Daily Technical Analysis

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EUR/USD Approaches Key Support, Dollar Could Resume Losses

EUR/USD started a downside correction from the 1.0930 level.
It traded below a key bullish trend line with support at 1.0810 on the 4-hours chart.
GBP/USD is consolidating gains above the 1.2200 support zone.
USD/JPY extended losses below the 130.50 support zone.

EUR/USD 

The Euro started a major increase above the 1.0750 resistance against the US dollar. EUR/USD even climbed above 1.0900 before it started a downside correction.

Looking at the 4-hours chart, the pair traded as high as 1.0929 before it faced sellers. There was a drop below the 1.0850 and 1.0820 support levels. The pair even traded below a key bullish trend line with support at 1.0810.

However, the pair is still above the 100 simple moving average (red, 4-hours) and the 200 simple moving average (green, 4-hours). On the downside, an immediate support is near the 1.0750.

The next major support is near the 1.0720 level, below which there is a risk of a move towards the 100 simple moving average (red, 4-hours). Any more losses might open the doors for a fresh decline towards the 1.0520 level.

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GBP/USD Eyes Sustained Increase Above

GBP/USD is showing positive signs above the 1.2220 level.
A connecting bullish trend line is forming with support at 1.2240 on the 4-hours chart.
EUR/USD is well supported above the 1.0720 support zone.
USD/JPY might attempt a recovery wave if it clears the 132.00 resistance.

GBP/USD

The British Pound gained pace above the 1.2050 resistance against the US dollar. GBP/USD broke the 1.2150 level to settle in a positive zone.

Looking at the 4-hours chart, the pair even settled above the 1.2200 level, the 100 simple moving average (red, 4-hours) and the 200 simple moving average (green, 4-hours). It traded towards 1.2350 before there was a downside correction.

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Australia February Monthly CPI Indicator

The Monthly CPI indicator rose 6.8% in the year to February, compared with the Westpac forecast of 7.4% year-on-year and the market forecast of 7.2% year-on-year. This represents a significant downside risk to our March forecast CPI forecast of 1.5% per quarter.

Specifically, the index rose only 0.2% in February versus our forecast of 0.8%; we believe the market median would have been about 0.6% given the 7.2% annual forecast. Compared with the average monthly increase of 0.9%mth in the last three months of 2022, the first two prints of 2023 represent a significant slowdown in inflation: -0.4% in January and 0.2% in February.

The monthly CPI indicator can fluctuate widely from month to month, as it is not a true monthly index, but rather the publication of data from the quarterly CPI, as they become available. This volatility is due to the timing of the various price surveys. This could be the reason why ABS reports the annual growth rate and not the monthly change.

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German and Spanish Inflation Prints in Focus

The main focus today will be on the German and Spanish flash inflation data, which will provide the first sense of what to expect from the euro area HICP figures tomorrow. Generally, we forecast gradually easing headline inflation, but see core inflation pressures still remaining at elevated levels. Euro area Economic Sentiment Indicators will also be released for March today.

The 60 second overview

Market sentiment: Asian equities are in red, while stock market futures are mixed in Europe and the US. In the absence of any news triggers, markets are tuning in for the Spanish and German inflation prints due this morning.

US banks: The US Federal Deposit Insurance Corp. (FDIC) is facing almost USD 23bn in costs from the failures of Signature and Silicon Valley Banks. Now, according to Bloomberg, the FDIC is contemplating to propose a so-called special assessment to speed up the process of refilling the fund, and the plan entails an outsize contribution by the largest lenders.

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Gold Price Vulnerable to Persistent US Inflation

The cost of gold might organize further endeavors to test the 2022 high ($2071) as it moves to a new week-after-week high ($1984), however new information print emerging from the US might prompt a pullback in bullion as the Individual Utilization Use (PCE) cost file is supposed to show tenacious expansion.

Late improvements in the cost of gold raise the extension for a move towards the month-to-month high ($2010) as it cleans the reach bound cost activity off of recently, and the valuable metal might follow the positive slant in the 50-Day SMA ($1892) as the Central bank gives off an impression of being on target to change gears.

Notwithstanding, the update to the US PCE, the Federal Reserve’s favored measure for expansion, may create headwinds for bullion as the center rate is supposed to hold consistent at 4.7% per annum in February. Indications of tacky value development might push the Government Open Market Panel (FOMC) to seek after a more prohibitive strategy as expansion stays well over the national bank’s 2% objective, and Executive Jerome Powell and Co. may convey another 25bp rate climb at the following loan fee choice on May 3 particularly as ‘financial pointers have commonly come in more grounded than anticipated.’

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US Takes Center Stage in this Holiday-Shorted Week

The steep decline in strength costs over the previous few months prompted March headline inflation in Europe to decline considerably year-over-year (from 8.5% to 6.9%). Rising core inflation and excessive m/m readings on the other hand confirmed that this is solely the effortless phase in the lengthy experience again in the direction of the 2% target. But with US (core) PCE inflation for February later on Friday additionally cooling barely greater than expected, the market center of attention lied elsewhere. The downleg in core bond yields accelerated, main to losses in the US between 8.1 and 11.4 bps throughout the curve. German yields slid 6.6 to 9.6 bps.

Equities ended the quarter on a fine note. The Euro Stoxx 50 rallied 0.69%. It even set a new YtD excessive intraday at 4325. US bourses rose between 1.26% (DJI) and 1.74% (Nasdaq). The euro on forex markets hit the March excessive at 1.0926 earlier than technical resistance (and possibly some euro fatigue) kicked in. EUR/USD sooner or later completed at 1.0839, down from 1.0905 at the open. The US greenback in well-known traded strong, gaining in opposition to most peers.

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Australian Dollar Dips After RBA Leave Rates Unchanged

The Australian Dollar slipped slightly in the aftermath of the RBA standing still on rates for the first time since May 2022.

The RBA maintained some flexibility and didn’t rule out future hikes. In the accompanying statement on monetary policy, they said, “The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target.”

Interest rate markets are currently pricing no more hikes and a better-than-even chance of a 25 basis point cut by the end of the year.

Today’s price action comes after a massive rally for the Aussie yesterday. Markets were rattled by the huge surge in crude oil prices after OPEC+ cut its crude oil production target by 1.1 million barrels per day. The move compounded existing tightening supply issues.

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First Impressions: RBNZ Monetary Policy Review

The RBNZ raised the policy rate by an unexpectedly large 50 basis points, and another 25 basis point hike appears to be scheduled for the May Monetary Policy Statement.

RBNZ Monetary Policy Report, April 2023

The Reserve Bank surprisingly raised the OCR by 50 basis points to 5.25% at today’s review, rather than 25 basis points as most expected.

Overall, the RBNZ sees the overall profile for inflation pressures as relatively unchanged since February, when its projections showed that the OCR should rise to 5.5% in the first half of 2023.

The RBNZ acknowledged the weaker starting point for GDP. However, the downward impact on its projections was offset by upward shocks to prices from the recent floods and Cyclone Gabrielle. The RBNZ remains concerned about the potential for inflation expectations to be unanchored by the current high levels of core and headline inflation.

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Asia Shows its Strength as US Growth Prospects Dwindle

In Australia, the RBA was the focus of market participants’ attention. Outside the country, the RBNZ reaffirmed its hawkish resolve, while U.S. data weakened noticeably.

The RBA decided to leave the key interest rate unchanged at 3.60% in April, a decision that was in line with Westpac’s forecast. In line with the decision, the Governor’s statement included a subtle change to the guidance, indicating that further tightening “may be required” in March, rather than “will be required.” While this certainly still qualifies as a tightening bias, after 350 rate hikes in the past decade, the central bank board is increasingly concerned about the need to assess the full spectrum of risk.

In our view, the evolution of underlying inflationary pressures is critical to the near-term stance of monetary policy. Westpac projects that inflation will average 6.6% for the year in the first quarter, an outcome that the RBA is likely to find uncomfortably high against the backdrop of a historically tight labour market, thus warranting a policy response. As a result, we continue to expect a final 25 basis point rate hike in May, taking the policy rate to a peak of 3.85%, where we believe it will remain until the end of 2023. If economic momentum continues to slow and inflation risks subside, a series of rate cuts may be implemented in 2024 and 2025 to bring policy back toward neutrality and facilitate a recovery in economic growth.

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EUR/USD struggles to reach yearly high ahead of NFP report

EUR/USD is struggling to test the yearly high (1.1033) as it fails to continue the series of higher highs and lows from the beginning of the week, and the U.S. labour market data (NFP) report may weigh on the exchange rate as employment is expected to rise further.

The short-term recovery of EUR/USD seems to have stalled as it consolidates below the weekly high (1.0973), and developments in the US could affect the exchange rate as the Federal Reserve officials continue to take a restrictive stance.

In a speech at New York University, Cleveland Fed President Loretta Mester acknowledged that ‘wages are still growing at an annual rate of about 4-1/2 to 5 percent,’ and the official went on to say that ‘inflation remains too high and too persistent,’ as price growth remains well above the central bank’s 2 percent target.

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Bank of Canada to hold rates steady

Bank of Canada (BoC) is widely anticipated to maintain its pause this week, leaving interest rates unchanged at a 15-year high of 4.50%. Governor Macklem has emphasized that there’s no need for additional rate hikes if the economy unfolds according to central bank’s projections, which forecast stalling growth for the rest of the year, subsequently cooling inflation. Macklem also stated that an “accumulation of evidence” would be required before considering resuming tightening.

Consequently, it’s unlikely that BoC’s announcement on Wednesday or Macklem’s speech on Thursday will trigger significant volatility in Canadian Dollar. Instead, Loonie is expected to be more reactive to developments in oil prices, as WTI crude remains stuck around 80 mark. Additionally, the currency could be influenced by US CPI data and the release of FOMC minutes when paired against the greenback.

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Fed Minutes Showed Recent Banking Turmoil May Result in Lower

The minutes of the March 21-22, 2023, Federal Open Market Committee (FOMC) meeting reaffirmed that price and financial stability are of paramount importance to the Fed.

Regarding the economy, Committee members noted that “recent indicators point to modest growth in spending and output. At the same time, however, participants noted that employment growth has picked up in recent months and is proceeding at a robust pace; the unemployment rate has remained low. Inflation remained elevated.”

Committee members noted that despite a sound and resilient banking system, “recent developments in the banking sector are likely to tighten credit conditions for households and businesses and weigh on economic activity, hiring, and inflation. “Participants noted, however, that the overall effect on economic activity is uncertain at this time.

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Constructive Developments for the Consumer

Developments in Australia and the US this week were supportive of our views for the RBA and the FOMC.

The Westpac- MI Consumer Confidence Survey provided a positive update on confidence. The RBA’s decision to leave the policy rate unchanged in April proved to be an important support, with the overall index rising 9.4% this month from 78.5 to 85.8. This is underscored not only by the upswing in the housing subindexes of the survey-mortgage borrower confidence rose 12.2%, the index for the timing of home purchases rose 8.2%, and house price expectations rose 16.7%-but also by the general recovery in households’ expectations for the near-term economic outlook and family finances. While these developments represent a marked improvement over the very pessimistic readings of February and March-a situation comparable only to the major economic dislocations of the 1980s and 1990s-the overall index, at 85.8, must still be considered weak.

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US Inflation Expectations Jump, Earnings Season Kicks

Despite the softer-than-expected inflation data released earlier last week, US inflation expectations shocked investors at last Friday’s release; the 1-year expectation jumped from 3.6% to 4.6% due to the surprise surge in energy prices. The expectation was a further easing to 3.5%.

And energy bulls remain in charge of the market, as besides the tighter OPEC supply, the US Energy Secretary Jenifer Granholm said that the US could begin buying oil to refill the strategic reserves and the EIA warned that the global oil demand will rise by 2mbpd to almost 102mbpd. Both helped keeping the price of American crude at around its 200-DMA, a touch below the $83pb level.

Therefore, despite the easing inflation pressures on the CPI figures, the positive pressure building on energy prices and the surging inflation expectations boost the Federal Reserve (Fed) hawks. Combined to waning bank stress, the US 2-year yield – which is a good proxy of what investors think the Fed will do – rose last week, although we are still far below the 5% level before the Silicon Valley Bank (SVB) collapsed. The expectation of a 25bp hike at the next FOMC meeting is given a good 83.5% chance.

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EUR/USD April 2022 High Offers Resistance

EUR/USD cleared the February high (1.1033) last week to register a fresh yearly high (1.1076), but lack of momentum to breach the April 2022 high (1.1076) may lead to a near-term pullback in the exchange rate as it snaps the recent series of higher highs and lows.

EUR/USD forecast: April 2022 high offers resistance

EUR/USD is under pressure on the back of US Dollar strength, and it seems as though the Federal Reserve will continue to combat inflation as Governor Christopher Waller insists that ‘monetary policy needs to be tightened further.’

At the same time, Fed Governor Waller warns that ‘monetary policy will need to remain tight for a substantial period of time, and longer than markets anticipate,’ and the comments suggest the Federal Open Market Committee (FOMC) is in no rush to switch gears as inflation remains well above the central bank’s 2% target.

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