Market Trading News and Research from 22 March 2023

• XAU/USD retraces from $2,000 as US Treasury bond yield surges on Fed’s backstop.
• Gold prices poised for potential volatility amid upcoming Fed meeting.
• Gold price could fall further if the dot plot remains stretched. 

XAU/USD is likely to remain within a narrow range as the market eagerly awaits the Federal Reserve (Fed) rate decision. Gold prices experienced a sharp retracement after reaching the $2,000 mark on Monday, with the decline occurring due to rising US Treasury bond yields.

Gold prices surged to the $2,000 level amid global banking turmoil, prompting investors to flock to US Treasury bonds and causing yields to fall. The precious metal rallied as much as 10%, or about $180, reaching a one-year high as safe-haven demand increased following the collapse of U.S.-based Silicon Valley Bank and a crisis at lender Credit Suisse.

The banking crisis took a turn when US authorities intervened, injecting dollar liquidity into the market. The Fed initially restarted swap lines for needy central banks and opened a discount window for struggling commercial banks. Later, US Treasury Secretary Janet Yellen assured deposit guarantees for all small banks.

These developments somewhat eased investor concerns, leading to increased risk exposure and a positive close for Wall Street on Tuesday.

This has further encouraged investors to consider the possibility of an additional 25 basis point (bps) rate hike from the Fed. As the Fed meeting approaches, it will be crucial to monitor the dot plot and forward guidance. A higher dot plot could reinforce investor expectations of a hawkish repricing, putting further pressure on gold prices.

Traders are advised to exercise extra caution, as this event could lead to various interpretations of policy statements due to the wide polarization among investors. Not all Fed events are the same; some offer clearer price action, while others result in choppy trading. Fed Chair Jerome Powell's press conference may provide more clarity for investors.

Levels to watch

• AUD/USD grinds near intraday high inside a one-week-old ascending triangle.
• Treasury bond yields fade the last two days’ recovery as receding fears of banking sector turmoil jostle with pre-Fed anxiety.
• Australia’s Westpac Leading Index dropped for consecutive seventh month in February.
• Fed’s 0.25% rate hike is given but dot-plot, Powell’s speech could change the scene.

AUD/USD renews its intraday high near 0.6700, paring the first daily loss in four marked the previous day, as traders brace for the all-important Federal Open Market Committee (FOMC) monetary policy meeting during early Wednesday.

Helping the Aussie buyers recently is the market’s cautious optimism surrounding the banking sector, as well as downbeat US Treasury bond yields. On the same line could be hopes for a strong economic transition in China.

However, downbeat Aussie data joins hawkish bets on the US Federal Reserve (Fed), versus receding hopes of the Reserve Bank of Australia’s (RBA) strong rate hike in near future, prod the AUD/USD pair buyers.

While tracing the market’s optimism, headlines suggesting the US policymakers’ discussion on ways to surpass Congress to defend the banks, as well as chatters that the First Republic Bank eyes the government’s help gain major attention. On the same line are Tuesday’s comments from US Treasury Secretary Janet Yellen who said, "Treasury, Fed, FDIC actions reduced risk of further bank failures that would have imposed losses on deposit insurance fund."  Previously, Bloomberg shared the news stating that “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis,” which in turn favored the market sentiment and the AUD/USD price.

It’s worth noting that China’s Securities Daily mentioned that the liquidity conditions in the nation remain ample, which in turn favors the AUD/USD buyers due to Aussie-China ties.

Alternatively, Australia’s Westpac Leading Economic Index for February dropped for the seventh consecutive month to -0.06% at the latest and challenges the AUD/USD buyers. On the same line could be the market forecasts suggesting more than 85% chances of the Fed’s 0.25% rate hike in today’s meeting, versus the latest chatters that the RBA lacks ammunition to propel rates further.

While portraying the mood, S&P 500 Futures remain lackluster around 4,040 despite upbeat Wall Street closing while benchmark US Treasury bond yields struggle to extend a two-day rebound from the lowest levels since September 2022. That said, the US 10-year and two-year Treasury bond yields mark a one basis point of downside near 3.60% and 4.18% respectively by the press time.

Looking forward, AUD/USD is likely to grind higher amid downbeat US Treasury bond yields and optimism surrounding economic recovery in Australia’s biggest customer, namely China. However, major attention will be given to developments in the Fed’s dot plot and comments to push back banking turmoil in Fed Chairman Jerome Powell’s speech as banking turmoil challenges the US central bank’s hawkish bias, despite the 0.25% rate hike expected.

Also read: Fed Preview: A dovish last hike?

Technical analysis

Upbeat oscillators keep AUD/USD buyers inside one-week-old ascending triangle, between 0.6665 and 0.6735 by the press time.

• AUD/JPY has witnessed a decent rally after Japan Matsuno promised a more than two trillion Yen package.
• The Australian Dollar is showing strength despite the RBA proposing a pause in the rate-hiking cycle from April.
• The cross has also delivered a breakout of the Symmetrical Triangle, which warrants a volatility expansion ahead.

The AUD/JPY pair has shown a decent upside in the early European session. The upside in the risk barometer is backed by the announcement of a relief package from Japanese Chief Cabinet Secretary Hirokazu Matsuno in which more than 2 trillion yen will be allocated for households to support them against rising prices.

Japanese administration and the Bank of Japan (BoJ) are focusing on the continuation of the expansionary policy to keep inflation near desired levels as a major contribution to the inflationary pressures is coming from higher import prices, not from the domestic forces.

The Australian Dollar is showing strength despite the Reserve Bank of Australia (RBA) having proposed a pause in the rate-hiking cycle from its April meeting. It seems that RBA policymakers are satisfied with a mere two-month of decline in Australian inflation.

AUD/JPY has climbed above the resistance-turned-support plotted from March 21 high at 88.48. The cross has also delivered a breakout of the Symmetrical Triangle chart pattern, which indicates a volatility expansion ahead.

The Australian Dollar would continue to find support from the 20-period Exponential Moving Average (EMA), which is hovering around 88.43.

Meanwhile, the Relative Strength Index (RSI) (14) is inch far from shifting into the bullish range of 60.00-80.00.

Investors would find an optimal buying opportunity near the 20-EMA around 88.43, which will drive the risk barometer towards March 20 high at 89.24 followed by the psychological resistance at 90.00.

In an alternate scenario, a south-side move below March 21 low at 87.71 would drag the cross toward March 20 low at 87.14. A break below the latter would expose the asset to a fresh annual low near 86.61, which is March 16 high.

AUD/JPY hourly chart

• Silver price prints three-day losing streak, confirms two-week-old bearish chart pattern.
• Bearish MACD signals add strength to downside bias for XAG/USD price.
• 200-SMA, $21.30 can act as buffers during theoretical targeting surrounding $17.10.
• Silver buyers need validation from golden Fibonacci ratio.

Silver price (XAG/USD) remains depressed around $22.30, making rounds to intraday low during a three-day downtrend heading into Wednesday’s European session.

The bright metal’s latest fall could be linked to the confirmation of a two-week-old rising wedge bearish chart pattern, as well as the bearish MACD signals.

That said, the quote is well-set for visiting the 200-Simple Moving Average (SMA) support level surrounding $21.50 before declining towards the theoretical target of $17.10.

It’s worth noting that the late February swing high and the current monthly low, respectively around $22.00 and $19.90, can act as additional downside filters to watch during the XAG/USD’s further downside.

On the flip side, the stated wedge’s lower line acts as an immediate resistance for the Silver price of around $22.70.

Following that, the 61.8% Fibonacci retracement of the metal’s February-March downside, also known as the “golden Fibonacci ratio”, could challenge the Silver buyers near $22.85.

In a case where the XAG/USD remains firmer past $22.85, the aforementioned bearish chart pattern’s top line joins the late January swing low to highlight the $23.00 as a tough nut to crack for the Silver bulls before giving them control.

Silver price: Four-hour chart

Trend: Further downside expected

On the US Federal Reserve (Fed) rate hike decision, economists at Goldman Sachs noted, “we expect the FOMC to pause at its March meeting this week because of stress in the banking system."

Also read: Federal Reserve: Expect no rate hike in March – Goldman Sachs

Additional quotes

“While policymakers have responded aggressively to shore up the financial system, markets appear to be less than fully convinced that efforts to support small and midsize banks will prove sufficient.”

“ ... a pause in the inflation fight, but that should not be such a problem. Bringing inflation back to 2% is a medium-term goal, which the FOMC expects to solve only gradually over the next two years. The FOMC can get back on track quickly if appropriate, and the banking stress could have disinflationary effects.”

• USD/CAD retraces to the multi-tested descending trendline. 
• USD/CAD under pressure despite falling oil prices. 
• The expectation for 25 bps is rising for the Fed meeting.

USD/CAD is sliding downward, supported by a descending trend line that starts from the March high at the 1.3862 level on the daily timeframe. The broad-based US Dollar weakness since last week keeps USD/CAD under pressure despite falling oil prices.

Maintaining a downside bias for USD/CAD, the pair finds support on the 21-Daily Moving Average (DMA) just above the previous day's low at the 1.3644 level. Upon a convincing break of both the 21-DMA and the previous day's low, the pair is likely to head toward the key support level and round figure mark of 1.3600.

The last support area will be the 50-DMA, currently pegged around the 1.3500 key psychological level as of now.

The pair finds resistance at the downward-sloping trendline, and a break above would take USD/CAD toward the 1.3800 mark, followed by the March high. The last known resistance is a multi-year high around the 1.4000 mark. The Relative Strength Index (RSI) is signaling lower lows, suggesting further downside room for the pair.

USD/CAD is quietly awaiting the upcoming Federal Reserve (Fed) policy decision for the next directional clues. Any bearish development for the pair from the Fed is likely to pave the way for the 50-DMA.

USD/CAD: Daily chart

The UK CPIs Overview

The cost of living in the UK as represented by the Consumer Price Index (CPI) for February month is due early on Wednesday at 07:00 GMT.

Given the recently released mixed employment data, coupled with the firmer economic activity numbers and the doubts over the Bank of England’s (BOE) next moves, today’s British inflation data will be watched closely by the GBP/USD traders. Also increasing the importance of the UK CPI is the looming banking crisis and the policymakers’ push for measures that could help the market ward off the risks.

That said, the headline CPI inflation is expected to decline further from the 41-year high marked in October while easing to 9.8% YoY in February, versus 10.1% prior. Further, the Core CPI, which excludes volatile food and energy items, is likely to remain stagnant near 5.8%. Talking about the monthly figures, the CPI could jump to 0.6% versus -0.6% prior.

Also important to watch is the Retail Price Index (RPI) figures for February, expected to rise to 0.6% MoM and drop to 13.2% YoY versus 0.0% and 13.4% in that order.

Deviation impact on GBP/USD

Readers can find FXStreet's proprietary deviation impact map of the event below. As observed, the reaction is likely to remain confined around 20-pips in deviations up to + or -3, although in some cases, if notable enough, a deviation can fuel movements over 50-60 pips.

How could it affect GBP/USD?

GBP/USD picks up bids to reverse the previous day’s pullback from a seven-week high as optimism surrounding the UK’s economic recovery joined the latest chatters that UK PM Rishi Sunak will be able to convince the European Research Group (ERG) and the Democratic Unionist party (DUP) to back his much laborious Brexit deal. Adding strength to the recovery moves could be the US Dollar’s weakness ahead of the all-important Federal Open Market Committee (FOMC) monetary policy meeting.

That said, the recent improvement in the British data and expectations of overcoming the labor problems, and softer UK inflation data may help the GBP/USD bears to retake control. However, the UK CPI may have a little less important for the Cable traders this time as the Fed’s verdict and voting on the Brexit bill in the UK’s House of Commons loom. Even so, a strong UK inflation figure won't hesitate to please the Cable pair buyers as the Bank of England (BoE) is ready for the last hawkish dance.

Technically, a four-month-old horizontal resistance area surrounding 1.2270-90 challenges the GBP/USD bulls cheering a sustained break of the 50-DMA hurdle surrounding 1.2145.

Key notes

GBP/USD resists welcoming bears above 1.2200, UK inflation, Brexit vote and Fed eyed

GBP/USD Price Analysis: Rises back above the 1.2200 mark, supported by 50-DMA

About the UK CPIs

The Consumer Price Index released by the Office for National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of the GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).

• GBP/JPY is aiming to deliver a breakout of the Inverted H&S as BoE would continue its policy-tightening spell.
• The 20-period EMA at 161.77 is providing cushion to the Pound Sterling bulls.
• A break into the 60.00-80.00 range by the RSI (14) would activate the bullish momentum.

The GBP/JPY pair has gradually inched back to near the 162.00 resistance in the early European session. The cross is likely to possess an upside bias ahead of the monetary policy announcement by the Bank of England (BoE). Thursday’s BoE policy is likely to be concluded with a 25 basis point (bp) rate hike despite fears of a banking fiasco and a dismal economic outlook.

But before that, the United Kingdom inflation data will remain in focus. The street is anticipating a decline in the annual headline Consumer Price Index (CPI) to 9.8% from the former release of 10.1%. While the core CPI that excludes oil and food prices would remain steady at 5.8%. A higher inflation rate might bolster the odds of a 25 bps rate hike announcement from BoE Governor Andrew Bailey.

Meanwhile, the Japanese economy is focusing on providing relief to households as they are struggling to offset inflated prices of goods and services.

GBP/JPY is aiming to deliver a breakout of the Inverted Head and Shoulder chart pattern formed on an hourly scale. The neckline of the Inverted H&S chart pattern is plotted from March 17 high at 162.19. A breakout of the aforementioned chart pattern will result in wider ticks and heavy volume towards the north.

The 20-period Exponential Moving Average (EMA) at 161.77 is providing cushion to the Pound Sterling bulls.

Meanwhile, the Relative Strength Index (RSI) (14) is struggling to shift into the bullish range of 60.00-80.00. An occurrence of the same would activate the bullish momentum.

Going forward, a decisive break above March 17 high at 162.19 would drive the cross toward March 08 high around 163.00 followed by the horizontal resistance plotted from March 10 high at 164.24.

On the flip side, a break below March 21 low at 160.76 would drag the asset toward March 17 low at 160.16. A breach of the latter would drag the cross toward March 20 low around 159.00.

GBP/JPY hourly chart

In an interview with the Financial Times (FT), European Central Bank (ECB) policymaker and Bundesbank Chief Joachim Nagel said on Wednesday, “there’s still some way to go, but we are approaching restrictive territory.”

Additional quotes

“Our fight against inflation is not over.”

“There’s certainly no mistaking that price pressures are strong and broad-based across the economy.”

“If we are to tame this stubborn inflation, we will have to be even more stubborn.”

“We are not facing a repeat of the financial crisis we saw in 2008. We can manage this.”

“Those who profit from opportunities should also take their share when risks materialize. This was one of the takeaways from the global financial crisis.”

“I still envision a soft landing in Germany, Eurozone.”

Market reaction

The above comments fail to move a needle around the Euro, as EUR/USD keeps its range trade at around 1.0770.

• USD/CHF licks its wounds near one-week low, picks up bids of late.
• Cautious optimism in the market, led by banking sector headlines, keeps US Dollar buyers hopeful.
• Expectations of SNB’s dovish rate hike also favor USD/CHF bulls.

USD/CHF prints mild gains around 0.9230 as it recovers from the lowest levels in a week heading into Wednesday’s European session. In doing so, the Swiss Franc (CHF) pair consolidates the biggest daily loss in one week ahead of the all-important Federal Open Market Committee (FOMC) monetary policy meeting.

It’s worth noting that the increased optimism joined mixed headlines from Switzerland to weigh on the USD/CHF prices the previous day. However, the pre-Fed anxiety and a light calendar seem to have restricted the quote’s latest moves, allowing traders to pare earlier losses. Additionally allowing the pair to rise are the headlines suggesting the US policymakers’ discussion on ways to surpass Congress to defend the banks, as well as chatters that the First Republic Bank eyes the government’s help.

On Tuesday, market sentiment improved after US Treasury Secretary Janet Yellen said, "Treasury, Fed, FDIC actions reduced risk of further bank failures that would have imposed losses on deposit insurance fund."  Earlier on Tuesday, Bloomberg shared the news stating that the “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.”

Also important were comments from Dr. Marcel Rohner, Switzerland’s Banking Association Chairman, who said on Tuesday, “credibility in Swiss banking has not been destroyed by the Credit Suisse crisis, but the situation is not good.” Rohner also added, “The Swiss credit supply is not a problem, our banking environment is increasingly competitive.”

Talking about the data, a reduction in the Swiss trade surplus in February joined downbeat Exports and a mild improvement in Imports to suggest a foggy picture of Switzerland’s foreign trade on Tuesday. On the same line, the US Existing Home Sales for February marked a notable jump of 14.5% versus 0.0% expected and -0.7% prior. However, the Philadelphia Fed Non-Manufacturing Business Outlook survey gauge dropped to -12.8 in March and tamed the US Dollar-linked optimism afterward.

Against this backdrop, S&P 500 Futures remain lackluster around 4,040 despite upbeat Wall Street closing while benchmark US Treasury bond yields struggle to extend a two-day rebound from the lowest levels since September 2022. That said, the US 10-year and two-year Treasury bond yields mark a one basis point of downside near 3.60% and 4.18% respectively by the press time.

Moving on, USD/CHF traders should pay attention to developments in the Fed’s dot plot and comments to push back banking turmoil in Fed Chairman Jerome Powell’s speech. Following that, the Swiss National Bank’s (SNB) ability to match the 0.50% rate hike and push back banking sector woes will be crucial to watch for clear directions.

Technical analysis

A two-week-old descending resistance line, around 0.9275 by the press time, precedes the 100-DMA hurdle of 0.9345 to challenge the USD/CHF buyers. Meanwhile, multiple supports test the Swiss currency pair bears around 0.9140.

• USD/JPY holds steady near 132.50 amidst softer US Treasury bond yields.
• Banking developments boost risk appetite as Fed decision looms.
• Inflation remains the primary battle as Fed grapples with banking turmoil.

USD/JPY hovers around the 132.50 level amid softer US Treasury (UST) bond yields and calmer US futures. On Tuesday, US Treasury Secretary Janet Yellen addressed a group of bankers, suggesting that the federal deposit guarantee could be extended to all small banks in the US.

These suggestions come after the Federal Reserve (Fed) made synchronized efforts to inject liquidity into the US market through swap lines and discount windows. Such actions have been reflected in the Fed's balance sheet as a spike occurred amid ongoing quantitative tightening. These actions have eased some banking concerns, resulting in a risk-on environment on Tuesday.

Developments on the banking front have led investors to expand their risk appetite to digest another 25 basis point (bps) rate hike from the Fed on Wednesday. Markets are pricing in an 85% chance of a 25-basis-point rate hike when the Fed announces its monetary policy decision. The peak for the Fed's benchmark overnight interest rate was seen at 5.5% only a few weeks ago, compared to around 4.8% now.

Rapid action in the banking sector has refocused the Fed on the inflationary path, as it remains well above the 2% target. The main battle is likely to be with inflation. The Fed has clearly shown that if required, they can fight on both fronts while keeping the hiking cycle intact and easing if necessary.

Any deviation from the expected 25 bps rate hike by the Fed could spark extreme volatility, which is very unlikely. Since the summary of economic projections was conducted prior to the banking turmoil, attention will shift to the dot plot, policy statements, and press conferences.

Earlier comments from Japan's Chief Cabinet Secretary Matsuno indicated, “Will allocate more than 2 trillion Japanese Yen from reserves for measures to cushion the blow to the economy from rising prices.”

Levels to watch

• Asian stocks have stretched their recovery on hopes that Fed would hike rates further by 25 bps.
• A promise of 2 trillion Yen from Japan’s Matsuno to support households from rising prices would stimulate overall demand.
• Oil price is likely to remain volatile ahead of US EIA inventory data and Fed policy.

Markets in the Asian domain have stretched their recovery on hopes that the Federal Reserve (Fed) would go for a smaller rate hike. S&P500 futures recorded back-to-back bullish sessions as investors look cheerful with a ‘slow and steady’ approach towards the terminal rate.

The headline that also supported an extension of recovery in global indices is the promise from United States Treasury Secretary Janet Yellen to provide liquidity assistance to commercial banks. She further added, "A dynamic and diverse banking system - with large, mid-sized and small banks - is critical to the US economy."

At the press time, Japan’s Nikkei soared 2.07%, ChinaA50 gained 0.45%, Hang Seng accelerated 2.15%, and Nifty50 added 0.33%.

The US Dollar Index (DXY) is continuously hovering around 103.20 as investors have been sidelined. No doubt, the majority of odds are favoring a 25 basis point (bps) by the Fed, however, chances of a steady monetary policy cannot be avoided.

There is no denying the fact that Fed chair Jerome Powell would be more familiar with the situation of the banking crisis and forward consequences. Also, Standard and Poor downgraded the creditworthiness of the First Republic Bank into deeper junk, despite a huge liquidity influx into the mid-side US bank, citing that the promised helicopter money is unable to get the commercial bank out of trouble. So an alternative of a steady monetary policy to restore the confidence of the market participants cannot be ruled out.

Meanwhile, Japanese equities have sky-rocketed Japanese Chief Cabinet Secretary Hirokazu Matsuno has promised to allocate more than 2 trillion yen from reserves to safeguard households from rising prices, as reported by Reuters. The relief package would strengthen the overall demand in the economy and would contribute to keep the inflation rate near desired levels. The collaborative effort from the Japanese administration and the Bank of Japan (BoJ) could be the key to maintaining inflation for the Japanese Yen as competitive.

On the oil front, the oil price is struggling to capture the critical resistance of $70.00, upside looks likely as more sanctions on the Russian oil supply are likely to remain absent. Going forward, investors will keenly focus on the weekly inventory data to be reported by the US Energy Information Administration (EIA). As per the consensus, the oil stockpiles would decline by 1.448 million barrels for the week ending March 17.

• US Dollar Index grinds near five-week low, probes bears after four-day downtrend.
• Bearish MACD signals, sustained trading below 50-DMA keep DXY sellers hopeful.
• Nine-week-old horizontal support zone, previous resistance line from late November challenge heavy fall.
• Fortnight long resistance line, 200-DMA add to the upside filters.

US Dollar Index (DXY) struggles to keep bears on the board pre-Fed anxiety dominates trading momentum during early Wednesday. Even so, the greenback’s gauge versus the six major currencies remains depressed around the five-week low marked the previous day, close to 103.20 at the latest.

The DXY’s sustained break of the 50-DMA and bearish MACD signals also rule out chances of the quote’s recovery despite the Fed-linked caution.

Also read: US Dollar Index: DXY traces retreat in yields to highlight five-week low near 103.00 on Fed Day

As a result, the US Dollar Index appears en route to the horizontal support zone comprising multiple levels marked since early January, between 102.65 and 102.55.

Even if the US dollar’s gauge breaks the 102.55 support, a four-month-old previous resistance line, now support around 101.80, could challenge the sellers before directing them to the Year-To-Date (YTD) low marked in February around 100.80.

Alternatively, a daily closing beyond the 50-DMA level of 103.45 isn’t an open ticket to the US Dollar Index bulls as a downward-sloping resistance line from March 08, at 104.25 by the press time, could challenge the quote’s further upside moves.

Following that, the monthly high and the 200-DMA hurdles, respectively around 105.90 and 106.65 will be in focus.

US Dollar Index: Daily chart

Trend: Further downside expected

• WTI struggles to keep bears on the table while snapping two-day winning streak.
• API Weekly Crude Oil Stock marked unexpected build of inventory during the week ended on March 17.
• US Oil refiners’ optimism, softer US Dollar ahead of the Fed keeps buyers hopeful.
• Federal Reserve, EIA stockpiles eyed for clear directions.

WTI crude oil picks up bids to pare intraday losses, the first in three, amid early Wednesday’s sluggish trading. That said, the black gold dropped during the initial hours after downbeat inventory data joined the US Dollar’s corrective bounce and price-negative industry news. However, the greenback’s failure to stay firmer and cautious optimism in the market seem to help the energy benchmark as it prints mild losses near $69.30 at the latest.

On Tuesday, the private Oil inventory data provider American Petroleum Institute (API) showed the Weekly Oil Stock increased by 3.262M for the week ended on March 17 versus 1.155M prior.

Apart from the higher inventory levels, the US Dollar’s corrective bounce, backed by an initial rebound in the US Treasury bond yields, also favored the WTI crude oil sellers after a two-day uptrend.

Furthermore, a lack of impressive news from China President Xi Jinping’s meeting with Russian counterpart Vladimir Putin, despite criticizing the Western helps to Ukraine, seems to exert downside pressure on the Oil price.

Additionally, news from Reuters suggesting optimism in the US oil refining industry also tease the WTI bears. “The US oil refining industry expects to maintain a competitive advantage exporting fuel to Latin America, even though Brazil has started to import more Russian diesel, according to an official at a top US refining lobby,” said Reuters.

Above all, the market’s indecision ahead of the Federal Open Market Committee (FOMC) monetary policy meeting challenges WTI traders. Also important to watch is the weekly Crude Oil inventory data from the US Energy Information Administration (EIA), up for publishing on Wednesday and expected -1.448M versus 1.55M prior.

Technical analysis

December 2022 low near $70.30 precedes a two-week-old descending resistance line, around $71.40, to restrict Crude Oil upside.

• USD/INR is oscillating in a narrow range above 82.60 ahead of Fed policy.
• Deepening odds of a smaller interest rate hike by the Fed are also weighing on the return offered on US bonds.
• Capital inflows in India could be trimmed if the banking turmoil stretches further.

The USD/INR pair is displaying a back-and-forth action around 82.60 in the Asian session. The asset is demonstrating a lackluster performance following the sideways cues observed from the US Dollar Index (DXY) observed on Tuesday. The major is expected to continue to consolidate in a narrow range as investors are focusing on the announcement of the monetary policy by the Federal Reserve (Fed).

S&P500 futures look quiet after a two-day winning streak as fears of further shakedown in the United States banking sector have started fading, portraying a risk appetite theme underpinned by the market participants. The US Dollar Index (DXY) has slipped below the intermediate support of 103.20 and is expected to remain on tenterhooks ahead of the interest rate decision by the Fed.

Deepening expectations of a smaller interest rate hike by the Fed are also weighing on the return offered on US Treasury bonds. The 10-year US Treasury yields have trimmed to near 3.58%.

Analysts at CitiBank expect a 25 bps rate hike to take the Fed Funds rate to 4.75-5.0%. Fed chair Jerome Powell is likely to emphasize inflation can be addressed through policy rates, while financial stability can be addressed through other tools. No hike might be interpreted as the Fed is aware of more problems in the banking sector than the public.

On the interest rate guidance, CitiBank expects the median dot for year-end 2023 to rise 25 bps from 5.00-5.25 to 5.25-5.5% and the 2024 dot to rise 25 bps. Fed will also update its quarterly economic forecasts.”

Meanwhile, Indian Rupee is working hard to defend the downside on an argument that the US banking sector crisis would have a negligible impact on the Indian economy.

The State of the Economy report from the Reserve Bank of India (RBI) claims that the direct impact of the US banking crisis on India’s economic activity could be limited. Capital inflows due to global volatility could be trimmed if banking turmoil stretches further.

• EUR/USD struggles for clear directions around five-week high inside short-term ascending triangle.
• Sustained trading above 100-DMA, upbeat oscillators favor four-day uptrend but pre-Fed anxiety challenges traders.
• Mid-February high adds strength to 1.0800 upside hurdle; Euro sellers can return on 1.0700 break.

EUR/USD treads water around 1.0770-80 as pre-Fed anxiety intensifies during early Wednesday. Adding strength to the cautious mood could be a speech from European Central Bank (ECB) President Christine Lagarde, as well as an ascending triangle formation established since March 01.

Also read: EUR/USD aptly portrays pre-Fed anxiety below 1.0800, ECB’s Lagarde eyed

It should be noted, however, that the Euro pair’s successful rebound from the 100-DMA joins the bullish MACD signals and upbeat RSI (14) line, not overbought, to keep the buyers hopeful.

That said, the area between 1.0800 and 1.0700 currently restricts the EUR/USD pair’s moves. Adding strength to the 1.0800 hurdle is the late January low and February 14 swing high. Hence, the EUR/USD pair buyers have a tough run to the north.

On the contrary, a downside break of the 1.0700 support can quickly drag the quote toward the 100-DMA support level surrounding 1.0595.

Though, the 61.8% Fibonacci retracement level of the EUR/USD pair’s run-up between late last November and early February, around 1.0530, can test the bears afterward.

Meanwhile, a successful break of the 1.0800 resistance confluence won’t hesitate to aim for January’s high of near 1.0930 before targeting the Year-To-Date (YTD) high marked in February around 1.1035.

EUR/USD: Daily chart

Trend: Limited upside expected

• AUD/USD hovers below 0.6700 mark, as market anticipates a 25 bps hike from Fed.
• Fed dueling priorities, inflation vs. banking turmoil?
• Market sentiment shifts as the investors weigh the possibility of a further rate hike. 

AUD/USD rebounded from Tuesday's low at 0.6650 as sentiment shifted and risk appetite increased. The pair remains in consolidation as traders await the Federal Reserve (Fed) policy decision.

Amid the ongoing banking turmoil, US authorities have sequentially introduced liquidity injection plans. The Fed has implemented the discount window and swap line to mitigate ongoing challenges, followed by strong support from US Treasury Secretary Janet Yellen.

Efforts by Janet Yellen to calm nerves seemed to be effective, as bank shares rallied on Tuesday. US government officials are also considering increasing the limit on deposit insurance for all small banks, despite opposition from some US senators.

Tuesday's price action could signal a change in investors' mood and potentially increase their appetite for another 25 basis point (bps) rate hike from the Fed.

Diminishing concerns about banking turmoil suggest that central banks can refocus on taming inflation, resulting in an increased probability of a 25 bps rate hike from the Fed. As the FOMC meeting approaches, this meeting will be particularly important. 

Two opposing forces are at play: one advocating for continued rate hikes until inflation is under control, and the other urging a pause amid worsening banking conditions. Observing the Fed's priority during this challenging situation will be crucial.

Traders should exercise extra caution heading into the FOMC meeting. Investors may interpret the Fed policy statement in various ways, and initial reactions could be reversed during Fed Chair Powell's press conferences.

Since the summary of economic projections was conducted before the banking turmoil, attention will be focused on the dot plots, forward guidance, and press conference. AUD/USD is likely to reflect the risk sentiment during the Fed policy decision.

Levels to watch

• Gold price is making efforts for maintaining its auction above $1,940.00.
• The recent rally in the Gold price was driven was weakness in the USD Index and fears of a banking sector meltdown.
• The USD Index is showing a subdued performance as odds for a 25bp rate hike by the Fed are accelerating.

Gold price (XAU/USD) has reverted to the $1,940.00 support after failing to extend its recovery above $1,946.00 in the Asian session. The precious metal is expected to remain sideways as investors are likely to execute meaningful positions after the announcement of the interest rate decision by the Federal Reserve (Fed).

It is worth noting that the Gold price is struggling to maintain its feet despite a subdued performance by the US Dollar Index (DXY). The recent rally in the Gold price was driven was weakness in the USD Index and stalwart fears of a banking sector meltdown in the United States after the collapse of three mid-size banks last week.

The commentary from United States Treasury Secretary Janet Yellen that Fed’s new Bank Term Funding facility and discount window lending are working to provide liquidity to the banking system has trimmed fears of further turmoil in the banking system. Also, the statement infused fresh blood into the share price of First Republic Bank on Tuesday. Earlier, the safe-haven appeal for Gold got firmer as investors shifted their money to bullions to safeguard themselves from sheer volatility.

The US Dollar Index (DXY) is continuously hovering around 103.20 as investors are cheering accelerating odds for a 25 basis point (bp) interest rate hike by the Fed. As per the CME Fedwatch tool, 85% chances are in favor of a 25bp rate hike, which would push rates to 4.75-5.00%.

Gold technical analysis

Gold price delivered a perpendicular decline after a breakdown of the Head and Shoulder chart pattern on an hourly scale. A breakdown of the aforementioned chart pattern indicates a bearish reversal after a consolidation move. The Gold price has dropped to near the demand zone placed in a range of $1,933.90-1,938.40.

The 20-period Exponential Moving Average (EMA) at around $1,950.00 would continue to act as a barricade for Gold bulls.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in the bearish range of 20.00-40.00, which indicates the downside momentum is still active.

Gold hourly chart

• Natural Gas price retreats after bouncing off one-month low the previous day.
• Hopes of more energy demand, geopolitical fears earlier allowed XNG/USD to rise.
• Pre-Fed anxiety joins China President Xi’s failure to confirm more gas pipelines from Russia to probe buyers.
• Risk catalysts, EIA inventories will be important for clear directions.

Natural Gas (XNG/USD) price struggles to keep the previous day’s rebound from the monthly low as global markets turn lackluster ahead of the key Fed monetary policy meeting on Wednesday. Also challenging the XNG/USD price could be the recent headlines from China and the cautious mood ahead of Thursday’s official Weekly Natural Gas Storage Change number from the US Energy Information Administration (EIA). That said, the energy resource remains mildly offered at around $2.44 by the press time.

News that Russia will install new pipelines to send more Natural Gas to China joined the market’s hopes of overcoming the banking fallouts to underpin the XNG/USD buyers the previous day. However, China President Xi Jinping did not confirm such an agreement and pushed back the gas buyers afterward.

Elsewhere, Japan’s two trillion Yen stimulus to ward off the inflation burden on the citizens, by way of energy subsidies to households, seem to have also underpinned the Natural Gas price before the latest retreat.

It should be noted that the recently mixed US data and the market’s hawkish calls of witnessing a 0.25% rate hike from the US Federal Reserve also weigh on the commodity price even if the US Dollar fades the previous day’s rebound from a five-week low.

Furthermore, Bloomberg’s news that Italy floats new Liquefied Natural Gas (LNG) terminals to overcome Russia-led energy shortage join the hopes of easy winter in Europe to challenge the XNG/USD buyers.

It should be noted that the Natural Gas price should witness a rebound in case today’s Fed decision drowns the US Dollar and/or there prevails a huge draw in the weekly EIA inventories, prior -58B.

Technical analysis

The 10-DMA hurdle surrounding $2.53 challenges XNG/USD buyers even if the oversold RSI (14) joins multiple levels near $2.35-30 to test the Natural Gas bears.

Japanese Finance Minister Shunichi Suzuki said on Wednesday, it is “important for forex to move stably reflecting fundamentals.”

Additional quotes

“Need to be vigilant about the very fast pace that credit concerns spread globally.”

“No comment on specific means of BoJ policy, but expect BoJ to work closely with govt and guide appropriate policy steps under new governor.”

“Govt watching fx moves carefully.”

Market reaction

At the time of writing, USD/JPY is dropping 0.08% on the day to trade at 132.38.

• USD/MXN jostles with the 200-EMA, 100-EMA confluence to prod two-day downtrend.
• Bearish MACD signals, downbeat RSI (14) suggest further declines.
• Seven-week-old horizontal support appears tough nut to crack for bears.
• Buyers need successful break of multi-day-old resistance line for conviction.

USD/MXN bears take a breather around 18.60 during early Wednesday as market players await the Federal Open Market Committee (FOMC) monetary policy meeting outcome.

Even so, the Mexican Peso (MXN) pair prints mild gains while snapping the previous two-day losing streak at the lowest levels in a week.

That said, the convergence of the 100-bar Exponential Moving Average (EMA) and the 200-EMA restricts the immediate downside of the USD/MXN pair.

However, the bearish MACD signals and downbeat RSI (14), not oversold, keeps sellers hopeful of breaking the 18.60 support confluence.

It’s worth noting, though, that an area comprising multiple levels marked since early February, around 18.50, appears a tough nut to crack for the USD/MXN bears and could restrict the pair’s further downside past 18.60, which if ignored won’t hesitate to portray a slump towards 18.00.

It’s worth noting that the mid-March swing low joins the early March peaks to highlight the 18.25-20 region as an extra filter towards the south.

On the flip side, the USD/MXN pair’s rebound from the current levels can again aim for the 19.00 round figure before marking one more battle with a descending resistance line from early January, close to 19.20 at the latest.

Overall, USD/MXN is likely to remain pressured even if the room towards the south appears limited.

USD/MXN: Four-hour chart

Trend: Limited downside expected

• Bulls eye a break of 1.0800 that opens risk towards 1.0850 as the next stop.
• Bears seek a break below 1.0750 and the trendline support.

The Australian and New Zealand Dollars are bid with the Aussie leading the way ahead of the upcoming US Federal Reserve policy meeting amid easing fears about the global banking system. The bulls are in play as the following illustrates:

AUD/NZD H4 chart

We have the price climbing out of the bearish trend and on the front side of the micro bull trend formed earlier this week. A break of 1.0800 opens risk towards 1.0850 as the next stop. On the other hand, a break below 1.0750 and the trendline support will leave a bearish bias on the charts for the foreseeable future. 

• Market sentiment remains sidelined during a sluggish start to the key week.
• S&P 500 Futures seesaw around fortnight high, struggle to extend two-day uptrend.
• US 10-year, two-year Treasury bond yields fade previous rebound from six-month low.
• Anxiety about Fed’s next move contrasts with risk-positive headlines from banking sector to limit moves on important day.

Global traders aptly portray the market’s anxiety ahead of the all-important Federal Open Market Committee (FOMC) monetary policy meeting on early Wednesday. In doing so, the market players struggle to justify the latest headlines suggesting the easing fears from the banking sector.

While portraying the mood, S&P 500 Futures remain lackluster around 4,040 despite upbeat Wall Street closing while benchmark US Treasury bond yields struggle to extend a two-day rebound from the lowest levels since September 2022. That said, the US 10-year and two-year Treasury bond yields mark a one basis point of downside near 3.60% and 4.18% respectively by the press time.

The pre-Fed caution becomes more important this time as the US policymakers are trying hard to push back the fears of the 2008 crisis. Also highlighting today’s FOMC are the recently mixed US data and the market’s hawkish calls of witnessing 0.25% rate hike. It should be noted, however, that major attention is on the developments in the Fed’s dot plot and Fed Chairman Jerome Powell’s speech.

Elsewhere, traders witness mixed headlines late Tuesday, after an initial round of optimistic news that favored the US Treasury bond yield and Wall Street. Among them is the news that the US policymakers are discussing ways to surpass Congress to defend the banks and chatters that the First Republic Bank eyes the government’s help and pokes investors.

Previously, US Treasury Secretary Janet Yellen’s comments gained major attention as she said, "Treasury, Fed, FDIC actions reduced risk of further bank failures that would have imposed losses on deposit insurance fund."  Earlier on Tuesday, Bloomberg shared the news stating that the “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.” Apart from the US policymakers, European Central Bank (ECB) Official Martins Kazaks and Dr. Marcel Rohner, Switzerland’s Banking Association Chairman also tried to convince the markets that their respective banking system isn’t on the brink of collapse.

On a different page, Reuters came out with the news suggesting geopolitical challenges to the global economy due to China President Xi Jinping’s visit to Russia, which in turn should have probed the risk-on mood. The news also quotes the joint statement accusing the West by mentioning that the United States was undermining global stability and NATO barging into the Asia-Pacific region.

Looking forward, the UK inflation numbers and a speech from ECB President Christine Lagarde can entertain market players ahead of the key Fed announcements.

Also read: Forex Today: Market sentiment improves ahead of the Fed, DXY resists

• USD/CHF breaks consolidation range ahead of FOMC meeting.
• Investors' focus shifts to upcoming Fed meeting, 25 bps rate hike or pause?
• SNB policy decision looms next after the Fed event.

USD/CHF has broken the four-day consolidation range and remains steady just above the 0.9200 key psychological mark. The broad-based US Dollar weakness emerged after a positive risk appetite, spurred by US authorities intervening to rescue the US banking system. US Treasury Secretary Janet Yellen expressed willingness on Tuesday to provide deposit guarantees to all small banks.

Considering the ongoing liquidity crunch in the banking sector, the US Treasury Department, Federal Reserve (Fed), and US regulators have prioritized addressing the issue. Various liquidity options have already been proposed, such as the Fed opening swap lines and the discount window, as well as bank deposit guarantees for small banks despite opposition from US senators. These easing measures are likely to exert further downward pressure on the US Dollar.

Investors' focus has shifted to the upcoming Fed meeting, with markets pricing in an 85% chance of a 25-basis-point rate hike when the Fed announces its monetary policy decision on Wednesday.

Amid this banking crisis, investors are skeptical about the upcoming Fed meeting, with differing views. Following a synchronized global effort to calm the banking turmoil, the market has begun to lean toward a consensus view of a 25 basis point (bps) rate hike. Given that a summary of economic projections was conducted prior to this banking turmoil, attention will be focused on the dot plot and initial remarks from Fed Chair Powell.

Fed Chair Powell's press conference will be important to watch, as investors will try to gauge the banking and inflationary outlooks.

After the Fed, the Swiss National Bank (SNB) is next in line to deliver its policy decision.

Levels to watch

• NZD/USD has shown a recovery move from 0.6170 amid the risk-on market mood.
• The kiwi asset is hovering near the upward-sloping trendline of the Ascending Triangle pattern.
• Investors should be aware of the fact that responsive buying can be kicked in as the Kiwi asset is at make-or-break levels.

The NZD/USD pair is demonstrating a solid recovery from 0.6170 in the Asian session. The kiwi asset remained weak on Tuesday as fears of poor growth in New Zealand refreshed.

Analysts at UOB cited “The impacts of severe weather and flooding earlier this year will cloud the economic outlook. Our view is that the economy is likely to experience further weakness ahead. We have lowered our GDP growth forecast for 2023 to 1.3%, from 1.5% previously.”

S&P500 futures are showing nominal gains in the Asian session. The 500-US stocks basket futures are expected to continue their two-day winning streak further as United States Treasury Secretary Janet Yellen confirmed that Federal Reserve’s (Fed) new Bank Term Funding facility and discount window lending is working to provide liquidity to the banking system.

The US Dollar Index (DXY) has continued its sideways performance around 103.20 as investors are awaiting the interest rate decision by the Fed for fresh impetus.

On a two-hour scale, NZD/USD is hovering near the upward-sloping trendline of the Ascending Triangle chart pattern, which is plotted from March 09 low at 0.6105. While the horizontal resistance of the chart pattern is placed from March 01 high around 0.6277.

A bear cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 0.6220, indicates more weakness ahead.

Investors should be aware of the fact that responsive buying can be kicked in as the Kiwi asset is at make or break level.

The Relative Strength Index (RSI) (14) has slipped below 40.00, showing no signs of divergence, and oversold yet.

A buying opportunity in the Kiwi asset will emerge it will surpass March 1 high at 0.6276, which will drive the pair toward the round-level resistance at 0.6300 followed by February 14 high at 0.6389.

In an alternate scenario, a breakdown of March 21 low at 0.6167 will drag the asset toward March 15 low at 0.6139. A slippage below the latter will expose the asset for more downside toward the round-level support at 0.6100.

NZD/USD two-hour chart

• USD/JPY struggles to extend the previous day’s gains, the biggest in two weeks, near the key DMA.
• Clear upside break of fortnight-old descending trend line, U-turn from monthly support line keeps buyers hopeful.
• Downbeat oscillators, important moving averages keep sellers hopeful; 130.30 appears Yen pair buyer’s last defense.

USD/JPY bulls take a breather around 132.50 during early Wednesday, after posting the biggest daily gains in a month the previous day. In doing so, the Yen pair portrays the market’s cautious mood ahead of today’s key Federal Open Market Committee (FOMC) monetary policy meeting.

On Tuesday, USD/JPY marked recovery from a one-month-old descending support line while posting heavy gains, as well as crossing the short-term important resistance line. However, the 50-DMA seems to challenge the pair’s further upside afterward.

Apart from the 50-DMA hurdle surrounding 132.50, the bearish MACD signals and sluggish RSI (14) also prod the Yen pair buyers.

Even so, the quote’s successful U-turn from the one-month-old descending trend line and a clear upside break of a fortnight-old previous resistance line suggests that the USD/JPY is well-set to cross the 50-DMA hurdle.

Following that, a horizontal area comprising multiple levels marked since mid-February, around 135.10-30 will be important to watch as it holds the key for the USD/JPY pair’s run-up towards the 200-DMA hurdle surrounding 137.50.

Alternatively, a downside break of the resistance-turned-support line, near 132.00 by the press time, could mark another attempt by the Yen pair to conquer the monthly support line close to 131.00.

It’s worth noting that the USD/JPY bears should remain cautious unless the quote stays beyond an upward-sloping support line from mid-January, close to 130.30 by the press time.

USD/JPY: Daily chart

Trend: Further upside expected

Japan Economy Minister Shigeyuki Goto crossed the wires and said that they have compiled various price measures and will deploy 2tln Yen of reserves to fund these price and covid measures. 

More to come...

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.8715 vs. the last close of 6.8788.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.

• USD/CAD has slipped to near 1.3700 as investors have shrugged off fears of a consecutive 25 bps Fed rate hike.
• Tighter credit, economic contraction, and falling inflation could lead to rate cuts by the Fed this year.
• Declining Canada’s inflation indicates that the BoC could continue its steady stance on interest rates.

The USD/CAD pair is showing a corrective move after failing to extend its recovery above 1.3740 in the Asian session. On Monday, the Loonie asset showed a solid recovery from 1.3660 after a decline in Canada’s inflation data. Declining Canada’s Consumer Price Index (CPI) data confirmed that the Bank of Canada (BoC) could continue with its unchanged policy stance.

BoC Governor Tiff Macklem is keeping its policy stance steady as he believes that the monetary policy is restrictive enough to achieve price stability. However, BoC Macklem has remained doors open for further hikes if the roadmap of bringing down inflation goes south.

Statistics Canada reported that monthly inflation has accelerated by 0.4%, lower than the consensus of 0.6% and the former release of 0.5%. The headline CPI softened to 5.2% vs. the consensus of 5.4% and the prior release of 5.9%. Apart from them, annual core CPI that doesn’t inculcate oil and food prices dropped to 4.7% from the previous figure of 5.0% but remained higher than the estimates of 4.6%. Overall, the decline in inflation was quite impressive for the BoC, which has already pushed interest rates to 4.5%.

Meanwhile, S&P500 futures are showing a subdued performance after two-day of bulk buying. Investors’ risk appetite is extremely strong as the odds are favoring a consecutive 25 bps rate hike by the Federal Reserve (Fed). The US Dollar Index (DXY) is struggling in maintaining its feet above 103.20 as fears of banking sector turmoil are not faded yet. Also, analysts at UBS are of the view that tighter credit, economic contraction, and falling inflation could lead to rate cuts by the Fed this year.

• A break of 0.6680 will put the bulls firmly in play and in a favorable position ahead of the Federal Reserve later today. 
• The price is at a cross roads on the daily chart.

AUD/USD is up some 0.1% at 0.6677 as investors' focus moves to a slew of central bank meetings due this week after days of volatility in markets rocked the antipodeans back and forth between headlines.

This has left the technical picture neutral as the following illustrates:

AUD/USD daily chart

While the price has broken lower and is correcting into resistance, the bullish break of the bear trend counters that bearish bias. Therefore, this could go either way at this juncture. If the price does break the micro bullish trend and out of the ascending triangle, the lows could be a tough nut to crack and a failed break below 0.6550 would be expected to entice the bulls again. A break of 0.6500 will put the bears in control while a break above 0.6800 leaves the bulls in control on the backside of the prior bearish trend.

AUD/USD H4 charts

Meanwhile, the bears are seen in play on the 4-hour chart. 

However, we have a solid area of support here and a break of 0.6680 will put the bulls firmly in play and in a favorable position ahead of the Federal Reserve later today. 

• EUR/USD grinds near five-week high after four-day winning streak.
• Receding fears of banking crisis backed hawkish ECB talks to favor Euro bulls.
• US Treasury Secretary Yellen manages to restore market sentiment, mixed EU/US data gain little attention.
• How FOMC reacts to banking debacle is the key, 0.25% Fed rate hike is almost given.

EUR/USD dribbles around 1.0760-70 as bulls take a breather at the highest levels in five weeks on the Federal Reserve (Fed) decision day, following a four-day uptrend. In doing so, the Euro pair portrays the market’s cautious mood ahead of the key catalysts, as well as shows traders’ indecision amid the latest rebound in sentiment and the Treasury bond yields, not to forget hawkish central bank bias.

Global markets witnessed a sigh of relief on Tuesday, after witnessing a risk-off mood in the last few days, as the US policymakers’ efforts to tame the banking crisis gained the market’s acceptance.

Among the key developments, US Treasury Secretary Janet Yellen’s comments gained major attention as she said, "Treasury, Fed, FDIC actions reduced risk of further bank failures that would have imposed losses on deposit insurance fund."  Earlier on Tuesday, Bloomberg shared the news stating that the “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.”

Not only the US policymakers but ECB policymaker Martins Kazaks and Dr. Marcel Rohner, Switzerland’s Banking Association Chairman also tried to convince the markets that their respective banking system isn’t on the brink of collapse.

Recently, the news that the US policymakers are discussing ways to surpass the US Congress to defend the banks joined chatters that the First Republic Bank eyes government helps to encourage buyers probed EUR/USD traders.

It should be noted that mixed data from Europe and the US also test the pair traders at the start of the key day.

On Tuesday, Germany’s ZEW Economic Sentiment Index dropped to 13.0 for March from 28.1 in February, versus the market expectation of 16.4, while the Current Situation gauge arrived at -46.5 for the said month from -45.1 prior and -45.8 analysts’ estimations. It should be noted that the Eurozone ZEW Economic Sentiment Index slumped to 10.0 for March from 29.7 in previous readings and market forecasts of 23.2. 

On the other hand, the US Existing Home Sales for February marked a notable jump of 14.5% versus 0.0% expected and -0.7% prior. However, the Philadelphia Fed Non-Manufacturing Business Outlook survey gauge dropped to -12.8 in March and tamed the US Dollar-linked optimism afterward.

Elsewhere, S&P 500 Futures remain lackluster despite upbeat Wall Street closing while benchmark US Treasury bond yields struggle to extend a two-day rebound from the lowest levels since September 2022. That said, the US 10-year and two-year Treasury bond yields seesaw around 3.60% and 4.18% respectively by the press time.

Looking ahead, ECB President Christine Lagarde’s comments could entertain EUR/USD traders ahead of the all-important Federal Open Market Committee (FOMC) monetary policy meeting.

It should be noted that the Fed’s 0.25% rate hike is almost given and hence EUR/USD bears should eye for hawkish developments in the dot plot and comments to push back banking turmoil in Fed Chairman Jerome Powell’s speech.

Technical analysis

Although a clear upside break of 50-DMA, around 1.0730, keeps EUR/USD buyers hopeful, a three-week-old resistance line, near 1.0800 at the latest, prods the Euro pair’s further upside.

• GBP/USD bull run pauses ahead of FOMC meeting.
• Odds are rising for BoE’s potential pause in a rate hike.
• UK CPI data are likely to be overshadowed by the Fed decision.  

GBP/USD's bull run stalls at a long-ended descending trendline originating from the 1.3768 mark on a daily timeframe. This bullish surge is driven by broad-based US Dollar weakness amid falling US Treasury yields. Additionally, increasing expectations for the Bank of England (BoE) to pause at their upcoming meeting also support the bullish momentum for Cable.

With the bullish bias intact, a convincing break above the trendline could propel the pair toward the twice-tested 2023 high. Downside declines are likely to be limited by the 50-Day Moving Average (DMA), situated below the previous day's low at around the 1.2146 level. A convincing break below this level would likely lead the pair to confront the 21-DMA at the 1.2016 level.

The last line of support is observed at 1.1800, beyond which there is a vast uncharted territory.

The Relative Strength Index (RSI) signals a higher high providing a support case for further bullish momentum.

Market participants are now focused on the UK Consumer Price Index (CPI) data released on Wednesday and the highly anticipated Federal Reserve (Fed) policy decision. The significance of the upcoming Fed meeting is likely to overshadow the UK's CPI data.

All key levels will be monitored closely during the Fed event.

GBP/USD: Daily chart

• Gold price remains sidelined after reversing from multi-day low in the last two consecutive days.
• Rebound in United States Treasury bond yields previously weighed on XAU/USD before the latest inaction.
• US policymakers’ efforts to tame fears emanating from banking crisis renew market’s optimism and allow yields to recover.
• Cautious mood ahead of the Federal Reserve (Fed) monetary policy meeting probe Gold traders with eyes on yields.

Gold price (XAU/USD) portrays the pre-event anxiety as it dribbles around $1,942-45 on the key Federal Reserve (Fed) Interest Rate Decision Day.

The precious metal traces the United States Treasury bond yields to portray the latest inaction amid a light calendar and the XAU/USD trader’s lack of attention to the geopolitical headlines surrounding China and Russia. It’s worth noting that the receding fears of banking sector fallout seemed to have favored the US Treasury bond yields while bouncing off multi-day low the previous day. However, market’s cautious mood ahead of the Fed’s verdict and the hawkish bets on the interest rate moves from the US central bank appear to rekindle the recession woes and probe the yields, as well as the Gold price of late.

Recovery in yields weighs on Gold price

United States policymakers’ efforts to ward off banking crisis joined the mixed US data and comments from the Swiss and European decision-makers seem to have underpinned the US Treasury bond yields’ rebound, which in turn probed the Gold price the previous day.

The benchmark US Treasury bond yields struggle to extend a two-day rebound from the lowest levels since September 2022. That said, the US 10-year and two-year Treasury bond yields seesaw around 3.60% and 4.18% respectively by the press time.

US Treasury Secretary Janet Yellen’s comments gained major attention as she said, "Treasury, Fed, FDIC actions reduced risk of further bank failures that would have imposed losses on deposit insurance fund."  Earlier on Tuesday, Bloomberg shared the news stating that the “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.”

Not only the US policymakers but ECB policymaker Martins Kazaks and Dr. Marcel Rohner, Switzerland’s Banking Association Chairman also tried to convince the markets that their respective banking system isn’t on the brink of collapse.

As per the latest banking updates, the US policymakers are discussing ways to surpass the US Congress to defend the banks while the First Republic Bank eyes government help to encourage buyers.

Elsewhere, the US Existing Home Sales for February marked a notable jump of 14.5% versus 0.0% expected and -0.7% prior. However, the Philadelphia Fed Non-Manufacturing Business Outlook survey gauge dropped to -12.8 in March and tamed the US Dollar-linked optimism afterward.

Gold price fails to justify geopolitical tension surrounding China

As the global traders are more concerned with the banking sector updates and the Federal Reserve (Fed), the headlines surrounding China, one of the biggest Gold consumers, fail to entertain the traders.

Reuters came out with the news suggesting geopolitical challenges to the global economy due to China President Xi Jinping’s visit to Russia, which in turn should have weighed on the XAU/USD price but could not. The news also quotes the joint statement accusing the West by mentioning that the United States was undermining global stability and NATO barging into the Asia-Pacific region.

Federal Reserve action could direct XAU/USD moves

Moving ahead, the UK inflation number and speech from the European Central Bank (ECB) President Christine Lagarde could entertain Gold traders ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting. While the Fed’s 0.25% rate hike is almost given, XAU/USD sellers should eyes for a hawkish developments in the dot plot and comments to push back banking turmoil in Fed Chairman Jerome Powell’s speech.

Also read: Powell to persevere and raise rates, US Dollar set to (temporarily) rise

Gold price technical analysis

Gold price extends a U-turn from a seven-month-old resistance line towards breaking a fortnight-long ascending trend line to lure XAU/USD bears ahead of the all-important Federal Reserve (Fed) monetary policy meeting.

Also making the bearish bias more lucrative is a pullback of the Relative Strength Index (RSI) line, placed at 14.

It should, however, be noted that the Moving Average Convergence and Divergence (MACD) indicator flashes the bullish signals and suggest little room toward the south, which in turn highlights the 50-DMA of around $1,883 as the short-term key support.

In a case where the Gold price breaks the 50-DMA support, the 100-DMA level surrounding $1,830 acts as the last defense of the bulls.

On the flip side, the support-turned-resistance line from March 09 restricts the immediate upside of the XAU/USD to around $1,983.

Following that, the longer-term ascending trend line, close to the $2,000 threshold at the latest, will be in the spotlight.

Should the Gold buyers manage to keep the reins past $2,000, the 61.8% Fibonacci Expansion (FE) of the XAU/USD’s moves between November 2022 and February 2023, around $2,018, may act as an extra filter towards the north.

Overall, Gold price teases sellers but the road towards the north appears bumpy.

Gold price: Daily chart

Trend: Further downside expected

Shunichi Suzuki, Japan´s Finance Minister, has crossed the wires and has stated that Japan's financial system is stable.

Key notes

USD/JPY update

• USD/JPY Price Analysis: Bulls are up to test key resistance near 132.60, 50% reversion and support eyed

USD/JPY is on the backside of the prior bear trend and a 50% mean reversion comes in at 131.80 meeting the necklines structure. 

• USD/CNH has rebounded firmly from 6.8650 but is still inside the woods.
• Three mid-size US banks collapsed as higher rates from the Fed deteriorated their bulked low-interest bonds in value.
• Chinese Yuan is expected to get strengthened as retail demand is eyeing pre-pandemic levels.

The USD/CNH pair has shown a recovery move near 6.8650 in the Asian session. Despite the recovery move, the major is still inside the woods as investors are awaiting the announcement of the interest rate decision by the Federal Reserve (Fed) for fresh impetus. The asset has been oscillating in a range of 6.8650-6.8850, however, a power-pack action ahead of the Fed’s monetary policy cannot be ruled out.

S&P500 futures have delivered a two-day winning spell in times when the United States banking sector is on the cusp of further meltdown. Three mid-size commercial banks collapsed last week as higher rates from the Fed in its battle against stubborn inflation have deteriorated their bulked low-interest bonds in value. The demand for US government bonds remained weak as fresh payout for rescuing First Republic Bank could propel overall liquidity. This led to a jump in the 10-year US Treasury yields to 3.6%.

The US Dollar Index (DXY) is attempting to hold itself above 103.20, however, the downside looks favored as the context of pre-Fed anxiety looks missing. The reason might be expected less hawkish monetary policy stance from the Fed as the US inflation is meaningfully on its declining path and restoring of confidence among investors is required amid the banking sector fiasco.

Analysts at CIBC are of the view that the Fed opts for a quarter-point hike, dialing down what would have been a 50 bps move in the absence of the past week’s banking events, but likely showing a follow-up quarter-point move in the ‘dots’.

Meanwhile, the Chinese Yuan is expected to get strengthened as retail demand is eyeing pre-pandemic levels. Bloomberg reported that consumer spending is increasing again as people are planning trips, dining out, and returning to shopping malls. Still, residents of the world’s second-biggest economy aren’t splashing out like they used to but recovery seems promising.

• EUR/CHF keeps the previous day’s pullback from 13-day high, stays pressured of late.
• Failure to stay beyond key EMA joins unimpressive oscillators to favor bears.
• 100-EMA appears immediate support; 4.5-month-old horizontal suppot is the key barrier for sellers.

EUR/CHF holds lower ground near 0.9930 during a sluggish Asian session on early Wednesday, following a pullback from the two-week high the previous day.

The exotic pair rose to the highest levels in more than two weeks the previous day before reversing from 0.9978 as it failed to extend the 200-day Exponential Moving Average (EMA). The reason could be linked to the unimpressive RSI and MACD signals.

With the failure to stay beyond the 200-EMA and lackluster oscillators, namely the RSI (14) and MACD, EUR/CHF is likely to decline further, which in turn highlights the 100-EMA support of 0.9900 as the immediate attraction for the pair sellers.

Following that, the 38.2% and 50% Fibonacci retracement level of the pair’s up-move from September 2022 to January 2023, respectively near 0.9835 and 0.9755, will be in focus.

It’s worth noting, however, that a broad support zone comprising multiple lows marked since the mid-November 2022, between 0.9705 and 0.9720, appears a tough nut to crack for the EUR/CHF bears to break.

On the flip side, a successful break of the 200-EMA becomes necessary for the EUR/CHF bulls to keep the reins.

Even so, the 1.0000 psychological magnet and a downward-sloping resistance line from late January, close to 1.0022 by the press time, becomes crucial to challenge the upside moves.

EUR/CHF: Daily chart

Trend: Further downside expected

• EUR/JPY is gathering strength for a fresh upside as Eurozone inflation is likely to remain sticky.
• Eurozone-ZEW Survey reported a sheer decline to 10.0 after an appreciating spell of five months.
• The asset has shown a reversal after sensing buying interest around the horizontal resistance-turned-support plotted at 142.22.

The EUR/JPY pair is displaying topsy-turvy moves in a narrow range around 142.55 in the early Tokyo session. The cross is likely gathering strength for further upside as the European Central Bank (ECB) would be continued with bigger rates spell to sharpen its monetary tools in the battle against Eurozone’s sticky inflation.

ECB President Christine Laragde cited that inflation in Eurozone will be higher for a longer period. The statement is backed by higher wage prices and prolonged supply-chain disruptions amid more than a year longer Russia-Ukraine war.  

Meanwhile, the banking sector crisis amid the demise of Credit Suisse has spooked the sentiment of institutional investors. Eurozone-ZEW Survey, released on Tuesday, reported a sheer decline to 10.0 after an appreciating spell of five months.

On the Tokyo front, Japanese Chief Cabinet Secretary Hirokazu Matsuno has promised to allocate more than 2 trillion yen from reserves to safeguard households from rising prices, as reported by Reuters. The relief package move would stimulate the overall liquidity in the economy and might support in keeping inflation steady near the desired rate.

EUR/JPY has shown a reversal after sensing buying interest around the horizontal resistance-turned-support plotted from March 17 high at 142.22.

Upward-sloping 21-period Exponential Moving Average (EMA) at 142.22 indicates more upside ahead.

Adding to that, the Relative Strength Index (RSI) (14) is oscillating in the bullish range of 60.00-80.00, which indicates that the upside momentum is already active.

Should the asset breaks above March 21 high at 142.79, Euro bulls would drive the cross toward March 09 low around 144.00 followed by March 15 high at 145.00.

On the flip side, a downside break below March 20 high at 141.76 would drag the cross toward March 13 low at 139.48. A slippage below the same would expose the asset to January 19 low around 138.00

EUR/JPY hourly chart

• US Dollar Index fades bounce off one-month low, prints five-day downtrend.
• US Treasury bond yields retreat despite policymakers’ push for taming fears of banking crisis.
• Mixed US data, likely dovish rate hike and unclear statements from Powell could weigh on DXY.
• Fed is expected to announce 0.25% Fed rate hike but dot plot and Chairman Powell’s speech are crucial to watch.

US Dollar Index (DXY) fades the previous day’s corrective bounce off a five-week low as it drops to 103.17 during the initial hours of Wednesday. In doing so, the greenback’s gauge versus the six major currency pairs declines for the fifth consecutive day while tracing the inability of the US Treasury bond yields to defend the two-day rebound from the multi-week low as the key Federal Reserve (Fed) decision loom.

The DXY managed to bounce off the lowest levels since mid-February the previous day as the market sentiment improved on comments from the US policymakers, as well as actions, to tame the fears emanating from the latest banking fallouts. Also underpinning the US Dollar Index rebound could be the hawkish Fed bets, marking a nearly 88% chance of the US central bank’s 0.25% rate hike in today’s Federal Open Market Committee (FOMC) monetary policy meeting.

That said, US Treasury Secretary Janet Yellen’s comments gained major attention as she said, "Treasury, Fed, FDIC actions reduced risk of further bank failures that would have imposed losses on deposit insurance fund."  Earlier on Tuesday, Bloomberg shared the news stating that the “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.”

Elsewhere, the US Existing Home Sales for February marked a notable jump of 14.5% versus 0.0% expected and -0.7% prior. However, the Philadelphia Fed Non-Manufacturing Business Outlook survey gauge dropped to -12.8 in March and tamed the US Dollar-linked optimism afterward.

As per the latest banking updates, the US policymakers are discussing ways to surpass the US Congress to defend the banks while the First Republic Bank eyes government help to encourage buyers.

Against this backdrop, S&P 500 Futures remain directionless at a fortnight high after rising in the last two consecutive days while the US Treasury bond yields struggle to extend a two-day rebound from the lowest levels since September 2022.

Looking ahead, DXY traders should concentrate on how the Fed can sound hawkish despite the looming banking crisis and a likely nearness to the policy pivot.

Also read: Fed Preview: A dovish last hike?

Technical analysis

Given the corrective bounce’s failure to provide a daily closing beyond the 50-DMA resistance surrounding 103.45, the US Dollar Index is likely to remain pressured towards the mid-February low near 102.55.