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The New Zealand dollar edges lower amid cautious market sentiment at the start of the week. The pair previously bounced off September 2020’s low around 0.6530.

However, 0.6700 on the 20-day moving average so far has proven to be a tough hurdle. A drop below the fresh support (0.6630) indicates that the directional bias remains bearish. And sellers would be eager to fade another rebound.

0.6590 is the closest support. A break below 0.6530 could trigger a new round of sell-off towards 0.6400.

P

Gold continues to recover as the US dollar treads water.

The previous fall below the daily support at 1785 had put the bulls on the defensive. The RSI’s oversold signal attracted some buying interest and prompted sellers to cover, driving up the price.

The rebound has since gained traction after the metal rallied above the support-turned-resistance at 1817. In fact, the bullish breakout may raise momentum and open the door to the recent peak at 1850.

On the downside, 1795 is a major support to keep buyers committed.

Markets

In a session with few important  data, the bond market sell-off slowed yesterday. However, the yield upleg triggered last week as ECB’s Chair Lagarde opened the door for a policy reassessment in March and a subsequent strong US payrolls report remained firmly in place. This isn’t a correction yet. Except for a limited setback at the short end of the (European) yield curve, US and European yields stabilized, at best. The decline in short-term (EMU) yields occurred as ECB’s Lagarde before the European Parliament indicated that an ECB policy adjustment will be gradual as the ECB will carefully assess the implications of incoming data for the medium term outlook.

The German yield curve steepened with the 2-year yield declining 3.9 bps while the 10 & 30 y still rose a further 2.3/3.8 bps. Intra-EMU spreads versus Germany also continue their widening tends as investors ponder the potential impact of higher core yields and the ECB reducing APP bond buying sooner than expected. Moves in US yields were limited between -2 bps (2-y) and +0.7 bps for 10y & 30y.

European and US equities showed a slightly different picture. The EuroStoxx50 closed with gains of 0.83%. US indices failed to maintain limited opening gains with Nasdaq again losing 0.58%.

On the FX market, the euro lost some of its post-ECB momentum. The 1.1483 resistance apparently is a too high hurdle for now. The pair closed marginally lower at 1.1442. At the same time, the TW dollar (DXY) also showed no clear trend (close 95.40 from 95.49). The yen slightly outperformed (USD/JPY close 115.10). The pause in the broader euro rebound was also visible in EUR/GBP (close 0.8453).

This morning, Asian markets show a mixed picture with China underperforming. Japanese and Australian markets are trading in positive territory even as local bond markets are ever more affected by the global interest rate repositioning.

At 0.21%, the Japanese 10-y yield is touching highest levels since 2016 and reaching top of the preferred range of the BoJ (0.0% +/- 25 bps). The Australian 10-y yield this morning also tested the cycle top near 2.12/13% as markets prepare for RBA interest rate normalization later this year. For now, gains of the Aussie dollar are limited (AUD/USD 0.7125).

Later today, the eco calendar is again only modestly interesting. US NFIB small business confidence and trade balance data are no market movers. Speeches from ECB’s de Cos and Villeroy might give some insight on how the debate on inflation and policy evolves within the ECB. Despite yesterday’s comments from ECB ‘s Lagarde on a gradually policy, established bond market trends remain firmly in place. The US 10-y  yield (1.945%) is nearing the 2.0% barrier. We look out for investor interest as the US treasury today sells 3-year bonds.

On FX markets, the post-ECB euro repositioning is taking a breather after the rejected test of 1.1483. We assume that the downside in the single currency has become better protected. EUR/USD drifting back below the 1.1386/1.1335 area (previous range top/uptrend line) would be disappointing for euro bulls. In a similar move as EUR/USD, EUR/GBP is easing off the 0.8475 area with first support near 0.8423.

News Headlines

The US and Japan agreed to remove Trump-era steel tariffs that were in place since 2018. The 25% American levy on Japanese steel will be suspended up to 1.25 million metric tons per year from April 1 on. Japan is the fifth-largest metal exporter to the US. In 2017, the year before the tariffs were put in place, the US imported 1.7 million metric tons before falling to 1.1m tons by 2019. The agreement follows a similar deal between the US and the EU in October.

Poland’s finance minister Koscinski resigned over flaws in the country’s tax system overhaul, dubbed the Polish New Deal, that took effect at the beginning of this year. The spending pledges and tax changes were meant to benefit the lower and middle earners but instead left some with lower salaries in January. Stopgap measures to sort out the issue only created more confusion. PM Morawiecki would take over Koscinski’s responsibilities until a replacement is chosen. The plan also draws criticism for potentially spurring inflation at a time it is already running at a two-decade high (8.6% in December). Poland’s central bank (NBP) started raising rates in October last year in a response, bringing it from 0.10% to 2.25%. The NBP is expected to hike again later today with a minimum of 50 bps.

Daily Pivots: (S1) 155.19; (P) 155.75; (R1) 156.34; More...

GBP/JPY is staying inc consolidation from 156.48 temporary top. Intraday bias remains neutral for the moment. The consolidation pattern from 158.19 could still extend further. On the downside, below 154.46 minor support will turn bias back to the downside for 152.88 support and below. Nevertheless, above 156.48 will target a test on 157.74/158.19 resistance zone. Decisive break there will resume larger up trend.

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 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) 131.22; (P) 131.71; (R1) 132.16; More....

Intraday bias in EUR/JPY is turned neutral with a temporary top formed at 132.11. Some consolidations could be seen first. But downside should be contained well above 128.23 support to bring another rally. As noted before, corrective pattern from 134.11 should have completed three waves down to 127.36. Above 132.11 will bring retest of 133.44/134.11 resistance zone. Decisive break there will resume larger up trend from 114.42.

In the bigger picture, price actions from 134.11 are currently seen as a consolidation pattern only. As long as 38.2% retracement of 114.42 (2020 low) to 134.11 at 126.58 holds, up trend from 114.42 is still in favor to continue. Break of 134.11 will target long term resistance at 137.49 (2018 high). However, sustained break of 126.58 will raise the chance of bearish reversal. In this case, deeper decline would be seen to 61.8% retracement at 121.94, and possibly below.

Daily Pivots: (S1) 0.435; (P) 0.8456; (R1) 0.8474; More...

Intraday bias in EUR/GBP is turned neutral with current retreat. Some consolidations should be seen before another rally. On the upside, break of 0.8476 will resume the rebound from 0.8282 to 0.8598 resistance. Decisive break there will add to the case of trend reversal and target 38.2% retracement of 0.9499 to 0.8282 at 0.8747 next.

In the bigger picture, price actions from 0.9499 (2020 high) are still see a corrective pattern that should be contained by 0.8276 long term support (2019 low). Bullish convergence condition in daily MACD and break of 55 day EMA raises the chance that it might be completed. Sustained trading above 38.2% retracement of 0.9499 to 0.8282 at 0.8747 will affirm this bullish case and target 61.8% retracement at 0.9034 and above.

Daily Pivots: (S1) 1.6003; (P) 1.6101; (R1) 1.6159; More...

Intraday bias in EUR/AUD is turned neutral with current retreat. Further rally will remain in favor as long as 1.5776 support holds. Above 1.6223 will resume whole rise from 1.5354 to 100% projection of 1.5354 to 1.6168 from 1.5559 at 1.6373 next. However, break of 1.5776 will turn bias back to the downside for 1.5559 support instead.

In the bigger picture, rise from 1.5354 is seen as the third leg of the corrective pattern from 1.5250 low. Further rise cannot be ruled out, but even in that case, strong resistance should be seen at 38.2% retracement of 1.9799 to 1.5250 at 1.6988. Larger down trend from 1.9799 is in favor to extend through 1.5250 at a later stage.

Daily Pivots: (S1) 1.0540; (P) 1.0576; (R1) 1.0600; More....

Intraday bias in EUR/CHF is turned neutral with current retreat and some consolidations would be seen. But further rally is expected as long as 1.0439 support holds. A medium term bottom should be in place at 1.0298 already. Above 1.0602 will target 28.2% retracement of 1.1149 to 1.0298 at 1.0623 first. Sustained trading above there will raise the chance of trend reversal and target 61.8% retracement at 1.0824 next. However, break of 1.0439 will dampen this bullish view and bring retest of 1.0298 instead.

In the bigger picture, current development suggests that a medium term bottom is formed at 1.0298 on bullish convergence condition in daily MACD. Rebound from there is still tentatively viewed part of a corrective pattern. That is, larger down trend from 1.2004 (2018) could still extend through 1.0298 to 61.8% projection of 1.2004 to 1.0505 to 1.1149 at 1.0223. However, sustained trading above 55 week EMA (now at 1.0673) will argue that the down trend is over, and bring stronger rise back to 1.1149 next.

The price of crude oil is hovering near its highest level in more than 7 years as investors focus on top geographical issues. The biggest issue in the market is Russia and the West. On Sunday, the US warned that Russia was about 70% prepared to invade Ukraine. Officials warned that the invasion could happen at any time. This is an important issue because of the vast amount of oil that Russia ships every day. Another geopolitical event set to move oil prices is the talks between the US and Iran on nuclear weapons. The talks are aimed at preventing Iran from having nuclear weapons and are a response to the decision by Trump to exit the nuclear deal.

American equities tilted higher on Monday as investors reflected on the recent earnings season. According to FactSet, 56% companies in the FTSE index have already published their quarterly results. 76% of these companies published results that had a positive EPS surprise while 77% had a positive revenue surprise. The blended earnings growth rate was 29.2%. If the results are like that, it will mark the fourth straight quarter in which companies have grown by above 25%. More companies are set to publish their results this week including KKR, S&P Global, Fiserv, and Harley Davidson among others.

Cryptocurrency prices continued their comeback during the American and Asian sessions. Bitcoin price has jumped by more than 5% in the past 24 hours while Ethereum surged to more than $3,100. The total market cap of cryptocurrencies has risen back to more than $2 trillion. Analysts attribute this rally to the fact that sentiment in the market has improved substantially in the past few days. Indeed, most assets like stocks and commodities have rallied recently.

EURUSD

The EURUSD pair moved sideways as investors reflected on the recent Fed and ECB interest rate decisions. The pair is trading at 1.1435, which is slightly below last Friday’s high of 1.1483. It has formed what seems like a bullish pennant and cup and handle patterns. In most cases, these patterns are usually a sign of bullish continuation. Therefore, there is a likelihood that the pair will keep rising as bulls target the key resistance at 1.1500.

GBPUSD

The GBPUSD pair retreated slightly in the overnight session. It is trading at 1.3527, which is slightly below last week’s high of 1.3625. On the six-hour chart, the pair is slightly above the first support of Andrew Pitchfork’s tool. It is also along the 38.2% Fibonacci retracement level and above the 25-day moving average level. Therefore, the pair will likely continue falling as bears target the key support at 1.3470.

EURCHF

The EURCHF pair declined slightly as investors reflected on the strong Swiss unemployment rate data. The pair is trading at 1.0567, which was slightly below last week’s high of 1.0600. On the four-hour chart, it is between the middle and upper lines of the Bollinger Bands. It is also above the 25-day moving average while the Average True Range (ATR) has risen. Therefore, the pair will likely pullback for a while and then resume the bullish trend.

Market movers today

Very quiet day on data front, only Swedish industrial production data from December due.

Two ECB speakers on the wires, Villeroy (neutral) and de Cos (dove). After last week's ECB meeting, the markets will pay close attention to any clues from policymakers on the pace of looming monetary policy tightening. Even the ECB's dovish camp seems to be preparing for rate hikes, as ECB's Rehn said last week that a rate hike will be appropriate next year at 'the latest'.

Also, we continue to keep a close eye on any headlines regarding the Russia-Ukraine standoff.

The 60 second overview

ECB: ECB President Lagarde told EU politicians that "There is a defined sequencing between the end of our net asset purchases and the lift-off date. A rate hike will not occur before our net asset purchases finish". Markets are pricing 28bp for September and 52 for December. September is aggressive compared to Lagarde's comments in the sense that it would require a fast end to QE bond buying. In general, investors are not really buying the "gradual tightening" narrative, as investors believe central banks are underestimating how high the underlying inflationary pressure is and we have seen something similar in the US and in the UK. In our view, the March ECB meeting will be crucial, as we receive new staff projections.

Nord Stream 2: At a joint news conference with German Chancellor Olaf Scholz, US President Joe Biden said "we will bring an end to it (Nord Stream 2)" if Russia invades Ukraine. Scholz added that "we are absolutely united". In relation to this, there was no breakthrough in talks between French President Macron and Russian President Putin.

Equities: Equities ended slightly lower yesterday, with Europe being the exemption. Intraday volatility came down but it remains to be seen whether this is a long lasting thing. This morning yields are posting a new pos- pandemic high and the forces behind the year to date turmoil in equities are still in play. Value defensive outperforming in US and one feel tempted to say of course together with Energy. Energy has outperformed tech by almost 30% this year. In the US, Dow unchanged, S&P500 -0.4%, Nasdaq -0.6% and Russell 2000 +0.5%. Asian markets are mixed this morning with Japanese stocks higher while Hong Kong is lower led by tech shares. US futures are slightly higher while European futures are slightly lower.

FI: It was a rather choppy session yesterday with two themes. The morning session continued to digest the post ECB meeting messages, namely intra euro area spread widening. Hawkish Knot's comments during the weekend, which were dovish relative to market pricing, of a rate hike in Q4 did not impact the front end pricing which still points to 51bp for Dec22. BTPs-Bund spread widened by 10bp to 165bp initially. However, the afternoon session reversed most of the widening in a constructive environment, also supported by some push-back from Lagarde on the rush to adjust monetary policy during the Q&A session in the EP yesterday, which left the BTPs-Bund spread just 1bp wider on the day. Lagarde made it very clear that there would be no rate hike before end of net APP purchases. The biggest underperformer of the day was Greece with its 10y point widening 20bp to Bunds.

FX: EUR reversed course versus rest of G10 currency space on Monday after the ECB induced rally last week on an otherwise quiet day in FX markets. AUD and CAD outperformed as commodity markets continue to hold up well.

Credit: While equities saw more positive sentiment yesterday, credit markets remained under pressure, with both CDS indices and cash bonds selling off. iTraxx Xover widened 7bp to 321.5bp and Main 1.6bp to 66.4bp. Meanwhile, cash bonds were under further pressure likely driven by sales pressure from credit ETFs. HY bonds widened 16bp and IG 4bp.