Sample Category Title

Daily Pivots: (S1) 0.8377; (P) 0.8403; (R1) 0.8422; More...

Intraday bias in EUR/GBP remains neutral for the moment. 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) 1.5153; (P) 1.5241; (R1) 1.5304; More...

Intraday bias in EUR/AUD stays neutral for the moment. 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) 1.0328; (P) 1.0356; (R1) 1.0409; More....

EUR/CHF's rebound from 0.9970 is still in progress. Intraday bias stays on the upside 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.

Daily Pivots: (S1) 1.2643; (P) 1.2710; (R1) 1.2746; More...

USD/CAD is staying in range of 1.2586/2899 and intraday bias remains neutral. On the upside, break of 1.2899 will target 1.2963 resistance first. Break there will target key long term fibonacci level at 1.3022. However, break of 1.2586 will bring retest of 1.2448 support instead.

In the bigger picture, focus stays on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness. Break of 1.2005 will resume the down trend from 1.4667 and that carries larger bearish implications too.

Daily Pivots: (S1) 0.7216; (P) 0.7257; (R1) 0.7332; More...

AUD/USD is staying in consolidation from 0.7440 and intraday bias remains neutral first. Further rally will remain in favor as long as 0.7093 support holds. As noted before, larger decline from 0.8006 might have completed at 0.6966 already. Above 0.7440 will resume the rise from 0.6966 for 0.7555 resistance next. However, firm break of 0.7093 will dampen this bullish case and bring retest of 0.6966 low instead.

In the bigger picture, focus remains on 0.6991 key structural support. Sustained break there will argue that the whole up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461. Meanwhile, strong rebound from 0.6991 will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress for another rise through 0.8006 at a later stage.

Daily Pivots: (S1) 1.0972; (P) 1.1010; (R1) 1.1072; More...

Sideway trading continues in EUR/USD and intraday bias remains neutral for the moment. Further decline is still expected with 1.1120 support turned resistance intact. On the downside, firm break of 61.8% projection of 1.2265 to 1.1120 from 1.1494 at 1.0786 will pave they way to 100% projection at 1.0349 next. However, strong break of 1.1120 will confirm short term bottoming, at least, and bring stronger rebound back towards 1.1494 structural resistance instead.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1494 resistance holds. Firm break of 1.0635 (2020 low) will raise the chance of long term down trend resumption and target a retest on 1.0339 (2017 low) next. Nevertheless, break of 1.1494 will maintain medium term neutral outlook, and extend range trading first.

Daily Pivots: (S1) 1.3068; (P) 1.3112; (R1) 1.3193; More...

Intraday bias in GBP/USD remains neutral at this point, and further decline is still expected as long as 1.3193 resistance holds. Break of 1.2999 will resume larger down trend from 1.4248. However, on the upside, firm break of 1.3193 will confirm short term bottoming. Intraday bias will be turned back to the upside for 55 day EMA (now at 1.3384).

In the bigger picture, current development suggests that the up trend from 1.1409 (2020 low) has completed at 1.4248. Decline from 1.4248 could still be a corrective move, or it could be the start of a long term down trend. In either case, deeper decline would be seen back to 61.8% retracement of 2.1161 to 1.1409 at 1.2493. In any case, break of 1.3748 resistance is needed to indicate medium term bottoming, or outlook will stay bearish.

Daily Pivots: (S1) 0.9379; (P) 0.9419; (R1) 0.9449; More....

USD/CHF edged higher to 0.9459 but quickly retreated. Intraday bias remains neutral and more consolidations could be seen. But downside should be contained by 0.9318 support to bring another rally. On the upside, above 0.9459 will target 0.9471 resistance first. Break there will resume whole rally from 0.8756 to 61.8% projection of 0.8756 to 0.9471 from 0.9090 at 0.9532.

In the bigger picture, medium term outlook will be neutral at best as long as 0.9471 resistance holds. Larger down trend could still extend through 0.8756 (2021 low). However, firm break of 0.9471 will argue that whole down trend form 1.0342 (2016 high), has completed with waves down to 0.8756. A medium term up trend should be set up to target 1.0237/0342 resistance zone.

Markets

Lift-off. We have a lift-off. The Fed hiked its policy rate yesterday by 25 bps to 0.25%-0.50% in a near unanimous vote. St.-Louis Fed Bullard dissented in favour of a 50 bps rate hike. Such move could well be the case later this year. Updated policy rate projections by individual Fed governors show that 7 out of 16 governors want to implement more tightening than the equivalent of an additional 25 bps at the six remaining policy meeting. The latter is this year’s median projections (1.75%-2% policy rate band by end 2022) with only 4 governors suggesting to go slower. The Fed expects its bold and brave tightening cycle to end next year. The median policy rate projections for both 2023 and 2024 stands at 2.75%. For the first time, Fed governors this way indicate willingness to lift the policy rate above their projected neutral rate (2.4%) into slightly restrictive area. The individual headcount shows willingness to do so by 11 out of 16 governors. US money markets align with the Fed for this year, but currently believe that the tightening cycle will end near neutral rates in 2023, discounting already a policy rate cut in 2024.

It’s quite striking that 2023 and 2024 PCE inflation (both headline and core) forecasts remain above the Fed’s 2% inflation target despite this rather aggressive policy stance. The unemployment rate is also forecast to stabilize in these conditions around 3.5%, below the NAIRU (4%). The combination of forecasts implies the best case scenario of a very smooth landing with Fed Chair Powell on multiple occasions downplaying recession risks. Growth is expect to run slightly above 2% in 2023 and 2024.

In our view, the inflation and unemployment forecasts mainly imply upside risks to the Fed’s policy rate projections. Powell backed the Fed’s policy turn at the Q&A session with the press. The Committee is determined to use all tools available to return the economy to price stability.

The US economy is very strong and well positioned to handle tighter monetary policy. It’s clear to everyone that multidecade high inflation needs a reaction especially given the very, very tight labour market. “Tight to an unhealthy level”, Powell said. The Fed dedicated an additional paragraph in its opening statement to the Russian invasion in Ukraine. The impact on the US economy is uncertain but upside inflation and downside economic risks arise.
 
With the gently 25 bps rate hike, Fed Chair Powell yesterday stuck to his promise not to become an additional factor of market stress. In the same vein, the Fed refrained from giving guidance on the future balance sheet run-off. Plans are being finalized and will be made public at the May 4 policy meeting. The actual shrinking will start soon after.

The market initially reacted as could be expected: US Treasuries fell with the front end underperforming, the dollar profited and stocks ceded ground. However, moves partly reversed during the Q&A session as Powell’s message was more in line with (hawkish) expectations.

The US yield curve flattened with yield changes ranging between -2.5 bps (30-yr) and +9.3 bps (3-yr). EUR/USD closed above 1.10, recovering from an intraday low around 1.0950. US stock markets eventually closed 1.5% (Dow) to 3.75% (Nasdaq) higher. Going forward, this Fed meeting strengthens the sell-off on bond markets and suggests that the ECB’s March policy shift gives the EUR significant backing. We remain unconvinced about stocks’ rebound momentum.

News Headlines

Australia’s labour market remains in excellent shape, adding 77.4k jobs in February. That’s more than double the 37k expected and follows an upwardly revised January (28.3k). Hours worked soared 8.9% m/m after a steep omicron-driven decline in January. Strong employment allowed the unemployment rate to nudge lower to 4%, matching the pre-GFC lows. The decline came even as the participation rate rose to a record high of 66.4%. The labour market is extremely tight and ups the pressure on the RBA to start raising policy rates. The central bank for now says it stays patient and needs more evidence of inflation sustainably hitting target. Money markets meanwhile price in five rate hikes this year with the lift-off occurring in July. The Australian dollar rises above AUD/USD 0.73 this morning. In other news Down Under, New Zealand GDP in 2021Q4 expanded 3% q/q, recovering from the -3.6% in Q3 and to be 3.1% higher y/y. NZD/USD holds on to yesterday’s gains around 0.6840.

Chinese stocks had their best day since 2008 yesterday, as the government stepped in after the latest selloff wiped out $200 billion in market value in just three days. And that selloff followed a very strong selloff that was already in place in more than a year due to a serious government crackdown, especially on most popular Chinese industries like technology. It appears that the latest selloff was so strong that it brought the Chinese government to pull out the white flag.

Even though the most popular Chinese names, like Alibaba lost more than 75% of their value since October 2020, the price chart looked like tens of falling knives that no dip buyer wanted to catch anymore. But China’s promise to ease the regulatory crackdown and support property and technology stocks could be a game, and a trend changer.

Nasdaq’s Golden Dragon China index gained close to 33% in just a single session, while Alibaba gained near 37%, JD.com jumped near 40%, and Didi, the Chinese Uber, rallied more than 41%.

Yet, risks prevail: we are still in a China that is no longer the land of opportunity of before Xi Jinping. Plus, US maintains a hardline on the Chinese listings in the US, insisting that the companies listed in the US should provide complete access to audits, with the threat of getting de-listed if they don’t comply.
Fighting inflation

The Federal Reserve (Fed) raised its interest rate by 25bp as expected for the first time since the beginning of the pandemic, and more importantly, said that the rate hikes will continue to tame inflation as the US economy looks strong enough to withstand a rapid normalization to avoid pushing the Fed into a darker stagflation environment.

It is now clear that the Fed’s and Biden’s top priority is now the price stability and there will be at least one 25bp hike in all of the next 6 meetings to come. The famous dot plot shows that the benchmark rate could end the year at about 1.90%, and then rise to about 2.8% next year, with dots placed above 3% for this year, and 3.50% for the next showing that some members are really serious about bringing inflation to the 2% target! Swaps linked to the next Fed announcement dates suggest that we will see a 75bp increase in the next two meetings, meaning that we could see a 50bp hike in one of them.

And last but not least, the Fed will also start shrinking its near $9 trillion balance sheet at the ‘coming meeting’, which is a big potential for pulling back liquidity. Of course, everything that’s planned right now depends on how the Ukrainian situation evolves - and no more on the pandemic, as the statement omitted Covid, expect from a reference to the pandemic’s impact on inflation. And the uncertainties that come along with the Ukrainian war means that nothing is sure for now, apart from the Fed’s willingness to take control on rising inflation to give itself some maneuver margin on its policy for the future.
Tech led gains

The kneejerk reaction to the decision was an early selloff then a strong rebound. The question is, could it last?

A gentle Fed was the biggest driver of the post-pandemic market rally, and we will see how a less supportive Fed will impact the company valuations. So far, the earnings growth remained strong for many companies with strong business fundamentals, that’s why picking the right sectors and the right stocks will be important. However, the idea that the reflation trade will mostly support the value names, and leave the technology stocks in the dark doesn’t necessarily hold. At least the kneejerk reaction to the Fed decision hinted that investors wouldn’t let go of their tech stocks just yet. The Dow Jones gained 1.50%, as the S&P500 gained around 2.20% and Nasdaq, full of technology and growth stocks which are normally the most sensitive to the changes in interest rates rallied 3.77%.