% resp. have held. UK gilt yields rise 0.5-4.5 bps as investors count down to the Bank of England meeting on Thursday.

Currency markets do not correspond to a typical risk-on trading session. Especially the currencies Down Under miss out on the rally. The move was Aussie driven, with the publication of the minutes of the previous monetary policy meeting weighing down on the currency. They were more tilted towards a pause (or more) at the next meeting than the policy statement hinted at. AUD/USD drops from 0.6726 to 0.667. NOK and SEK outperform but both trade at still very weak levels historically (EUR/NOK 11.32, EUR/SEK 11.11). Central-European currencies are doing well. The forint is taking the lead (EUR/HUF tested 390). EUR/CZK drops sharply from around 24 to 23.81 currently while the zloty, as often has been the case lately, is trading stoic-to-slightly-stronger around 4.70. Of late risk-sensitive GBP held up well, strengthened even when market tensions were running high. Today, EUR/GBP soars past 0.88(1) again. A relative to Bunds (and Treasuries) underperformance followed by outperformance of UK gilts explain some of those counterintuitive moves.  Among the larger currencies, the euro tops the dollar. EUR/USD rises beyond 1.0735 resistance to change hands at 1.0766. The yen loses out against both.

News & Views

Polish real retail sales remained sluggish at the start of the year. After declining 23% M/M in January, the volume of sales contracted another 3.6% M/M in February. The monthly decline put the level of sales 5.0% below the level during the same month last year. In a monthly perspective only the subcategory motor vehicles and parts (+8.0%) succeeded positive growth. Negative growth figures amongst others were recorded for household goods (-12.2%), textiles (-14.9%), newspapers and books (-6.6%) and food and drinks (-3.9%). The data published today and softer production data published earlier this week suggest that final demand in the economy is slowing. Even so, with both headline (18.4 Y/Y) and core inflation (12.0% Y/Y) holding at cycle peak levels, it’s too early for the National Bank of Poland to already open the debate on a specific timing of rate cuts. In line with a better risk sentiment, the zloty today strengthened back below the EUR/PLN 4.70 area.

February inflation in Canada printed close to expectations. Headline inflation slowed slightly more than expected to 0.4% M/M and 5.2% Y/Y (was 0.5% M/M and 5.9% in January, 5.4% was expected). Core inflation measures which are closely monitored by the Bank of Canada (median 4.9% from 5.0%, trimmed 4.8% from 5.1%) also slowed. Looking at the details, the decline was mainly driven by energy costs (-1.2% M/M). Overall goods prices still rose 0.4% M/M as was the case for services (0.4% M/M, 5.3% Y/Y). Price rises for shelter slowed to 0.2% M/M. Even as inflation remains well above the 1-3% target range of the Bank of Canada, the report didn’t cause a big repositioning in Canadian FI and FX markets. Money markets still hold to the scenario that the Bank of Canada probably won’t hike rates any further, especially given recent uncertainty on financial stability. The Canadian dollar even lost a few ticks with CAD/USD trading near 1.367.

The latest bank turmoil cast a dark cloud over the central bank community, forcing investors to downsize their rate projections just a week before the March policy announcements. In the UK, the Bank of England will probably deliver a softer quarter percentage point rate hike on Thursday at 12:00 GMT, and while that could theoretically help the British pound to recoup some lost ground, a potential pause to the hiking cycle could easily put a break on any sterling rallies.

Investors dial down rate expectations

The UK is not a stranger to financial stability threats. It was actually the first country to spook markets when the Bank of England (BoE) urgently stepped in to buy 65 billion pounds of long-dated government bonds at the end of September after an extensive sell-off in bonds sparked insolvency risks in pension schemes. The chancellor’s mini budget was blamed then for pressing investors’ confidence and slashing the value of government loans, but that instantly made investors wonder how transparent the risk management is and how close financial markets are to a cliff edge.

Two bank failures in the US and the panic created over a potential fallout of the systemically important Credit Suisse revived fears for a domino effect in the UK, squeezing the FTSE 100 stock index by 7.7% from a record high to a relatively lower post-pandemic level. On the other hand, the British pound managed to escape the freefall, although futures markets immediately dialed down their rate projections to price a 50-50 tossup between a pause and a 25 bps rate hike.

Inflation calls for additional rate hikes

The next test for the British currency will be the central bank’s policy announcement, with CPI inflation figures likely influencing rate hike expectations a day earlier on Wednesday. Forecasts expect the headline CPI to ease to 9.9% y/y from 10.1% previously and the core measure to inch down from 5.8% y/y to 5.7% y/y, both remaining well above the central bank’s 2.0% target for more than a year now. Under other circumstances, that alone could be enough reason to vote for a bold 50 bps rate hike, but policymakers will probably move forward with a smaller 25 bps rate increase to 4.25% even as inflation remains the elephant in the room.

During its previous policy meeting, the central bank highlighted that additional rate increases might be required if price pressures persist, but it dropped its language for a forceful response to inflation, raising speculation that the hiking cycle might be near to a peak. Apparently, the BoE is still far from declaring victory on inflation and abandoning its inflation mission would not be policy-wise at the moment. Therefore, a little more tightening would not violate the central bank’s guidance, while it would also restore some market confidence if policymakers avoid cautious signals.

It might be the last rate hike before a pause

Still, a call for a pause in monetary tightening could be on a knife edge as the global battered bond values threaten additional financial shocks. The UK could be among the victims too. Although the chancellor insisted that the UK banking system remains sound and well capitalized, and exposure to SVB and Credit Suisse is minimal, the latest financial stability report that was released in December underlined that the “UK’s foreign liabilities are significantly higher than for other G7 economies”. That could still make the economy materially vulnerable to external liquidity crunches under tighter global conditions, especially as the interconnection with non-traditional decentralized finance markets has become more complex.

Fundamentally, the economic picture is not great either, but it could still excuse another gentle rate hike before a period of rate stability starts. The economy narrowly avoided a technical recession at the end of 2022, while creating more jobs than analysts expected, with the unemployment rate remaining steady at 3.7% in January versus August’s 3.5% record low. Average hourly earnings remained stable near pre-pandemic highs, but bleak retail sales, which continued to contract for the tenth consecutive month in January, suggested that households are still feeling the squeeze in living standards.

Moreover, the UK’s property market is relatively more sensitive to rate increases after Australia and Spain, according to the Fitch rating agency, as it has the highest proportion of loans with variable or fixed rates that expire or reset within 24 months. Note that household-debt-to-disposable income has been trending down since 2008 but is still comfortably above 100%.

GBP/USD levels to watch

Turning to FX markets, a 25bps rate hike could extend the pound’s latest rebound, though perhaps temporarily if the BoE announces a pause in the hiking cycle, letting previous rate increases take their effect on the economy. Specifically, the BoE could argue that there are other tools which are responsible for maintaining financial stability as the ECB chief Christine Lagarde tried to convey when she said that there was no trade-off between financial and price stability last week.

Technically, pound/dollar will need to overcome the 1.2280 resistance for the bulls to speed up towards the crucial 1.2445 -1.2500 ceiling. A 25bps rate hike and a warning of possible additional rate hikes could assist cable to reach that point.

Otherwise, a cautious tone by the BoE and signals that the hiking cycle may not resume unless economic conditions allow, could press the pair back to the 1.2140 territory. Even lower, the pair may head for the 20-day simple moving average (SMA) at 1.2045. Failure to pivot here could shift the spotlight to the 1.1945-1.1890 region.

Note that the FOMC policy announcement and a vote on Rishi Sunak’s post-Brexit trade agreement are on the agenda on Wednesday before the BoE meets.

Daily Pivots: (S1) 130.35; (P) 131.50; (R1) 132.46; More...

A temporary low should be in place at 130.52 in USD/JPY. Intraday bias is turned neutral first. But further decline is expected as long as 135.10 resistance holds. The current favored is that rebound from 127.20 has completed at 137.90 already. Sustained trading below 61.8% retracement of 127.20 to 137.90 at 131.28 will pave the way to retest 127.20 low next. However, break of 135.10 will turn bias back to the upside for 137.90 instead.

In the bigger picture, rebound from 127.20 should have completed at 137.90 as a corrective move, with strong break of 55 day EMA. The down trend from 151.93 (2022 high) is not over yet. Break of 127.20 will resume this down trend and target 61.8% projection of 151.93 to 127.20 from 137.90 at 122.61. This will now be the favored case as long as 137.90 resistance holds.

Daily Pivots: (S1) 0.9251; (P) 0.9281; (R1) 0.9323; More...

USD/CHF is staying in tight range below 0.9339 and intraday bias remains neutral. Corrective pattern from 0.9058 low should still be in progress with rise from 0.9070 as the third leg. Above 0.9339 will target 0.9439 resistance and possibly above. But overall, outlook will stay bearish as long as 0.9474 fibonacci level holds, and another decline through 0.9058 is expected at a later stage.

In the bigger picture, fall from 1.1046 (2022 high) should still be in progress with 38.2% retracement of 1.0146 to 0.9058 at 0.9474 intact. Rejection by 55 week EMA was a medium term bearish sign. Break of 0.9058 will resume such decline towards 0.8756 support (2021 low). But overall, such 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.