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The dollar maintains firm tone against of basket of its major counterparts and extended gains to the highest since May 2020 on Monday.

High uncertainty over the war in Ukraine and pessimistic tone on soaring energy prices and expectations for further negative impact from the sanctions imposed on Russia, particularly on the EU, keep investors in defensive, with strong migration into safety, dominating in the markets at the beginning of the week.

Upbeat February US jobs data, released on Friday, further brightened the outlook for the US economic growth and added to expectations of Fed’s several rate hikes this year, with the first step expected on central bank’s policy meeting next week.

This additionally supports the greenback, which maintains strong bullish momentum and targets pivotal barriers at 100.00 and 100.34 (psychological / Fibo 76.4% of 103.80/89.15 fall), violation of which would generate fresh bullish signal for further advance, if market conditions remain dollar-favorable.

Res: 99.41; 100.00; 100.34; 101.00.
Sup: 98.93; 98.64; 98.20; 97.82.

Markets

A month ago ECB president Christine Lagarde flagged the ECB would take a close look at the inflation scenario. If necessary, the review could lead to a reassessment of the ECB’s policy roadmap that was set out in December. One month later, inflation has developed in a way that probably the ECB deemed almost impossible. Today, the 10-y EMU inflation swap touched 2.80%, nearing the peak level of March 2008. In the current environment, this still might still result in the ECB holding a wait-and-see bias on Thursday, but that’s a different story. As such, the EMU inflation swap is catching up fast with the US measure which tested the 3.00% level. Today’s moves evidently was the result of another sharp rise in commodity prices as the weekend provided little perspective on the solution of Russian-Ukraine conflict and as the US signaled that it was considering a ban on Russian oil imports. Brent oil (currently $121 p/b) almost touched $140. European gas at some point jumped 75%+ compared to Friday’s close. More ‘modest’ but still exceptional rises were visible in a wide range of other commodities. Persistent geopolitical uncertainty combined with this new tax on (especially European) consumers and firms worldwide triggered a new sharp equity sell-off in Asian and early European dealings with the Eurostoxx 50 losing about 4.75% soon after the open. However, risk assets later in the session succeded a remarkable rebound (short squeeze?). Commodities also reversed part of the initial spike. Headlines on new talks between Ukraine and Russia maybe played a role, even as Russia is holding to the position that Ukraine should meets its demands. Germany rejecting the idea of a ban on Russian oil and gas maybe also helped. European indices currently reversed most of this morning loss (Eurostoxx + 0.25%). US indices are losing about 0.75%. Interest rate markets to some extent copied the gyrations in global risk sentiment. Even so, early declines in yields were modest given the sharp risk-off and core yields in the meantime even rebounded sharply. The US yield curve bear flattens with yields rising between 5 bps (2-y) and 1.5bps (30-y). German yields are moving between unchanged (30-y) and 5 bps for the 2-10 y sector. For the German 10-y yield a new test of the -0.1% area was again rejected (currently -0.015%). Interestingly, even intra-EMU spreads overcame initial risk-off and narrow slightly (Greece/Spain -2 bps).

Similar story on FX markets. The euro initially again felt heavy selling pressure with EUR/USD coming close to the 1.08 big figure. However, in line with the ‘risk rebound’, the pair currently again trades near 1.09. EUR/CHF temporarily dropped below parity, but is currently changing hands in the 1.01 area. Despite overall volatility, USD/JPY is holding a tight sideways range (115.23). Elevated commodity prices apparently prevent the yen from fully playing its safe haven role. Sterling staged a unconvincing performance today. Cable (1.3180) temporarily dropped below the December 2021 low and the intraday rebound lacks momentum. EUR/GBP (0.828) even trades marginally stronger compared to Friday’s close. In Central Europe the zloty and the forint touched new all-time lows against the euro. EUR/PLN even briefly touched the 5.00 mark. EUR/HUF halted just shy of the 400 barrier. At EUR/PLN 4.97 and EUR/HUF 393 the CE intraday rebound remains modest. EUR/CZK (25.70) held south of the 26.00 barrier as the CNB last week indicated to use its huge currency reserves to address unwarranted CZK weakness.

News Headlines

Some European Union countries are pushing back against giving Ukraine the so-called candidate status this week. Especially countries in the western part including the Netherlands and Germany first want the Commission to deliver its opinion on Ukraine’s readiness for such membership before taking any political decision. Focus in first instance should be on delivering practical support and ending the war instead of kicking off a process that could take a decade to finish. Ukrainian president Zelenskiy formally applied to join the EU end of last month. Nine countries, led by Poland and the Baltic nations have voiced their support to grant candidate status and start the lengthy process of admission. EU leaders will discuss Ukraine’s request when they meet on Thursday near Paris.

The Australian dollar has taken a breather, as it trades just slightly below the 0.74 line. AUD/USD has posted small losses on Monday, after posting impressive gains of 2% last week.

The war in Ukraine has dampered risk appetite, which in normal times would hurt the risk-sensitive Australian dollar. These are, of course, far from normal times, and the surge in commodity prices has boosted the Aussie despite the lack of risk appetite on the part of investors.

The Australian economy continues to recover and the markets are expecting the RBA to embark on a rate-hike cycle in order to curb rising inflation. The RBA has said it wants to see inflation remain sustainably in its 2%-3% target and would like to see wage growth accelerate. There is a good chance that the RBA will hike rates in June or shortly after, and expectations of higher rates have also boosted the Australian dollar.

The week started on a positive note, a rose to 60.0 in February, up from 56.6 a month earlier. This points to strong expansion in the services sector, which is benefitting from pent-up demand after Covid lockdowns were removed. The employment market continues to show a shortage of workers, as ANZ Job Advertisements jumped by 8.4% in February, after two straight negative readings.

On Tuesday, we’ll get a look at NAB Business Confidence and Westpac Consumer Sentiment reports. Consumer confidence has been weak, with the past three releases all below zero, which indicates pessimism. Will we see a rebound in the upcoming release? RBA Governor Philip Lowe will speak at a business summit, and investors will be listening closely for a any clues with regard to rate policy.

AUD/USD Technical

• There is weak resistance at 0.7393. This is followed by a resistance line at 0.7502
• AUD/USD has weak support at 0.7313. Below, there is support at 0.7204

Cable remains firmly in red on Monday and extends steep fall into third straight day, dragged by fresh risk aversion that pushed global stocks lower.

After last week’s strong upside rejection and weekly close below pivotal 1.33 support (the pair was down 0.7% for the week), bears cracked next significant supports at 1.3164/61 (Fibo 38.2% of 1.1409/1.4249/Dec 8 low), marking full retracement of 1.3161/1.3748 upleg and pressuring another key level at 1.3121 (200WMA).

Earlier completion of failure swing pattern on daily chart added to strong bearish stance, with firm break of 1.3161 pivot to complete larger failure swing pattern on weekly chart and generate stronger bearish signal for extension towards 1.3000 (psychological) and 1.2829 (50% retracement of 1.1409/1.4249.

Firmly bearish daily studies support scenario, however bears may face headwinds on oversold condition and hold for consolidation before resuming.

Bears are expected to remain in play as long as price action stays below broken 1.3300 support, now reverted to strong resistance.

Res: 1.3245; 1.3272; 1.3300; 1.3320.
Sup: 1.3161; 1.3141; 1.3106; 1.2950.

Daily Pivots: (S1) 114.49; (P) 115.02; (R1) 115.40; More...

Intraday bias in USD/JPY remains neutral as sideway trading continues. On the upside, firm break of 116.34 will resume larger up trend from 102.58 to 118.65 long term resistance next. On the downside, though, break of 114.40 will continue the corrective pattern from 116.34 with another fall to 113.46 support.

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 120.85 (2015 high) and raise the chance of long term up trend resumption. This will remain the favored case as long as 55 week EMA (now at 111.64) holds.

Daily Pivots: (S1) 0.9152; (P) 0.9181; (R1) 0.9198; More....

Range trading continues in USD/CHF and intraday bias remains neutral for the moment. Choppy rise from 0.8925 would still be in favor to extend higher as long as 0.9090 support holds. Break of 0.9341 will target 0.9372 resistance and then 0.9471. On the downside, however, break of 0.9090 will bring deeper fall back to 0.8925 support.

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 the trend has already reversed and rebound the rally from 0.8756 with another impulsive move.

Daily Pivots: (S1) 1.3173; (P) 1.3264; (R1) 1.3325; More...

GBP/USD's fall form 1.3748 is still in progress and intraday bias remains on the downside for 1.3158 support first. Firm break there will carry larger bearish implications. Next target is 61.8% projection of 1.4248 to 1.3158 from 1.3748 at 1.3074. For now, outlook will stay bearish as long as 1.3416 resistance holds, in case of recovery.

In the bigger picture, as long as 38.2% retracement of 1.1409 to 1.4248 at 1.3164 holds, up trend from 1.1409 (2020 low) is still in progress. On resumption, next target will be 38.2% retracement of 2.1161 to 1.1409 at 1.5134. Nevertheless sustained break of 1.3164 will argue that whole rise from 1.1409 has completed and bring deeper fall to 61.8% retracement at 1.2493.

Daily Pivots: (S1) 1.0855; (P) 1.0962; (R1) 1.1037; More...

Intraday bias in EUR?USD stays on the downside at this point. Sustained 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. On the upside, above 1.1007 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another decline.

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.

Entering into US session, markets are starting to digest the steep moves made earlier today. Euro is paring some losses and it's indeed trading in black against Sterling, Swiss and Yen at the time of writing. Swiss Franc has apparently turned weaker, probably on concern that SNB could intervene any time market stabilizes. Nevertheless, Aussie remains the strongest one, leading other commodity currencies firm, while Dollar is mixed. In other markets, Gold is considered failing to sustain above 2000 handle for now, and turned into consolidations first. WTI crude oil is also retreating back below 120 handle.

Technically, we'll keep an eye on 1.1007 minor resistance in EUR/USD, 126.91 minor resistance in EUR/JPY and 1.0115 minor resistance in EUR/CHF. Break of these levels should indicate that selling climax in Euro has passed for the moment. That is, Euro would likely turn into consolidations first, even though near term bottoming might still be far away.

In Europe, at the time of writing, FTSE is down -0.23%. DAX is down -1.36%. CAC is down -1.14%. Germany 10-year yield is up 0.054 at -0.014. Earlier in Asia, Nikkei dropped -2.94%. Hong Kong HSI dropped -3.87%. China Shanghai SSE dropped -2.17%. Singapore Strait Times dropped -1.21%. Japan 10-year JGB yield dropped -0.0053 at 0.147.

Eurozone Sentix dropped to -7, worst fall in expectations than pandemic

Eurozone Sentix Investor Confidence dropped sharply from 16.6 to -7.0 in March, well below expectation of 5.1. That;s also the lowest level since November 2020. Current Situation index dropped from 19.3 to 7.8, lowest since May 2021. Expectations index dropped from 14.0 to -20.8, lowest since August 2012.

Sentix said: "The first economic indication after the Russian invasion of Ukraine has it all: The economy in Euroland collapses dramatically in the month of March! The assessment of the economic situation decreased by 11.5 points and the expectations decreased by 34.75 points, which is more than ever before in the history of sentix. Even the Corona pandemic or the banking crisis had not led to such a sharp drop in the future outlook!"

From Germany, retail sales rose 2.0% mom in January, versus expectation of 1.9% mom. Factory orders rose 1.8% mom, versus expectation of 1.0% mom.

Swiss foreign currency reserves dropped to CHF 938B in February.

Australia AiG services rose to 60 in Feb, grew strongly

Australia AiG Performance of Services Index rose 3.8 pts to 60.0 in February. Looking at some details, sales rose 9.7 pts to 68.6. Employment dropped -2.0 to 54.7. New orders rose 3.2 to 61.1. Supplier deliveries rose 7.6 to 59.0. Input prices dropped -0.1 to 66.0. Selling prices dropped -1.9 to 60.3. Average wages dropped -1.0 to 55.9.

Innes Willox, Chief Executive of Ai Group, said: "Australian service sector businesses grew strongly in February with sales, employment and new orders all adding to the gains in the December-January period. Prices of inputs and wages were up but not as dramatically as in the manufacturing and construction sectors. Selling prices remained at a level that suggests a capacity to recover a proportion of cost increases in the market."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0855; (P) 1.0962; (R1) 1.1037; More...

Intraday bias in EUR?USD stays on the downside at this point. Sustained 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. On the upside, above 1.1007 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another decline.

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.

Economic Indicators Update

• CADCHF reversed from support area
• Likely to rise to resistance level 0.7300

CADCHF continues to rise after the earlier reversal from the support area located between the key support level 0.7200, lower daily Bollinger Band and the 61.8% Fibonacci correction of the previous upward wave 2 from December.

The upward reversal from this support area will most likely form the daily Bullish Engulfing.

CADCHF can be expected to rise further toward the next resistance level 0.7300 (which has been reversing the pair from last month).