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– Quiet markets with bulk of global centers closed for holiday. – French and Italian final March CPI readings reinforced concern over the region's inflation outlook. Asia – China PBoC Monthly MLF Setting left the 1-year Medium-Term Lending Facility unchanged at 2.85% (not expected). – More speculation that China could cut RRR to support the real economy, cites official [in line]. – China military said to conduct drills around Taiwan aimed to target the wrong signal sent by US regarding Taiwan (Note: Several US officials are visiting Taiwan including Senator Menendez (D-NJ) and Senator Graham (R-SC). Russia/Ukraine – Russia Defense Min confirmed its flagship of Black Sea fleet, Moskva had sunk while being towed to port in stormy weather (Note: 1st Russian loss of a flagship since the Russian-Japanese war of 1904-1905). Europe – ECB policymakers saw a July rate hike as still possible after its April meeting. Consensus seemed to be growing for 25 basis point hike in Q3 as several ECB officials sought an earlier end to bond buying program. Speakers/Fixed income/FX/Commodities/Erratum Equities – Europe closed for Easter Holiday. Speakers – ECB Survey of Professional Forecasters raised its inflation outlook while cutting the growth forecast for the 2022… Read More »Quiet price action as markets closed for Easter holiday

While USD/JPY achieved March lows at 114.00's, USD/CAD traded 1.2400's and 1000 pips higher. Add EUR/JPY March lows at 124.00's and viewed is USD/JPY's explanation on a rampage higher to match USD/CAD and EUR/JPY. Naturally, EUR/JPY followed USD/JPY higher. EUR/JPY is a highly neutral currency pair trapped between EUR/USD and USD/JPY yet more neutral when viewed against USD/CAD in a highly close exchange rate relationship. Once EUR/JPY traded and crossed above USD/CAD around 128.00's, EUR/JPY was off the the races for 900 pips. EUR/JPY's historic position since WW2 is to forever trade above USD/JPY and competitive to USD/CAD. USD/CAD serves as the signal pair to EUR/JPY as much as NZD/USD is positioned to inform in regards to EUR/USD and GBP/USD. Exactly, 2 separate currency markets exist as EUR/USD and GBP/USD vs AUD/USD and NZD/USD. EUR/USD's 167 pips led the way yesterday as usual for EUR/USD while GBP/USD as the laggard currency to EUR/USD traded 113 pips. USD/CAD's 120 pips fairly matched EUR/JPY at 93 pips and GBP/USD in a currency market battle for superiority. NZD/USD lagged EUR/USD by a 65 pip trade day yesterday while AUD/USD managed 71 pips. USD/JPY today trades 126.47 and USD/CAD trades 1.2596 or 51 pips.… Read More »USD/JPY vs USD/CAD, EUR/JPY and JPY cross pairs

USD/CHF skyrocketed yesterday, breaking above the 0.9375 key barrier, which had been preventing the pair from moving higher since March 18th. This, combined with the fact that there is an upside line supporting the price action taken from the low of March 31st, paints a positive short-term picture in our view. At the time of writing, the rate seems to be oscillating slightly below another key resistance zone, at around 0.9460, marked by the peak of March 16th. That zone stopped the rate from climbing higher back on April 1st, 2021, and July 16th, 2020, as well. The bulls may decide to take a break after testing that zone, or even before that happens, thereby allowing a downside correction. However, we see a decent likelihood to use the 0.9375 territory as a rebound zone this time, which could encourage them to climb above the 0.9460 obstacle. Such a break could carry larger bullish implications, perhaps paving the way towards the 0.9555 area, defined as a support by the high of June 12th, 2020. Taking a look at our short-term oscillators, we see that the RSI turned down and exited its above-70 zone, while the MACD, although above both its zero… Read More »USD/CHF surges above a key resistance hurdle

EUR/USD The Euro maintains negative tone and probes again through key support at 1.0806, following Thursday’s 1.10% fall after dovish ECB’s stance that pushed the pair to the lowest levels since May 2020. Subsequent bounce and failure to register close below 1.0806 level after dipping to 1.0754, sidelined immediate downside risk but kept bears firmly in play. Technical studies on daily and weekly chart remain in bearish setup and support negative scenario for firm break of 1.0806 pivot that would unmask another key support at 1.0635 (Mar 2020 low). Fundamentals also work in favor of bears, as high uncertainty over the conflict in Ukraine, ECB remaining on hold while other major central banks already started to tighten its monetary policies and lack of unity between EU members in voting for a complete ban on imports of Russian energy, continues to weaken the sentiment. Brief consolidation above 1.0806 is likely to precede final push lower, with limited upticks (ideally to be capped by falling 10 DMA, currently at 1.0876) to offer better selling opportunities. Only break through 1.0820/30 resistance zone (tops of this and last week) would ease downside pressure and allow for stronger correction. Res: 1.0820; 1.0858; 1.0876; 1.0930. Sup: 1.0806; 1.0757;… Read More »EUR/USD outlook: Dovish ECB and uncertainty over Ukraine conflict keep the Euro under increased pressure

We heard from three central banks this week: the Reserve Bank of New Zealand (RBNZ), the Bank of Canada (BoC), and the European Central Bank (ECB). The first two hiked by 50 bps, the latter of course kept rates steady. All three warned of the same thing: the risk that people begin to think that the current high level of inflation will last for a long time. They said as follows: RBNZ:  The Committee will remain focused on ensuring that current high consumer price inflation does not become embedded into longer-term inflation expectations. BoC:  There is an increasing risk that expectations of elevated inflation could become entrenched. The Bank will use its monetary policy tools to return inflation to target and keep inflation expectations well-anchored. ECB:  While various measures of longer-term inflation expectations derived from financial markets and from expert surveys largely stand at around two per cent, initial signs of above-target revisions in those measures warrant close monitoring. It is true. Inflation expectations in the three currency zones are indeed rising. Why are they so worried about this? Because economists believe that if people start to think that inflation is going to be higher in the future, they’re going… Read More »Great expectations

Outlook: We can attribute the dollar’s gains to the usual suspect—divergence in monetary policy that widens the current and expected yield differential. The Fed delivered yet another policy member, NY Fed Pres Williams, affirming the May hike will be 50 bp. At the same time, the ECB delivered no fresh words, policies or guidance. This was expected, but apparently disappointed anyway. Elsewhere, China cut reserve requirements by 25 bp, a smallish move compared to lowering lending rates. This comes ahead of Q1 GDP and the other monthly data dump from China on Monday. Bloomberg warns “the data will likely show a pickup in growth that masks a major setback toward the end of March, when lockdowns in Shanghai, Shenzhen and elsewhere clobbered the economy.” This leaves the world with two major economies either cutting rates or holding to an accommodative stance (curve control in Japan that caps the 10-year at 0.25%) compared to Europe with “no change” and the US, UK and Canada/Australia/New Zealand on the higher rates trajectory. While the correlation of yield diffs with currencies is not rock-solid, it’s certainly an important factor. Differentials may even become the “Main Event” again. Oxford Economics finds that 50% of those it… Read More »Once the inflation bandwagon gets rolling, it’s very hard to stop

The Japanese yen can’t seem to buy a break, as the currency has been pummelled by the US dollar, and is down by a massive 9% this year. Earlier today, USD/JPY hit 126.68, its highest level since May 2002. With the yen in free-fall, the 130 line is looking like a real possibility. Yen at 20-year low The main driver behind the yen’s massive fall is the widening US/Japan rate differential, as the yen is very sensitive to rate moves. US yields did edge lower earlier in the week but quickly recovered, as US 10-year yields have risen to 2.83%, marking a 52-week high. With even Fed doves like Lael Brainard talking about super-size rate increases of 0.50%, there’s a strong likelihood that the Fed will accelerate its tightening cycle, which would provide a strong boost for the US dollar. USD/JPY has breezed past its multi-year high of 125.80 and the upswing looks ready to continue into next week. The Bank of Japan has tried to curb the yen’s nasty slide, trying to “talk down the yen” by stating that the Bank is watching the markets closely and that it is uncomfortable with rapid moves in the exchange rate. That… Read More »USD/JPY – Up, up and away

Summary United States: Inflation Hits Hard in March This week's U.S. economic data were led by the largest monthly increase in the Consumer Price Index (CPI) since September 2005. The squeeze on households' from skyrocketing prices for necessities is very real and was evident in this week's retail sales data. However, underneath the surface there are signs that pandemic-related inflation is beginning to ease. Next week: Housing Starts (Tue), Existing Home Sales (Wed), Leading Economic Index (Thu) International: U.K. Inflation Soars While Growth Slows Recent economic data from the United Kingdom reflected the global trend of higher inflation and slowing growth. The U.K.'s March CPI data release showed inflation pressures surged even higher last month. Headline CPI Inflation is now at a 30-year high, quickening more than expected to 7% year-over-year. Next week: China GDP (Mon), South Africa CPI (Wed), Eurozone PMIs (Fri) Interest Rate Watch: Foreign Central Banks Shifting into Tightening Mode Not only did the Bank of Canada hike rates by 50 bps this week, but some other foreign central banks have also taken their policy rates higher in recent weeks. We expect that the Federal Reserve will tighten policy more than most other major central banks, with… Read More »Weekly economic and financial commentary

There are two major market events scheduled for today ahead of the long Easter weekend. investors will be keeping an eye on the monetary policy announcement from the European Central Bank at 12:45 pm BST as well as a US retail sales report for March at 1:30 pm BST both of which could be volatility triggers for EURUSD and stock markets. When it comes to the European Central Bank monetary policy decision, nobody expects the level of interest rates to be changed as the ongoing Russia-Ukraine conflict has caused a significant disparity in the approach between the ECB and the FED. However, there is no consensus when it comes to asset purchases since some banks expect the ECB to announce the end of APP by the end of May today and start preparing markets for a potential rate hike as soon as June while others do not expect such an announcement ahead of the June meeting as this will be when the updated set of economic forecasts is released. In either today we could be seeing some significant moves in markets as a result of these events along with some portfolio rebalancing as investors and traders attempt to limit their… Read More »Investors await major events ahead of long weekend

There are no central bank meetings in the coming week but there’s a ton of data releases to spice things up. The show will kick off with China’s GDP numbers, which will reveal the initial damage from the lockdowns. Meanwhile in Europe, traders will scan the latest PMI surveys to estimate the probability of recession, while keeping one eye on the TV debate between Macron and Le Pen.