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Daily Pivots: (S1) 136.07; (P) 136.63; (R1) 137.72; More...

USD/JPY's rally resumed to breaking through 137.09 resistance. The strong break of 136.64 fibonacci level also carries larger bullish implication. Intraday bias is back on the upside. Current rally would now target next fibonacci level at 142.48. On the downside, break of 135.35 support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, the break of 38.2% retracement of 151.93 to 127.20 at 136.64 suggests that whole down trend from 151.93 has completed at 127.20 already. Tentatively, rise from 127.20 is seen as the second leg the medium term pattern from 151.93. Further rally is expected to 61.8% retracement at 142.48. This will now remain the favored case as long as 55 day EMA (now at 134.10) holds.

In a surprising turn of events, the clear and direct hawkish message delivered by Fed Chair Jerome Powell has sent Dollar soaring and stocks tumbling overnight. The greenback maintained its solid gains during Asian session, and all eyes are now on Friday's non-farm payroll report to see what the next move will be.

While Canadian dollar remains mixed, awaiting BoC's statement today, it is widely expected that the central bank will stand pat. Australian dollar has had a rough week and continues to be the worst performer, although the sell-off appears to be slowing down a bit.

On the other hand, Yen's decline could potentially intensify, given the outlook against other major currencies. Investors are eagerly awaiting further developments in these volatile currency markets.

Technically, if Dollar is to extend gains for the rest of the week, question is on which currency would be the biggest victim. EUR/JPY would be a pair to watch as it's staying near term bullish in range. Break of 145.55 resistance will resume the whole rise from 137.37. That would add more fuel to USD/JPY's rally.

In Asia, Nikkei closed up 0.48%. Hong Kong HSI is down -2.24%. China Shanghai SSE is down -0.15%. Singapore Strait Times is down -0.57%. Overnight, DOW dropped -1.72%. S&P 500 dropped -1.53%. NASDAQ dropped -1.25%. 10-year yield dropped -0.008 to 3.975.

Markets raise bets on 50bps Fed hike, a look at DOW and DXY

The markets were rocked by the "clear-cut" hawkish remarks by Fed Chair Jerome Powell overnight. In short, "he indicated that ultimate level of interests is "likely to be higher than previously anticipated". Fed is also "prepared to increase the pace of rate hikes". He also warned against "prematurely loosening policy. More here.

As a result, Fed fund futures are now pricing in 73% chance of a 50bps rate hike to 5.00-5.25% on March 22, comparing to just 31% a day ago.

The stock markets were sold off deeper, with DOW losing -1.72% or -574.98 pts to close at 32856.46. Technically, it isn't the end of the world for DOW... yet, as it's staying in familiar range despite the selloff The rejection of 55 day EMA is a bearish sign though.

So, near term focus is now back on 38.2% retracement of 28660.94 to 34712.28 at 32400.66. As long as this level holds, DOW is just in a sideway consolidation pattern.

However, sustained break there will suggest bearish reversal and at least bring deeper fall to 61.8% retracement at 30972.55.

Dollar index closed sharply higher on expectation of more aggressive Fed and risk aversion The support from 55 day EMA is a near term bullish sign. But DXY will still need to overcome 38.2% retracement of 114.77 to 100.82 at 106.14 to confirm underlying momentum.

Rejection by 106.14 will keep the rise from 100.82 as a corrective move and maintains medium term bearishness for another fall through 100.82 at a later stage. However, sustained break of 106.14 will indicate trend reversal and bring stronger rally to 109.44, and possibly above.

RBA Lowe: Further tightening required, but closer to a pause

RBA Governor Philip Lowe said in a speech that further rate hike is still necessary. But the central bank is now closer to the point of a pause.

The board's judgment remained that "further tightening of monetary policy is likely to be required to bring inflation back to target within a reasonable timeframe", Lowe said.

"Inflation is still too high and while it looks to be on a declining path it is likely to remain higher than target for a few years," he added. "If we don't get inflation down fairly soon, the end result will be even higher interest rates and more unemployment.

Meanwhile, " with monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy," he noted.

"At what point it will be appropriate to pause will be determined by the data and our assessment of the outlook".

SNB Jordan: Monetary policy is still too loose

Swiss National Bank Chairman Thomas Jordan, stated that the current monetary policy is too loose to bring inflation back to price stability in the medium term, and further tightening cannot be ruled out. The comment came after recent data showed that consumer inflation reaccelerated to 3.4% in February, staying well above SNB's 0-2% target.

"The SNB's monetary policy is still too loose to return inflation back to price stability in the medium term," Jordan yesterday at Zurich University. "We cannot exclude that we have to tighten further."

"The SNB has to act to reach price stability in the medium term again," he said. "The barren Swiss labor market can lead to second- and third-round effects happening more easily."

Meanwhile Jordan also pointed out that the central bank has more than one option, as "we can raise rates, but also sell foreign currency — and we have sold foreign currency in the past."

SNB will meet on March 23 to decide on monetary policy.

BoC to stand pat, CAD/JPY staying bullish in range

BoC is widely expected to stand pat today, and keep the benchmark overnight rate unchanged at 4.50%. Governor Tiff Macklem has explicitly indicated that in inflation comes down as predicted, there is no need to raise interest rates further. But of course, he's prepared to act if that doesn't happen as expected. For now, markets are pricing in around 80% chance of another hike within this year. But it's too early for BoC to shift its evidence for now.

Some previews on BoC:

• Bank of Canada to Set Tightening Campaign on Hold
• Bank of Canada Preview: At Interest Rates Peak?
• Canadian jobs report, Bank of Canada decision back in the spotlight

Canadian Dollar's performance this week is not too bad, as it's just down against the strong Dollar, Euro and Swiss Franc. For example, CAD/JPY is just holding in range below 100.85 temporary top, with the shallow retreat contained above 99.02 support, as well as 55 day EMA. Further rally remains in favor.

Firm break of 38.2% retracement of 110.87 to 94.61 at 110.82 will argue that the down trend from 110.87 to 94.61 is reversal. That would bring stronger rally to 61.8% retracement at 104.65. (USD/JPY has taken out equivalent level of 38.2% retracement of 151.93 to 127.20 at 136.64 already).

Elsewhere

Germany industrial production, retail sales, Italy retail sales, Eurozone GDP and employment final will be released in European session.

Later in the day, US will release ADP employment and trade balance. Fed chair Jerome Powell will have the second day of testimony. Fed will also publish Beige Book report. Canada will release trade balance before BoC rate decision.

USD/JPY Daily Outlook

Daily Pivots: (S1) 136.07; (P) 136.63; (R1) 137.72; More...

USD/JPY's rally resumed to breaking through 137.09 resistance. The strong break of 136.64 fibonacci level also carries larger bullish implication. Intraday bias is back on the upside. Current rally would now target next fibonacci level at 142.48. On the downside, break of 135.35 support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, the break of 38.2% retracement of 151.93 to 127.20 at 136.64 suggests that whole down trend from 151.93 has completed at 127.20 already. Tentatively, rise from 127.20 is seen as the second leg the medium term pattern from 151.93. Further rally is expected to 61.8% retracement at 142.48. This will now remain the favored case as long as 55 day EMA (now at 134.10) holds.

Economic Indicators Update

BoC is widely expected to stand pat today, and keep the benchmark overnight rate unchanged at 4.50%. Governor Tiff Macklem has explicitly indicated that in inflation comes down as predicted, there is no need to raise interest rates further. But of course, he's prepared to act if that doesn't happen as expected. For now, markets are pricing in around 80% chance of another hike within this year. But it's too early for BoC to shift its evidence for now.

Some previews on BoC:

• Bank of Canada to Set Tightening Campaign on Hold
• Bank of Canada Preview: At Interest Rates Peak?
• Canadian jobs report, Bank of Canada decision back in the spotlight

Canadian Dollar's performance this week is not too bad, as it's just down against the strong Dollar, Euro and Swiss Franc. For example, CAD/JPY is just holding in range below 100.85 temporary top, with the shallow retreat contained above 99.02 support, as well as 55 day EMA. Further rally remains in favor.

Firm break of 38.2% retracement of 110.87 to 94.61 at 110.82 will argue that the down trend from 110.87 to 94.61 is reversal. That would bring stronger rally to 61.8% retracement at 104.65. (USD/JPY has taken out equivalent level of 38.2% retracement of 151.93 to 127.20 at 136.64 already).

DXY:

Price is at the 1st resistance area of 105.82, which is an overlap resistance. If the price were to reverse from this level, it could potentially drop to our 1st support at 103.80, which has the 38.2% Fibonacci retracement. The next support level is at 102.79, which is an overlap support that lines up with the 61.8% Fibonacci retracement.

In terms of resistance, if the price were to break the 1st resistance, it could push up to 107.730, which is an overlap resistance. Please note that there might be a bearish divergence in H4.

EUR/USD:

Price has reversed from a major resistance at 1.0697, which is a multiple swing high resistance. The price could come down to the 1st support at 1.0485, which is the recent swing low support. Currently, the price is at the intermediate support level of 1.0535.

If the price breaks the 1st resistance, it could rise to the 2nd resistance at 1.0783, which is a key overlap resistance that lines up with the 50% Fibonacci retracement.

GBP/USD:

Price is respecting a descending resistance line, pushing prices down towards our 1st support at 1.1764, which is an overlap support. It’s worth noting that the price is also experiencing bearish momentum from the Ichimoku cloud, which could add to the conviction we have that the price will be pushed lower.

Regarding resistance levels, our 1st resistance is at 1.1918, which is an overlap resistance, and the 2nd resistance level is at 1.2144.

USD/CHF:

Price is currently at the 1st resistance level of 0.9436, which is strong resistance, as we have seen multiple touches on this level in the past. If the price were to break from this level, it could push up to the 2nd resistance at 0.9545.

Regarding support levels, if the price were to reverse from the 1st resistance, we could see it drop to the 1st support at 0.9337. The 2nd support level is at 0.9283, which lines up with the 50% Fibonacci retracement.

USD/JPY:

The price has reversed from our 1st support level at 135.39, and it is now approaching the 1st resistance level at 138.04, which is an overlap resistance. If the price were to break from this level, it could push up to our 2nd resistance level at 139.64.

Regarding support levels, the next support level is at 134.46, which is a strong overlap support.

AUD/USD:

The price is experiencing strong bearish momentum from a long-term descending resistance line. Along with that, we can see the bearish Ichimoku cloud pushing prices further down. The 1st support that needs to be broken is at 0.6535, which is an overlap support. If the price were to break from this level, the next key support level would be at 0.6379, which is another overlap support.

Regarding resistance levels, the 1st resistance is at 0.6640, and the 2nd resistance is at 0.6696.

NZD/USD:

We are currently seeing a strong bearish momentum in the price, and the bearish Ichimoku cloud is pushing prices further down. The price could come down to the 1st support level at 0.6017, and if the price were to break from that level, it could drop down to the 2nd support level at 0.5863, which is another overlap support.

Regarding resistance levels, the 1st resistance is at 0.6131, which is an overlap resistance, and the 2nd resistance is at 0.6276.

USD/CAD:

The price is approaching the 1st resistance level at 1.3805, which is the recent swing high. If the price were to break from this level, it could push up to the 2nd resistance level at 1.3849.

Regarding support levels, the 1st support level is at 1.3699, and the 2nd support level is at 1.3519, which is an overlap support.

DJ30:

The price has reversed from the 1st resistance level at 33484, and it is currently dropping towards the 1st support level at 32583. If the price were to break this level, the next support level is at 32083, which the price has multiple touches in the past.

Regarding resistance levels, if the price were to break from the 1st resistance level, the next resistance level is at 33839, which is an overlap resistance.

GER30:

The price has reversed from the major swing high resistance level at 15657, and the 2nd resistance level is at 15851. We could see the price drop to the 1st support level at 15234, and the 2nd support level is at 14969, which is another overlap support.

BTC/USD:

Price is in a descending channel and seeing our 1st resistance at 22910 which is a Fibonacci retracement and a pullback resistance. If price reverses from this level, we could see the bearish momentum take prices lower to 21367 which is an overlap support.

It’s worth noting that price has finally broken a long term ascending support-turned-resistance line which suggests that we might be seeing a longer term shift to bearish momentum.

US500

The price has reversed from a major overlap resistance at 4073, which also lines up with the 61.8% Fibonacci retracement. We could see it drop to the 1st support level at 3917, which is the recent swing low. Please take note of the intermediate support level at 3945.

If the price were to break from the 1st resistance level, the next resistance level is at 4159.

ETH/USD:

Price is in a bearish descending channel with our 1st resistance at 1591 and the 1st support really near at 1549. Price is currently being squeezed between these 2 levels and a break of either should either see prices with recent multi-swing high resistance at 1679 or recent swing low support at 1462.

WTI/USD:

The price is currently in the 1st support area at 77.48, which has the 50% Fibonacci retracement. If the price were to reverse from this level, it could push up to the 1st resistance level at 80.81, which is the recent swing high. However, if the price were to break from this level, the 2nd resistance level would be at 82.63.

Regarding support levels, the support level is at 76.47, which lines up with the 61.8% Fibonacci retracement.

XAU/USD (GOLD):

The price is approaching our 1st support level at 1804, which is an overlap support. If the price were to break from this level, we could see it drop back down to the 2nd support level at 1785, which is a major overlap support.

Regarding resistance levels, our 1st resistance level is at 1824, which is an overlap resistance, and the 2nd resistance level is at 1864, which is an overlap resistance that lines up with the 38.2% Fibonacci retracement.

The markets were rocked by the "clear-cut" hawkish remarks by Fed Chair Jerome Powell overnight. In short, "he indicated that ultimate level of interests is "likely to be higher than previously anticipated". Fed is also "prepared to increase the pace of rate hikes". He also warned against "prematurely loosening policy. More here.

As a result, Fed fund futures are now pricing in 73% chance of a 50bps rate hike to 5.00-5.25% on March 22, comparing to just 31% a day ago.

The stock markets were sold off deeper, with DOW losing -1.72% or -574.98 pts to close at 32856.46. Technically, it isn't the end of the world for DOW... yet, as it's staying in familiar range despite the selloff The rejection of 55 day EMA is a bearish sign though.

So, near term focus is now back on 38.2% retracement of 28660.94 to 34712.28 at 32400.66. As long as this level holds, DOW is just in a sideway consolidation pattern.

However, sustained break there will suggest bearish reversal and at least bring deeper fall to 61.8% retracement at 30972.55.

Dollar index closed sharply higher on expectation of more aggressive Fed and risk aversion The support from 55 day EMA is a near term bullish sign. But DXY will still need to overcome 38.2% retracement of 114.77 to 100.82 at 106.14 to confirm underlying momentum.

Rejection by 106.14 will keep the rise from 100.82 as a corrective move and maintains medium term bearishness for another fall through 100.82 at a later stage. However, sustained break of 106.14 will indicate trend reversal and bring stronger rally to 109.44, and possibly above.

RBA Governor Philip Lowe said in a speech that further rate hike is still necessary. But the central bank is now closer to the point of a pause.

The board's judgment remained that "further tightening of monetary policy is likely to be required to bring inflation back to target within a reasonable timeframe", Lowe said.

"Inflation is still too high and while it looks to be on a declining path it is likely to remain higher than target for a few years," he added. "If we don't get inflation down fairly soon, the end result will be even higher interest rates and more unemployment.

Meanwhile, " with monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy," he noted.

"At what point it will be appropriate to pause will be determined by the data and our assessment of the outlook".

Full speech here.

SNB Chairman Thomas Jordan, stated that the current monetary policy is too loose to bring inflation back to price stability in the medium term, and further tightening cannot be ruled out. The comment came after recent data showed that consumer inflation reaccelerated to 3.4% in February, staying well above SNB's 0-2% target.

"The SNB's monetary policy is still too loose to return inflation back to price stability in the medium term," Jordan yesterday at Zurich University. "We cannot exclude that we have to tighten further."

"The SNB has to act to reach price stability in the medium term again," he said. "The barren Swiss labor market can lead to second- and third-round effects happening more easily."

Meanwhile Jordan also pointed out that the central bank has more than one option, as "we can raise rates, but also sell foreign currency — and we have sold foreign currency in the past."

SNB will meet on March 23 to decide on monetary policy.

The Bank of Canada will likely keep its promise to declare a pause in monetary tightening during Wednesday’s policy meeting, although other major central banks are still debating higher rates. The policy announcement could cause more shorting of the battered Canadian dollar, unless policymakers signal a conditional halt, leaving the door open for additional rate increases later in the year.

BoC to take break from rate hikes

After a record pace of rate hikes, which pushed interest rates from nearly zero to 4.50% in just eight meetings during the past year, the Bank of Canada decided to diverge from its peers and set its tightening campaign on pause as of March while assessing the impact of cumulative rate increases. The message was clear in January and doing otherwise would damage its credibility, with investors widely expecting stable rates at the moment.

Reasons to pause

The negative surprise in Q4 GDP growth figures, which revealed a flat economy after five consecutive quarterly increases versus estimates for a 1.5% expansion, as well as the sharp decline in housing starts in February, could excuse a break in monetary tightening for now. Canadian households are among the most indebted in the world, with debt-to-disposable income standing at 180% at the end of 2022. Hence, the central bank is reasonably taking a more careful approach than the Fed.

Will there be more tightening?

Nevertheless, it might be premature to exclude additional tightening in the year ahead, as inflation is still triple the central bank’s 2.0% target. The core measure, which excludes volatile food and energy prices, is also a problem at 5.0% y/y, and could remain sticky at an elevated level if the resilient labor market keeps driving demand.

Recall the outsized job addition of 150k in January, which beat analysts’ pessimistic expectations for a 15k employment growth and was the largest in almost a year. The next update will be on Friday, with forecasts pointing to a negligible 10k employment increase and a slight pickup in the unemployment rate to 5.1%. Still, February used to deliver upbeat employment reports over the past two years. Hence, another positive surprise cannot be ruled out.

USD/CAD

Futures markets are currently pricing out rate increases above 5.0% by the end of the year, while foreseeing a cut in January 2024. If policymakers keep rates unchanged but see a strong chance to drive interest rates above that peak, while playing down the rate cut scenario, the loonie could recoup some lost ground. In this case, dollar/loonie could retest the 1.3645 -1.3600 constraining zone before tumbling towards the 20-day simple moving average (SMA) at 1.3511. A more aggressive decline could even reach the 50-day SMA at 1.3460.

Alternatively, if the central bank judges that a potential break from pause may not be more than 50bps, remaining confident that the existing tightening will push inflation towards 2.0% by 2024, dollar/loonie could spike towards 1.3800. Should the US nonfarm payrolls further confirm a widening Fed-BoC rate divergence later in the year, the loonie could get another hit.

It’s also worthy to note that Canada’s distorted political relations with China over election meddling probes and investment laws in the mining sector could make it harder for Canadian producers to benefit from the reopening of the Chinese economy.

CAD/JPY

In other pairs, loonie/yen will be another interesting pair to watch as expectations for a hawkish shift within the Bank of Japan gain traction. A decisive close above the 100.80 ceiling could stage an exciting rally towards the 200-day simple moving average at 103.50.

Another high-stakes US employment report will be released on Friday. Most indicators point to another strong month for the labor market, although there's a risk of some 'payback' following the sensational numbers last month. As for the dollar, the outlook seems positive in an environment of rising Fed bets, especially when considering the vulnerabilities in equity markets. 

Economic resilience

The central theme in the markets this year has been the strength of the US economy. Incoming data continues to paint a picture of an economy that is firing on most cylinders, despite the Fed's rapid-fire rate increases to tame inflation.

Consumer demand, inflationary pressures, and most importantly the labor market have not shown any real signs of damage yet. This economic resilience has caused a sharp repricing in the market, fueling bets that the Fed will push rates even higher and keep them elevated for a longer period to win the inflation battle.

Market pricing currently suggests the Fed will raise rates to around 5.4% by the summer and keep them there for the rest of the year. Hence, the upcoming data will be crucial in shaping these expectations, and by extension, driving the dollar.

Strong report or payback? 

In February, nonfarm payrolls are forecast to have risen by 200k after an astonishing 517k print last month. The unemployment rate is expected to have remained unchanged at 3.4%, while wages are projected to have risen at a faster pace.

Early indicators suggest it was indeed a strong month for jobs. Business surveys from ISM and S&P Global pointed to stronger employment growth, while applications for unemployment benefits remained very low.

Nonetheless, there is a risk of disappointment. When a nonfarm payrolls print is as strong as it was last month, it is often followed by a softer number. Essentially, there is a correction back to the prevailing trend. Considering also that warmer weather and seasonal adjustments played a big role in boosting the last number, some 'payback' would be normal this time.

A minor disappointment could inflict some damage on the dollar, although the overall reaction will also depend on the wage numbers. Taking a technical look at euro/dollar, a potential move higher could encounter initial resistance near the 1.0740 zone, which also encapsulates the 50-day moving average.

On the flipside, a surprisingly strong report or a hot wage print could hammer the pair lower, with the first obstacle likely to be the 1.0530 region.

Dollar - Better times ahead? 

In the bigger picture, the outlook for the dollar seems bright, even if there is a negative reaction on Friday. In short, America is in better shape than other major economies, which allows the Fed to raise rates higher and for longer than other central banks.

This outperformance is linked to the structure of the loan market. Since most US mortgages are on 30-year fixed rates, existing homeowners have not been directly affected by rising rates. Higher rates affect only the next homebuyer, so it takes some time before they significantly impact economic activity.

But in Europe, there is a much higher proportion of mortgages at variable rates. Those rates usually adjust on a yearly basis, which means European consumers will feel the heat of rising rates much earlier.

Therefore, any real economic weakness will likely show up in Europe first, presenting downside risks for pairs like euro/dollar or pound/dollar. 

Similarly, these pairs have a strong correlation with the global investment mood, often rising and falling with stock markets. This is another vulnerability as equities seem overvalued at this stage, with corporate earnings contracting and interest rates rising.

Key Highlights

• USD/CAD started a major increase above the 1.3650 resistance zone.
• It broke a major contracting triangle with resistance near 1.3625 on the 4-hours chart.
• GBP/USD resumed its decline and traded below 1.1920.
• The BoC interest rate decision is scheduled today (forecast 4.5%, versus 4.5% previous).

USD/CAD Technical Analysis

The US Dollar started a major increase from the 1.3550 support against the Canadian Dollar. USD/CAD broke the 1.3600 zone to enter a bullish zone.

Looking at the 4-hours chart, the pair broke a major contracting triangle with resistance near 1.3625. There was a close above the 1.3650 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

The pair even climbed above the 1.3750 level and is showing a lot of positive signs. An immediate resistance is near the 1.3780 level.

The next major resistance is near the 1.3800 level. A clear move above the 1.3800 resistance might start a steady increase towards the 1.3880 zone. Any more gains might send the pair towards 1.4000.

On the downside, an immediate support is near the 1.3720 level. The next major support is near the 1.3650 level, below which there is a risk of a move towards the 1.3600 level. Any more losses could open the doors for a drop towards 1.3550.

Looking at GBP/USD, there was a sharp decline below the 1.1920 support and the pair is now showing a lot of bearish signs.

Economic Releases

• Euro Zone Gross Domestic Product for Q4 2022 (YoY) - Forecast 0%, versus 0.1% previous.
• US ADP Employment Change for Feb 2023 - Forecast 200K, versus 106K previous.
• BoC Interest Rate Decision – Forecast 4.5%, versus 4.5% previous.