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Markets

US stock markets gained over 1% yesterday as risk sentiment improved during US dealings. Kremlin fake news reports on progress in Ukrainian peace talks initially caused some hesitance. US secretary of state Blinken later also openly doubted Russia’s diplomatic efforts to end the war.

News that Russia completed a coupon payment on international debt, avoiding external default, was later met with some optimism. EUR/USD tested 1.1121 resistance. The pair’s reaction function since Wednesday’s FOMC meeting suggests a stronger bottom below EUR/USD. The dollar failed to eke out additional gains on a hawkish Fed despite additional short term interest rate support.

The euro from his part finally enjoys ECB backing since last week’s actions/intentions. Expect a significant EUR/USD relief rally the day we finally get some real positive cease-fire news on Ukraine. Taking out EUR/USD 1.1121 would put us back in the old 1.1121/1.1483 range.

EUR/GBP rose from 0.8392 to 0.8435 in a technically insignificant move. First resistance stands at 0.8478. Gains probably could have been bigger following the Bank of England’s “dovish” policy rate hike (0.50% to 0.75%). The BoE toned down forward guidance on future hikes slightly because of the squeeze on UK households’ disposable income. It caused a huge outperformance of UK Gilts in a bull steepening move. UK yield dropped by 1.7 bps (30-yr) to 11.4 bps (2-yr). Changes on the German curve were insignificant, varying between +1 bp and -1 bp. US yield changes ranged between -3.7 bps (5-yr) and +1.7 bps (30-yr).
 
The Bank of Japan kept its policy unchanged this morning (see below) while downgrading the eco outlook. The BoJ is in absolutely no hurry to follow the global policy normalization swing. Japanese inflation remains low, but nevertheless rose to its highest level since February 2020. National CPI ex fresh food this morning printed at 0.6% Y/Y, up from 0.2% in January and beating 0.5% consensus. The BoJ’s stance leaves the yen vulnerable. USD/JPY earlier this week briefly exceeded the 119 big figure for the first time since early 2016. A weekly close above USD/JPY 118.66 makes way for a return to the 2015 high at 125.86.

Today’s eco calendar is empty. Much attention will go to the call between US President Biden and Chinese president Xi Jinping. The US is worried about China siding with Russia in the conflict and won’t hesitate to impose sanctions if China effectively does so. General risk sentiment will be decisive today. Keep a close eye on energy prices as well with Brent crude yesterday and this morning gaining $10/b from $100 to $110.

News Headlines

There were no changes in the Bank of Japan’s policy parameters after holding a meeting today. The base rate remains at -0.10% and the 10y target at 0%. The BoJ did downgrade its economic assessment just two months after it was upgraded. While it cited the impact of Covid, the central bank also flagged the war in Ukraine. It is monitoring in particular the effects from it on inflation, saying it expects it to “clearly” rise on soaring energy prices. Some warn inflation may reach 2% this year with base effects also kicking in from April and with the recent weakening of the yen (especially vs the USD) acting as an accelerator. The cost-push nature of such inflation against a weakening economic background limits the scope for the BoJ for a tightening move.

Chinese president Xi Jinping made a pledge to keep the economic collateral damage from its Covid-Zero policy at a minimum, but probably won’t give up that strategy any time soon. China will “strive to achieve the maximum prevention and control effect at the least cost and minimize the impact of the epidemic on economic and social development,” he said at the country’s top financial policy committee at a time millions of people are in lockdown. The comments can be seen as part of the vow China made earlier to stabilize financial markets and stimulate the economy.

EUR/USD

The level at 1.1126 appeared to be a strong resistance for the bulls to overcome and the outlook for today’s trading session is for the pair to breach through the support at 1.1044 and to head towards a test of the next significant zone at 1.0980. However, if the bulls manage to regain control over the market and overcome the resistance at 1.1126, then it is most likely to witness an impulsive move towards the resistance at 1.1231. A short consolidation in the range of 1.1044 – 1.1126, before the market finds a clear direction, should still not be excluded as well. During today's trading session, the most important economic news that would be of interest to the market participants will be the U.S. existing home sales data (14:00 GMT).

USD/JPY

The greenback rally paused below the resistance of 118.84, which comes from the higher time frames, and the market may need more time to breach this level before the upward movement is restored. At the time of writing, the pair is consolidating in the range of 118.19 – 118.84, and in case the lower band is breached, then this may lead to a deepening of the corrective move and a test of the support at 117.80.

GBP/USD

The currency pair is consolidating in the range of 1.3095 – 1.3191 as the bulls could not violate the resistance at 1.3191. A possible scenario for today’s trading session is for another attack on the mentioned level and a successful breach here would pave the way for the pair towards the resistance at 1.3269. However, if the bears manage to take control over the market, then we may expect a downward movement towards the support at 1.3095, followed by another decline towards 1.3050.

EUGERMANY40

The strong rally of the German index was limited to just below the resistance at 14502 as the bulls couldn’t gain enough momentum to violate this zone. The sentiment is rather negative – for a move towards the support at 14062, where a breach of this level would most probably lead to sell-offs towards the support at 13531. Only a confirmed breach of the resistance at 14502, however, would lead the price towards the next resistance level at 14788.

US30

The resistance zone of 34523 remains unshakable, and at the time of writing, we are seeing the index retreat towards the support of 34100. In the event of a breach of the mentioned support, we may observe a deepening of the sell-off, which may lead the price towards the next significant support area of 33779. Only a confirmed breach of the resistance at 34523, however, would lead the price towards the next resistance level at 35037. During today’s session, the situation in Ukraine will continue to dictate the market sentiment and volatility will most likely remain elevated.

US stocks wavered on Thursday as the market continued reflecting on the decision by the Federal Reserve. The Dow Jones and Nasdaq 100 were little changed after the Fed warned that it will likely hike interest rates in the next bi-annual meetings. It also warned that inflation will likely keep rising because of the ongoing crisis in Ukraine that has disrupted supply chains globally. Meanwhile, data published showed that the economy was doing well. Initial jobless claims rose by just 212k while the Philadelphia manufacturing index rose from 15 to 24 in February.

The Japanese yen was little changed against key peers like the US dollar and euro after the Bank of Japan delivered its interest rate decision. Unlike the Fed and the Bank of England, the BOJ decided to leave interest rates unchanged at -0.10%, where it has been in the past few years. The bank will also continue its asset purchase program in a bid to support the economy. At the same time, they warned that the rising inflation will push it to start winding down its policies in the coming months.

The economic calendar will be a bit muted on Friday. As such, investors will continue focusing on the rates decision by the Fed, BOJ, and the BOE. In its decision on Thursday, the Bank of England decided to hike interest rates for the third straight meeting. Some of the top data to watch today will be the latest Canadian retail sales and US existing home sales numbers. Still, their impact on the respective currencies will be muted.

EURUSD

The EURUSD pair has been in a narrow range in the past few days. As a result, it formed a triangle pattern between the 23.6% and 38.2% Fibonacci retracement levels. On Thursday, it managed to form a bullish breakout pattern as the market focused on the Fed and geopolitics. On the three-hour chart, it moved above the 38.2% retracement level and the 25-day moving average. Therefore, it will likely keep rising today.

USDCHF

The USDCHF pair retreated sharply in the overnight session as the US dollar weakness continued. It dropped to a low of 0.9350, which was significantly lower than the intraweek high of 0.9461. On the four-hour chart, it has moved below the middle line of the Bollinger Bands while the MACD and the RSI are pointing lower. Therefore, the pair will likely continue being under pressure today.

XAUUSD

The XAUUSD pair made some recovery in the overnight session after crashing in the first few days of the week. It is trading at 1,945, which was slightly above this week’s low of 1,893. On the four-hour chart, the pair managed to move above the key resistance level at 1,915. It has risen above the 25-day moving average while the RSI has risen above the oversold level. Therefore, the pair will likely keep rising.

Daily Pivots: (S1) 155.38; (P) 156.04; (R1) 156.63; More...

Intraday bias in GBP/JPY remains on the upside for the moment. The corrective pattern from 158.19 might have completed with three waves to 150.95. Further rise should be seen to 158.04/19 resistance zone. Firm break there will resume larger up trend. On the downside, below 154.23 minor support will turn bias neutral again.

In the bigger picture, price actions from 158.19 are seen as developing into a consolidation pattern to up trend from 123.94 (2020 low). Downside should be contained by 38.2% retracement of 123.94 to 158.19 at 145.10 to bring rebound. Firm break of 158.19 will resume the up trend to long term fibonacci level at 167.93. However, sustained break of 145.10 will raise the chance of trend reversal and target 61.8% retracement at 137.02.

Daily Pivots: (S1) 130.88; (P) 131.40; (R1) 132.06; More....

Intraday bias in EUR/JPY remains on the upside for the moment. The corrective pattern from 134.11 could have completed at 124.37 already. Further rise should be seen to 133.13/134.11 resistance zone next. On the downside, break of 130.01 minor support will mix up the outlook and turn intraday bias neutral first.

In the bigger picture, medium term outlook remains neutral for now. Price actions from 134.11 are so far still seen as a corrective pattern. That is, rise from 114.42 (2020 low) is in favor to resume at a later stage. But before that, the corrective pattern from 134.11 could still extend further, sideway or downward. In the latter case, break of of 124.37 will target 61.8% retracement of 114.42 to 134.11 at 121.94.

Daily Pivots: (S1) 0.8383; (P) 0.8420; (R1) 0.8473; More...

Intraday bias in EUR/GBP remains neutral as consolidation from 0.8454 temporary top could extend. On the upside, above 0.8454 will target 0.8476 structural resistance first. Firm break there will carry larger bullish implication and target 0.8598 resistance next. On the downside, break of 0.8315 minor support will retain near term bearishness, and bring retest of 0.8201 low.

In the bigger picture, the down trend from 0.9499 is expected to continue as long as 0.8476 resistance holds. Sustained trading below 0.8276 support will argue that the whole up trend from 0.6935 (2015 low) has reversed. Deeper fall should be seen to 61.8% retracement of 0.6935 to 0.9499 at 0.7917 next. However, firm break of 0.8476 will indicate medium term bottoming at least. Focus will be back on 55 week EMA (now at 0.8534) for more evidence of bullish reversal.

Daily Pivots: (S1) 1.4995; (P) 1.5070; (R1) 1.5111; More...

Intraday bias in EUR/AUD remains neutral at this point and outlook is unchanged. The larger down trend is still expected to continue as long as 1.5354 support turned resistance holds. On the downside, break of 1.4920 minor support should resume larger down trend to 161.8% projection of 1.6343 to 1.5354 from 1.6223 at 1.4476. However, sustained break of 1.5354 will bring stronger rise back towards 1.6223 resistance.

In the bigger picture, fall from 1.9799 is seen as a long term impulsive move. Next target is 61.8% projection of 1.9799 to 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623, which is close to 1.3624 long term support (2017 low). Some support could be seen there to bring interim rebound. But overall, break of 1.5354 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of recovery.

Daily Pivots: (S1) 1.0367; (P) 1.0385; (R1) 1.0409; More....

Intraday bias in EUR/CHF remains on the upside as rebound from 0.9970 is in progress for 38.2% retracement of 1.1149 to 0.9970 at 1.0420. Firm break there will target 1.0610 resistance next. On the downside, however, break of 1.0184 support will turn bias back to the downside for retesting 0.9970 low instead.

In the bigger picture, long term down trend from 1.2004 (2018 high) is still in progress. Next target is 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650. In any case, break of 1.0505 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will remain bearish.

The S&P 500 bounced higher after Russia averted a bond default. Price action has stabilized above last June’s lows around 4140 where a triple bottom indicates a strong interest in keeping the index afloat.

A previous attempt above 4350 forced sellers to cover but hit resistance at 4420. A bullish close above this key level on the daily chart could trigger a runaway rally.

4590 would be the next target when sentiment turns around. Otherwise, a lack of conviction from the buy-side would send the index to test 4250.

The Japanese yen struggles as the BOJ pledges to stick with stimulus. Sentiment turned extremely bullish after the pair rallied above December 2016’s high at 118.60.

The RSI went overbought on both hourly and daily charts, and the overextension could refrain buyers from chasing bids. Trend followers may be waiting to buy at pullbacks.

117.70 is the first level to gauge buying interest and 116.80 is the second line of support. A rebound above 119.00 would extend gains beyond the psychological level of 120.00.