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The S&P 500 fell as traders fret a solid jobs report would confirm the Fed’s hawkish stance. The index is at a crossroads on the daily chart as it goes sideways between 3900 and 4180. A failure to lift offers in the supply zone around 4080 indicates that the downward pressure still lingers in the wake of the February sell-off. A drop below 3970 signals that the path of least resistance is down and the daily support of 3885 is a critical floor to prevent a deeper correction to December’s lows near 3770. On the upside, 4010 is the first hurdle.

WTI crude weakens as Powel's hawkish comments sparked concerns of recession. The price has turned south after coming close to the top (82.00) of the four-month long consolidation. A fall below the first support of 78.50 triggered a liquidation and the base of last week’s momentum at 76.00 saw timid buying but was not enough. The price is heading to the daily support of 73.80, putting the commodity at the risk of a bearish continuation in the medium-term. 78.00 is the immediate resistance in case of a bounce.

The Japanese yen weakened as the BoJ kept its ultra-loose policy untouched. On the daily chart, the pair has met stiff selling pressure at December’s highs around 138.00. The confluence of the previous swing low of 135.60 and the 20-day SMA is an important area to see how the bulls would react. The RSI’s oversold situation triggered a ‘buy-the-dips’ behaviour. But the bulls will need to clear 137.40 before they could push for a continuation above 138.00. On the downside, 134.50 would be a second layer of support.

Markets

Yesterday was supposed the be an interlude ahead of today’s payrolls with (higher than expected) US weekly jobless claims (211k from 190k) providing some ‘dovish’ distraction intraday. However, gradually the story of SVB financial, the owner of Silicon Valley Bank moved to the center as driver for US/broader markets. The group faces pressure on its funding activities as it has to compete for cash/deposits with higher yields offered at several other money market products/funds. SVB was forces to sell assets and announced a capital increase to cover the loss on its security portfolio. Markets soon raised the question whether this case would be a one-off or whether other banks/financing companies would face similar issues. This developing story caused a hefty run on safe haven assets including Treasuries. The US yield curve bull steepened with the 2-y declining 20 bps, the 10-y ceding 8.8 bps and the 30-y easing 4.5 bps. First headlines on SVB already hit the screens early in US dealings. The fall-out on European markets stayed modest. German yields declined 5.9 bps at front end (2-y). The 10-y was little changed. The 30-y yield even gained 4.6 bps. The Eurostoxx 50 closed the session almost unchanged whereas US indices in the end lost 1.66% (Dow) to 2.05% (Nasdaq). With the source of market uncertainty emerging from the US and given the steep decline in US yields, the dollar didn’t profit from the risk-off. DXY opened near 105.6 to close the session at about 105.25. EUR/USD closed at 1.0581, compared to an intraday low in Asia near 1.054.

The Bank of Japan this morning as expected left its ultra-easy policy unchanged. However, global sentiment is dominated by the uncertainty/risk-off caused by SVP. US yields are ceding another 10 bps for maturities up to 10-y. Asian equities mostly show losses between 1% and 2.5%. European equity futures are also trading in red. Today, the focus for trading was supposed to be on the US payrolls. Post this week’s appearance of Powell before Congress, a solid report could have cemented the case for a return to a 50 bps rate hike in March and for guidance of a peak policy rate near 5.50%/6.00%. Markets still expect the payrolls to confirm tight labour market conditions (payrolls +225 k, unemployment rate 3.4% and average hourly earnings at 4.7%). However, we fear that even a solid payrolls report will be overshadowed by ‘uncertainty on financial stability’ emerging from the US. It’s much too early to assess whether the topic will have impact on Fed policy going forward. However, going into the weekend, we expect the risk-off/safe haven bid for high quality assets to persist. So, core bond yields probably will ease further. The US 10-y yield already dropped below the 3.90% barrier. The case for the dollar is less obvious. For now, we don’t see a strong case to support the dollar. First important resistance in EUR/USD is still rather far away around 1.0694. Smaller, less liquid currency might face growing headwinds.

News and views

The Bank of Japan made no changes to monetary policy. The base rate remains at -0.10% and the 10y yield target at 0% (+/- 50 bps). While that decision was widely expected, some warned for risks that governor Kuroda might adjust or even scrap altogether yield curve control and as such pave the way for his successor, Ueda, to normalize monetary policy further when he takes over in April. It explains why the yen still lost following the meeting, from an intraday low of USD/JPY at around 135.8 to 136.68 currently. Japan’s 10y yield tumbles more than 10 bps. The move lower, however, is also to a large extend driven by the general risk-off environment (see text). The BoJ sticks to ultra-easy policy given the extremely high uncertainties for Japan’s economy. It downgraded its view on exports and production though left its overall economic assessment unchanged. Inflation is still considered as mainly an (energy) imported phenomenon which should fade out in coming months.

Hungarian president Orban said he’s looking for ways to bridge the policy gap between the government and the central bank, adding that the two cannot go in opposite directions without undermining the economy. His comments came a day after MNB governor Matolcsy criticized Orban for making “strategic mistakes” in economic policy that he said led to a recession and the highest inflation in the EU. Orban and his cabinet recently urged the central bank to lower current interest rates of 18% as soon as possible. The president and Matolcsy are expected to meet this week.

Daily Pivots: (S1) 161.74; (P) 162.22; (R1) 162.81; More...

Intraday bias in GBP/JPY remains neutral as corrective pattern from 165.99 is still extending. Further rally is expected as long as 161.18 support holds. As noted before, corrective fall from 172.11 should have completed at 155.33 already. Break of 165.99 will target 169.26 resistance first, and then 172.11 high. However, break of 161.18 support will dampen this view and turn bias to the downside for 156.70 support instead.

In the bigger picture, corrective decline from 172.11 medium term should have completed at 155.33. With 38.2% retracement of 123.94 (2020 low) to 172.11 (2022 high) at 153.70 intact, medium term bullishness is retained. That is, larger up trend from 123.94 (2020 low) is still in progress. Break of 172.11 high to resume such up trend is expected at a later stage.

Daily Pivots: (S1) 143.51; (P) 144.20; (R1) 144.77; More....

Intraday bias in EUR/JPY remains neutral for the moment. Further rally is expected as long as 142.13 support holds. Corrective fall from 148.38 has completed at 137.37 already. Break of 145.55 will resume the rise from 137.37 to 146.71 resistance and then 148.38 high.

In the bigger picture, as long as 55 week EMA (now at 139.42) holds, larger up trend from 114.42 (2020 low) is still in progress for 149.76 long term resistance. However, firm break of 55 week EMA will bring deeper fall to 38.2% retracement of 114.42 to 148.38 at 135.40. Sustained break there will raise the chance of trend reversal, and target 61.8% retracement at 127.39.

Daily Pivots: (S1) 0.8857; (P) 0.8885; (R1) 0.8905; More...

Intraday bias in EUR/GBP remains neutral and further rally is in favor as long as 0.8825 support holds. Correction from 0.8977 should have completed with three waves down to 0.8754. Above 0.8924 will target 0.8977 high next. Firm break there will resume the whole rally from 0.8545. On the downside, break of 0.8825 support will dampen this bullish view again.

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

Daily Pivots: (S1) 1.5974; (P) 1.6026; (R1) 1.6111; More...

EUR/AUD's rally resumed after brief consolidations and intraday bias is back on the upside. Current up trend from 1.4281 should target 61.8% projection of 1.4281 to 1.5976 from 1.5254 at 1.6302 next. On the downside, below 1.5933 minor support will turn bias neutral and bring consolidations again first.

In the bigger picture, the strong support from 55 week EMA (now at 1.5396) is raising the chance of bullish trend reversal. On break of 1.5976, focus will be on 1.6434 cluster resistance (38.2% retracement of 1.9799 to 1.4281 at 1.6389). Sustained break there should confirm that whole down trend form 1.9799 (2020 high) has completed. However, rejection by this cluster resistance will make medium term outlook neutral at best.

Daily Pivots: (S1) 0.9846; (P) 0.9889; (R1) 0.9912; More....

EUR/CHF's decline continues today and immediate focus is now on 0.9832. Strong rebound from current level, followed by break of 0.9892 minor resistance, will argue that fall from 1.0040 has completed. Intraday bias will be turned back to the upside for 1.0040/95 resistance zone. However, sustained break of 0.9832 will carry larger bearish implication and target 0.9407 low again.

In the bigger picture, with 0.9832 support intact, rise from 0.9407 (2022 low) is still expected to continue. Break of 1.0095 and sustained trading above 55 week EMA (now at 1.0021) will be a medium term bullish signal, and bring further rally to 1.0505 cluster resistance (2020 low at 1.0505, 61.8% retracement of 1.1149 to 0.9407 at 1.1484). However, firm break of 0.9832 support will revive medium term bearishness and bring retest of 0.9407 low instead.

Daily Pivots: (S1) 1.0550; (P) 1.0571; (R1) 1.0603; More...

Intraday bias in EUR/USD stays neutral for the moment. Another decline cannot be ruled out with 1.0693 resistance intact. But strong support could be seen from 38.2% retracement of 0.9534 to 1.1032 at 1.0463 to bring reversal. Break of 1.0693 resistance will argue that pull back from 1.1032 has completed, and turn bias back to the upside for 1.0803 resistance and above. However, sustained break of 1.0463 will carry larger bearish implications.

In the bigger picture, as long as 1.0482 support holds, rise from 0.9534 (2022 low) should continue to 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273. However, sustained break of 1.0482 will bring deeper fall to 61.8% retracement of 0.9534 to 1.1032 at 1.0106, even as a corrective pull back.