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Dollar remains sluggish ahead of crucial FOMC decision

The US dollar is extending yesterday’s retreat despite the minor uptick in US Treasury yields, while attention is now shifting to the outcome of the Fed’s monetary policy meeting later today. The Fed is highly anticipated to proceed with what is set to be the first in a series of rate hikes as an effort to tackle the persistently high inflation. Moreover, the Fed will also reveal the dot plot of each member’s interest rate projections, which is expected to reflect how the ongoing surge in commodity prices and the financial sanctions imposed on Russia have influenced policymakers’ views over the upcoming tightening cycle. Finally, the markets will be eyeing for concrete guidance over the reduction of the Fed’s balance sheet as well as the renewed inflation and growth forecasts.

On the data front, retail sales in the US rose by 0.3% on a monthly basis in February against the expectation of a 0.4% increase. Nevertheless, the disappointment was offset by January's print that got revised higher to 4.9% from 3.8%. The greenback did not react significantly on that dataset.

Euro resumes its advance despite negative outlook

The euro is nudging higher in the current session, capitalizing on the moderate risk-on mood in the markets following Russian foreign minister Sergey Lavrov’s remarks that peace talks are not easy but there is certainly hope for compromise. Meanwhile, Ukrainian President Volodymyr Zelensky also communicated that peace negotiations with Russia are beginning to sound more realistic. However, ECB chief Christine Lagarde stated that the Russia-Ukraine war continues to dampen economic growth and increase inflationary pressures in the Eurozone through higher energy and commodity prices. Therefore, it seems that the ECB is unwilling to proceed with aggressive monetary tightening for now, leaving the single currency in a disadvantageous spot against the higher-yielding currencies.

US stock futures inch higher amid renewed optimism over the ceasefire talks

Wall Street is set to open higher today and extend yesterday’s gains as investors seem to be feeling more optimistic over the developments in the Russia-Ukraine peace negotiations, while also awaiting the Fed’s monetary policy decision.  More specifically, e-mini futures for the Nasdaq, S&P 500 and Dow Jones are edging higher in pre-market trade, currently gaining 1.5%, 1% and 0.9% on the day, respectively. Additionally, most major European indices are trading modestly higher today, benefiting from the improving risk sentiment.

Oil trades slightly higher; gold stabilizes

WTI futures are up 1% in a volatile session despite being pressured by worries about the demand outlook, originating from the progress in Russia-Ukraine peace talks and China’s new wave of lockdowns. Gold is also holding steady today as the downside pressures stemming from the risk-on sentiment and rising Treasury yields appear to be offset by the softer dollar.

In other news, nickel trading on the London Metal Exchange (LME) resumed today but it already triggered the new limits set out by the exchange, which state that price moves will be constrained to 5% above or below the last closing price

Daily Pivots: (S1) 1.0914; (P) 1.0967; (R1) 1.1008; More...

Intraday bias in EUR/USD remains neutral as range trading continues. 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) 1.2998; (P) 1.3044; (R1) 1.3087; More...

GBP/USD is staying in consolidation from 1.2999 and intraday bias remains neutral. Further decline is expected as long as 1.3193 resistance holds. On the downside, below 1.2999 will target 100% projection of 1.4248 to 1.3158 from 1.3748 at 1.2658 next. However, firm break of 1.3193 will indicate short term bottoming, and turn bias back to the upside for stronger rebound.

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) 117.86; (P) 118.15; (R1) 118.59; More...

USD/JPY is staying in consolidation below 118.44 temporary top and intraday bias remains neutral. In case of deeper retreat, downside should be contained above 116.34 resistance turned support to bring rally resumption. On the upside, firm break of 118.65 will target 100% projection of 109.11 to 116.34 from 114.40 at 121.63.

In the bigger picture, no change in the view that rise from 102.58 is the third leg of the up trend from 101.18 (2020 low). Such rally should target a test on 118.65 (2016 high). Sustained break there will pave the way to 125.85 (2015 high) and raise the chance of long term up trend resumption. This will remain the favored case as long as 113.46 support holds.

Daily Pivots: (S1) 0.9380; (P) 0.9406; (R1) 0.9438; More....

Intraday bias in USD/CHF remains neutral for consolidation below 0.9430. Downside of retreat should be contained above 0.9305 resistance turned support to bring another rally. On the upside, above 0.9430 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.

Canadian Dollar surges broadly in early US session after stronger than expected consumer inflation reading, which solidifies the case for more tightening from BoC. Though, as for today, Aussie is still the strongest, as helped by the massive rebound in China stocks earlier. Yen is turning soft again but following global risk rebound, and more importantly, rally in US and European benchmark yields. European majors are mixed.

Dollar is also soft in consolidation, awaiting FOMC's 25bps rate hike, There are three questions to answer. Firstly, where would interest be by the end of the year? Secondly, is FOMC going to "front-load" some of the rate hikes? And thirdly, will the estimated longer run federal funds rate be lifted from the current 2.50%? The new economic projections would hopefully provide something concrete.

Technically, CAD/JPY rises through 93.00 high to resume the medium term up trend from 73.80. Next target is 100% projection of 87.42 to 92.16 from 89.21 at 93.95. Attention is now on when AUD/JPY would follow and break through 86.24 resistance to resume the up trend from 59.85.

In Europe, at the time of writing, FTSE is up 1.39%. DAX is up 2.82%. CAC is up 3.26%. Germany 10-year yield is up 0.0544 at 0.390. Earlier in Asia, Nikkei rose 1.64%. Hong Kong HSI rose 9.08%. China Shanghai SSE rose 3.48%. Singapore Strait Times rose 1.70%. Japan 10-year JGB yield dropped -0.0068 to 0.204.

US retail sales rose 0.3% mom in Feb, ex-auto sales rose 0.2% mom, missed expectations

US retail sales rose 0.3% mom to USD 658.1B in February, below expectation of 0.6% mom. Ex-auto sales rose 0.2% mom, below expectation of 0.9% mom. Ex-gasoline sales dropped -0.2% mom. Ex-auto, ex-gasoline sales dropped -0.4% mom. Total sales for December 2021 through February 2022 period were up 16.0% from the same period a year ago.

Import price index rose 1.4% mom in February, below expectation of 1.6% mom.

Canada CPI jumped to 5.7% yoy in Feb, highest since 1991

Canada CPI accelerated sharply form 5.1% yoy to 5.7% yoy in February, above expectation of 5.5% yoy. That's the largest gain since August 1991, and it's the second consecutive month where headline inflation exceeded 5% level. Excluding gasoline, CPI rose 4.7% yoy up from January's 4.3% yoy, fastest since its introduction in 1999. On a monthly basis, CPI rose 1.0% mom in February, largest monthly increase since February 2013.

CPI common rose from 2.3% yoy to 2.6% yoy, above expectation of 2.4% yoy. CPI median rose from 3.3% yoy to 3.5% yoy, matched expectations. CPI trimmed rose from 4.0% yoy to 4.3% yoy, above expectation of 4.2% yoy.

ECB Nagel doesn't expect stagflation at the moment

ECB Governing Council member Joachim Nagel told German newspaper Handelsblatt, "I don't expect stagflation at the moment, even though the fallout of the war will boost inflation rates and weaken economic growth." He added that there are currently "no signs" of a wage-price spiral.

He said ECB's current approach of tapering asset purchases while being non-committal on rate hike was a "good and balanced" approach. He said, ""I consider it very important that we don't pre-commit in times of high uncertainty, but stay flexible."

Japan imports surged 34% yoy in Feb on Yen depreciation and higher energy prices

Japan exports rose 19.1% yoy to JPY 7190B in February. That's the 12th straight month of growth. Auto exports increased 8.3% yoy, rebounding from January's -1.0% yoy decline. Exports to the US rose 16.0% yoy to JPY 1.3T. Exports to China rose 25.8% yoy to JPY 1.5T.

Imports rose 34.0% yoy to 7858B. That's the 13th consecutive month of growth. Crude oil imports surged a massive 93.2% yoy to JPY 08.6B, up for the 11th straight months, on the back of Yen's depreciation and higher oil prices. Trade deficit came in at JPY -668B.

In seasonally adjusted terms, exports dropped -0.5% mom to JPY 7432B. Imports rose 2.7% mom to JPY 8463B. Trade deficit widened to JPY -1031B.

Australia Westpac leading index improved slightly in Feb

Australia Westpac-MI leading index improved slightly from -0.50% to -0.25% in February. But Westpac is expecting "strong above trend growth in 2022", largely due to the aftermath of the extraordinary emergency policy measures from both the fiscal and monetary authorities during 2020 and 2021.

Westpac expects RBA to stand pat in April meeting with its "patience" stance. But after Q1 inflation data and further progress on wages growth, RBA would moving to a tightening bias over June and July, prior to raising the cash rate in August.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9380; (P) 0.9406; (R1) 0.9438; More....

Intraday bias in USD/CHF remains neutral for consolidation below 0.9430. Downside of retreat should be contained above 0.9305 resistance turned support to bring another rally. On the upside, above 0.9430 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.

Economic Indicators Update

Canada CPI accelerated sharply form 5.1% yoy to 5.7% yoy in February, above expectation of 5.5% yoy. That's the largest gain since August 1991, and it's the second consecutive month where headline inflation exceeded 5% level. Excluding gasoline, CPI rose 4.7% yoy up from January's 4.3% yoy, fastest since its introduction in 1999. On a monthly basis, CPI rose 1.0% mom in February, largest monthly increase since February 2013.

CPI common rose from 2.3% yoy to 2.6% yoy, above expectation of 2.4% yoy. CPI median rose from 3.3% yoy to 3.5% yoy, matched expectations. CPI trimmed rose from 4.0% yoy to 4.3% yoy, above expectation of 4.2% yoy.

Full release here.

US retail sales rose 0.3% mom to USD 658.1B in February, below expectation of 0.6% mom. Ex-auto sales rose 0.2% mom, below expectation of 0.9% mom. Ex-gasoline sales dropped -0.2% mom. Ex-auto, ex-gasoline sales dropped -0.4% mom.

Total sales for December 2021 through February 2022 period were up 16.0% from the same period a year ago.

Full release here.

ECB Governing Council member Joachim Nagel told German newspaper Handelsblatt, "I don't expect stagflation at the moment, even though the fallout of the war will boost inflation rates and weaken economic growth." He added that there are currently "no signs" of a wage-price spiral.

He said ECB's current approach of tapering asset purchases while being non-committal on rate hike was a "good and balanced" approach. He said, ""I consider it very important that we don't pre-commit in times of high uncertainty, but stay flexible."

The JP 225 index continues its downtrend move, recording successive lower lows and lower highs as negative momentum lingers. Moreover, the index is currently trading well below its 50- and 200-day simple moving averages (SMAs), reinforcing the overall bearish outlook.

Despite the bearish outlook, short-term oscillators are reflecting a positive bias as the RSI is increasing despite being below its 50 neutral mark. Also, although the MACD is below zero, it has recently crossed above its red signal line, which indicates that the negative momentum in the price might be fading.

The bulls seem to have resurfaced over the last few trading sessions. Should they manage to push the price above the January low at 26,015, buyers could then eye the region which includes the 50-day SMA and the 26,970 barrier. Crossing above the latter could send the price towards the consecutive hurdles of 27,370 and 27,880.

However, if the bears regain control the first line of defence could be found at the 24,300 level. A break below this point could intensify selling pressures, opening the door towards the September 2020 support at 23,470, before sellers target the October 2020 low at 22,850.

In brief, despite the fact that the index’s bias seems to be improving, the overall outlook remains bearish amid successive lower highs. For sentiment to change, buyers would need to break above the 50-day SMA currently at 26,920.