CFD Markets News and Forecasts — 20-03-2023

• EUR/JPY takes offers to renew intraday low, fades bounce off ascending support line from early August 2022.
• Failure to cross 200-EMA, bearish MACD signals keep sellers hopeful.
• Buyers need validation from three-month-old horizontal resistance to retake control.

EUR/JPY bears appear determined to break the multi-month-old support line as the quote drops to 140.75 as Tokyo opens for trading on Tuesday. The cross-currency pair’s latest weakness could be linked to its failure to cross the 200-Exponential Moving Average (EMA) despite bouncing off an upward-sloping support line from early August 2022.

Not only a retreat from the 200-EMA but the bearish MACD signals also keep the EUR/JPY sellers hopeful of breaking the aforementioned key support, around 139.35 by the press time.

Following that, the 61.8% Fibonacci retracement level of the pair’s May-October 2022 upside, near 138.65, can act as an additional filter towards the south.

In a case where the EUR/JPY remains bearish past the key Fibonacci retracement level, also known as the golden ratio, the sellers won’t hesitate to aim for August 2022 low surrounding 133.40.

Meanwhile, the 200-EMA and 38.2% Fibonacci retracement could challenge the EUR/JPY pair’s recovery moves around 141.00 and 142.40.

Should the pair buyers keep the reins past 142.40, the odds of witnessing a run-up towards the three-month-old horizontal resistance area surrounding 143.00 will be crucial to watch for further upside.

EUR/JPY: Daily chart

Trend: Further downside expected

• GBP/JPY has sensed a buying interest around 161.00 as the BoJ has reiterated the need for an easy policy.
•  Higher food prices and a shortage of labor have been major drivers for the extremely sticky UK inflation.
• The BoE could continue its interest rates hiking spell by 25 bps ahead.

The GBP/JPY pair has picked strength after defending the crucial support of 161.00 in the early Tokyo session. The cross is looking to extend its gains further above 161.70 as the expectations of an exit from the ultra-loose monetary policy by the Bank of Japan (BoJ) have faded dramatically.

The release of the BoJ Summary of Opinions associated with March’s monetary policy meeting on Monday indicated that board members advocated the need to maintain an ultra-loose monetary policy for now, even as some warned of the need to scrutinize its side effects such as deteriorating market functions, as reported by Reuters.

Going forward, Friday’s Japan inflation data will be keenly watched. As per the estimates, the annual headline Consumer Price Index (CPI) will decline to 4.1% from the former release of 4.3%. And, the core CPI that excludes oil and food prices is expected to jump to 3.4% vs. the prior release of 3.2%. Scrutiny of inflation estimates indicate that the impact of higher energy and food prices is declining, however, the impact of higher import prices is still persistent. Also, recent efforts made by the Japanese administration to increase wages to keep inflation steady at desired levels could have fueled the core CPI.

On the United Kingdom front, investors are awaiting the release of the UK’s inflation, which is scheduled for Wednesday. Higher food prices and a shortage of labor have been major drivers for the extremely sticky UK inflation. No doubt, the UK administration has proposed some measures to push individuals to delay their retirement plans. However, sufficient time will be required for efficient execution.

This week, the major trigger will be the interest rate decision by the Bank of England (BoE), which would unleash sheer volatility for the cross. Analysts at ING Global cite that despite encouraging signs that inflationary pressures are easing, the Bank of England will probably opt for one final 25 basis point (bp) hike on Thursday if it can, though that's undoubtedly contingent on what happens in financial markets. Remember that the BoE has set a much lower bar for pausing hikes than the likes of the Federal Reserve (Fed) and the European Central Bank (ECB).

Early Tuesday morning in Asia, at 00:30 GMT, the Reserve Bank of Australia (RBA) will release the minutes of the latest monetary policy meeting held in March.

The Australian central bank teased policy doves by announcing a softer rate hike of 0.25% in its latest meeting, which in turn raised expectations that the pivot is in play. The same could be confirmed from the latest comments of the RBA officials and make it important for the policy hawks to step back.

As a result, today’s RBA Minutes will be closely observed for the details on the latest decision which raised bearish bets on the AUD/USD as it rises of late. Also important inside the Minutes statement, especially for the AUD/USD pair traders, will be the economic outlook and the central bankers’ optimism towards overcoming the recession fears amid the banking sector fallouts.

How could the minutes affect AUD/USD?

AUD/USD portrays the market’s pre-event anxiety as it makes rounds to 0.6715-20 after rising in the last three consecutive days. The Aussie pair previously cheered the market’s easing fears of the banking sector collapse, as well as the cautious optimism showed by Christopher Kent, Reserve Bank of Australia’s (RBA) Assistant Governor (Financial Markets).

That said, the Aussie pair’s further upside hinges on how the RBA Minutes manage to keep the bulls happy even after promoting the ability to announce further rate hikes. That being said, talks over the economic transition and neutral rate, as well as surrounding employment conditions, will also be crucial to watch for short-term AUD/USD forecast.

Technically, clear upside break of the six-week-old descending resistance line, now immediate support around 0.6635, directs AUD/USD buyers towards the 100-DMA hurdle of near 0.6765.

Key Notes

AUD/USD floats near two-week high past 0.6700 as fears of banking collapse ease, RBA Minutes eyed 

AUD/USD Forecast: Bullish bias, testing the 0.6725 resistance area

About the RBA minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

• GBP/USD seesaws within a choppy range after refreshing six-week high, pauses three-day uptrend.
• Fears that financial market turmoil can push BoE to pause rate hike gain momentum ahead of “Super Thursday”.
• DUP appears dissatisfied from Brexit deal, chooses to vote against the same in Wednesday’s poll.

GBP/USD dribbles around a six-week high, making rounds to 1.2270-80 during early Tuesday, as the banking crisis challenges the Bank of England (BoE) hawks. Also testing the Cable pair buyers are the looming fears of another Brexit disappointment, despite UK Prime Minister Rishi Sunak’s hard efforts to strike a deal over the Northern Ireland Protocol (NIP).

The Telegraph conveys multiple analysts’ estimations while saying, “The Bank of England (BoE) will be forced to abandon an interest rate rise this week following turmoil in global financial markets.” The forecasts become too important ahead of the “Super Thursday” as some on the floor expected a 50 bps rate hike from the “Old Lady”, as the BoE is casually known.

On the other hand, BBC News quotes Democratic Unionist Party (DUP) Leader Sir Jeffrey Donaldson as saying that the agreement was not sufficient to deal with concerns that his party had raised about post-Brexit trade rules for Northern Ireland. “The DUP has confirmed that it will oppose the deal - known as the Windsor Framework - when MPs are given a vote on part of it on Wednesday,” adds BBC News.

Elsewhere, hopes of easing the banking crisis seem to have favored the market sentiment and drowned the US Dollar. UBS’ takeover of the troubled Credit Suisse, by paying 3 billion Swiss francs (£2.6bn), eased the market’s baking fears. On the same line were statements from the US Federal Deposit Insurance Corporation (FDIC) mentioning that the deposits of Signature Bridge Bank will be assumed by a subsidiary of New York Community Bancorporation.

Additionally, news that five major banks, including the BoE, joined the US Federal Reserve (Fed) to ease the US Dollar liquidity crunch via currency swaps and added strength to the market’s risk-on mood.

It should be noted, however, that a Senior Swiss lawmaker warned on Monday that “the UBS-Credit Suisse merger is an enormous risk,” which in turn probed the optimists amid the market’s anxiety ahead of this week’s top-tier data/events.

Against this backdrop, the US Dollar Index (DXY) dropped to the lowest levels in a month while the US Treasury bond yields stays pressured. Further, Wall Street closed on the positive side where Gold price refreshed Year-To-Date (YTD) high before retreating to $1,980 at the latest.

Moving on, Cable traders should keep their eyes on the risk catalysts for fresh impulse ahead of Wednesday’s Federal Open Market Committee (FOMC) Monetary Policy Meeting and Thursday’s top-tier outcomes from the Bank of England.

Technical analysis

A successful upside break of the 1.2200 horizontal resistance, now support, enables GBP/USD bulls to keep the reins.

• AUD/JPY jumped from YTD lows of 87.12 and reclaimed 88.00 as sentiment turned upbeat.
• AUD/JPY Price Analysis: To remain sideways within the 87.00/89.00 range.

AUD/JPY trimmed some of its earlier losses and finished Monday’s session with losses of 0.13%. However, as the Asian session begins, the AUD/JPY is up 0.09%, exchanging hands at 88.25 at the time of writing.

AUD/JPY Price action

After falling to multi-week lows at 87.12, the AUD/JPY staged a late recovery and closed above the 88.00 figure, portraying a spinning top indicating neither buyers nor sellers are in control. Nevertheless, the AUD/JPY is consolidating around the 87.00-89.20 range, below the daily Exponential Moving Averages (EMAs), with a neutral to a bearish bias.

Oscillators remain bearish, but the Relative Strength Index (RSI) turned flat, suggesting that selling pressure is waning. Contrarily, the Rate of Change (RoC) portrays sellers are gathering momentum, but they need to bring the AUD/JPY below 88.00, so they could have a chance to drag prices lower.

Therefore, the AUD/JPY’s first support would be the 88.00 mark. Once cleared, the AUD/JPY could dive towards the daily low at 87.12 before stumbling toward the 86.00 mark, ahead of testing March 2022 lows at around 84.59.

Conversely, the AUD/JPY first resistance would be 89.00. Break above will expose the March 20 daily high at 89.23 before testing the 20-day EMA at 89.82. After that, the next supply zone would be the 90.00 figure, followed by the 50-day EMA at 90.66, ahead of 91.00.

AUD/JPY Daily chart

AUD/JPY Technical levels

European Central Bank (ECB) policymaker Robert Holzmann on Monday watered down his recent call for three further interest-rate increases of 50 basis points in quick succession, reported Reuters.

The news also quotes the Austrian National Bank leader’s two-week-old interview with German business daily Handelsblatt as he mentioned the ECB should raise rates by 50 basis points at each of its next four meetings because inflation was proving stubborn.

While the first of the expected four rate hikes recently gone, the policymaker was asked in an interview on Austrian national broadcaster ORF TV if he stood by that call given recent turbulence in the banking sector, when ECB’s Holzmann said: "I would not rule them out but I would also not say that they will necessarily come either."

ECB’s Holzmann also mentioned that since his Handelsblatt interview liquidity in the financial system had decreased, referring to banking stocks' recent fall on fears of a new banking crisis.

"What we are concerned with is fighting inflation," ECB’s Holzmann said, adding that if deflation or an inflation reduction began because of tightening liquidity, the central bank would no longer need to raise rates or could raise them more gradually.

Asked if UBS Group's state-backed takeover of Credit Suisse was dangerous because it will create such a big bank in such a small country, Switzerland, he said: "It could become dangerous but it does not have to become dangerous."

Elsewhere, ECB policymaker Yannis Stournaras  spoke on the CNBC while stating that policy will be data dependent from now on. ECB’s Stournaras also said, “European banking system well-equipped with capital.”

Also read: EUR/USD juggles above 1.0700, upside looks solid as uncertainty for Fed policy deepens

• NZD/USD has remained sideways after failing to recapture the immediate resistance of 0.6280.
• The formation of an Inverted H&S formation solidifies a bullish reversal ahead.
• The 20-period EMA at 0.6234 is providing a cushion to the New Zealand Dollar.

The NZD/USD pair is making efforts in defending the critical support of 0.6240 in the early Asian session. The Kiwi asset has remained sideways from Monday after failing to recapture the immediate resistance of 0.6280. Mixed responses to the interest rate policy of the Federal Reserve (Fed) have shifted the major to the sideline.

S&P500 futures have continued their upside momentum after a decent recovery on Monday, portraying appreciation in the risk-taking ability of the market participants. The US Dollar Index (DXY) continued its losing spell on Monday led by United States banking shakedown.

The New Zealand Dollar didn’t display any significant action on steady monetary policy by the People’s Bank of China (PBoC). The street was anticipating further rate cuts to spurt the overall demand in the Chinese economy. It is worth noting that New Zealand is one of the crucial trading partners of China and further expansion in PBoC’s monetary policy would have supported the New Zealand Dollar.

NZD/USD is forming an Inverted Head and Shoulder chart pattern on a four-hour scale. The chart pattern displays a prolonged consolidation and results in a bullish reversal after a breakout of the neckline, which is plotted from the March 01 high at 0.6276.

The 20-period Exponential Moving Average (EMA) at 0.6234 is providing a cushion to the New Zealand Dollar.

Meanwhile, the Relative Strength Index (RSI) (14) is making efforts in reclaiming the bullish range of 60.00-80.00. An occurrence of the same would solidify the Kiwi asset further.

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 the January 6 low at 0.6193 will drag the asset toward November 28 low at 0.6155. A slippage below the latter will expose the asset for more downside toward the round-level support at 0.6100.

NZD/USD four-hour chart

• USD/JPY responding to evolving US Treasury yield dynamics amid banking turmoil.
• Japanese Yen gains ground over US Dollar as a safe haven. 
• Financial crisis reverberation as the Fed navigates uncertain times.  

The USD/JPY closely following the short end of the US Treasury (UST) yield curve, as diminishing demand for the US Dollar weighs on the pair. This comes amid speculation that the Federal Reserve (Fed) may not pursue aggressive rate hikes as anticipated due to the recent banking turmoil.

On Monday, the US dollar weakened as investors responded to UBS' acquisition of its struggling competitor Credit Suisse for CHF 3 billion. Following the global banking crisis, the US Dollar is losing its safe-haven status, while the Japanese Yen has regained there conventional safe-haven status.

The collapse of Silicon Valley Bank and Signature Bank earlier this month sent shockwaves through the markets, causing a plunge in banking stocks and concerns that central bank monetary tightening could lead to a recession.

In response to the ongoing banking crisis, the Fed has opened swap lines to other central banks to provide US Dollar liquidity. This move may contribute to the downward pressure on US Dollar demand.

Investors are cautiously watching the Fed's decision on Wednesday's conclusion of a two-day meeting. Before the banking turmoil, many market participants had expected a 50 basis-point (bps) interest rate hike from the Fed at its March meeting. 

However, Fed funds futures now indicate a 28.4% probability of the Fed maintaining its overnight rate at 4.5%-4.75%, and a 71.6% likelihood of a 25 basis-point increase, according to CME's FedWatch Tool.

Citing some earlier Wall Street Journal (WSJ) reports, the Fed faces a difficult decision, should they continue raising rates to combat persistent high inflation or pause due to the intense banking crisis?

Levels to watch

Analysts at the S&P think that it is unlikely that some US bank failures will prevent policymakers from sticking to task of taming inflation, reported Reuters during early Tuesday in Asia.

More to come

• USD/CAD is likely to deliver a fresh downside below 1.3650 amid a weaker USD Index and oil price recovery.
• Led by the declining US inflation, Fed Powell might look for achieving the terminal rate with the least pace.
• Further softening of Canadian inflation would delight the Bank of Canada.

The USD/CAD pair is demonstrating a back-and-forth action around the critical support of 1.3650 in the early Tokyo session. The Loonie asset is expected to deliver a fresh downside as investors are expecting Federal Reserve (Fed) chair Jerome Powell to sound less hawkish on interest rates.

Deepening fears of a potential global banking fiasco after the collapse of three United States-based commercial banks and the second-largest Swiss banking firm Credit Suisse are bolstering the case of a 25 basis point (bps) rate hike by the Fed. Apart from that, the dot plot for further rate hikes will be keenly watched.

There is no denying the fact that the US inflation is in a declining trend, therefore, Fed Powell might look for achieving the terminal rate with the least pace.

S&P500 futures showed a decent recovery on Monday after the mayhem in the last week, portraying a revival in the risk appetite of the market participants. The US Dollar Index (DXY) has ended in negative straight for the third trading session amid a weak safe-haven appeal due to banking shakedown.

Analysts at ING believe “We do not expect too much volatility if conditions allow the Fed to hike 25 bps and the dot plots do not surprise too much and an unlikely 50 bps hike would be very bullish for the Dollar.”

Meanwhile, the Canadian Dollar is expected to remain in action amid the release of the Consumer Price Index (CPI) data. Economists at TDS Securities cited “We look for CPI to continue trending lower to 5.3% YoY as core measures soften to 4.8%. Base effects will play a large role with prices up 0.5% MoM, but energy prices will also exert a drag. This would leave Q1 CPI tracking slightly below the January MPR, but we would note the evolution of financial sector vulnerabilities will be the larger factor for the near-term Bank of Canada (BoC) outlook.”

On the oil front, oil price showed significant recovery after a fresh 15-month low at $64.32 on expectations that OPEC could intervene amid falling prices. The black gold has recovered to near $67.70 and is eyeing the interest rate decision by the Fed for further guidance.

• AUD/NZD picks up bids to cross three-week-old resistance line despite mixed New Zealand trade numbers for February.
• New Zealand Trade Balance improved but Exports and Imports eased.
• “Double bottom” bullish formation lures buyers but 1.0800 is the key hurdle.

AUD/NZD extends the previous day’s strong gains to 1.0760 amid mixed New Zealand trade data, published early Tuesday in Auckland. In doing so, the exotic pair crosses a three-week-old resistance line while highlighting the “double bottom” bullish chart pattern on the four-hour play.

That said, New Zealand’s Trade Balance improved to $-714M in February versus $-1,450M expected and $-2,113M prior (revised). However, the Imports eased to $5.95B from $7.42B while the Exports also declined to $5.23B compared to $5.30B prior during the stated period.

Given the double bottom formation and the quote’s sustained break of the previous key resistance line, the AUD/NZD is very much expected to rise further, backed by bullish MACD signals.

However, a one-week-old resistance line joins the 100-SMA to highlight the importance of the 1.0800 as the strong upside resistance.

Should the quote remains firmer past 1.0800, the odds of witnessing a rally toward the early-month high close to 1.0890 can’t be ruled out.

Alternatively, the resistance-turned-support line of near 1.0750 restricts the immediate downside of the AUD/NZD pair, a break of which could drag the quote back to the 1.0700 round figure before challenging the double bottoms surrounding 1.0675.

AUD/NZD: Four-hour chart

Trend: Further upside expected

• Western Texas Intermediate registers minimal losses at the beginning of the Asian session.
• Weakness in the US Dollar, and an upbeat sentiment, caused WTI’s jump.
• Two major central banks hosting monetary policy decisions could turn sentiment sour and drag oil prices down.

Western Texas Intermediate (WTI), the US crude oil benchmark, advanced 2.31% on Monday, bolstered by a soft US Dollar (USD) and market sentiment improvement. As Tuesday’s Asian session begins, WTI exchanges hands at $67.68 PB.

Oil prices advanced on an offered US Dollar

Wall Street’s finished the session with gains spurred by risk appetite. Oil price was underpinned by an offered US Dollar, as shown by the US Dollar Index, down 0.54%, at 103.305. Nevertheless, the sentiment would remain fragile ahead of the US Federal Reserve (Fed) monetary policy meeting and the Bank of England’s (BoE) interest rates decision. Any hawkish tilt by central banks could derail traders’ mood and sour sentiment.

In the meantime, the G7 commented that it’s not expected an adjustment to Russia’s oil barrel level at $60.00 this week, as reported by Reuters.

The G7 had planned to reconsider the price limit implemented in December. Still, the officials mentioned that the European Commission informed EU ambassadors over the weekend that there is currently no interest among the G7 to conduct a prompt reassessment. This was supposed to take place in mid-March.

OPEC, Russia, and other producer allies (OPEC+) will hold a ministerial committee meeting on April 3. As per the agreement made in October, the group had decided to reduce their oil production targets by 2 million barrels per day until the end of 2023.

WTI Technical levels

• AUD/USD seesaws around multi-day high as bulls take a breather after three-day winning streak.
• UBS-Credit Suisse deal, joint central bank efforts to tame liquidity crunch improve market’s mood.
• Yields remain depressed while Gold and equities improve, which in turn weigh on US Dollar.
• RBA’s Kent praised soundness of Aussie banks, defends rate hike bias.

AUD/USD portrays the market’s cautious optimism, as well as cheers the broad US Dollar weakness, as it seesaws near the highest levels in two weeks during early Tuesday morning in Canberra. That said, the Aussie pair makes rounds to 0.6715-20 after rising in the last three consecutive days.

The Aussie pair’s latest gains could be linked to the market’s easing fears of the banking sector collapse, as well as the cautious optimism showed by Christopher Kent, Reserve Bank of Australia’s (RBA) Assistant Governor (Financial Markets). Adding to the quote’s upside momentum could be the upbeat performance of Gold and softer Treasury bond yields, which in turn exerted downside pressure on the US Dollar.

That said, RBA’s Kent spoke a speech on "Long and Variable Monetary Policy Lags" at the KangaNews Debt Capital Market Summit, in Sydney, early Monday morning, while saying that the Australian banks are unquestionably strong. The policymaker also said that RBA is very conscious of the challenges facing borrowers from rapid rate rises.

Elsewhere, news of UBS’ takeover of the troubled Credit Suisse, by paying 3 billion Swiss francs (£2.6bn), also eased the market’s fears. On the same line were statements from the US Federal Deposit Insurance Corporation (FDIC) mentioning that the deposits of Signature Bridge Bank will be assumed by a subsidiary of New York Community Bancorporation.

Furthermore, around five major banks joined the US Federal Reserve (Fed) to ease the US Dollar liquidity crunch via currency swaps and added strength to the market’s risk-on mood. “The Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, and Swiss National Bank are all up for announcing joint actions to provide more liquidity via standing US dollar liquidity swap line arrangements,” said Reuters.

It should be noted, however, that a Senior Swiss lawmaker warned on Monday that “the UBS-Credit Suisse merger is an enormous risk,” which in turn probed the optimists amid the market’s anxiety ahead of this week’s top-tier data/events.

Against this backdrop, the US Dollar Index (DXY) dropped to the lowest levels in a month while the US Treasury bond yields stays pressured. Further, Wall Street closed on the positive side where Gold price refreshed Year-To-Date (YTD) high before retreating to $1,980 at the latest.

To sum up, the AUD/USD buyers are likely to keep the reins amid the firmer sentiment and the hawkish RBA talks. However, today’s RBA Monetary Policy Meeting Minutes will be crucial to watch as the bulls may want to reconfirm policymaker Kent’s hawkish bias. That said, the Aussie central bank announced a 0.25% rate hike in the last meeting and appeared a bit tense over the future rate increase.

Technical analysis

A clear upside break of the six-week-old descending resistance line, now immediate support around 0.6635, directs AUD/USD buyers towards the 100-DMA hurdle of near 0.6765.

• EUR/USD is hovering around 1.0720, eyes 1.0750 amid a recovery in investors’ risk appetite.
• Fed could pause further rate hikes to restore confidence among the market participants.
• ECB Lagarde confirms that Eurozone banks' exposure to Credit Suisse was in Euro millions, not billions.

The EUR/USD pair is displaying a sideways performance around 1.0720 in the early Asian session. The major currency asset is expected to extend its journey toward the critical resistance of 1.0750 ahead. The shared currency pair has registered a three-day winning streak and is expected to extend further as investors are skeptical about the interest rate decision by the Federal Reserve (Fed), which is scheduled for Wednesday.

A late recovery in S&P500 allowed it to settle Monday’s session on a decent positive note. It seems that investors cheered the collaborative efforts made by various financial institutions to rescue the First Republic after the collapse of Silicon Valley Bank (SVB) and Signature Bank. The recovery move by United States equities is portraying a decent attempt for bulls to settle their feet.

The US Dollar Index (DXY) is expected to settle on a negative note consecutively for the third time as investors are still ambiguous about Fed’s monetary policy.

As per the CME Fedwatch tool, more than 76% odds are in favor of a 25 basis point (bps) interest rate hike, which would push rates to 4.75-5.00%. However, the efforts by various central banks to safeguard the global economy from potential banking turmoil indicate that Fed chair Jerome Powell could pause further rate hikes to restore confidence among the market participants.

The discussions over the interest rate guidance could soften the US Dollar for a longer period. Economists at Scotiabank believe that the US Dollar could weaken if the market believes that the Fed is near to end of its tightening cycle.

On the Eurozone front, positive commentaries from European Central Bank (ECB) President Christine Lagarde and other policymakers fueled strength in the Euro. ECB Lagaqrde told European Parliament's Committee on Economic and Monetary Affairs on Monday that Eurozone banks' exposure to Credit Suisse was in Euro millions, not billions, per Reuters.

• Gold price is meeting resistance in the right-hand shoulder. 
• All eyes are on the Federal Reserve this week. 

The Gold price is carving out a topping pattern below the highs of the $2,000s that were scored at the start of this week. At the time of writing, Gold price is trading near $1,979 and has traveled between $2,009.85 and $1,965.99 so far this week for the initial balance. 

Fundamentally, bank stocks are a driving force that rallied on Monday with a tentative sigh of relief due to the rescue of Credit Suisse with UBS buying the troubled bank for 3 billion francs ($3.2 billion). The speedy measure to stem contagion, however, does not guarantee anything and some argue that was has occurred is just the tip of the iceberg.  For instance, shares in First Republic Bank, the lender drawing the most concern from US investors right now cratered 33.5% on Wall Street on Monday following S&P Global downgrading its credit ratings deeper into junk on Sunday.

"If you think about where we were a year ago, the Fed was just starting its rate-hiking cycle. So over the next couple of quarters, you're going to get those long and variable, cumulative and lagged impacts hitting the market further," Bob Michele, the global head and CIO of fixed income at J.P. Morgan Asset Management, told Bloomberg TV. "So I think this is the tip of the iceberg. I think there's a lot more consolidation, a lot more pain yet to come."

It’s also possible that “we just go from one weak institution falling over to the next,” said Vicky Redwood, senior economic adviser at Capital Economics. There are no other obvious candidates that could be singled out like Credit Suisse, but it’s “hard to predict where the problems will emerge,” she explained.

All eyes on the Fed

Meanwhile, the Gold price will be sensitive to the US Dollar and the Federal Reserve this week. Fed funds futures show a 26.9% probability of the Fed holding its overnight rate at a current 4.5%-4.75% when policymakers conclude a two-day meeting on Wednesday. Consequently, the yield on benchmark 10-year Treasury notes to was at its highest in 3.50% compared with its US close of 3.397% on Friday. The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 4.00% compared with Friday's close of 3.846%.

´´Despite banking regulators rushing to shore up market confidence, the uncertain macro backdrop continues to entice buying. Bullion-backed ETF saw strong inflows, with SPDR Gold Share’s holding increasing by more than 204kz last session,´´ analysts at ANZ bank explained.

´´Swaps traders remain split on whether the US Federal Reserve will hike again this year. All eyes now shift to the Fed’s two-day meeting. Any dovish commentary should help support the precious metals sector.´´

Gold technical analysis

The Gold price could be forming a topping pattern in the right-hand shoulder of the head and shoulders on the 4 and 1-hour charts:

• USD/CHF consolidates within the 20 and 50-day EMAs at around 0.9285/95.
• USD/CHF Price Analysis: To remain sideways, ahead of the FOMC’s meeting

USD/CHF traded sideways after Wall Street closed, with gains as risk appetite improved. Safe-haven flows spurred a light gain for the greenback on Monday of 0.35%. However, as the Asian session begins, the USD/CHF exchanges hands at 0.9287, almost flat.

USD/CHF Price action

After bottoming nearby the 2023 lows, the USD/CHF rallied 2.80%, near last week’s high at 0.9340. Nevertheless, the recent developments in the financial markets triggered flows toward the Swiss Franc (CHF), which recovered some ground. However, the exchange rate is stills above the 20-day Exponential Moving Average (EMA), acting as support at around 0.9283.

Oscillators suggest the USD/CHF pair would be seesawing around the 0.9300 area. With the US Federal Reserve (Fed) interest rate decision looming, the USD/CHF would remain trading within familiar levels.

Therefore, the USD/CHF first resistance would be the 100-day EMA at 0.9296. A breach of the latter will expose the 0.9300 figure, followed by the March 16 high at 0.9340 and the 100-day EMA at 0.9362, ahead of the 200-day EMA.

For a bearish continuation, the USD/CHF first’s test would be the 20-day EMA at 0.9285. Once cleared, the USD/CHF could dive towards 0.9229, the March 16 low, before falling to the March 15 daily low at 0.9122.

USD/CHF Daily chart

USD/CHF Technical levels

Here is what you need to know on Tuesday, March 21:

Wall Street cheered the weekend’s news (UBS buying Credit Suisse and coordinated central bank action). The Dow Jones gained more than 1%. US yields ended flat after hitting fresh monthly lows, with the US 10-year yield rebounding toward 3.50%. The CBOE Volatility Index (VIX) dropped by almost 6%, while the US Dollar Index fell by 0.54%, posting the lowest close in a month. 

Forex market responded to the improvement in market sentiment. Developments in the banking sector and the Federal Reserve’s meeting will be a key driver for the next sessions. The FOMC meeting kicks off on Tuesday. The US central bank is in a difficult position. The market is pricing a 70% probability of a 25 basis points rate hike, with attention on the forward guidance and the wording of the statement. 

French President Emmanuel Macron’s government survived a no-confidence vote. European Central Bank (ECB) President Christine Lagarde spoke at the European Parliament, repeating that inflation is projected to remain “too high” for “too long.” In Germany, the Producer Price Index in February rose 15.8% from a year ago, which represents a smaller-than-expected slowdown. EUR/USD rose above 1.0700, approaching last week’s high, while EUR/CHF soared to 0.9960. 

GBP/USD broke its 5-day trading range, rising to above 1.2270, the highest since early February. The Bank of England will announce its monetary policy decision on Thursday. 

The Kiwi was among the worst performers on Monday, with NZD/USD retreating from monthly highs to 0.6230. New Zealand will release trade data on Tuesday. AUD/USD is holding above 0.6700 after rebounding at 0.6660. The Reserve Bank of Australia (RBA) will release the minutes of its latest meeting. 

USD/CAD dropped, matching last week’s low at 1.3650, a key support area reinforced by the 20-day Simple Moving Average (SMA). On Tuesday, Canada will report February’s Consumer Price Index, forecast to rise 0.6% in February. 

Gold stabilized around $1,980 on a volatile session that included a fresh one-year high above $2,000 and a correction to $1,965. Bitcoin fell modestly to $28,000 in a session it reached a fresh nine-month high. Crude oil prices hit the lowest since December 2021 and rebounded, rising by almost 2%. The improvement in sentiment helped offset concerns about the economic backdrop. 

• NZD/USD fails to capitalize on sentiment improvement and tumbles influenced by a technical indicator.
• The US Dollar tumbled while UST bond yields rose, a headwind for the NZD/USD.
• NZ Trade of Balance and US Existing Home Sales data eyed.

NZD/USD reversed its course after piercing the 200-day Exponential Moving Average (EMA), tumbling 0.12%, as Wall Street is about to close. US equities are about to finish the day in an upbeat mode, though the New Zealand Dollar (NZD) is at the mercy of technical indicators. At the time of writing, the NZD/USD exchanges hands at 0.6248.

NZD/USD stumbles at the 200-day EMA, despite a risk-on impulse

With the looming US Federal Reserve (Fed) monetary policy meeting, the markets could begin to trade sideways. Even though sentiment improved, the NZD could not capitalize, with markets focusing on Jerome Powell and Co. Therefore, the NZD/USD edged lower after printing a daily high of 0.6281.

Last Friday, the latest round of US economic data cemented the case for an ongoing economic slowdown. Industrial Production eased, Consumer Sentiment deteriorated, as reported by the University of Michigan (UoM), and inflation expectations cooled down amidst ongoing turbulence in the financial markets.

Traders continued to digest the news that UBS bought Credit Suisse, which supposedly could stop the bank’s stock riot. Nonetheless, newswires reported that First Republic Bank stock halted for a ninth time in the day, with shares plunging 50% at one point before pairing losses, dropping 33%.

In the meantime, the US Dollar Index, a gauge for the buck’s value against a basket of six currencies, losses 0.53%, at 103.312. Contrarily, US Treasury bond yields erased their earlier losses, with the 10-year bond yield gaining six basis points at 3.498%.

Aside from this, the New Zealand (NZ) economic docket will feature the NZ Trade of Balance for February, with estimates at NZ $-1.450 B, less than the previous reading of NZ $-1.954B. Exports for January came at NZ $5.47B, while Imports were NZ $7.42 B. Another factor that could underpin the NZD is the Reserve Bank of Australia’s monetary policy.

On the US front, the docket will feature Existing Home Sales and the beginning of the two-day US Federal Reserve Open Market Committee (FOMC) monetary policy meeting

NZD/USD Technical levels

• GBP/USD bulls are moving in on equal highs.
• Bears are lurking and 1.2200 is a critical support.

GBP/USD has popped the 1.22 level for the first time since early February as the flight to safety eased around the latest developments in the banking sector. The following illustrates a meanwhile bullish bias albeit into the bear's lair. 

GBP/USD H4 charts

GBP/USD is on the backside of the bullish market but is riding a micro-bull trend for the time being. 1.2200 is key in this regard. While holding above 1.2200, the focus is on the upside with the bulls taking on equal highs from February in the upper quarter of the 1.22 area. Eyes are on the 1.2320s at this juncture. 

If the bears move in, considering that the price is on the backside of the prior dominant bull trend, then there will be prospects of a break of the micro bull trend and structure in and around 1.2200. If this were to give, then the bears will be considered to be back in control again. 

• Silver is in the hands of the bulls.
• Bulls need to stay on the front side and Gold price H1 H&S is a concern.
• Banking crisis remains a key theme for safe havens.

Silver has been climbing through the $20s over the course of the month so far ad reached a high of the trend at $22.7169 in London. The white metal has moved up from a low of $22.2210 where a support structure has formed and the bulls might be expected to remain engaged while above it.

Despite a historic weekend rescue of financial heavyweight Credit Suisse with UBS buying the troubled bank for 3 billion francs ($3.2 billion), risk sentiment remains fragile, supportive of safe havens such as silver.

The speedy orchestration of Credit Suisse's takeover was received well, initially, in order to stem contagion, but there are persistent worries that other struggling banks might teeter next. More large and tiny corporations might need to be rescued.

The latest banking crisis started after two US lenders, Silicon Valley Bank, and Signature Bank, collapsed this month. Additionally, even though the First Republic Bank received emergency support, this has so far failed to shore up investor confidence. 

"If you think about where we were a year ago, the Fed was just starting its rate-hiking cycle. So over the next couple of quarters, you're going to get those long and variable, cumulative and lagged impacts hitting the market further," Bob Michele, the global head and CIO of fixed income at J.P. Morgan Asset Management, told Bloomberg TV. "So I think this is the tip of the iceberg. I think there's a lot more consolidation, a lot more pain yet to come."

It’s also possible that “we just go from one weak institution falling over to the next,” said Vicky Redwood, senior economic adviser at Capital Economics. There are no other obvious candidates that could be singled out like Credit Suisse, but it’s “hard to predict where the problems will emerge,” she said.

Silver and Gold price technical analysis

Silver, above is on the front side of the trend and a break of $22.56 will open risk to $22.90 and then $23.50. 

(Gold)

While there are prospects of a continuation higher in Silver being on the front side of the trend, a break of structure to the downside is also a possibility.

Silver tends to track Gold price and a head and shoulders that is a topping pattern are emerging on the hourly and lower time frames. This could spell danger for trapped bulls in both Gold and silver markets. 

• AUD/USD maintains a positive tone on a soft US Dollar.
• Money markets expect a 25 bps rate hike by the Fed on Wednesday.
• AUD/USD Price Analysis: Daily close above 0.6714 would add upward pressure; otherwise, it could fall to 0.6600.

AUD/USD prints a leg-up above the 0.6700 figure, helped by an improvement in market sentiment. Investors shrugged off banking crisis contagion woes after UBS decided to buy Credit Suisse, perceived by traders as an excuse to buy riskier assets. That, alongside speculations for less aggressive monetary policies amongst central banks, weighed on the US Dollar. At the time of writing, the AUD/USD exchanges hands at 0.6715.

AUD/USD to hover around 0.6700 ahead of the FOMC’s meeting

The financial markets’ mood remains upbeat after the banking crisis saga and appears to be calm. However, in the United States (US), First Republic Bank stock plunged after another credit downgrade. The US Federal Reserve (Fed) would begin its two-day monetary policy meeting on Tuesday, with money markets estimating a 70% chance of a 25 basis point rate hike by the Fed. That would lift the Federal Funds Rate (FFR) to the 4.75% - 5.00% threshold. After the Fed’s decision, Chair Powell will hit the stand.

The latest round of US economic data witnessed Industrial Production shrinking and the University of Michigan (UoM) Consumer Sentiment deteriorating. However, Americans expected inflation to fall, with 1-year expectations estimated to finish at 3.8% from 4.1%, while for 5-yeard, it dropped to 2.8% from 2.9%.

The US Dollar Index, a gauge of the bucks’ value against a basket of peers, continues to extend its losses, down 0.51%, at 103.343, a tailwind for the AUD/USD.

On the Australian front, the lack of data left traders adrift to risk appetite. Even though China’s reopening should bolster the Australian Dollar (AUD), the latest rate hike by the Reserve Bank of Australia (RBA), was perceived as a dovish one, which would exert downward pressure on the AUD/USD.

AUD/USD Technical analysis

After dropping below the 0.6600 figure, the AUD/USD reclaimed the 0.6700 figure. Nevertheless, the 20-day Exponential Moving Average (EMA) at 0.6713 is difficult to surpass, as the AUD/USD is forming a dragonfly doji. If the AUD/USD registers a daily close above the 20-day EMA, that will set the pair to test the intersection of the 50/100-day EMAs, each at 0.6779-85, respectively. Once cleared, the 0.6800 could be tested. Otherwise, the AUD/USD could extend its losses below 0.6700 toward the 0.6600 figure.

What to watch?

The French National Assembly rejected a no-confidence vote against the government of President Emmanuel Macron by just nine votes. The motion needed 287 votes to pass and got 278. 

Macron’s government is facing strong opposition to the bill to increase the retirement age from 62 to 64. It has led to protests across the country after Prime Minister Elisabeth Borne used an article of the constitution to force the bill through the Parliament without a vote. 

The rejection of the no-confidence vote was not a surprise, but the margin of victory was narrower than expected. 
 

• GBP/JPY bulls eye 162.20s while holding above 161.00. A break of 162.50 opens risk towards 163.00. 
• UK inflation data and the BoE are in focus.

The Great British Pound is on the form to start the week ahead of key events in the Bank of England (BoE) rate decision and inflation data, Consumer Price Index. A risk-on tone helped lift the cross, GBP/JPY, as the Swiss government-backed takeover by UBS of Credit Suisse helped to soothe some tensions in the market. Additionally, the Federal Reserve and five other central banks have announced coordinated action to improve liquidity in US dollar swap arrangements to maintain the stability of the global financial system.

At the time of writing, GBP/JPY is trading at 161.50 and has been traveling higher between a low of 158.95 and reached a high of 161.73. However, while the moves by the Swiss government and central banks are welcomed, there is still uncertainty over how the UBS and Credit Suisse deal will play out for the combined lender and the shareholders as per the implications of a ´´forced´´ merger. Moreover, the question hanging over the markets is what comes next for the wider banking system. The worry is that this may just be the tip of the iceberg.

"If you think about where we were a year ago, the Fed was just starting its rate-hiking cycle. So over the next couple of quarters you're going to get those long and variable, cumulative and lagged impacts hitting the market further," Bob Michele, the global head and CIO of fixed income at J.P. Morgan Asset Management, told Bloomberg TV. "So I think this is the tip of the iceberg. I think there's a lot more consolidation, a lot more pain yet to come."

It could be that no more banks get into trouble, but it’s also possible that “we just go from one weak institution falling over to the next,” said Vicky Redwood, senior economic adviser at Capital Economics. There no other obvious candidates that could be singled out like Credit Suisse, but it’s “hard to predict where the problems will emerge,” she said.

UK key events for the week

Meanwhile, UK inflation data on Wednesday is expected to show some easing and amid the global financial market instability. Analysts at TD Securities said that ´´headline inflation likely fell 0.2ppts in March, in line with the MPC's forecast, on the back of another decline in petrol prices. A shortage of certain vegetables and fruits adds some upside risk to the print. We also expect a rebound in hotel prices and continued strong core goods momentum to keep core inflation elevated.´´ Economists polled by Reuters expected the year-on-year CPI inflation figure to fall to 9.9% in February from 10.1% in January.

For the Bank of England, money markets are pricing in a 50% chance of no interest rate hike on Thursday and the same chance of a 25 basis-point increase. ´´Of all the major March CB decisions, the BoE was always the most uncertain, given the MPC hadn't clearly signaled another hike,´´ the analysts at TD Securities said. ´´But we think they'll still do it (barring another deterioration in financial conditions), and as before, with Bank Rate at a terminal of 4.25%, we expect this to be their last hike. It's not clear they'll be so decisive in their guidance though.´´

GBP/JPY technical analysis

The bulls are in control and eye a test of 161.70s and then the 162.20s while holding above 161.00 and 161.50 supports on the front side of the bullish opening trend. A break of 162.50 opens risk towards 163.00. 

• USD/CAD drops from weekly highs above 1.3700 on sentiment improvement.
• The USD/CAD fall was capped by sellers unable to crack the 20-day EMA.
• USD/CAD Price Analysis: For a bearish resumption, the USD/CAD needs a daily close below 1.3661.

USD/CAD is erasing last Friday’s gains, hovering at around the 20-day Exponential Moving Average (EMA) at 1.3661 after hitting a daily high of 1.3746. A risk-on impulse on news that UBS bought Credit Suisse calmed tensions amidst turbulence in the banking system. Therefore, the USD/CAD exchanges hands at 1.3676, down 0.41%.

USD/CAD Price action

After peaking at 1.3862 ten days ago, the USD/CAD resumed its downtrend amidst overall US Dollar (USD) weakness. However, it should be said that the 20-day EMA has acted as a solid support, so for a bearish resumption, the USD/CAD must register a daily close below 1.3661.

Oscillators portray sellers gathering momentum, though the Relative Strength Index (RSI) needs to punch below the 50-midline, to further confirm a bearish continuation. Contrarily, the Rate of Change (RoC) indicates selling pressure increased. Therefore, the USD/CAD might test lower prices in the near term.

The USD/CAD first support would be the 20-day EMA at 1.3661, followed by the March 14 low at 1.3651. Break below, and the USD/CAD could tumble to 1.3600 before testing the 50-day EMA at 1.3570. Once cleared, the 100-day EMA at around 1.3500 would be challenged.

On the flip side, the USD/CAD first resistance would be the 1.3700 figure. A breach of the latter will expose the daily high at 1.3746, followed by 1.3800 and the last week’s high at 1.3814.

USD/CAD Daily chart

USD/CAD Technical levels

European Central Bank (ECB) President Christine Lagarde told European Parliament's Committee on Economic and Monetary Affairs on Monday that Eurozone banks' exposure to Credit Suisse was in Euro millions, not billions, per Reuters.

"Vulnerabilities in the non-bank financial sector could exacerbate volatility and asset price corrections," Lagarde further noted. "Individual financial institutions should carefully preserve their current levels of resilience, to ensure that they could weather a potentially less favorable environment."

Market reaction

EUR/USD holds its ground in the American session and was last seen rising 0.5% on the day at 1.0720.

• As investors shrugged off banking crisis woes, EUR/USD gained traction above 1.0700.
• PPI in German was mixed, with annual reading shooting above 15%< while MoM data shrank.
• EUR/USD: Bullish in the near term but needs to clear 1.0760, to extend its gains.

The EUR/USD breaks the 1.0700 barrier and climbs 0.50% after hitting a daily low of 1.0631. An improvement in market mood and European Central Bank (ECB) speakers lend a hand to the Euro (EUR), while the US Dollar (USD) continues to weaken across the board. At the time of writing, the EUR/USD is trading at 1.0720.

Germany’s PPI and ECB speaking among the factors boosting the Euro

Market sentiment improved after UBS bought its Swiss rival Credit Suisse. The financial market turbulence has spurred speculations that global central banks could pause the pace of tightening. However, traders expect a 25 bps rate hike by the Federal Reserve (Fed) on Wednesday. The CME FedWatch Tool odds for a quarter of a percentage point lift at 73.10%.

The EUR/USD price action has been driven by ECB speakers. The President of the ECB, Christine Lagarde, said that inflation is expected to continue excessively high for a more extended period. She added that there’s no trade-off between inflation and financial stability, and without tensions, the ECB would’ve indicated that additional rate hikes were required.

At around the same time, ECB’s Stoumaras commented the ECB would not give more forward guidance and said that meetings would be data dependant.

Earlier, Germany’s inflation in the producer side, known as the Producer Price Index (PPI), contracted -0.3% MoM, less than estimates of -0.5%. Annually basis, the PPI jumped 15.45, above forecasts of 14.5%.

Aside from this, last Friday’s US economic data revealed that Industrial Production experienced a -0.2% YoY decrease, marking the first contraction in the past year. The monthly reading was 0%, lower than the estimated 0.2%. Additionally, Consumer Sentiment in the US, as measured by the University of Michigan (UoM), decreased from 67 in February to 63.4 in March, the first drop in four months.

The US Dollar Index, a measure of the buck’s value, extended its losses to 0.44%, down at 103.417, a tailwind for the EUR/USD. US Treasury bond yields are recovering but failing to underpin the greenback.

EUR/USD Technical analysis

The EUR/USD has printed three consecutive bullish candles, though it remains shy of testing last week’s high of 1.0759. The daily chart suggests a triple bottom is in place, though it would need to reclaim the latter to confirm its validity. That would pave the way for a rally towards the YTD high of 1.1032, but firstly, traders need to clear the February 14 at 1.0804 before aiming towards 1.1000. Conversely, a fall below the 100 and 200-day EMAs, around 1.0545/1.0569, would shift the EUR/USD bias to bearish.

What to watch?

Gold has embarked on a steady up move. Economists at Société Générale expect the yellow metal to enjoy further gains toward the $2,055/75 region.

Recent bullish gap at $1,870 should be an important support

“Gold is in proximity to April 2022 levels of $2,000. A brief pause is not ruled out, however, signals of a meaningful pullback are not yet visible; recent bullish gap at $1,870 should be an important support.” 

“Gold is expected to head gradually towards the upper part of its range since 2020 at $2,055/$2,075. This is a key resistance zone; overcoming it could mean the onset of a larger uptrend.”

Statistics Canada will release February Consumer Price Index (CPI) data on Tuesday, March 21 at 12:30 and as we get closer to the release time, here are the forecasts by the economists and researchers of five major banks regarding the upcoming Canadian inflation data.

Headline is expected at 5.4% year-on-year vs. 5.9% in January. If so, CPI would be the lowest since January 2022 but still well above the 1-3% target range. However, on a monthly basis, it is expected to have risen by 0.6% after a 0.5% gain in January.

RBC Economics

“We expect Canadian headline CPI growth slipped to 5.4% YoY in February from 5.9% in January. Lower gasoline prices in February (down 3.6% monthly) could push energy CPI below year-ago levels for the first time in two years. Food inflation is still exceptionally high, and likely remained elevated in February. Shelter CPI is expected to have trended over, though accelerating mortgage interest costs partially offset weaker price growth for expenses related to home-buying. More importantly, the BoC’s preferred core measures – CPI trim and median – are expected to continue to moderate on a three-month moving average basis. That together with narrowing breadth of inflation pressure suggests persistent easing in fundamental price pressure, which should be enough to keep the BoC on hold through the end of this year.”

TDS

“We look for CPI to continue trending lower to 5.3% YoY as core measures soften to 4.8%. Base-effects will play a large role with prices up 0.5% MoM, but energy prices will also exert a drag. This would leave Q1 CPI tracking slightly below the January MPR, but we would note the evolution of financial sector vulnerabilities will be the larger factor for the near-term BoC outlook.”

CIBC

“While the annual pace of inflation likely cooled further in February, the monthly increase excluding food/energy may look a little firmer than in the prior month. Gasoline will be the main driving force behind a deceleration in the headline rate of inflation to 5.4%, from 5.9% in the prior month, as pump prices were broadly unchanged this February, but saw a big jump in the same month a year ago. While another sharp monthly increase in food prices is likely to be seen, it isn’t expected to be any stronger than the surge seen in February 2022. Excluding food and energy, prices are expected to increase by a seasonally adjusted 0.25%, which would be an acceleration from a 0.14% advance in January, due to increases in air fares, rents and other items. The BoC’s core measures of inflation are expected to ease a little further on a YoY basis, but the three-month annualized rates will likely remain sticky around 3½% due to the impact that food prices can have on these measures.”

NBF

“A slight decline in gasoline prices, combined with a drop in the natural gas segment, should have benefited consumers during the month. The increase in food costs, meanwhile, could have moderated following January’s surge. Headline inflation could nonetheless have increased 0.5% MoM (0.2% after seasonal adjustment) on gains in several services categories. If we’re right, the 12-month rate could still drop six ticks to 5.3% on account of a strongly negative base effect. The annual rate of core measures should have moderated as well, with CPI-trim likely easing from 5.1% to 4.9% and CPI-median moving from 5.0% to 4.8%.”

CitiBank

“We expect a 0.5% MoM rise in CPI in February, although with risks tilted slightly to the upside. Key shelter prices should remain soft in line with modestly declining new home prices, although with possible further upside to shelter prices such as rents. The 3mth pace of core inflation is still running around 3-4% on an annualized basis, which notably was referred to for the first time in the March policy statement as too high. This could eventually be cited as a factor leading the BoC to adjust rates higher again.”

"We are very confident that capital and liquidity positions of the Euro area banks are well in excess of requirements," European Central Bank (ECB) President Christine Lagarde told  European Parliament's Committee on Economic and Monetary Affairs on Monday.

"Financial tensions might dampen demand, do some of the work that would otherwise be done by monetary policy," Lagarde further explain and said that without tensions, they would have indicated that further hikes would be needed.

Market reaction

EUR/USD continues to trade in positive territory above 1.0700 after these comments.

Economists at Scotiabank discuss FOMC’s policy decision. In their view, the US Dollar could weaken if the market believes that the Fed is near to end its tightening cycle.

Any hike is very likely to be accompanied by neutral or dovish language

“Our call remains +25 bps but any hike is very likely to be accompanied by neutral or dovish language that leaves the outlook for rates contingent on how the economy and banking sector evolve from here.”

“If markets believe the situation means the Fed tightening cycle is nearly complete, the USD is likely to soften.”

Since the onset of the banking sector turmoil last Thursday, the Pound is the second best performing G10 currency. Economists at MUFG Bank expect GBP to remain resilient.

GBP/Risk correlation is weakening

“A turn higher in risk aversion and a pause from the BoE could test the recent resilient performance of the Pound.” 

“The correlation between GBP and risk has weakened of late which may reflect some improved fundamentals.”

“Improved fiscal credibility, greater political stability and a shrinking current account deficit should all help to limit the fallout for the GBP.”

Economist at UOB Group Lee Sue Ann reviews the latest ECB gathering.

Key Takeaways

“The European Central Bank (ECB) stuck with the 50bps hike that it had flagged in Feb as its intention for Mar, with the opening statement of the accompanying press release clearly showing the ECB’s determination to fight inflation. Both the statement and the press conference conducted by both ECB President Christine Lagarde and ECB Vice-President Luis de Guindos highlighted the resilience of the banking sector.”

“The ECB now expects headline inflation to average 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. It sees core inflation averaging 4.6% in 2023, 2.5% in 2024 and 2.2% in 2025. On GDP, the ECB now expects 1.0% growth in 2023, and for the pace to pick up further to 1.6%, in both 2024 and 2025.”

“In all, the ECB has given us very little in terms of what to expect at the next monetary policy decision on 4 May. From now till then, a lot can happen. It could still bring the current hiking cycle to an abrupt end, especially if banking tensions worsen. We are, nonetheless, penciling in a 25bps hike at the May meeting, on the latest indication of the ECB’s willingness to put out fires in banking woes, as well as fresh forecasts confirming that it probably does not think the fight against inflation is over.”

• EUR/CHF adds to Friday’s uptick above 0.9900.
• The upbeat tone in the risk complex lends legs to the cross.
• ECB Lagarde said elevated inflation will persist for longer.

The better tone in the risk-associated universe motivates EUR/CHF to extend last week’s recovery north of the 0.9900 barrier on Monday.

EUR/CHF bid on risk-on mood

EUR/CHF advances for the second session in a row and manages to regain the area above 0.9900 the figure amidst an auspicious start of the new trading week.

Indeed, concerns around the banking sector in the old continent appear somewhat alleviated in response to news involving UBS and Credit Suisse, although this does not prevent shares of the latter to shed nearly 60% at the beginning of the week.

Looking at the bigger picture, the better tone in the risk complex helps the cross regain the 0.9900 barrier and beyond and clinch fresh 2-week tops against the backdrop of another negative session in the greenback.

Around the single currency, Chair C.Lagarde reiterated there is no trade-off between prices and financial stability, adding that the central bank could provide liquidity in case of need. More from Lagarde, she noted that the interest rate remain the exclusive tool in setting monetary policy, at the time when she insisted on the persistence of elevate inflation and highlighted the data-dependent stance from the ECB when it comes to decision on rates.

EUR/CHF significant levels

As of writing the cross is advancing 0.49% at 0.9917 and faces the next resistance at 1.0041 (monthly high March 2) ahead of 1.0097 (2023 high January 13) and finally 1.0514 (monthly high June 9 2022). On the downside, the breach of 0.9842 (200-day SMA) would expose 0.9705 (2023 low March 15) and then 0.9643 (weekly low October 12 2022).

S&P 500 broke out above the highs of last September/December, however, the move petered out after facing interim resistance near 4195. Crucial support is seen at 3800/3760, analysts at Société Générale report.

S&P 500 must surpass 4000 to affirm an extended up move

“Low of December near 3800/3760 which is also the 61.8% retracement from October is a crucial support zone.” 

“A bounce is expected but the index must re-establish itself beyond the 50-DMA (now at 4000) to affirm an extended up move.” 

“Should the index establish itself below 3800/3760, a deeper down move is not ruled out. Next potential objectives could be at 3630 and last October's low of 3490.”

• USD/MXN retreated after hitting a six-week high of around 19.2327.
• Last Friday, US economic data pointed to further weakness in the economy.
• Traders are expecting a 25 bps rate hike by the Federal Reserve.

USD/MXN is almost flat on Monday, losing 0.18% after traveling from a daily low of 18.8123. But buyers stepped in and lifted the pair above the $19.00 threshold. Nevertheless, the 100-day Exponential Moving Average (EMA) at 18.9929 capped the USD/MXN pair gains. The USD/MXN is trading at 18.8390at the time of writing.

Sentiment improvement bolstered the Mexican Peso

Investors shrugged off fears of the banking crisis after UBS’s takeover of Credit Suisse. Global central banks welcomed the news, though sentiment would remain fragile ahead of the Federal Reserve’s (Fed) interest rate decision this week. Money market futures odds for a 25 basis point rate hike lie at 73.1%, compared to last week’s 65%.

Friday’s data in the United States (US) revealed that Industrial Production for February contracted for the first time in the last 12 months, at -0.2% YoY. The monthly reading came at 0%, below the 0.2% estimates. In the meantime, as measured by the University of Michigan (UoM), March’s Consumer Sentiment in the US dropped for the first time in four months, from 67, to 63.4 in March.

The UOM poll updated American’s inflation expectations for a 5-year from 2.9% to 2.8%, while for one year, it dropped to 3.8% from 4.1%.

That has weighed in the greenback, as shown by the US dollar Index (DXY), falling 0.48%, at 103.371. US Treasury bond yields continue to collapse, a headwind for the USD/MXN

On the Mexican side, the Bank of Mexico (Banxico) Governor Victoria Rodriguez Oceja commented that she’s considering a more gradual approach to interest rate increases after hiking 50 bps in February. She added, “We’ll take into account the decision of the Fed and many other factors to the extent that they affect the inflation panorama.”

USD/MXN Technical analysis

The USD/MXN hit a daily high at 19.2327, shy of testing the 200-day EMA at 19.3888. Since then, the USD/MXN erased those gains and dropped beneath the 100-day EMA, though it found support at 18.8047. For a bearish continuation, the USD/MXN must reclaim the  50-day ENA at 18.6822 to test the 20-day EMA at 18.5487. Otherwise, if the USD/MXN regains the 100-day EMA at 18.99, the pair would be poised to finish the day above $19.00.

What to watch?

While testifying before European Parliament's Committee on Economic and Monetary Affairs, European Central Bank (ECB) President Christine Lagarde said that inflation is projected to remain too high for too long, per Reuters.

Lagarde reiterated that wage pressures have strengthened on the back of robust labour markets and added that employees are aiming to recoup some of the purchasing power. "The key ECB interest rates remain our primary tool for setting the monetary policy stance," she concluded.

Market reaction

EUR/USD keeps its footing following these comments and was last seen gaining 0.5% on the day at 1.0720. 

The Federal Reserve is focused on inflation and will look to hike 25 bps if conditions allow. Economists at ING analyze how Wednesday’s meeting could impact the US Dollar.

A pause could see the Dollar weaken a little

“We do not expect too much volatility if conditions allow the Fed to hike 25 bps and the dot plots do not surprise too much.”

“An unlikely 50 bps hike would be very bullish for the Dollar – and EUR/USD could well trade under big support at 1.05 on the news.”

“A pause could see the Dollar weaken a little – but it would be understandable after recent bank failures.”

• USD/JPY stages a goodish recovery from over a one-month low touched earlier this Monday.
• A positive turnaround in the risk sentiment weighs on the safe-haven JPY and lends support.
• Bearish traders might wait for acceptance below the 61.8% Fibo. before placing fresh bets.

The USD/JPY pair finds decent support in the vicinity of the mid-130.00s and stages a goodish intraday recovery of over 100 pips from its lowest level since February 10 touched earlier this Monday. The pair, however, keeps the red for the second straight day and trades just above the 131.50 region during the early North American session, down less than 0.15% for the day. 

From a technical perspective, the intraday failure near the 50% Fibonacci retracement level of the recent rally from the January monthly swing low exerts heavy pressure on the USD/JPY pair amid the emergence of fresh US Dollar selling. That said, spot prices struggle to find bearish acceptance below the 61.8% Fibo. level amid an intraday turnaround in the global risk sentiment, which tends to undermine the safe-haven Japanese Yen (JPY).

Apart from this, the Fed-Bank of Japan (BoJ) policy outlook turns out to be another factor that assists the USD/JPY pair to attract some buyers at lower levels. Traders also opt to lighten their bearish bets ahead of the highly-anticipated FOMC monetary policy meeting, starting this Tuesday. The Fed will announce its decision on Wednesday, which will drive the USD demand and help determine the next leg of a directional move for the major.

In the meantime, any subsequent recovery is more likely to confront some resistance near the 132.00 mark ahead of the 50% Fibo. level, around the 132.60-132.65 region. A sustained move beyond has the potential to lift the USD/JPY pair back towards the 133.00 round figure en route to the next relevant hurdle near the 133.50 region. This is closely followed by 38.2% Fibo. level, around the 133.80 zone, which should now act as a pivotal point.

On the flip side, the daily swing low, around the 130.55-130.50 region, now seems to protect the immediate downside. Some follow-through selling will confirm a bearish breakdown and make the USD/JPY pair vulnerable to challenging the 130.00 psychological mark. The downward trajectory could get extended towards intermediate support near the 129.55-129.50 area en route to the 129.00 round figure and the 128.50 horizontal zone.

USD/JPY daily chart

Key levels to watch

EUR/USD is starting the week on a firm note. Economists at Scotiabank expect the pair to rise if the Fed blinks at its Wednesday's monearty policy decsion.

More range trading seems the likely course of events for now

“More range trading seems the likely course of events for now but the EUR will benefit if the Fed blinks on Wednesday after the ECB delivered last week.”

“Weak trend momentum on the short (intraday/daily) DMIs suggests that the roughly sideways Feb/Mar range in the EUR should extend a little more – with EUR gains slowing above 1.07.”

“We see firm resistance around 1.0750/60 for now.”

“Support is 1.0625/30 intraday.”

• GBP/USD scales higher for the third straight day and touches a fresh one-month high on Monday.
• Bets for a less hawkish Fed, a recovery in the risk sentiment weigh on the USD and lend support.
• Traders might refrain from placing fresh bets ahead of the key central bank meetings this week.

The GBP/USD pair builds on last week's rally from the vicinity of the 1.2000 psychological mark and gains positive traction for the third successive day on Monday. The momentum remains uninterrupted through the early North American session and lifts spot prices to over a one-month high, around the 1.2240 region in the last hour.

An intraday turnaround in the global risk sentiment - as depicted by a solid recovery in the US equity futures - drags the safe-haven US Dollar (USD) to its lowest level since February 14, which, in turn, acts as a tailwind for the GBP/USD pair. The USD is further pressured by diminishing odds for a more aggressive policy tightening by the Federal Reserve (Fed), especially after the recent collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank.

In fact, the markets are now pricing in a smaller 25 bps lift-off at the end of a two-day FOMC monetary policy meeting, starting this Tuesday. The US central bank is also expected to start cutting interest rates during the second half of the year, which had led to the recent sharp downfall in the US Treasury bond yields. It is worth recalling that the rate-sensitive 2-year US government bond last week recorded its biggest three-day slump since Black Monday in October 1987.

That said, some repositioning trade ahead of the key central bank event risk pushes the US bond yields high, albeit does little to impress the USD bulls. This, along with the possibility of some short-term trading stops being triggered above the 1.2200 mark, further contributes to the bid tone surrounding the GBP/USD pair. It, however, remains to be seen if the intraday positive move is backed by genuine buying or turns out to be a stop run, warranting some caution for bulls.

In the absence of any major market-moving economic data on Monday, the focus will remain glued to the FOMC decision on Wednesday and the Bank of England policy meeting on Thursday. Apart from this, traders, this week will confront the release of the latest consumer inflation figures from the UK on Wednesday. The crucial macro data, along with the highly-anticipated central bank meetings, will help to determine the near-term trajectory for the GBP/USD pair.

Technical levels to watch

USD/IDR us now expected to navigate within the 15,285-15,450 range in the short term, according to Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

“USD/IDR traded between 15,250 and 15,450 last week, narrower than our expected consolidation range of 15,330/15,450.”

“The price actions offer no fresh clues and we continue to expect USD/IDR to consolidate. Expected range for this week, 15,285/15,450.”

• EUR/USD picks up extra impulse and surpasses 1.0700.
• Further north emerges the monthly high near 1.0760.

EUR/USD climbs to 3-day highs past 1.0700 the figure and extends the rebound for the third consecutive session on Monday.

If the recovery gathers impulse, then the pair could confront the March high at 1.0759 (March 15) ahead of the weekly peak at 1.0804 (February 14).

Looking at the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0325.

EUR/USD daily chart

USD/CAD holds range. Economists at Scotiabank note that the technical picture shows that the risks are tilted slightly to the downside.

Auguring a period of more dynamic movement shortly

“USD/CAD has settled into a flat range trade over the past couple of weeks but the narrowing parameters of the range are producing a triangular type pattern on the intraday chart that augurs for a break out (one way or the other) and – perhaps – a period of more dynamic movement shortly.” 

“Resistance is 1.3780, support is 1.3685.”

“Broader patterns – the early March peak/reversal above 1.38 and the USD’s longer run overbought condition – tilt technical risks (slightly) to the downside.” 

Markets Strategist Quek Ser Leang at UOB Group noted USD/MYR could brewak below the 4.4500 level in the near term.

Key Quotes

“We highlighted last Monday (13 Mar, spot at 4.4810) that ‘4.5290 is likely a short-term top’ and we expected USD/MYR to ‘edge lower but any decline is viewed as a lower trading range of 4.4500/4.5150’. Our view was not wrong even though USD/MYR traded in a narrower range of 4.4650/4.5130 before closing the week at 4.4830 (-0.38%). Downward momentum has improved, albeit not much.”

“This week, USD/MYR could edge lower to 4.4500. The next support at 4.4300 is unlikely to come under challenge. On the upside, a breach of 4.5100 (minor resistance is at 4.4850) would indicate that the current mild downward pressure has eased.”

• DXY extends the decline for the third session in a row on Monday.
• A minor support aligns at the weekly low at 102.58.

DXY retreats for the third session in a row and prints new monthly lows in the 103.40/35 band on Monday.

The continuation of the retracement appears likely in the very near term at least. Against that, there is a minor support at the weekly low at 102.58 (February 14), while the loss of this region could spark a deeper pullback to the YTD low near 101.80 (February 2).

Looking at the broader picture, while below the 200-day SMA (106.63), the outlook for the greenback is expected to remain negative.

DXY daily chart

The broad USD has been oscillating between risk appetite and rates. When the stage for a more positive environment is set, long-held view of the broad USD decline would then resume, economists at HSBC report.

Uncertainties are high

“If the financial contagion effects are much more adverse than we anticipate, then the USD should strengthen as a ‘safe haven’ currency. However, in our view, the more probable outcome is that these financial stability risks will eventually be contained.”

“When the March Fed meeting is behind us and there are more signs of a better global growth inflation mix, it could set the stage for a more positive environment where the USD ultimately weakens.”

Above 6.9300 could indicate that USD/CNH is unlikely to weaken further, according to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “Last Friday, we expected USD to consolidate between 6.8850 and 6.9100. We did not anticipate the sharp but brief drop as USD plummeted to 6.8594 before rebounding. Despite the sharp drop, there has been no significant increase in downward momentum and USD is unlikely to weaken much further. Today, USD is more likely to trade between 6.8550 and 6.9000.”

Next 1-3 weeks: “We have expected USD to weaken since early last week. As USD did not make much headway on the downside, in our latest update from last Thursday (16 Mar, spot at 6.8920), we indicated that while the downside risk has decreased, only a break of 6.9300 (no change in ‘strong resistance’ level) would indicate that USD is not weakening further. While there is no change in our view, a breach of 6.9100 (‘strong resistance’ level previously at 6.9300) would indicate that USD is not weakening further. Looking ahead, only a clear break of 6.8350 would indicate that USD is ready to head lower in a more sustained manner.”

• EUR/JPY adds to Friday’s downtick and breaches 139.00.
• Further losses appear likely below the 200-day SMA.

EUR/JPY extends the downtrend to fresh lows in the sub-139.00 zone at the beginning of the week.

The cross remains under pressure and the door now seems open to the continuation of the downtrend for the time being. Against that, the immediate contention emerges at the weekly low at 137.91 (January 19) prior to the 2023 low at 137.38 (January 3).

In the meantime, extra losses remain on the cards while the cross trades below the 200-day SMA, today at 141.77.

EUR/JPY daily chart

• NZD/USD pulls back from over a one-month high set on Monday, though lacks follow-through.
• The prevalent risk-off environment is seen as a key factor weighing on the risk-sensitive Kiwi.
• The technical setup still favours bullish traders and supports prospects for additional gains.

The NZD/USD pair retreats from over a one-month high, around the 0.6280 region touched earlier this Monday and maintains its offered tone heading into the North American session. The pair is currently placed just below mid-0.6200s, down over 0.35% for the day, and continues with its struggle to decisively break through the 0.6260-0.6270 confluence hurdle.

The said barrier comprises the 200-day Exponential Moving Average (EMA) and the 38.2% Fibonacci retracement level of the February-March downfall. Given that oscillators on the daily chart have just started gaining positive traction, a sustained move beyond will be seen as a fresh trigger for bullish traders. This, in turn, will set the stage for an extension of the NZD/USD pair's recent recovery from the YTD low, around the 0.6085 region touched earlier this month.

The subsequent move-up could then allow spot prices to reclaim the 0.6300 round-figure mark, which coincides with the 50% Fibo. level. The upward trajectory could get extended further and lift the NZD/USD pair towards the 61.8% Fibo. level, around the 0.6360 region, en route to the next relevant hurdle just ahead of the 0.6400 round figure. That said, the prevalent risk-off environment might hold back bulls from placing aggressive bets around the risk-sensitive Kiwi.

On the flip side, any meaningful pullback towards the 0.6200 round-figure mark, or the 23.6% Fibo. level might still be seen as a buying opportunity and is more likely to remain limited, at least for now. That said, a convincing break below might negate the positive outlook and shift the near-term bias back in favour of bearish traders. The NZD/USD pair might then accelerate the fall towards the 0.6135-0.6125 intermediate support before eventually dropping to the 0.6100 mark.

Some follow-through selling below the 0.6085 area, or the YTD low, could make spot prices vulnerable to challenge the 0.6000 psychological mark. The downward trajectory could get extended further towards the 0.5945 support zone en route to the 0.5900 round figure and the next relevant support near the 0.5870-0.5860 region.

NZD/USD daily chart

Key levels to watch

USD/JPY is expected to accelerate losses on a breakdown of 131.50, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hout view: “Last Friday, we expected USD to trade in a broad range between 132.50 and 134.30. However, from a high of 133.83, USD plummeted to a low of 131.55 before rebounding. The rebound amid oversold conditions suggests USD is unlikely to weaken further. Today, USD is more likely to trade sideways between 131.70 and 133.20.”

Next 1-3 weeks: “We have expected USD to weaken since the start of last week. In our latest narrative from last Thursday (16 Mar, spot at 133.40), we indicated that while there is scope for USD to weaken further, the major support at 131.50 is unlikely to come into view so soon. On Friday, USD dropped to 131.55 before rebounding. Despite the relatively sharp drop, there is no significant increase in momentum. We continue to hold a negative USD view but it has to break and stay below 131.50 before a move towards the next support at 130.45 is likely. The downside risk is intact as long as USD does not move above 133.80 (‘strong resistance’ level previously at 135.10).”

GBP/USD has regained the 1.22 zone. Economists at Scotiabank expect Cable to enjoy further gains and test the 1.2290/00 area.

GBP retains a firm undertone 

“Sterling is making another run at 1.22-plus levels and looks to have some decent (short-term) momentum under it.” 

“The Pound has found solid support on significant dips in the recent past and looks to have a good chance of holding and extending gains through the 55-Day Moving Average (1.2132) this week and push on to test major resistance (1-year downtrend) at 1.2290/00 in the coming days.”

Economists at Rabobank discuss USD outlook. The Federal Reserve meeting on Wednesday holds the key.

USD could edge lower if risk appetite settles this week

“Another frantic weekend of action by officials over the future of Credit Suisse was aimed at nipping in the bud uncertainties that could provide the trigger for a systemic drop in confidence in European banks. However, the initial response in the market today suggests investors are not yet reassured.” 

“If risk aversion remains, the USD is unlikely to fall back too far. That said, the present of Fed swap lines suggests that if risk appetite settles this week the USD could edge lower.”

“Crucial to the USD outlook will be the tone taken by the Fed at this week’s policy meeting.”

• AUD/USD pulls back from a nearly two-week high touched earlier this Monday.
• An intraday recovery in the global risk sentiment lends some support to the pair.
• Bets for a less hawkish Fed prompt fresh USD selling and help limit the downside.
• Traders now look forward to the RBA minutes on Tuesday for short-term impetus.

The AUD/USD pair struggles to capitalize on its modest intraday gains and retreats from a nearly two-week high, around the 0.6730 area touched earlier this Monday. Spot prices, however, manage to rebound a few pips from the daily low and trade just below the 0.6700 round-figure mark heading into the North American session.

A solid rebound in the US equity futures turns out to be a key factor lending some support to the risk-sensitive Aussie amid the emergence of fresh selling around the US Dollar. Against the backdrop of a modest recovery in the global risk sentiment, a further slide in the US Treasury bond yields exerts some downward pressure on the safe-haven Greenback and acts as a tailwind for the AUD/USD pair.

The recent collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - forced investors to scale back bets for a more aggressive policy tightening by the US central bank. In fact, the markets are now pricing in a greater chance of a smaller 25 bps lift-off at the highly-anticipated FOMC monetary policy meeting, starting this Tuesday, which continues to drag the US bond yields lower.

It is worth mentioning that the rate-sensitive 2-year US government bond last week recorded its biggest three-day slump since Black Monday in October 1987. This keeps the USD bulls on the defensive and helps limit the downside for the AUD/USD pair. That said, concerns about the contagion risk and the possibility of a full-blown global banking crisis could cap any optimism in the markets.

Traders might also refrain from placing aggressive directional bets and prefer to move to the sidelines ahead of the release of the Reserve Bank of Australia's (RBA) monetary policy meeting minutes, due during the Asian session on Tuesday. This will be followed by the FOMC decision on Wednesday, which will influence the USD and provide a fresh directional impetus to the AUD/USD pair.

Technical levels to watch

West Texas Intermediate (WTI) crude is hovering around $65-70/bbl, compared to $80 at the beginning of the month. Economists at the Bank of Montreal note that prospects for a recovery in prices remain murky.

Is it time to worry?

“While it’s probably not time to push the panic button yet, the oil market is likely going to remain on shaky ground for the rest of the year. This explains why we had already revised our 2023 projection for WTI down to $85/bbl (from $90) just prior to the banking fallout.” 

“Events over the last week underscore that risks are still tilted to the downside.”

"German economic activity will probably fall again in the current quarter," Germany's Bundesbank said in its monthly reported published on Monday, per Reuters. "However, the decline is likely to be less than in the final quarter of 2022."

The Bundesbank further noted that overall inflation is forecast to decline in March with higher energy prices from a year earlier being eliminated from the annual rate. "That being said, the core rate is proving exceptionally persistent," the bank explained. "It could even increase slightly towards the middle of the year."

Market reaction

EUR/USD clings to modest daily gains at around 1.0700 following this publication.

EUR/CHF has been highly volatile. Economists at Danske Bank expect a cap of just below 1.01.

Upside potential if the SNB decides to fully stop intervening

“At present, we do not believe that inflation has come sufficiently down for the SNB to conclude its hiking cycle or allow a significant depreciation of CHF. On the contrary, the latest inflation print for February showed that both headline and core inflation have once again accelerated after moving lower the past months.” 

“We continue to expect a cap in EUR/CHF of just below 1.01. Further out, we continue to forecast the cross to move slightly lower on the back of fundamentals and a re-tightening of financial conditions.” 

“If the SNB decides to fully stop intervening, we see upside potential to EUR/CHF in the near-term.”

• USD/CAD extends its consolidative price move for the second straight day on Monday.
• The ongoing slump in Oil prices undermines the Loonie and lends support to the major.
• A steep fall in the US bond yields, bets for a less hawkish Fed cap the USD and the pair.

The USD/CAD pair struggles for a firm direction for the second successive day and seesaws between tepid gains/minor losses through the first half of the European session on Monday. Spot prices, however, manage to hold comfortably above the 1.3700 mark and draw support from a combination of factors.

Crude Oil prices sink to a fresh 15-month low amid worries that a full-blown global banking crisis will cause a recession and hurt fuel demand. This, in turn, is seen weighing on the commodity-linked Loonie and acting as a tailwind for the USD/CAD pair amid a modest US Dollar strength, bolstered by the flight to safety amid the prevalent risk-off environment.

Despite the recent emergency liquidity measures and multi-billion-dollar lifelines for troubled US and European banks, concerns about the contagion risk showed little signs of subsiding. This, along with worries about a deeper global economic downturn, tempers investors' appetite for riskier assets and benefits traditional safe-haven assets, including the Greenback.

That said, a further steep decline in the US Treasury bond yields is holding back the USD bulls from placing aggressive bets and capping the upside for the USD/CAD pair, at least for the time being. The markets now seem convinced that the Fed will adopt a less aggressive stance and have been pricing in a 25 bps lift-off at its March policy meeting, starting this Tuesday.

The US central bank is also expected to start cutting interest rates during the second half of the year, which led to the recent sharp downfall in the US Treasury bond yields. In fact, the rate-sensitive 2-year US government bond last week recorded its biggest three-day slump since Black Monday in October 1987 and warrants some caution for the USD/CAD bulls.

Traders also seem reluctant and prefer to wait on the sidelines ahead of the outcome of the highly-anticipated FOMC meeting, due to be announced on Wednesday. Heading into the key central bank event risk, traders will take cues from the release of the latest Canadian consumer inflation figures, scheduled for release on Tuesday, for short-term trading impetus.

Technical levels to watch

Financial markets started the new week on a cautious note. Economists at ING expect the US Dollar to move downward by the end of the week.

Yen to stay in demand for now

“Lingering stress in the financial sector and defensive positioning ahead of the FOMC event risk should offer support to the Dollar. We could, ultimately, see a 25 bps move as a sign of confidence in the market’s solidity and along with some gradual easing in global banking turmoil, Dollar losses might start to emerge towards the back of the week. 

“In the rest of the G10, we continue to see the Yen stay in demand for now.”

“Still, we have learned how news can change market conditions very rapidly in the current environment, so caution around clear directional views remains warranted.”

The Bank of England (BoE) expects the inflation rate, which is currently still in double digits, to fall significantly. Such a development is not yet really discernible in the economic data, though. Thus, economists at Commerzbank expect the British Pound to struggle.

Inflation outlook too optimistic?

“The BoE is hoping for a quick decline in inflation in the course of the year. So far, however, the economic data rather harbor upside risks for inflation.”

“If inflation does turn out to be more persistent than the BoE expects, its rather dovish stance is likely to weigh further on the Pound.”

“GBP weakness is likely to continue next year as well because we expect the BoE to cut its key rate again in view of the weak economy and somewhat lower inflation.”

Source: Commerzbank Research

• GBP/USD climbs to its highest level since February 14, albeit lacks follow-through buying.
• The risk-off environment benefits the safe-haven USD and acts as a headwind for the pair.
• Traders also seem reluctant to place aggressive bets ahead of the Fed and the BoE this week.

The GBP/USD pair struggles to capitalize on its modest intraday positive move and trims a part of the early gains to the highest level since February 14 touched this Monday. The pair trades just below the 1.2200 mark through the first half of the European session and remains at the mercy of the US Dollar (USD) price dynamics.

The prevalent risk-off mood - as depicted by a weaker tone around the equity markets - drives some haven flows towards the Greenback and acts as a headwind for the GBP/USD pair. Despite the recent emergency liquidity measures and multi-billion-dollar lifelines for troubled US and European banks, market participants remain concerned about the contagion risk and the possibility of a full-blown global banking crisis. This, in turn, continues to weigh on investors' sentiment and benefits traditional safe-haven assets, including the USD.

That said, the ongoing slump in the US Treasury bond yields, amid diminishing odds for a more aggressive policy tightening by the Fed, keeps a lid on any further gains for the USD and continues to lend support to the GBP/USD pair. Investors now seem convinced that the US central bank will soften its hawkish rhetoric, especially after the recent collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank. This, along with the anti-risk flow, leads to a further steep decline in the US Treasury bond yields and might cap the USD.

Traders also seem reluctant to place aggressive bets and might prefer to move to the sidelines ahead of this week's key central bank event risks. The Fed is scheduled to announce its decision at the end of a two-day monetary policy meeting on Wednesday and is widely expected to deliver a smaller 25 bps rate hike amid the worsening economic conditions. This will be followed by the Bank of England (BoE) meeting on Thursday, which should provide some meaningful impetus to the GBP/USD pair and help determine the next leg of a directional move.

Technical levels to watch

• Gold price has rallied over 10% in the past two weeks.
• Trust issues in banking sector continue despite the UBS takeover of Credit Suisse.
• Federal Reserve decision looms over current safe-haven dominance.

Gold price bulls have been the biggest beneficiaries of the international banking crisis that has taken over the financial markets in the past week. The bright metal has rallied more than 10% since March 8 and reached the round $2,000 level on Monday during the European trading session. Gold is nearing its double-top all-time highs from summer 2020 and March 2022 as traders try to find refuge in the most traditional safe-haven asset, ditching cash in the process. 

The spark that started this extreme risk-off mood scenario was the collapse of Sillicon Valley Bank (SVB), and it didn’t take long before a big international bank, Credit Suisse, got in trouble. With news over the weekend of Swiss giant bank UBS taking over its rival in shambles in a deal orchestrated by authorities in Switzerland, the markets have not calmed down.

Gold price rally at mercy of Federal Reserve conundrum

With the Federal Reserve meeting within the market sight this week, market players are asking themselves whether this flight to safe haven will keep benefiting Gold, or if the US Dollar can make a comeback. Eren Sengezer, Senior Analyst at FXStreet, depicts this conundrum in his weekly Gold price article:

“At this point, it looks very unlikely the Fed will opt for a 50 bps rate hike. If that were to be the case, the initial reaction could provide a boost to the USD and weigh on XAU/USD. However, such a decision could also revive fears over a deepening financial crisis and trigger a fresh bout of flight to safe-haven bonds, causing US T-bond yields to fall sharply and opening the door for a leg higher in Gold price.

At the other extreme, markets are likely to go back into panic mode even if the Fed were to leave its policy rate unchanged to address the tightening of financial conditions. Investors could assess such a decision as the situation in the banking sector being much worse than what they were led to believe.”

Forecast poll experts not buying into Gold price hype

Despite the huge bullish momentum in Gold price, FXStreet Forecast Poll respondents are way more cautious, with the consensus not buying the current hype of XAU/USD bulls. The average end-of-the-week target for the bright metal in the poll $1,947.62, with 50% of the experts in bearish territory. 

This might reflect a cautious market positioning ahead of a super busy week, with the FOMC Meeting looming, but can also be read in a counter-intuitive way, with US Dollar bulls (or US Treasury bond bears) vulnerable to more losses if the nervousness of the market persists throughout the week.

FXStreet Forecast Poll on Gold price (published on March 17)

Economists at Danske Bank continue to expect the SEK to struggle over the medium-term horizon on the back of a relatively worse outlook for the Swedish economy compared to peers, valuation as well as an increased risk of overtightening by the Riksbank.

Divergent SEK forces set to diverge even more

“We expect RB pricing will pick up in line with our new call of a 4.25% peak rate but we argue that ECB is even more under-priced (EUR/SEK positive). Meanwhile, the more the RB hikes now the more they have to cut next year as the economy is likely to take a harder hit (SEK negative).”

“Short term, we don’t see the dividend season as a hinder for EUR/SEK to drop towards our 11.00 target. However, relative fundamentals still suggest a weaker SEK in the medium term.”

“On balance, while acknowledging that risks are abundant and two-sided, we opt to keep the 1-6M forecasts intact – 11.00 (1M), 11.00 (3M), 11.20 (6M) – and lift 12M to 11.40 (11.20).”

• Gold price bulls come alive as safe-haven demand rockets on global banking fears.
• UBS takeover of troubled Credit Suisse only temporarily calms markets.
• Gold gains from subdued US Dollar as bets for next Fed hike fade.

Gold price is rising on the back of safe-haven demand as fears around global banking contagion persist. XAU/USD is trading at $2,007 per Troy Ounce at the time of writing, up almost 1% on the day. It is in a short-term uptrend, with the odds favoring more upside to come.

Gold news: UBS takeover fails to calm markets

A deal to enable rival UBS to take over troubled lender Credit Suisse over the weekend temporarily reassured investors and stabilized sentiment but relief was temporary. Fears around wider banking stability continue to propel investors into assets seen as safe. Stage directions: Enter Solid Gold.

The collapse of Credit Suisse and others, such as Silicon Valley Bank (SVB) and First Republic Bank before it, was triggered by a drying up of liquidity. The rise in inflation and interest rates to combat it has led to a fall in the value of the extensive government bond holdings of many banks, reducing the value of their assets. This, combined with a fall in bank deposits, caused a banking liquidity crunch. 

US Dollar loses momentum as Fed rate bets fall

Gold price has also gained upside from a temporary plateauing of the value of the US Dollar – which it tends to move inversely to, because Gold is priced in Dollars. Expectations that the Federal Reserve will reign in its aggressive interest rate hiking policy – as fears even higher interest rates could exacerbate the banking crisis – have taken the wind out of the US currency’s sails. 

If bets for future interest rate hikes from the Fed continue to decline, this will have a negative impact on the US Dollar and support Gold price. That said, USD also benefits from safe-haven demand, so if the crisis worsens this will provide a back draught.  

Gold price technical analysis

Gold price resumes the rally that started at the beginning of March when Gold found a floor at circa $1,805. Since then, it has climbed over $200 to above $2,000. The precious metal is in a short and medium-term uptrend. Upside momentum is strong, unless it turns on a dime, it should continue rising. 

The elevated Relative Strength Index (RSI) on the daily chart suggests that it may be a little late to buy Gold. At 77, RSI is already in the overbought section above 70. Better to wait until it pulls back before getting in again. There are signs on lower time frames, such as the 4-hour chart, that a pull-back may be underway. 

From a technical perspective, the next upside target is at $2,069 at the March 2022 highs. A sudden reversal and move below $1,887, on the other hand, would bring into doubt the validity of the uptrend and increase the chances a new bear trend might be starting. 

Gold price: Daily Chart

Economists at Danske Bank expect Brent Crude Oil to hover around the $90 mark in the first half of the year before falling to $80 in the fourth quarter.

A rebound of USD will further weigh on prices

“We look for Brent to average $90/bbl in H1 this year and fall to $80/bbl in Q4.”

“Global inflation pressures have started to ease, particularly in the US and Russia looks able to continue to sell oil to the Asian market.”

“A rebound of USD will further weigh on prices.”

• USD/JPY comes under renewed selling on Monday and drops to its lowest level since February.
• The prevalent risk-off environment boosts the safe-haven JPY and weighs heavily on the major.
• A modest USD strength lends some support, though the fundamental backdrop favour bears.

The USD/JPY pair retreats over 200 pips from the daily swing high and drops to its lowest level since February 10 during the first half of the European session on Monday. Spot prices, however, manage to rebound a few pips in the last hour and currently trades around the 131.00 mark, still down over 0.60% for the day.

The prevalent risk-off environment - as reflected by an extended sell-off around the equity markets amid fears of a full-blown banking crisis - drives some haven flows towards the Japanese Yen (JPY) and weighs heavily on the USD/JPY pair. Despite the recent emergency liquidity measures and multi-billion-dollar lifelines for troubled US and European banks, market participants remain concerned about the contagion risk. This, along with looming recession risks, takes its toll on the global risk sentiment and forces investors to take refuge in traditional safe-haven assets.

That said, a modest US Dollar (USD) strength assists the USD/JPY pair to find some support ahead of the mid-130.00s and stall its sharp intraday downfall. The USD uptick, however, remains limited amid the ongoing slump in the US Treasury bond yields. The anti-risk flow, along with diminishing odds for a more aggressive policy tightening by the Fed, lead to a further steep fall in the US bond yields. This comes after the rate-sensitive 2-year US government bond last week recorded its biggest three-day fall since Black Monday in October 1987 and should cap the buck.

The aforementioned fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the downside. That said, traders might refrain from placing fresh bearish bets and prefer to move to the sidelines ahead of the two-day FOMC meeting, starting this Tuesday. The Fed will announce its policy decision during the US session on Wednesday, which will play a key role in influencing the near-term USD price dynamics. This, in turn, should provide a fresh impetus to the USD/JPY pair and help investors to determine the next leg of a directional move.

Technical levels to watch

Senior Swiss lawmaker warned on Monday that “the UBS-Credit Suisse merger is an enormous risk.”

“The newly merged bank is too big for Switzerland to handle,” the lawmaker noted.

Market reaction

These comments only deepen the market fears over the banking sector crisis. The European equities are seeing a negative start to the week while the US S&P 500 futures are down 0.54% on the day.

Extra gains could motivate AUD/USD to revisit the 0.6780 zone in the near term, note Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We expected AUD to trade sideways in a range of 0.6630 and 0.6690 last Friday. However, AUD rose to a high of 0.6725. Upward momentum has improved and AUD is likely to advance further. However, the major resistance at 0.6780 is unlikely to come into view today. On the downside, a breach of 0.6670 (minor support is at 0.6685) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “We have expected AUD to consolidate since early last week. In our update on Friday (17 Mar, spot at 0.6660), we highlighted that “in view of the decreased volatility, we have narrowed the expected consolidation range to 0.6570/0.6735”. AUD subsequently rose to 0.6725 before closing on a firm note at 0.6699 (+0.62%). Upward momentum has improved and this will likely lead to AUD trading with an upward bias towards 0.6780. Overall, only a breach of 0.6640 (‘strong support’ level) would indicate that the build-up in momentum has faded.”

• EUR/USD’s upside remains limited by the 1.0700 zone.
• The greenback starts the week on the back foot ad extends losses.
• Producer Prices in Germany surprised to the upside in February.

The lack of direction in the global markets prevails in the European morning and motivates EUR/USD to alternate gains with losses near the 1.0670 region at the beginning of the week.

EUR/USD: Next on the upside comes 1.0760

EUR/USD looks to extend the positive bias seen in the second half of the last week with the immediate target at the 1.0700 neighbourhood ahead of the so far monthly peak near 1.0760 (March 15).

The inconclusive price action around the pair falls within the equally vacillating mood around the greenback and the rest of the global assets in a context where market participants remain prudent in light of the developments around the banking sector and the imminence of the FOMC gathering.

In the domestic calendar, Producer Prices in Germany contracted at a monthly 0.3% in February and rose 15.8% from a year earlier. In addition, and later in the session, ECB Chair C.Lagarde is due to speak.

Across the pond, short-term bill auctions will be the sole release later on Monday.

What to look for around EUR

EUR/USD’s intentions to extend the rebound seem to have met some resistance around the 1.0700 zone for the time being.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB in a context still dominated by elevated inflation, although amidst dwindling recession risks for the time being.

Key events in the euro area this week: EMU Balance of Trade, ECB Lagarde (Monday) – EMU, Germany ZEW Economic Sentiment, ECB Lagarde (Tuesday) - ECB Lagarde (Wednesday) – EMU Flash Consumer Confidence, European Council Meeting (Thursday) - European Council Meeting, EMU, Germany Flash PMIs (Friday).

Eminent issues on the back boiler: Continuation, or not, of the ECB hiking cycle. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is retreating 0.08% at 1.0655 and faces the next contention at 1.0516 (monthly low March 15) seconded by 1.0481 (2023 low January 6) and finally 1.0325 (200-day SMA). On the upside, a surpass of 1.0759 (monthly high March 15) would target 1.0804 (weekly high February 14) en route to 1.1032 (2023 high February 2).

Economists at Danske Bank acknowledge that the near-term prospects for NOK look more challenging than previously penciled in and lift the short-end of their forecast profile, but keep the downward trajectory.

Lifting profile but maintaining a downward trajectory

“We acknowledge that the near-term prospects for NOK look more challenging than previously pencilled in. In case systemic risk fears spread further NOK still looks vulnerable. However, in the situation that systemic risk fears subside the NOK rebound could also face headwinds down the road as this would opens the door for markets pricing back in central bank rate hikes. For this reason, we lift the short-end of our forecast profile.”

“We still firmly believe in a more bullish secular positive case building for the NOK years on commodities incl. energy constituting an outperforming equity sector.”

“Forecast: 11.30 (1M), 11.20 (3M), 10.80 (6M), 10.60 (12M).”

In the opinion of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, sustainable gains in GBP/USD look likely once the pair clears the 1.2220 level.

Key Quotes

24-hour view: “We highlighted last Friday that ‘Mild upward pressure could lead to GBP edging higher but a sustained advance above 1.2150 is unlikely’.  The anticipated advance exceeded our expectations as GBP soared to 1.2201 before closing on a firm note at 1.2181 (+0.58%). While GBP could advance further, a sustained rise above 1.2220 appears unlikely. Support is at 1.2155, followed by 1.2125.”

Next 1-3 weeks: “Our latest narrative was from last Thursday (16 Mar, spot at 1.2075) where GBP is likely to trade in a broad consolidation range, expected to be between 1.1950 and 1.2190. GBP edged slightly above 1.2190 on Friday (high of 1.2201) and upward momentum is beginning to build. However, GBP has to break and stay above 1.2220 before a sustained rise is likely (the next resistance is at 1.2270). The risk of GBP breaking clearly above 1.2220 will remain intact as long as it stays above 1.2095 in the next few days.”

Economists at Danske Bank expect the USD/JPY pair to plunge toward the 125 mark in the next three months.

BoJ tightening and valuation to send USD/JPY towards 125

“USD/JPY seems fundamentally overvalued and together with our base case of monetary policy tightening during Q2, we expect the cross to drop to 125 in 3M.”

“Hence, the development in Bank of Japan’s monetary policy stance is important to follow besides the usual US yields and oil price.”

“Forecast: 132 (1M), 125 (3M), 125 (6M), 125 (12M).”

Open interest in natural gas futures markets increased for the second session in a row on Friday, this time by around 2.8K contracts according to preliminary readings from CME Group. Volume, instead, shrank for the second straight session, now by around 3.4K contracts.

Natural Gas: Another move to $2.00 seems in store

Natural gas prices dropped to multi week lows on Friday. The daily retracement was accompanied by rising open interest and is indicative that a deeper decline emerges on the horizon in the very near term. That said, another visit to the $2.00 neighbourhood sooner rather than later remains on the cards.

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group suggest EUR/USD faces further range bound trading in the next weeks.

Key Quotes

24-hour view: “Our expectations for EUR to trade sideways last Friday were incorrect as it rose to 1.0685. While upward momentum has not improved much, EUR has scope to test 1.0725. The next resistance at 1.0760 is not expected to come under threat. On the downside, a breach of 1.0625 (minor support is at 1.0645) would indicate that EUR is not advancing further.”

Next 1-3 weeks: “After EUR plunged to a low of 1.0514, we highlighted last Thursday (16 Mar, spot at 1.0575) that ‘the risk of EUR dropping further has increased but it remains to be seen if can break the major support at 1.0470’. We added, ‘only a breach of the ‘strong resistance’ at 1.0680 would indicate that the downside risk has faded’. On Friday, EUR rebounded and breached our ‘strong resistance’ level at 1.0680 (high has been 1.0685). Downward pressure has eased and EUR appears to be trading in a consolidation phase, likely in a broad range between 1.0600 and 1.0800.”

European Central Bank (ECB) policymaker Martins Kazaks made some comments on the bank’s future rate hike path on Monday.

He said that “the ECB isn’t done on rate hikes if the baseline holds up.”

Market reaction

EUR/USD is finding some support from the above comments, as it recovers from daily lows of 1.0632. The pair is still down 0.15% on the day at 1.0645, as of writing.

The Pound seems to be holding up surprisingly better than other G10 peers. However, economists at ING expect the EUR/GBP pair to bounce back higher toward 0.88.

Pound resilience in doubt

“We had previously deemed GBP resilience versus the Euro during the banking turmoil as markets seeing the UK banking sector as not as vulnerable as the Eurozone one.” 

“Given GBP is generally more sensitive to risk sentiment than the euro, and the UK banking sector is coming under scrutiny this morning, we see risks of a EUR/GBP rebound back above 0.8800 today.”

• USD/CHF fills a modest bearish gap opening on Monday, though the upside potential seems limited.
• The emergence of some USD buying is seen as the only factor lending some support to the major.
• Bets for a less hawkish Fed, tumbling US bond yields and the risk-off mood to cap gains for the pair.

The USD/CHF pair attracts some buyers following a modest bearish gap opening to the 0.9245 area on Monday and climbs to a fresh daily high during the early European session. The pair, for now, seems to have snapped a two-day losing streak and looks to build on the momentum beyond the 0.9300 mark.

The US Dollar (USD) advances slightly on Monday and acts as a tailwind for the USD/CHF pair, though a combination of factors might hold back bulls from placing aggressive bets and keeps a lid on any meaningful upside. The prevalent risk-off environment is seen lending some support to the safe-haven Swiss Franc (CHF). Apart from this, diminishing odds for a more aggressive policy tightening by the Federal Reserve (Fed) further contribute to capping gains for the major, at least for the time being.

Despite the recent emergency liquidity measures and multi-billion-dollar lifelines for troubled US and European banks, concerns about the contagion risk and the possibility of a full-blown global banking crisis showed little signs of subsiding. Apart from this, looming recession risks take a toll on the global risk sentiment, which is evident from an extended sell-off across the equity markets. The anti-risk flow force investors to take refuge in traditional safe-haven currencies, including the CHF.

The recent developments, meanwhile, fuel speculations that the US central bank will soften its hawkish rhetoric to prevent any further economic pressure from high-interest rates. In fact, the markets are now pricing in a smaller 25 bps lift-off at this week's FOMC meeting, starting on Tuesday, and the Fed will cut rates during the second half of the year. This is reinforced by a further steep decline in the US Treasury bond yields, which caps gains for Greenback and the USD/CHF pair.

Traders also seem reluctant and prefer to move to the sidelines ahead of this week's key central bank event risks - the outcome of the highly-anticipated FOMC meeting on Wednesday, followed by the Swiss National (SNB) meeting on Thursday. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further intraday appreciating move for the USD/CHF pair in the absence of any relevant market-moving economic releases from the USD.

Technical levels to watch

The uncertainty related to financial stability concerns has weighed on risk-sensitive currencies, and not least the Australian Dollar. Economists at Danske Bank expect the Aussie to struggle to gain ground.

Easing financial stability concerns could  provide a modest lift in the near-term

“While reopening in China and the boost to relative rates are supportive for AUD all else equal, we emphasize that the broader risk sentiment remains the main driver for now.” 

“Easing financial stability concerns could  provide a modest lift to AUD/USD in the near-term, but over the longer horizon, we expect the broad USD strength and push towards maintaining global financial conditions restrictive to weigh on the cross.”

“Forecast: 0.68 (1M), 0.67 (3M), 0.66 (6M), 0.66 (12M).”

Gold price attracts fresh buying following an early slide to the $1,968 area on Monday and climbs to over a one-year top, beyond the $2.000 psychological mark during the early part of the European session. The strong intraday move-up validates Friday's breakout through the previous YTD peak, around the $1,958 zone, and supports prospects for an extension of the recent upward trajectory witnessed over the past two weeks or so.

FX option expiries for Mar 20 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0600 706m
• 1.0665 825m
• 1.0715 1b
• 1.0730 107m

- USD/JPY: USD amounts                     

• 131.00 937m
• 132.00 706m
• 132.50 690m
• 133.00 811m

- AUD/USD: AUD amounts  

• 0.6730 831m
• 0.6765 644m
• 0.6785 1.2b

- USD/CAD: USD amounts       

• 1.3750 599m

Economists at Danske Bank maintain their strategic case for a lower EUR/USD and thus keep their downward sloping profile forecasting the pair at 1.02 in six-to-twelve months.

Lower on tighter financial conditions

“We have long argued the strategic case for a lower EUR/USD based on relative terms of trade, real rates (growth prospects) and relative unit labour costs.” 

“We increasingly think there is a potential for the cross to also head lower on a short-term horizon driven by the market realisation that financial conditions need to tighten, relative rates as well as relative asset demand. Financial conditions have indeed tightened recently which help explain the drop in EUR/USD, but we think more could come and keep our forecast profile intact.”

“New energy/real rate shocks are required for a return all the way to the September lows.” 

“Forecast: 1.06 (1M), 1.04 (3M), 1.02 (6M), 1.02 (12M).”

• Coordinated efforts to rescue the global banking sector fail to boost EUR/JPY.
• European banking crisis takes a toll on EUR/JPY despite interest rate hikes.
• Narrowing yield differential with JGBs adds to EUR/JPY volatility amid banking turmoil.

EUR/JPY retraced all of its earlier gains on Monday as investors were on the back foot despite coordinated efforts to rescue the global banking sector. Over the weekend, some major central banks joined to rescue the squeeze on liquidity experienced by some commercial banks.

The Federal Reserve (Fed) reopened the swap line for needy central banks to bid the US Dollar on short-term maturity. This new development initially prompted immunity from the safe-haven Japanese Yen. However, as the session progressed, we saw a U-turn in sentiment and a recovery in safe-haven demand.

The US banking turmoil is reverberating within Europe. It all started with Credit Suisse's financial stability failure, despite the Swiss National Bank's intervention. Things do not look to be settling down, and ultimately the Swiss authority has had to support UBS to take over Credit Suisse.

Last week, the European Central Bank raised interest rates by 50 basis points (bps) despite the problems with Credit Suisse. The rise could act as a double whammy amid the banking crisis. Citing earlier reports, two European banks are under scrutiny amid possible contagion rumors. The cultivation of such a scenario may impact and force central banks to rethink their rate-hiking path. This is likely to have a more negative impact on the Euro than the Yen.

On the other hand, this banking crisis is weighing on global yields. Therefore, the yield differential with Japanese Government Bond yields (JGB) is narrowing, which is one-factor inducing volatility in the Japanese Yen.

Levels to watch

With the ECB likely to act more restrictively overall, economists at Commerzbank see the Franc moderately weaker against the EUR over the course of the year.

EUR/CHF could remain below parity for the time being

“If the Franc weakens too much, foreign exchange interventions by the SNB are likely against the backdrop of the recent inflation development in Switzerland. In the short term, EUR/CHF could therefore remain below parity for the time being.”

“In the medium term, however, we see the CHF weakening moderately. This is because the ECB is likely to raise its key rate more than the SNB by the middle of the year, and since price pressures in Switzerland are likely to ease at the same time, the SNB should allow the Franc to weaken moderately against the EUR.”

Source: Commerzbank Research

• Silver finds support near 50% Fibo. and stalls its modest intraday slide from a multi-week peak.
• The technical setup favours bullish traders and supports prospects for further near-term gains.
• A convincing break below the $21.50 area negates the positive outlook for the white metal.

Silver retreats from its highest level since February 03 touched on the first day of a new week and remains on the defensive through the early European session. The white metal, however, manages to recover a part of its intraday losses and seems poised to prolong its recent appreciating move witnessed over the past two weeks or so.

Last week's sustained breakout through the $21.65-$21.70 confluence resistance was seen as a fresh trigger for bullish traders. Furthermore, a subsequent move and acceptance above the 50% Fibonacci retracement level of the recent sharp pullback from a multi-month peak support prospects for additional gains. Adding to this, bullish oscillators on 4-hour and daily charts suggest that the path of least resistance for the XAG/USD is to the upside.

Hence, some follow-through strength towards testing the 61.8% Fibo. level, around the $22.80-$22.85 region, looks like a distinct possibility. The momentum could get extended beyond the $23.00 mark, towards testing the next relevant hurdle near the $23.25-$23.35 zone en route to the $24.00 round-figure mark. Bullish traders might eventually aim to challenge the multi-month top, around the $24.65 zone touched in early February.

On the flip side, the 50% Fibo. level, around the $22.25 region, helps limit the intraday downtick and should now act as a pivotal point. Any further decline is likely to attract fresh buying near the $22.00 mark and remains limited near the $21.65-$21.70 confluence resistance breakpoint. The latter comprises the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibo. level, which if broken might negate the positive bias.

Some follow-through selling below the $21.50 area could expose the $21.00 mark, representing the 23.6% Fibo. level. The XAG/USD might then turn vulnerable to accelerate the slide towards the $20.55-$20.50 intermediate support en route to the $20.00 psychological mark. The downward trajectory could get extended further and drag spot prices to the next relevant support near the $19.60 region.

Silver 4-hour chart

Key levels to watch

CME Group’s flash data for crude oil futures markets noted traders increased their open interest positions for the third straight session on Friday, now by around 6.6K contracts. In the same line, volume resumed the uptrend and rose by around 309.4K contracts.

WTI: A drop to $60.00 now appears likely

Friday’s strong pullback in prices of the barrel of the WTI was in tandem with increasing open interest and volume. Against that, the continuation of the current decline looks the most likely scenario in the very near term and with the immediate target at the key $60.00 mark.

Here is what you need to know on Monday, March 20:

Financial markets started the new week on a cautious note despite the weekend's encouraging headlines regarding the global liquidity issues. Eurostat will release January Trade Balance data later in the session and Germany's Bundesbank will publish its monthly report. European Central Bank (ECB) President Christine Lagarde will testify before the Committee on Economic and Monetary Affairs (ECON) of the European Parliament in Brussels at 14 GMT.

Late Sunday, Swiss authorities persuaded UBS Group AG to buy Credit Suisse Group AG in the next step to try and stop the spread of the banking crisis. UBS will reportedly pay 3 $3.23 billion for Credit Suisse and assume up to $5.4 billion in losses in a deal that is expected to close by the end of 2023.

Meanwhile, the Federal Reserve (Fed) announced that it will offer daily swaps to the Bank of Canada (BoC), the Bank of Japan (BoJ), the Swiss National Bank (SNB) and the European Central Bank (ECB) to ensure they have enough liquidity to continue operations. "The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets," the Fed said in a statement published on Sunday.

Despite these developments, US stock index futures were last seen losing between 0.7% and 1% on the day. The benchmark 10-year US Treasury bond yield is down more than 3% on the day at 3.3% and the US Dollar Index trades modestly lower on the day below 104.00.

Although EUR/USD opened with a bullish gap and rose above 1.0700 to start the week, it lost its traction and retreated toward 1.0650 in the early European morning. The data from Germany revealed that the Producer Price Index (PPI) declined by 0.3% on a monthly basis in February following January's 1.2% decrease. 

GBP/USD touched its highest level since mid-February above 1.2220 in the Asian session on Monday. The pair, however, reversed its direction and declined below 1.2200, retracing the majority of its daily gains in the process. 

Following Friday's impressive upsurge, Gold price continues to push higher early Monday amid falling global yields. As of writing, XAU/USD was trading at its highest level since April slightly above $1,990.

With the Japanese Yen benefiting from souring market mood, USD/JPY came under bearish pressure and was last seen trading deep in negative territory at around 131.00.

Bitcoin extended its rally over the weekend and advanced beyond $28,000 for the first time since June. Early Monday, BTC/USD is staging a downward correction and was last seen losing 1% on the day at $27,800. Despite having struggled to find direction over the weekend, Ethereum gained more than 10% last week. ETH/USD stays relatively quiet early Monday and fluctuates at around $1,770. 

Week ahead: March Mayhem continues with Fed, but cryptos emerge victorious

Gold price retreats from 11-month highs before challenging $2,000, FXStreet’s Dhwani Mehta reports.

Immediate support is seen at the February high of $1,960

“The immediate support for Gold price is now seen at the February high of $1,960, below which the psychological $1,950 level will be put to test.”

“On the flip side, Gold buyers need to take out the multi-month high at $1,991 in order to aim for the $2,000 threshold. Acceptance above the latter is critical to resuming the recent uptrend toward the $2,050 static support.” 

• USD/CAD picks up bids to refresh intraday high, reverses week-start pullback.
• One-week-old symmetrical triangle restricts immediate moves of the Loonie pair.
• 100-SMA adds strength to 1.3685 support confluence, 50-SMA guards immediate upside.
• MACD, RSI (14) line suggest a slower grind towards the north.

USD/CAD reverses the early Asian session losses as it prints mild gains around 1.3735 during early Monday morning in Europe. In doing so, the Loonie pair defends the previous day’s recovery moves inside a one-week-old symmetrical triangle.

That said, the quote’s latest rebound could be linked to the failure to break the 1.3685 support confluence encompassing the 100-bar Simple Moving Average (SMA) and lower line of the stated triangle.

Adding strength to the recovery moves is the steady RSI (14) and a lack of bearish MACD signals.

As a result, the Loonie pair is all set to poke the 50-SMA hurdle of 1.3750. However, the stated triangle’s top line, close to 1.3765, will be crucial to watch afterward.

Should the quote manage to remain firmer past 1.3765, the monthly high of 1.3861 could act as a buffer before fueling the USD/CAD price towards the previous yearly top of 1.3977 and then to the 1.4000 psychological magnet.

On the flip side, a clear break of the 1.3685 support confluence becomes necessary to convince USD/CAD bears.

Even so, multiple supports near 1.3650, marked during late February and early March, can test the Loonie pair sellers before giving them control.

Following that, a south run towards the 61.8% Fibonacci retracement level of February-March upside, near 1.3490 can’t be ruled out.

Overall, USD/CAD remains on the bull’s radar even if the run-up appears slow.

USD/CAD: Four-hour chart

Trend: Further upside expected

“France should avoid recession,” European Central Bank (ECB) Governing Council member and Bank of France head Francois Villeroy de Galhau said on Monday, adding that the “French banks are solid.”

“Regulation of French and European banks is better than that in United States,” Villeroy added.

Market reaction

Amid a renewed risk-aversion wave, EUR/USD is erasing early gains to trade flat at 1.0660, as of writing.  

• The index starts the new week slightly on the defensive.
• The Fed is expected to raise rates by 25 bps later in the week.
• Short-term Bill Auctions will be the only releases in the docket.

The greenback, in terms of the USD Index (DXY), struggles for direction around the 103.80 at the beginning of the week.

USD Index cautious ahead of Fed

The index keeps the bearish note for the third session in a row on Monday, all against the backdrop of the generalized side-lined trade in the global markets as well as further downside in US yields across the curve.

In the meantime, markets are expected to maintain the prudence, and thus the consolidative mood, ahead of the FOMC event on March 22, when the Fed is expected to hike the Fed Funds Target Range by 25 bps.

On the latter, CME Group’s FedWatch Tool currently sees the probability of that scenario around 56%.

In the docket, the only release of note will be a 3-month/6-month Bill Auctions later in the NA session.

What to look for around USD

The index remains under pressure and keeps the trade in the sub-104.00 region amidst a broad-based range bound theme in the rest of the markets.

The risk aversion derived from banking jitters appears diminished and supports the selling bias in the dollar amidst firmer conviction among investors of a 25 bps rate hike by the Federal Reserve at the next meeting on March 22.

So far, reinvigorated bets of a Fed’s pivot in the short-term horizon could keep the price action around the dollar somewhat depressed. However, the still elevated inflation and the resilience of the US economy should continue to play against that view.

Key events in the US this week: Existing Home Sales (Tuesday) – MBA Mortgage Applications, FOMC Interest Rate Decision, Powell press conference (Wednesday) – Initial Jobless Claims, Chicago Fed National Activity Index, New Home Sales (Thursday) – Durable Goods Orders, Advanced PMIs (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Persistent narrative for a Fed’s tighter-for-longer stance. Terminal rates near 5.5%? Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.03% at 103.83 and the breakdown of 103.48 (monthly low March 13) would open the door to 102.58 (weekly low February 14) and finally 100.82 (2023 low February 2). On the other hand, the next hurdle emerges at 105.88 (2023 high March 8) seconded by 106.64 (200-day SMA) and then 107.19 (weekly high November 30 2022).

• EUR/USD breaks 21-DMA as bullish momentum continues amid a steady US Dollar.
• Banking turmoil weighs on US Treasury yields, boosting EUR/USD toward crucial levels.
• EUR/USD looks to regain 1.0700, as the market awaits directional clues from the FOMC meeting.

EUR/USD broke the 21-Daily Moving Average (DMA) on the previous trading day and the bullish momentum remains intact in the new week. The pair received a boost from a softer US Dollar led by falling US Treasury bond yields.

The banking turmoil is persistently hammering the global yields, especially the US Treasury yields. On the other side, reintroducing the swap line on a daily basis by global central banks will likely ease liquidity concerns, putting downward pressure on the safe-haven US Dollar. Therefore, the EUR/USD pair’s bullish bias is likely to remain intact.

The near-term support is seen at a trio point, a combination of multi-tested resistance at 1.0750 with a descending trend line starting from February's high at 1.1022 pegged with a 50-Daily Moving Average (DMA). A break above which will likely lead the EUR/USD toward February's high around the 1.1000 key psychological level.

Any downside fall will likely remain capped by the 21-DMA, sitting just above the previous day's closing point at the 1.0600 level. The last line of support will be a multi-month low at the 1.0520 level.

The Relative Strength Index (RSI) signals a higher high, suggesting more room for the upside.

The FOMC will be the key event this week, which will likely produce more directional clues for the pair. In the meantime, the EUR/USD price action will likely be muted.

EUR/USD: Daily chart

• Gold price picks up bids to reverse the early-day losses within one-week-old bullish channel.
• Global central banks’ moves to infuse US Dollar liquidity, UBS-Credit Suisse deal earlier favored risk-on mood.
• Details of efforts to push back fears from banking sector fallout appear less lucrative amid hawkish central bank bias.
• Woes for Credit Suisse bondholders, cautious mood ahead of top-tier data/events weigh on sentiment.

Gold price (XAU/USD) ticks up to $1,993 as it renews the yearly high during Monday’s European session, reversing the Asian session’s losses amid fresh challenges to the risk appetite. It’s worth noting that the metal rose the most on a daily, as well as on a weekly, basis in the last amid broad weakness of the US Treasury bond yields and the US Dollar.

The latest run-up of the yellow metal could be linked to the fears of banking sector rout despite the efforts of the major central banks and private banks. Also challenging the sentiment are the fears of more rate hikes, as well as negative results of a deal between Credit Suisse and UBS.

That said, news surrounding the major central banks’ coordinated efforts to fuel the market’s liquidity joined the headlines suggesting the UBS takeover of the troubled Credit Suisse to underpin the recovery in the sentiment during the early Asian session.

Though, the details of the UBS-Credit Suisse deal suggest losses for the Credit Suisse AT1 bondholders, which in turn probed the weak-start optimism. On the same line are the interest rate futures that suggest the upcoming hawkish actions from the key central bank. It should be noted that the fears of more banking sector fallout also weigh on the US Treasury bond yields and allow the Gold price to remain firmer.

Against this backdrop, the S&P 500 Futures reverse the week-start gains while the US 10-year and two-year Treasury bond yield retreat towards multi-day lows marked the previous day. It’s worth noting that United States two-year Treasury bond yields marked the biggest weekly loss in three years while the 10-year counterpart dropped the most since early January.

Looking forward, risk catalysts and the bond market moves could entertain the Gold traders ahead of the monetary policy meetings of the Federal Reserve (Fed), Swiss National Bank (SNB) and the Bank of England (BoE). Also important to watch will be the March month’s first readings of activity numbers for the major economies.

Gold price technical analysis

Gold buyers took a breather during early Monday as the RSI (14) turned overbought. The pullback moves, however, failed to break the previous resistance line from March 13, close to $1,965 by the press time.

In doing so, the XAU/USD remains inside a one-week-old bullish trend channel amid upbeat MACD signals.

As a result, the metal’s upside toward refreshing the Year-To-Date high can’t be ruled out.

However, the stated bullish channel’s top line and the April 2022 high, respectively near $1,996 and $1,998, will precede the $2,000 psychological magnet to challenge the Gold buyers.

Following that, a run-up towards the previous yearly peak surrounding $2,070 can’t be ruled out.

Alternatively, pullback moves need validation from the $1,965 but the Gold seller may feel relived only if the XAU/USD price remains bearish past the $1,942-40 support confluence, encompassing the aforementioned channel’s lower line and the 50-Hour Moving Average (HMA).

Gold price: Hourly chart

Trend: Limited upside expected

Considering advanced prints from CME Group for gold futures markets, open interest rose for the second session in a row on Friday, this time by nearly 19K contracts. Volume followed suit and went up by around 137.1K contracts, partially offsetting the previous decline.

Gold now looks at $2000

Prices of gold rose sharply at the end of last week amidst rising open interest and volume, which is suggestive that extra gains remain well on the cards in the very near term. That said, the yellow metal now targets the key $2000 barrier per ounce troy. Of note, however, is that the current overbought condition of the precious metal could, in the meantime, trigger a corrective decline.

• GBP/USD is facing barricades in recapturing the round-level resistance of 1.2200.
• Federal Reserve is expected to hike rates further by 25 bps to continue weighing on sticky inflationary pressures.
• A steady monetary policy is expected from the Bank of England despite the Silicon Valley Bank collapse.
• GBP/USD has witnessed a solid upside move after testing the breakout zone of the Falling Channel pattern.

GBP/USD is doing some serious attempts for recapturing the round-level resistance of 1.2200 in the early European session. The major is oscillating in a narrow range of 1.2168-1.2203. The Cable is struggling to deliver decisive action and is showing a subdued performance as investors are awaiting interest rate decisions by the Federal Reserve (Fed) and the Bank of England (BoE), which will be announced on Wednesday and Thursday respectively.

S&P500 futures are displaying sheer volatility. The 500-US stocks basket has surrendered its entire gains generated in early Asia. It seems that UBS’s rescue plan for Credit Suisse has failed to cheer market participants. Credit Suisse shareholders were deprived of a vote on the deal and will receive one share in UBS for every 22.48 shares they own, valuing the bank at $3.15bn (£2.6bn), as reported by BBC News. Various central banks have come forward to provide liquidity assistance to rescue the second-largest Swiss bank in order to revive the confidence of consumers.

The announcement of liquidity assistance to revive the 164-year-old bank has impacted demand for US government bonds. The 10-year US Treasury yields have scaled above 3.42% as higher liquidity flush could propel inflationary pressures again.

Key event of the week- Federal Reserve policy

The whole arena would go through nail-biting moments as the Federal Reserve (Fed) would announce its March monetary policy in times when fears of banking turmoil are deepening sharply. It seems unrealistic that Fed chair Jerome Powell would undermine the potential banking meltdown and will only focus on bringing down the stubborn inflation. Federal Reserve policymakers are delighted with the fact that January’s inflation data was a one-time blip as February’s inflation indicators displayed the continuation of inflation softening.

Therefore, the Federal Reserve would be relieved even if it announces second 25 basis points (bps) interest rate hike. In a recent poll by Reuters, 76 of 82 economists believe that the US Federal Reserve would raise its policy rate by 25 basis points to the range of 4.75-5% following the March Federal Open Market Committee (FOMC) meeting.

BoE to choose from a dismal economic outlook and double-digit inflation

Unlike other economies, the United Kingdom has been facing issues with a dismal economic outlook, political instability along with persistent inflationary pressures. Bank of England Governor Andrew Bailey remained in a fix last year in choosing between growth and inflation. Shortages of labor and higher food inflation have remained major supporters of rampant inflation.

No doubt, the Bank of England has been restricting its monetary policy to bring down the galloping inflation. The interest rate has already reached 4%. However, fresh concerns of the global banking fiasco are expected to add to more troubles for the Bank of England policymakers. Therefore, the street is not convinced about further rate hikes for now.

Analysts at Rabobank also see a quarter-point rate increase and warn that such a scenario is not fully priced in the interest market, “which indicates that the chance of a hold has increased following the collapse of Silicon Valley Bank (SVB).” A 25 bps rate hike by BoE Governor Andrew Bailey would push rates to 4.25%.

The action from the Pound Sterling would not be restricted to the monetary policy from the Bank of England. Wednesday’s Consumer Price Index (CPI) data is going to drive the Bank of England’s decision-making ahead. As per the estimates, the annual headline CPI is expected to trim 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%.

GBP/USD technical outlook

GBP/USD has witnessed a solid upside move after testing the breakout zone of the Falling Channel chart pattern formed on a daily scale. The Cable is approaching the horizontal resistance plotted from December 14 high at 1.2447. The 20-period Exponential Moving Average (EMA) at 1.2080 is providing cushion to the Pound Sterling bulls.

The Relative Strength Index (RSI) (14) is gearing to shift into the bullish range of 60.00-80.00, which will trigger the upside momentum.

• NZD/USD remains depressed around intraday low as it snaps two-day winning streak.
• Bullish MACD signals, 200-EMA and nearby rising trend line keeps buyers hopeful unless breaking 0.6180 support.
• One-month-old ascending resistance line challenges Kiwi pair’s immediate upside.

NZD/USD prints the first daily loss in three as bears flirt with the 0.6250 level heading into Monday’s European session. In doing so, the Kiwi pair reverses from an upward-sloping resistance line from late February while dropping toward the 200-bar Exponential Moving Average (EMA).

Even if the one-month-long ascending trend line resistance challenges NZD/USD bulls near 0.6285, the pair’s sustained trading beyond the key EMA joins the bullish MACD signals to keep buyers hopeful.

That said, a one-week-old upward-sloping support line, close to 0.6175 at the latest, also restricts the short-term downside of the NZD/USD pair, in addition to the 200-EMA level surrounding 0.6240.

In a case where the Kiwi pair drops below 0.6175, the odds of witnessing a slump toward the monthly low near 0.6085 can’t be ruled out.

On the flip side, a clear upside break of the stated resistance line, near 0.6285 at the latest, will need validation from the 0.6300 round figure to propel the quote towards the tops marked during early February near 0.6390.

Following that, a run-up toward the Year-To-Date (YTD) high of nearly 0.6540 can’t be ruled out.

To sum up, NZD/USD remains on the bull’s radar despite the latest failure to cross the short-term resistance line.

NZD/USD: Four-hour chart

Trend: Further upside expected

• WTI slides below $67 as global banking turmoil overshadows central banks' liquidity efforts.
• OPEC in trouble as falling prices persist: Can coordination among oil-exporting nations stabilize the market?
• Oil prices could hit the $60 mark if the banking crisis continues to unfold.  

West Texas Intermediate (WTI) price fell below the $67 mark despite reassurance from major central banks. A likely case of banking contagion is unfolding. Credit Suisse fell apart. Later on, UBS was urged to acquire the troubled bank.

WTI does not catch a break, and the heavy downfall suggests intense pessimism among investors, as oil prices often serve as a growth barometer.

During the weekend, the Federal Reserve (Fed) opened its swap line from Monday onward until April. It's a channel through which other central banks obtain US Dollars on short-term maturity in exchange for local currency. Subsequently, this excess USD reserve is accessed by commercial banks to facilitate business operations.

Oil prices are reflecting global growth concerns amid adversity led by banking turmoil. Some reports suggest that two European commercial banks are under scrutiny for possible contagion.

On the Organization of the Petroleum Exporting Countries (OPEC) front, falling prices, despite all efforts from the said group, are causing trouble for OPEC. Earlier, some comments from Iraq’s Prime Minister Mohammed Shia al-Sudani and OPEC Secretary General Haitham Al Ghais stressed the need to coordinate among oil-exporting nations to ensure prices do not fluctuate and impact both exporter and consumer countries.

A continuous deterioration in the global banking sector could lead the WTI price to approach the $60 mark.

Levels to watch

• USD/JPY is likely to drag further amid the strengthening appeal for the Japanese Yen.
• It seems that forward anxiety ahead of the Fed’s monetary policy is missing from the market.
• Declining 10-EMA at 132.35 indicates that the downside momentum is extremely strong.

The USD/JPY pair has corrected sharply below 132.00 in the Asian session. The appeal for the Japanese Yen as a safe-haven has improved amid potential fears of global banking turmoil led by rising interest rates by western central banks.

S&P500 futures have turned negative after surrendering significant gains generated in the early morning session, portraying extremely negative market sentiment, despite UBS rescuing Credit Suisse. Bloomberg reported Finma Chief Urban Angehrn says US regulators support the UBS deal to buy Credit Suisse for $3.3 billion.

The US Dollar Index (DXY) is struggling to sustain above the 103.80 resistance. It seems that forward anxiety ahead of the Federal Reserve’s (Fed) monetary policy is missing from the market.

USD/JPY is declining toward the 61.8% Fibonacci retracement (placed from January 16 low at 127.22 to March 08 high at 137.91) at 131.30 on a four-hour scale.

The declining 10-period Exponential Moving Average (EMA) at 132.35 indicates that the downside momentum is extremely strong.

Adding to that, the Relative Strength Index (RSI) (14) has slipped into the bearish range of 20.00-40.00, which promises weakness further.

It seems that the downside pressure would continue if the asset will surrender last week’s low at 131.55. An occurrence of the same would drag the asset toward January 23 high around 130.89 followed by February 10 low at 129.80.

In an alternate scenario, a break above the 38.2% Fibo retracement at 133.83 would strengthen the US Dollar bulls. This might drive the asset toward March 15 high at 135.11 and February 28 low at 135.73.

USD/JPY four-hour chart

• EUR/GBP prints four-day downtrend despite recent inaction.
• Optimism surrounding UK’s output, housing market jostles with the hawkish ECB talks.
• Market’s failure to keep the week-start optimism adds strength to the pair’s sluggish moves.
• Speech from ECB’s Lagarde, key UK data and BoE Monetary Policy Meeting eyed for clear directions.

EUR/GBP holds lower ground near 0.8760, fading the last week’s bounce off a three-month low, as traders await this week’s key catalysts with mixed feelings during early Monday. Even so, the cross-currency pair remains down for the fourth consecutive day by the press time.

Market sentiment improved earlier in the day and allowed the EUR/GBP pair to remain on the bear’s radar. Among the key catalysts, news surrounding the major central banks’ coordinated efforts to fuel the market’s liquidity joined the headlines suggesting the UBS takeover of the troubled Credit Suisse to underpin the recovery in the sentiment.

Alternatively, the details of the UBS-Credit Suisse deal suggest losses for the Credit Suisse AT1 bondholders, which in turn probed the weak-start optimism and challenged the EUR/GBP pair sellers as well.

It should be noted that the recent headlines from the Financial Times (FT) suggesting even bets on the Bank of England’s (BoE) further rate hikes also probe the EUR/GBP bears. On the same line could be the hawkish calls from the European Central Bank (ECB) officials.

Previously, headlines from Reuters favored the British Pound (GBP) as it quotes the Property portal Rightmove Survey while saying, “The average price of homes coming on the market in Britain stabilized in March and activity is picking up towards more normal pre-pandemic levels after last year's "mini-budget" upheaval.”

Elsewhere, Trade body Make UK and accountants BDO said their quarterly gauge of manufacturing output rose to +21 in the first quarter from +5 - the highest balance level since early last year, when it rose to +24, reported Reuters. The news also stated that Britain's manufacturing output bounced back in the first three months of 2023, chiming with other measures of the economy that improved, but firms expect the sector to contract as inflationary pressures persist.

On the other hand, ECB President Christine Lagarde said, “The central bank hopes the Swiss-brokered rescue of Credit Suisse will restore calm in financial markets.”

On Friday, multiple European Central Bank (ECB) officials crossed wires to convince markets of the soundness of the bloc’s banks, as well as defend the ECB’s hawkish monetary policy stance. Firstly, Governing Council member Madis Muller said, “Banking uncertainty complicates communication,” while adding that the latest inflation forecasts assume more rate hikes. Following him was ECB Board member Francois Villeroy de Galhau who said that the French and European banks are 'very solid'. Furthermore, ECB policymaker Peter Kazimir said that there is a need to continue with rate hikes while Governing Council Member Gediminas Šimkus backed the hawkish bias while saying, “The terminal rate hasn't been reached yet.”

Looking forward, ECB President Lagarde is up for a speech and can entertain EUR/GBP traders. Though, major attention will be given to this week’s UK inflation data and the BoE monetary policy meeting details for clear directions.

Technical analysis

A clear downside break of convergence of the 100-DMA and a three-month-old ascending trend line, around 0.8775 by the press time, directs EUR/GBP bears towards the monthly low surrounding 0.8720 at the latest. 

• Asian stocks have continued their downside journey amid deepening fears of banking turmoil.
• UBS-Credit Suisse deal failed to provide a cushion to Asian equities.
• An unchanged monetary policy by the PBoC has impacted the oil price.

Markets in the Asian domain witnessed an intense sell-off on Monday. The week started with the downside bias observed last week backed by a potential global banking meltdown. S&P500 futures generated significant gains in early Asia, however, fears of global banking turmoil activated sellers to trigger shorts. It seems that rallies are being capitalized as selling opportunities, which indicates a dismal market mood.

The US Dollar Index (DXY) is displaying a lackluster performance around 103.80. It seems that the market is preparing the fresh ground for action ahead of the interest rate policy by the Federal Reserve (Fed).

At the press time, Japan’s Nikkei225 tumbled 1.06%, ChinaA50 remained choppy, Hang Seng plunged 2.61%, and Nifty50 dropped 1.07%.

The UBS-Credit Suisse deal has failed to provide support to Asian stocks. Sky News reported that under the takeover UBS will pay 3bn Swiss francs (£2.6bn) to acquire Credit Suisse. And, it has agreed to assume up to 5bn francs (£4.4bn) in losses, and 100bn Swiss francs (£88.5bn) in liquidity assistance will be available to both banks.

Chinese equities remained sideways despite the interest rate decision announcement by the People’s Bank of China (PBoC). The central bank kept the one-year and five-year Loan Prime Rate (LPR) steady at 3.65% and 4.30% respectively. Contrary to the unchanged interest rate decision, the street was anticipating further expansion in the monetary policy stance.

The economy in China is on a track for economic recovery after a prolonged lockdown due to the epidemic. Therefore, a heavy stimulus is required to spurt the growth rate and support the vulnerable real estate market.

On the oil front, the oil price has faced pressure as PBoC maintained status-quo on interest rates. The world is betting largely on economic recovery in China, which would fuel up the oil demand. It is worth noting that China is the largest importer of oil and an absence of expansionary monetary policy announcement by the PBoC impacted oil price.

• USD/MXN picks up bids to extend the previous day’s rebound from 50-DMA.
• 11-week-old descending trend line challenges Mexican Peso pair buyers.
• 100-DMA, double tops around 19.20 also challenge the upside moves.
• Oscillators are well in support of bulls even as multiple hurdles test the north run.

USD/MXN grinds near intraday high of 18.96 as bulls poke the key resistance line during early Monday. In doing so, the Mexican Peso (MXN) pair remains firmer for the second consecutive day while extending previous day’s rebound from the 50-DMA.

In addition to the pair’s recovery from the 50-DMA, bullish MACD signals and upbeat RSI (14), not overbought, also favor the USD/MXN pair buyers.

However, a clear upside break of the stated resistance line, near 19.00 at the latest, becomes necessary for the USD/MXN bulls to keep the reins.

Following that, the 61.8% Fibonacci retracement level of the pair’s downturn from December 2022 to March 2023, close to 19.15, will precede the double tops around 19.20 to challenge the buyers.

Furthermore, the previous monthly high surrounding 19.30 act as an extra filter towards the north.

On the contrary, pullback moves remain elusive unless the USD/MXN price remains beyond the 50-DMA support of near 18.60.

Even if the pair drops below 18.60, the late February swing high near 18.50 can act as a buffer ahead of directing the bears towards the multi-month low marked earlier in March near 17.90.

Overall, USD/MXN is likely to recovery but the road towards the north appears long and bumpy.

USD/MXN: Daily chart

Trend: Further upside expected

• AUD/USD retreats from early gains as liquidity concerns persist despite central banks' efforts.
• Investors are cautious despite the swap line, as two more European banks are on the radar.
• All eyes are on the Fed and their expected 25 bps rate hike.

AUD/USD risk proximity took a leg higher in early Asian trading but retraced after hitting the 0.6730 mark. It is currently trading unchanged.. In the early Asian hours, risk appetite expanded along with some high beta currencies on the back of coordinated efforts from major central banks on the liquidity crunch.

Last week we saw many commercial banks starting to fall one by one, with Credit Suisse being among the largest. Swiss authorities urged UBS to acquire the troubled Credit Suisse during the weekend. At the same time, other major central banks like the Federal Reserve (Fed), Bank of England (BoE), European Central Bank (ECB), and Swiss National Bank (SNB) took coordinated efforts to alleviate the liquidity crisis.

The Fed has opened its swap line to supply US Dollars to some major central banks to ease any liquidity drain on the US Dollar front, as it is the world reserve currency. The Bank of Japan (BoJ) remains isolated from this dollar bidding program, citing no financial stress evidence yet.

That being said, two European commercial banks are under scrutiny for liquidity contagion, which could be a possible reason for investors to become cautious despite the swap line.

On the other side, the People's Bank of China (PBoC) kept its benchmark rate unchanged as they had already cut the Reserve Requirement Ratio (RRR) by 25 bps on Friday. The consistent easing from PBoC is widening the yield differential with others and is likely to keep capital outflows intact.

Some earlier comments from Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent stated that the bank would consider financial conditions for the next policy meeting but downplayed the current scenario by saying it's just a small number of poorly managed banks.

All eyes are set on the FOMC meeting if they are still to deliver a 25 basis point (bps) rate hike, and if yes, what will be the forward guidance? The most likely scenario could be a done deal, but be ready for any surprise.

Levels to watch

• USD/CAD is hovering near day's high around 1.3720 amid anxiety among investors as they await Fed policy.
• US equities are facing severe heat led by deepening fears of global banking turmoil.
• Oil price has corrected to near $66.30 as the PBoC maintains the status quo.

The USD/CAD pair has printed a fresh intraday high at 1.3725 in the Asian session. The upside in the Loonie asset has been fueled by a recovery move from the US Dollar Index (DXY) and a corrective move in the oil price. Soaring anxiety among investors ahead of the interest rate decision by the Federal Reserve (Fed) is improving USD Index’s appeal.

The USD Index has recovered to 103.87 and is gathering strength to extend its recovery above the immediate resistance of 104.00. Meanwhile, S&P500 futures have surrendered the majority of their gains earned in the early Tokyo session. This portrays that the risk aversion theme is extremely solid and investors are using rallies for building more shorts.

US equities are facing severe heat led by deepening fears of global banking turmoil and anxiety among investors ahead of Fed policy. In a recent poll by Reuters, 76 of 82 economists believe that the US Federal Reserve (Fed) would raise its policy rate by 25 basis points (bps) to the range of 4.75-5% following the March Federal Open Market Committee (FOMC) meeting.

Meanwhile, the Canadian Dollar is dancing to the tunes of the inflation data, which will release on Tuesday. As per the consensus, the monthly headline Consumer Price Index (CPI) is expected to accelerate by 0.4%, lower than the former release of 0.5%. This might drag the annual headline CPI further to 5.5%. Also, the annual core CPI is expected to trim to 4.6% from the former release of 5.0%.

Investors should be aware of the fact that Bank of Canada (BoC) Governor Tiff Macklem has already held interest rates steady at 4.5%. BoC Macklem considers the current monetary policy as restrictive enough to scale down price pressures.

On the oil front, oil price has corrected to near $66.30 as the People’s Bank of China (PBoC) kept the interest rate policy unchanged. The street was anticipating an expansionary policy to infuse more liquidity into the economy. It is worth noting that Canada is a leading exporter of oil to the United States and lower the oil price might impact the Canadian Dollar further.

• USD/INR prints three-day downtrend even as bears struggle to keep the reins of late.
• Major central banks’ join effort to tame liquidity crunch, UBS-Credit Suisse deal favor risk-on mood.
• Chatters over the loss of Credit Suisse AT1 bondholders, anxiety ahead of Fed policy meeting probe optimists.

USD/INR remains depressed during a three-day downtrend, mildly offered near 82.50 amid early Monday morning, as the key week begins with baking sector optimism. However, details of the key risk-positive headlines appear fishy and have probed the market’s risk-on mood, which in turn keeps the Indian Rupee (INR) pair sellers hopeful.

Earlier in the day, news surrounding the major central banks’ coordinated efforts to fuel the market’s liquidity joined the headlines suggesting the UBS takeover of the troubled Credit Suisse to underpin the recovery in the sentiment.

The same favored the US Treasury bond yields to rebound after the two-year yields dropped the most since 2020 in the last week.

However, headlines from the Bank of Japan (BoJ) suggesting it had no bids for US Dollar liquidity infusion joined the news signaling losses of the Credit Suisse AT1 bond holders probe the risk profile and the yields of late. With this, the market sentiment remains mildly bid but the US Dollar struggles to defend the latest gains while Asian currencies are paring the intraday losses.

Elsewhere, downbeat prices of WTI crude oil also weigh on the USD/INR pair due to India’s reliance on Oil imports and record Currency Account Deficit. That said, the black gold seesaws around the lowest levels since December 2021, marked the previous day.

Amid these plays, the S&P 500 Futures print mild gains while struggling to reverse the previous day’s pullback from a one-week high around 3,970 whereas the US benchmark Treasury bond yields pause the previous week’s fall. That said, the US 10-year Treasury bond yields rose two basis points (bps) to 3.49% while the two-year counterpart also adds three bps to print a 3.93% coupon at the latest.

Moving on, banking sector updates will be crucial for the USD/INR pair traders to watch for clear directions. Also important will be Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting announcement, as well as the preliminary readings of the March month PMIs.

Technical analysis

Although a five-month-old descending resistance line challenges USD/INR bulls around 82.85, the bears have limited downside to track as a convergence of the 100-DMA and 50-DMA puts a floor under the prices near 82.15-10.

• Gold price has corrected to near $1,970.00 as investors are getting anxious about the Fed policy.
• Safe-haven appeal for Gold has been trimmed as UBS promised to rescue Credit Suisse.
•  Gold bulls are experiencing a momentum loss and are expected to deliver a mean reversion to near the 20-EMA.

Gold price (XAU/USD) corrected to near $1,970.00 after UBS announced the Credit Suisse rescue plan. The precious metal is gauging a cushion around the $1,970.00 support, however, further correction looks possible.

Investors should be aware of the fact that the market participants were pumping funds into the yellow metal to safeguard themselves from the volatility associated with a potential banking fiasco. A buyout deal by UBS has trimmed fears of global banking turmoil. The buyout deal has sent a signal that central banks are prepared to provide assistance to commercial banks in order to retrieve the confidence of investors.

The US Dollar Index (DXY) is demonstrating a back-and-forth action around 103.80 as the market is preparing for the interest rate decision by the Federal Reserve (Fed), which is scheduled for Wednesday. Analysts at Danske Bank see Fed chair Jerome Powell raising rates by 25 basis points (bps) despite recent turmoil amid banking sector jitters.

Bulk morning gains generated by the S&P500 futures are halved now, portraying that the UBS-Credit Suisse deal is not sufficient enough to deal with the global banking jitters. Negative market sentiment would stay for a period of time as the banking mess is still to show true colors. Meanwhile, the UBS-Credit Suisse deal has trimmed demand for US government bonds, which were being considered as safe-haven. This has pushed the 10-year US Treasury yields higher to 3.46%.

Gold technical analysis

Gold price delivered a stalwart rally after a breakout of the Symmetrical Triangle chart pattern on an hourly scale. A breakout in the aforementioned chart pattern is followed by heavy volume and wide ticks. After a perpendicular rally, Gold bulls are experiencing a momentum loss and are expected to deliver a mean-reversion to near the 20-period Exponential Moving Average (EMA) at $1,964.00.

The Relative Strength Index (RSI) (14) is oscillating in the bullish range of 60.00-80.00, which indicates that the upside momentum is extremely solid.

Gold hourly chart

• GBP/USD retreats from five-week high, stays mildly bid during three-day uptrend.
• 61.8% Fibonacci retracement, two-month-old resistance line challenge Cable buyers.
• Oscillators suggest receding strength in upside momentum but bears need validation from 100-EMA to retake control.

GBP/USD bulls take a breather around a five-week high, recently declining to 1.2185 as it reverses from the key resistance line during early Monday. Even so, the Cable pair remains mildly bid while printing a three-day winning streak.

That said, a downward-sloping resistance line from late January, around 1.2210 by the press time, appears a tough nut to crack for the GBP/USD pair buyers amid nearly overbought RSI (14) and mildly bullish MACD signals.

Also acting as an upside hurdle is the 61.8% Fibonacci retracement level of the quote’s fall from late January to early March, around the 1.2200 round figure.

It should be noted that the mid-February top surrounding 1.2270 appears the last defense of the GBP/USD bears, a break of which could propel the Cable price towards the 2023 top marked in January around 1.2450.

On the flip side, the 50% Fibonacci retracement level of 1.2125 could lure intraday sellers of the GBP/USD pair but a convergence of the 50-EMA and one-week-old ascending support line, near 1.2085, appears a tough nut to crack for the bears to retake control.

Also acting as an important support is the 100-EMA level surrounding 1.2060, a break of which won’t hesitate to challenge multiple lows marked during late February, around 1.1930-20.

Overall, GBP/USD is likely to witness a pullback but the bears are far from retaking control.

GBP/USD: Four-hour chart

Trend: Pullback expected

• EUR/USD grinds higher during three-day winning streak, mildly bid of late.
• US Two-year Treasury bond yields pare the biggest weekly loss in three years and trigger US Dollar rebound.
• Major central banks’ joint actions to infuse US Dollar liquidity, UBS-Credit Suisse deal favor risk-on mood.
• ECB’s Lagarde should defend policymakers’ hawkish bias to keep Euro buyers on the table, Fed’s 0.25% rate hike appears given.

EUR/USD prints mild gains around 1.0680 as the key week begins on a positive note. That said, the major currency pair prints a three-day uptrend amid early Monday morning in Europe as joint efforts from the major central banks to avoid a liquidity crunch join the UBS-Credit Suisse deal to favor the market’s risk profile, as well as underpin the recovery in the US Treasury bond yields and the US Dollar. It’s worth observing, however, that the hawkish comments from the European Central Bank (ECB) officials seem to defend the Euro buyers of late.

While reacting to the Swiss National Bank’s (SNB) efforts to defend Credit Suisse, European Central Bank (ECB) President Christine Lagarde said that the central bank hopes the Swiss-brokered rescue of Credit Suisse will restore calm in financial markets.

Before that, multiple European Central Bank (ECB) officials crossed wires on Friday to convince markets of the soundness of the bloc’s banks, as well as defend the ECB’s hawkish monetary policy stance. Firstly, Governing Council member Madis Muller said, “Banking uncertainty complicates communication,” while adding that the latest inflation forecasts assume more rate hikes. Following him was ECB Board member Francois Villeroy de Galhau who said that the French and European banks are 'very solid'.

Furthermore, ECB policymaker Peter Kazimir said that there is a need to continue with rate hikes while Governing Council Member Gediminas Šimkus backed the hawkish bias while saying, “The terminal rate hasn't been reached yet.”

On the other hand, the downbeat US Dollar data and Treasury bond yields propelled the EUR/USD previously. That said, US Consumer Confidence per the University of Michigan's (UoM) Consumer Confidence Index dropped to 63.4 for March versus 67.0 expected and prior. The details suggest that the year-ahead inflation expectations receded from 4.1% in February to 3.8%, the lowest reading since April 2021, while the 5-year counterpart dropped to 2.8% from 2.9% previous reading. Furthermore, US Industrial Production remained unchanged in February versus 0.2% expected and January's 0.3% (revised from 0%) expansion.

Elsewhere, the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, and Swiss National Bank are all up for announcing joint actions to provide more liquidity via standing US dollar liquidity swap line arrangements. Furthermore, Sky News reported the news of the UBS-Credit Suisse takeover on Sunday evening while stating that UBS will pay 3 billion Swiss francs (£2.6bn) to acquire Credit Suisse.

Against this backdrop, the S&P 500 Futures print mild gains while reversing the previous day’s pullback from a one-week high around 3,970 whereas the US benchmark Treasury bond yields recover. That said, the US 10-year Treasury bond yields rise six basis points (bps) to 3.49% while the two-year counterpart also adds five bps to print a 3.93% coupon at the latest. It’s worth noting that United States two-year Treasury bond yields marked the biggest weekly loss in three years while the 10-year counterpart dropped the most since early January.

Moving ahead, EUR/USD traders should pay attention to ECB President Lagarde’s speech for immediate directions. However, Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting announcement is this week’s crucial event as Fed’s 0.25% rate hike is already given. Also important are the preliminary readings of the March month PMIs. Above all, risk catalysts and the United States Treasury bond yields will be the key for Euro pair traders to watch for clear directions.

Technical analysis

A daily closing beyond the 50-DMA hurdle surrounding 1.0730 becomes necessary for the EUR/USD bull’s conviction. On the other hand, the major currency pair’s pullback remains elusive unless the quote stays beyond the 100-DMA, close to 1.0575 at the latest.

Japanese Chief Cabinet Secretary Hirokazu Matsuno says Japan's financial system is stable as a whole.

“Central banks swiftly ramped up efforts as risk-aversive moves seen in markets,” Matsuno added.

Market reaction

At the time of writing, USD/JPY is retreating from daily highs of 132.65, still adding 0.35% on the day.

• USD/CHF faces downward pressure as global liquidity efforts flood market with US Dollars.
• Swap lines are reintroduced as central banks coordinate to ease financial conditions.
• SNB rate decision in focus after Credit Suisse turmoil. 

USD/CHF is looking to retest the 0.9250 mark as the market is flooded with US Dollars. The coordinated effort from central banks to ramp up liquidity across the globe is likely to put downward pressure on the US Dollar.

The Federal Reserve (Fed) has opened the swap line for some major banks to gain access to the US Dollars. And some reports suggest that UBS is likely to acquire Credit Suisse that  should ease the financial conditions in Switzerland. This development could l be positive for CHF, therefore downside bias remains intact for USD/CHF.

Upon breaking the closest support seen at the 0.9250 mark, the pair could retrace the Credit Suisse-led gain starting from the 0.9141 mark.

We have seen a strong downside run from the US Dollar on the first instance of the swap line during COVID, so this might be the same case again.

The ultimate destination for the pair will be 0.9100 if everything remains calm and composed.

Any upside gains are likely to remain capped between the 50-Day Moving Average (DMA) and the 21-DMA. The downward-sloping trendline starting from the March high at 0.9431 coincides with the 21-DMA, posing a strong case for the downside for USD/CHF.

The lower highs on the Relative Strength Index (RSI) signal more room for the downside.

The Swiss National Bank (SNB) rate decision is on Thursday, with the expectation of a 50 basis point (bps) hike. Despite Credit Suisse's situation, will they be able to deliver the same? This will be important to watch for USD/CHF's next direction.

USD/CHF: Daily timeframe

In a joint statement on Sunday, US Federal Reserve Chair Powell and Treasury Secretary Yellen said that “the US banking system's capital and liquidity positions are robust and the financial system is resilient.”

Additional takeaways

"We welcome the announcements by the Swiss authorities today to support financial stability.”

“The capital and liquidity positions of the US banking system are strong, and the US financial system is resilient.”

“We have been in close contact with our international counterparts to support their implementation."

Shortly after Powell and Yellen came out with the joint statement, European Central Bank (ECB) President Christine Lagarde said that the central bank hopes the Swiss-brokered rescue of Credit Suisse will restore calm in financial markets.”

“The ECB remains ready to support Eurozone banks with loans if needed,” Lagarde added.

Related reads

• US Dollar Index: Joint central bank efforts tease DXY bulls below 104.00 ahead of Fed
• BOJ board sees the need to maintain easy policy

• Volatility remains elevated in financial markets.
• NZD/USD bears are in the market and testing structure.

NZD/USD is meeting a prior area of support on the hourly charts as the bears move in from the session´s highs near 0.6280. NZD/USD has traveled between there and 0.6245 so far. 

Volatility remains elevated and there is news from the weekend that UBS is said to take over Credit Suisse in a deal aimed at stemming what was fast becoming a global crisis of confidence. Credit Suisse, the 167-year-old embattled lender had been brought to the brink of financial calamity last week, despite securing a $54bn (£44bn) credit line from Switzerland's central bank.

´´Financial instability and bank wobbles remain the focus, and it’s hard to see that going away any time soon, so expect ongoing volatility,´´ analysts at ANZ Bank said.´´On the one hand, New Zealand seems remote from all this (that’s a positive) and the issue of getting inflation back to target is just as (if not more) pressing here than elsewhere. But equally, markets remain fearful of NZ’s wide current account deficit and other imbalances, and of what impact a likely Fed hike this week may bring (likely a stronger USD if the Fed contains contagion fears while hiking).´´

NZD/USD technical analysis

NZD/USD is on the backside of the trend which leaves a bearish bias for the week ahead while below 0.6280. 

• Market sentiment improves amid receding fears of liquidity crunch, 2008 financial crisis.
• Five major central banks join the Fed to infuse US Dollar liquidity via swaps, UBS eyes Credit Suisse take over.
• S&P 500 Futures print mild gains, Treasury bond yields recover after the worst week in many months.
• Multiple central bank meetings, PMIs and banking sector update are the key catalysts to watch for fresh impulse.

After a week full of risk aversion, the market sentiment improves during early Monday as weekend headlines suggest positive developments to ward off the looming fears of liquidity crisis and banking sector fallout. It should, however, be noted that the cautious mood ahead of this week’s top-tier central bank meetings and activity data seems to probe the optimists.

As a result, the S&P 500 Futures print mild gains while reversing the previous day’s pullback from a one-week high around 3,970 whereas the US benchmark Treasury bond yields recover. That said, the US 10-year Treasury bond yields rise six basis points (bps) to 3.49% while the two-year counterpart also adds five bps to print a 3.93% coupon at the latest. It’s worth noting that United States two-year Treasury bond yields marked the biggest weekly loss in three years while the 10-year counterpart dropped the most since early January.

While tracing the major catalysts, the UBS-Credit Suisse deal and the major central banks’ joint efforts to infuse the market liquidity seem to gain major attention.

Sky News reported the news of the UBS-Credit Suisse takeover on Sunday evening while stating that UBS will pay 3 billion Swiss francs (£2.6bn) to acquire Credit Suisse. The news further adds that UBS has agreed to assume up to 5 billion Francs (£4.4bn) in losses, and 100 billion Swiss Francs (£88.5bn) in liquidity assistance will be available to both banks.

On the other hand, the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, and Swiss National Bank are all up for announcing joint actions to provide more liquidity via standing US dollar liquidity swap line arrangements.

Additionally favoring the market’s risk-on mood could be comments from an anonymous US Official suggesting no major challenges for the US banks. On the same line is the news quoting the US Federal Deposit Insurance Corporation (FDIC) as it mentioned that the deposits of Signature Bridge Bank will be assumed by a subsidiary of New York Community Bancorporation.

Furthermore, Japan’s readiness for a two trillion worth stimulus package to avoid deflation and the rebound in the UK manufacturing production also allow the traders to lick their wounds after a downbeat weekly performance.

However, the fears ahead of this week’s monetary policy announcements from the Federal Reserve (Fed), the Bank of England (BoE) and the Swiss National Bank (SNB), probe the optimists. Additionally testing the risk-on mood could be the pre-data anxiety ahead of March’s preliminary PMIs.

Looking ahead, the market sentiment may remain fragile as the top-tier data/events are up for publishing. Also challenging the risk profile is the trader’s doubts about the banking sector despite the major policymakers’ efforts.

• USD/CNH has not shown any major action on PBoC’s steady monetary policy.
• An expansionary monetary policy was expected to spurt the economic recovery in China.
• Investors have cheered the UBS-Credit Suisse deal and are supporting risk-sensitive assets.

The USD/CNH pair has not shown a significant move despite the monetary policy announcement by the People’s Bank of China (PBoC). The PBoC has announced an unchanged interest rate policy despite the demand for higher stimulus to spurt the economic recovery. The central bank has kept the one-year and five-year Loan Prime Rate (LPR) steady at 3.65% and 4.30% respectively.

Contrary to the unchanged interest rate decision, the street was anticipating further expansion in the monetary policy stance.

Economist at UOB Group suggests that the PBoC could reduce the Loan Prime Rate (LPR) at its next meeting on March 20. They further added, “With the need for further support measures toward the real economy and for 5Y loan prime rate (LPR) to fall further to boost demand for homes, we see the possibility for the 1Y LPR to fall to 3.55% and 5Y LPR to 4.20% in Mar, following the National People’s Congress (NPC).”

Meanwhile, the US Dollar Index (DXY) is facing barricades in attempting a recovery as the expectations of a less-hawkish monetary policy announcement by the Federal Reserve (Fed) are accelerating. As per the CME Fedwatch tool, more than 77% odds are in favor of a 25 basis point (bps) interest rate hike on Wednesday. An interest rate decision of 25 bps would push interest rates to 4.75-5.00%.

S&P500 futures are reviving firmly as investors have cheered the rescue plan for Credit Suisse. UBS Group has agreed to buy Credit Suisse. Sky News reported that under the takeover UBS will pay 3bn Swiss francs (£2.6bn) to acquire Credit Suisse. And, it has agreed to assume up to 5bn francs (£4.4bn) in losses, and 100bn Swiss francs (£88.5bn) in liquidity assistance will be available to both banks.

• USD/JPY rebounds from five-week low, grinds near intraday high of late.
• BoJ Summary of Opinions suggests board members saw the need to maintain ultra-loose monetary policy.
• Coordinated central bank efforts to infuse US Dollar liquidity, UBS-Credit Suisse deal propel yields after last week’s heavy fall.
• Fed’s reaction to banking crisis becomes crucial for clear directions.

USD/JPY consolidates the biggest weekly loss since January while bouncing off a five-week low to 132.50 during early Monday. In doing so, the yen pair tracks the recovery in the US Treasury bond yields to begin the key week on a firmer footing after marking a three-week losing streak in the last.

That said, the US 10-year Treasury bond yields rise six basis points (bps) to 3.49% while the two-year counterpart also adds five bps to print a 3.93% coupon at the latest. It’s worth noting that United States two-year Treasury bond yields marked the biggest weekly loss in three years while the 10-year counterpart dropped the most since early January.

As per the latest Bank of Japan (BoJ) Summary of Opinions, the board members saw the need to maintain the ultra-loose monetary policy for now, even as some warned of the need to scrutinize its side effects such as deteriorating market functions.

Also read: BOJ board sees the need to maintain easy policy

Adding strength to the USD/JPY rebound could be the news shares by Yomiuri saying that the Japanese government eyes efforts worth two trillion Yen to defend the economy from slipping back into the deflation zone.

Apart from the likely continuation of the BoJ’s ultra-easy monetary policy, the news suggesting the global central banks’ joint efforts to boost the US Dollar liquidity and the UBS-Credit Suisse deal also allowed the USD/JPY to recover.

The Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, and Swiss National Bank are all up for announcing joint actions to provide more liquidity via standing US dollar liquidity swap line arrangements. Further, Sky News reported the news of the UBS-Credit Suisse takeover on Sunday evening while stating that UBS will pay 3 billion Swiss francs (£2.6bn) to acquire Credit Suisse. The news further adds that UBS has agreed to assume up to 5 billion Francs (£4.4bn) in losses, and 100 billion Swiss Francs (£88.5bn) in liquidity assistance will be available to both banks.

On the same line were the comments from the US Federal Deposit Insurance Corporation (FDIC) mentioning that the deposits of Signature Bridge Bank will be assumed by a subsidiary of New York Community Bancorporation.

Amid these plays, S&P 500 Futures reverse the previous day’s losses with 0.60% intraday gains around 3,970.

Moving forward, the bond market moves will be crucial for the USD/JPY pair traders to watch. Additionally important will be Federal Reserve (Fed) action. It should be noted that the Fed is up for a 0.25% rate hike on Wednesday but the rate lift isn’t crucial as it’s mostly priced in. More important is the Fed’s outlook on the banking sector and the US economy, as well as the rate hike trajectory, moving forward.

Technical analysis

Despite the latest rebound, a daily closing beyond the 50-DMA hurdle surrounding 132.50 becomes necessary for the USD/JPY bulls to retake control. Until then, the Yen pair sellers keep eyes on a nine-week-old upward-sloping support line, near 130.40 by the press time.

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.8694 vs. the estimate of 6.8701. 

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.

The People´s Bank of China has set the 1-year loan prime rate at 3.65% vs 3.65% a month earlier.
    
Also, the PBoC set the 5-year loan prime rate at 4.30% vs 4.30% a month earlier.

Meanwhile, on Friday the PBoC said it would cut the amount of cash that banks must hold as reserves for the first time this year to help keep liquidity ample and support a nascent economic recovery. The PBoC said it would cut the reserve requirement ratio (RRR) for all banks, except those that have implemented a 5% reserve ratio, by 25 basis points (bps), effective March 27.

• AUD/USD bulls are in the market and eye 0.6750. 
• Bullish structure is forming on the lower time frames.

As per AUD/USD´s prior analysis, AUD/USD Price Analysis: Bulls eye a break into the 0.67s, the bulls are making their way up and there is a focus on a bullish extension while on the front side of the trendline.

AUD/USD prior analysis

H1 chart

´´The bulls stepped in again on the correction in resistance which leaves a bullish bias for the open for an additional test in the 0.67s.´´

AUD/USD update

The bulls have scored a fresh high at the start of the week and the focus is on the potential support structure and trendline support. A break of the highs opens risk to 0.6750.

• EUR/GBP is oscillating near 0.8750 ahead of BoE policy and UK inflation.
• BoE’s Bailey could go for a steady policy to safeguard the economy from potential banking turmoil.
• A power-pack action in the cross looks missing despite the headline of UOB infusing life into Credit Suisse.

The EUR/GBP pair is displaying a lackluster performance around 0.8750 in the Asian session. The cross has turned sideways as investors are shifting their focus towards the release of the interest rates decision by the Bank of England (BOE) and the United Kingdom’s Consumer Price Index (CPI) this week.

A power-pack action in the cross looks missing despite the headline of UOB infusing life into Credit Suisse. Credit Suisse shareholders were deprived of a vote on the deal and will receive one share in UBS for every 22.48 shares they own, valuing the bank at $3.15bn (£2.6bn), as reported by BBC News. The Swiss National Bank (SNB) said the deal was the best way to restore confidence in financial markets and to manage risks to the economy. Also, the BoE said it welcomed the "comprehensive set of actions".

For the interest rate decision, the street is of the view that BoE Governor Andrew Bailey could give a dismal outlook amid the banking turmoil jitters as the first priority.

Analysts at Rabobank also see a 25 basis point (bps) rate hike and warn that such a case is not fully priced in the interest market. A 25 bps rate hike by BoE Governor Andrew Bailey would push rates to 4.25%.

Before that, Wednesday’s UK inflation data will be keenly watched. As per the estimates, the annual headline CPI is expected to trim 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%. It should be aware of the fact the stronger food inflation and a labor shortage are behind UK’s stubborn inflation.

On the Eurozone front, after a 50 bps interest rate hike by the European Central Bank (ECB) last week, ECB Governing Council Gediminas Šimkus said on Friday, “the terminal rate hasn't been reached yet.” Eurozone inflation is extremely stubborn and needs more rates for further softening.

• GBP/JPY rallies as central banks tackle liquidity crisis with coordinated efforts.
• Swap lines reintroduced: Major central banks unite to address global liquidity concerns.
• Eyes on Bank of England, 25 bps one and done?

GBP/JPY marched higher in early Asian hours on Monday as the Japanese Yen demand faded on the back of growing optimism on the liquidity front. The risk sentiment got a boost on Monday due to a globalized effort to tame last week's liquidity crisis.

To reestablish confidence in the financial system, some major central banks, including the Bank of Japan (BoJ) and Bank of England (BoE), have made a coordinated effort to dilute the banking ecosystem across the globe with US Dollars. The swap line has been introduced for this purpose.

The main resource for this swap line is the Federal Reserve (Fed), which the Fed will lend US Dollars to other central banks in exchange for local currency as a short-term loan. The swap line will begin from Monday until April.

On Sunday, the Bank of England said it welcomed the actions by the Swiss authorities to merge Credit Suisse with UBS Group and also emphasized that the UK banking system is well-capitalized and funded. The BoE rate decision is on Thursday, and it will be important to see their forward guidance. This may be the last rate hike from the BoE amid the ongoing liquidity crisis.

The Bank of Japan's March meeting Summary of Opinions released earlier highlights nothing new, as the bank has remained on an ultra-easing monetary stance for decades. Adding to this, Japanese Finance Minister Shunichi Suzuki said on Monday he was closely watching market moves after a weekend rescue deal for Credit Suisse Group

It is also important to watch how this week unfolds on the liquidity front, citing some earlier reports stating that two European banks are under scrutiny. Therefore, the upside gains in GBP/JPY are likely to remain vulnerable.

Levels to watch

• Silver price renews intraday low while taking a U-turn from the highest levels in 1.5 months.
• Overbought RSI allows XAG/USD sellers to sneak in from six-week-old horizontal resistance.
• Ascending support line from March 10, 200-EMA put a floor under the Silver price.

Silver price (XAG/USD) takes offers to renew intraday low near $22.40 as it reverses from the highest levels since early February as the Fed week begins.

In doing so, the bright metal reverses from the horizontal area comprising multiple tops marked since February 03, around $22.60.

It’s worth noting that the overbought conditions of the RSI (14) also help the XAG/USD to pare recent gains near the multi-day high.

However, bullish MACD signals and the metal’s sustained trading above the key supports keep the Silver buyers hopeful.

Among the immediate crucial support is a one-week-old ascending trend line, around $21.90, as well as the 200-bar Exponential Moving Average (EMA) surrounding $21.65.

It should be observed that the early month swing high near $21.30 and the $21.00 round figure can act as additional downside filters for the XAG/USD bears to watch before targeting the monthly low of $19.90.

Meanwhile, the Silver price run-up beyond the aforementioned resistance line surrounding $22.60 needs validation from the 61.8% Fibonacci retracement level of the metal’s February-March downside, near $22.85.

Following that, a run-up toward the Year-To-Date (YTD) high surrounding $24.65 can’t be ruled out.

Overall, the Silver price is likely to decline but the bears have a long way to ride before retaking control.

Silver price: Four-hour chart

Trend: Further downside expected

• GBP/USD is building strength for shifting the business above 1.2200 amid the risk-on mood.
• The Fed would look for a 25 bps rate hike just to maintain pressure on stubborn inflation.
• A steady BoE policy is in anticipation following the SVB collapse.

The GBP/USD pair is gathering strength is shifting its auction above the round-level resistance of 1.2200 in the Asian session. The Cable has found support as the appeal for the US Dollar Index (DXY) is declining amid rising expectations of a less-hawkish monetary policy by the Federal Reserve (Fed).

S&P500 futures are showing significant gains in the Asian session as UOB has confirmed a buyout for Credit Suisse. This has improved the risk appetite of the market participants as investors’ confidence is getting restored. Sky News reported that under the takeover UBS will pay 3bn Swiss francs (£2.6bn) to acquire Credit Suisse. And, it has agreed to assume up to 5bn francs (£4.4bn) in losses, and 100bn Swiss francs (£88.5bn) in liquidity assistance will be available to both banks.

The USD Index is observing a restrictive upside around 103.80 as banking shakedown in the United States has faded hawkish guidance delivered by Fed chair Jerome Powell, a few weeks back. Inflation has dropped and the requirement of providing assistance to commercial banks is favoring the need for a lower interest rate hike, just to maintain pressure on stubborn inflation.

Analysts at Danske Bank see the Fed raising rates by 25 basis points (bps) despite recent turmoil amid banking sector jitters.

On the United Kingdom front, investors are awaiting the interest rate decision by the Bank of England (BoE), scheduled for Thursday. Analysts at Rabobank also see a quarter-point rate increase and warn that such a scenario is not fully priced in the interest market, “which indicates that the chance of a hold has increased following the collapse of Silicon Valley Bank (SVB).” A 25 bps rate hike by BoE Governor Andrew Bailey would push rates to 4.25%.

But before that, UK inflation data will be keenly watched. Annual headline Consumer Price Index (CPI) data is expected to decline to 9.8% from double-digit figures.

• Gold price reverses from the highest levels in 2023 after posting a notable jump.
• Joint central bank actions to propel US Dollar liquidity, UBS-Credit Suisse deal enable United States Treasury bond yields to recover.
• Federal Reserve’s reaction to banking sector turmoil will be crucial for the Gold price.
• XAU/USD traders should also observe preliminary readings of March month Purchasing Managers’ Index.

Gold price (XAU/USD) takes offers from the Year-To-Date (YTD) high while targeting the previous resistance surrounding $1,960, near $1,976 by the press time of early Monday in Asia. In doing so, the precious metal pares the recent losses after posting the biggest daily and weekly jump in three years in the last.

The latest recovery in the United States Treasury bond yields, backed by hopes of more liquidity in the market, seems to have underpinned the US Dollar rebound and weighs on the Gold price. Also challenging the XAU/USD bulls is traders’ anxiety as the key week comprising the Federal Reserve (Fed) monetary policy announcements begins. That said, the yellow metal’s previous fall could be linked to a slump in the bond coupons across the board amid fears of the return of the 2008 financial market crisis.

Gold price swiftly reacts to Treasury bond yields’ moves

Gold price drops on the latest recovery in the United States Treasury bond yields amid news suggesting no liquidity crunch moving ahead. That said, Sky News reported the news of the UBS-Credit Suisse takeover on Sunday evening while stating that UBS will pay 3 billion Swiss francs (£2.6bn) to acquire Credit Suisse. The news further adds that UBS has agreed to assume up to 5 billion Francs (£4.4bn) in losses, and 100 billion Swiss Francs (£88.5bn) in liquidity assistance will be available to both banks.

On the same line were the comments from the US Federal Deposit Insurance Corporation (FDIC) mentioning that the deposits of Signature Bridge Bank will be assumed by a subsidiary of New York Community Bancorporation. Furthermore, the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, and Swiss National Bank are all up for announcing joint actions to provide more liquidity via standing US dollar liquidity swap line arrangements. It should be noted that the previously downbeat Treasury bond yields could be linked to the trader’s rush to risk safety amid the market’s turmoil, as well as hopes of interest rate cuts from major central banks late in 2023.

Talking about the market turmoil, the early challenges to the banking sector emanating from the Silicon Valley Bank (SVB) and Signature Bank joined the Credit Suisse saga, as well as the First Republic Bank, to highlight a full-blown Déjà vu for the 2008 crisis. The same joined downbeat US data to shift traders’ attention toward the Treasury bonds and Gold to safeguard their investments amid volatile markets.

During the last week, the US Consumer Price Index (CPI) for February matched 6.0% YoY market expectations versus 6.4% prior while the Retail Sales also marked -0.4% MoM figure versus -0.3% expected and 3.2% previous readings. Further, US Consumer Confidence per the University of Michigan's (UoM) Consumer Confidence Index dropped to 63.4 for March versus 67.0 expected and prior. The details suggest that the year-ahead inflation expectations receded from 4.1% in February to 3.8%, the lowest reading since April 2021, while the 5-year counterpart dropped to 2.8% from 2.9% previous reading. Furthermore, US Industrial Production remained unchanged in February versus 0.2% expected and January's 0.3% (revised from 0%) expansion.

In addition to the downbeat US data, mixed statistics from China, the world’s second-largest economy, also raised market fears and allowed the Gold price to remain firmer. It should be noted that the stocks in Europe and Asia portrayed a risk-off mood but those in the US gained in the last week.

That said, United States two-year Treasury bond yields marked the biggest weekly loss in three years while the 10-year counterpart dropped the most since early January. However, the latest readings suggest that the US 10-year Treasury bond yields rose four basis points (bps) to 3.47% while the two-year counterpart rises to 3.98%.

Given the latest action in the bond markets, Gold traders should closely watch yields for better directions.

Federal Reserve could make or break XAU/USD

While the recent hopes of more liquidity in the market seemed to have weighed on the Gold price, the metal isn’t out of the woods as traders remain cautious over the banking sector crisis. Also challenging the XAU/USD traders are the multiple central banks' decisions, including the US Federal Reserve (Fed), lying ahead.

It should be noted that the Fed is up for a 0.25% rate hike on Wednesday but the rate lift isn’t crucial as it’s mostly priced in. More important is the Fed’s outlook on the banking sector and the US economy, as well as the rate hike trajectory, moving forward. Should the US central bank sounds cautious on future rate hikes, or pauses the current one, the odds of a rally in the Gold price can’t be ruled out. However, hawkish comments from the Fed won’t hesitate to trigger the XAU/USD’s slump.

Other central banks, PMIs and banking sector updates are important too

Apart from the Federal Reserve, monetary policy meetings of the Swiss National Bank and Bank of England (BoE) will also be important for Gold traders to watch as the central bank’s outlook for the latest banking sector fallout becomes crucial. Also important are the preliminary readings of the March month PMIs. Above all, risk catalysts and the United States Treasury bond yields will be the key for Gold traders to watch for clear directions.

Also read: Gold Price Weekly Forecast: $2,000 back in crosshairs amid market turmoil

Gold price technical analysis

Gold price refreshed the YTD high on Friday, after successfully crossing February’s peak surrounding $1,960.

The upside momentum, however, lacked support from the Relative Strength Index (RSI), placed at 14, as the line touched the overbought territory and poked XAU/USD bulls afterward.

Also challenging the Gold price upside are multiple resistances between $1,996 and the $2,000 threshold, comprising an ascending trend line from August 2022 and an area including levels marked during March and April of 2022.

Even if the Gold price crosses the $2,000 hurdle, the 61.8% Fibonacci Expansion (FE) of the metal’s run-up from November 2022 to February 2023, around $2,017, could act as the last defense of the XAU/USD bears.

That said, a clear upside break of $2,017 won’t hesitate to challenge Gold buyers targeting the previous yearly top of $2,070.

On the flip side, Gold sellers aim for the previous monthly top surrounding $1,960, a daily closing below the same can trigger a short-term downside of the metal.

In that case, the $1,900 threshold and the 50-DMA support of around $1,880 could gain the market’s attention.

It’s worth noting, however, that the 100-DMA level near $1,824 and the $1,800 round figure act as strong supports for the Gold price.

Overall, Gold buyers are likely to occupy the driver’s seat but the road towards the north appears bumpy unless crossing the $2,017 hurdle.

Gold price: Daily chart

Trend: Limited upside expected

The Bank of Japan´s Summary of Opinions has been published. 

Reuters reports that the board members saw the need to maintain ultra-loose monetary policy for now, even as some warned of the need to scrutinize its side effects such as deteriorating market functions, a summary of opinions at their March policy meeting showed on Monday.

"Japan's economy is showing signs of achieving a positive cycle. But any tweak to monetary policy must be examined and discussed carefully given the impact on markets and various economic entities," one of the members was quoted as saying in the summary.

About the MPS

This report includes the BOJ's projection for inflation and economic growth. It is scheduled 8 times per year, about 10 days after the Monetary Policy Statement is released.

• AUD/JPY rises on central banks' coordinated liquidity-boost effort.
• The swap line is the new lifeline amid liquidity concerns.
• Market optimism grows as the central banks tackle turmoil. 

AUD/JPY took a bounce during early Asian hours in the wake of weekend optimism on the liquidity front. The risk proxy is up around 0.35% as of now, which is helped by the globalized effort from the top central banks to ease some liquidity severity.

During the weekend, the Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BoE), Bank of Japan (BoJ), and Swiss National Bank (SNB) all came together to provide a liquidity lifeline known as "swap line" for those commercial banks who are struggling with any sort of liquidity issue. The market cheered this and high beta currencies surged, due to how quickly they addressed the issue and took action.

This is the second instance of the introduction of the swap line, which was first introduced during the COVID pandemic.  It is an operation by which the central bank provides US Dollar liquidity to commercial banks on a shorter maturity; this time it is up to seven days. This helps these commercial banks smoothen their day-to-day operations.

Some earlier comments came from Reserve Bank of Australia Assistant Governor Kent, and he is probably the first central banker who stated to take into account this liquidity-led financial turmoil while addressing the interest rate decision.

A few central bank rate decisions are due this week and It's important to see what are their official stance on this issue. The first in line is the People's Bank of China (PBoC). The said bank is on the easing side, contrary to others, and may surprise the market by taking some extra measures if the underlying situation requires it.

On the Japanese front, more financial aid in the form of subsidies is likely to be injected into the economy to combat the higher prices. That said, the temporary subsidy for regional revitalization is expected to add 700 billion Japanese yen.

Levels to watch

• AUD/NZD pops in the Tokyo open to test 1.0700.
• The RBA and RBNZ are in focus with RBA minutes and RBNZ MPS coming up.

AUD/NZD is higher in Tokyo, correcting up from the lows of 1.0673 and reaching into the 1.07s again. Given the robustness of much of last week’s data flow, markets are pricing in a move from the Reserve Bank of Australia.

´´For the RBA we suspect the major consideration in assessing the balance of the domestic fundamentals (which in our view support the case for further tightening) versus developments offshore, will be the potential for spill-over into the real economy,´´ analysts at ANZ Bank said. 

Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent spoke today and said the full impact of increases in interest rates was taking longer to filter through to the economy due to a higher share of fixed-rate mortgages and the savings amassed by households during the pandemic.

Meanwhile, a reflection of the robustness in the domestic data was the February labour force survey, which showed a strong gain in employment and a fall in the unemployment rate back to 3.5%. 

´´An increase in the unemployment rate would likely help return inflation to the RBA’s target band. As our chart of the week suggests (acknowledging inflation dynamics are more complex and such curves are not stable over time), an unemployment rate in the low to mid 4’s would be more consistent with the inflation target than one in the mid 3’s,´´ the analysts at ANZ Bank argued. ´´Such an Unemployment Rate would still be lower than that which prevailed pre-pandemic.´´

 Minutes of the RBA´s March Monetary Policy Meeting will be released this week. 

Meanwhile, financial market risks are currently in focus, with the fallout from Silicon Valley Bank’s failure in the US causing immense volatility in global wholesale interest rates in recent days. ´´All else equal, now that rates are (almost certainly) in restricted territory, this reminder of global fragility tilts the scales towards 25bp from the RBNZ in April (already our forecast, but we previously saw the hurdle to 50bp as extremely low),´´ the analysts at ANZ said noting the RBNZ MPS coming up on March 24. 

• US Dollar Index picks up bids to snap two-day losing streak, mildly bid of late.
• Five key central banks to join Fed in infusing US Dollar liquidity via currency swaps.
• UBS-Credit Suisse deal also enables Treasury bond yields to stabilize after rocky week.
• Fed Chair Powell’s comments on banking sector fallouts, PMIs for March will be crucial for clear directions.

US Dollar Index (DXY) cheers the weekend news suggesting more liquidity in the market while tracing the recovery in the Treasury bond yields to snap a two-day downtrend near 103.80 as the key week begins. In doing so, the greenback’s gauge versus the six major currencies cheers the hopes of more US Dollar-linked liquidity, as well as easing fears from the latest banking sector fallouts, ahead of Wednesday’s key Federal Open Market Committee (FOMC) monetary policy meeting.

During the weekend, Sky News reported the news of the UBS-Credit Suisse takeover on Sunday evening while stating that UBS will pay 3 billion Swiss francs (£2.6bn) to acquire Credit Suisse. The news further adds that UBS has agreed to assume up to 5 billion Francs (£4.4bn) in losses, and 100 billion Swiss Francs (£88.5bn) in liquidity assistance will be available to both banks.

On the same line were the comments from the US Federal Deposit Insurance Corporation (FDIC) mentioning that the deposits of Signature Bridge Bank will be assumed by a subsidiary of New York Community Bancorporation.

Furthermore, the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, and Swiss National Bank are all up for announcing joint actions to provide more liquidity via standing US dollar liquidity swap line arrangements.

The news also contributes to the market’s hopes of more liquidity and allows the US Treasury bond yields to pare the last week’s heavy losses. That said, the US two-year Treasury bond yields dropped the most in three years in the last week. That said, the US 10-year Treasury bond yields rose four basis points (bps) to 3.47% at the latest while S&P 500 Futures also rise 0.70% intraday even after a downbeat Wall Street closing.

In the last week, the banking sector rout drowned the market sentiment but the US Dollar and the Swiss Franc had to fall amid downbeat Treasury bond yields, as well as the SNB’s role in defending Credit Suisse. It should be noted that the downbeat US data added strength to the greenback’s south run.

That said, the US Consumer Price Index (CPI) for February matched 6.0% YoY market expectations versus 6.4% prior while the Retail Sales also marked -0.4% MoM figure versus -0.3% expected and 3.2% previous readings. Further, US Consumer Confidence per the University of Michigan's (UoM) Consumer Confidence Index dropped to 63.4 for March versus 67.0 expected and prior. The details suggest that the year-ahead inflation expectations receded from 4.1% in February to 3.8%, the lowest reading since April 2021, while the 5-year counterpart dropped to 2.8% from 2.9% previous reading. Furthermore, US Industrial Production remained unchanged in February versus the 0.2% expected and January's 0.3% (revised from 0%) expansion.

Moving on, risk catalysts will be more important for the US Dollar Index traders ahead of Wednesday’s FOMC decision. Additionally, preliminary readings of the US March month S&P Global PMIs will also be important for DXY traders to watch for fresh impulse.

Technical analysis

US Dollar Index remains sidelined between an ascending support line from the mid-February and a one-week-old descending resistance line, respectively near 103.60 and 104.40.

• EUR/USD has sensed a cushion around 1.0670 amid an improvement in investors’ risk appetite.
• The Fed is expected to remain steady or hike interest rates by 25 bps on order to maintain pressure on inflation.
• EUR/USD is auctioning in a Bullish Pennant chart pattern that indicates an upside momentum.

The EUR/USD pair has found a cushion around 1.0670 in the early Tokyo session. The major currency pair is expected to recapture the round-level resistance of 1.0700 as investors are quite confident about a less-hawkish interest rate decision by the Federal Reserve (Fed), scheduled for Wednesday. Considering the declining trend in the United States inflation and banking debacle, the Fed is expected to remain steady or hike interest rates by 25 basis points (bps) on order to maintain pressure on inflation.

The US Dollar Index (DXY) is defending the 103.60 cushion, however, the downside seems favored as investors’ risk appetite is improving. S&P500 futures are showing strong recovery in early Asia after a battered Friday as the headline of UBS taking over Credit Suisse is infusing confidence among the market participants.

Sky News reported that under the takeover UBS will pay 3bn Swiss francs (£2.6bn) to acquire Credit Suisse. And, it has agreed to assume up to 5bn francs (£4.4bn) in losses, and 100bn Swiss francs (£88.5bn) in liquidity assistance will be available to both banks.

EUR/USD is auctioning in a Bullish Pennant chart pattern, which indicates that the asset is in upside momentum. Usually, the aforementioned chart pattern delivers a bearish reversal after reaching a point where the upside momentum gets exhausted.

A bull cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 1.0630, indicates more upside ahead.

The Relative Strength Index (RSI) (14) is working hard for a confident shift into the bullish range of 60.00-80.00, which would strengthen the Euro.

For an upside move, a decisive break above the round-level resistance of 1.0700 will drive the asset toward the horizontal resistance plotted from March 15 high at 1.0760 and February 14 high at 1.0804.

On the flip side, a downside break below March 17 low at 1.0612 would drag the shared currency pair toward March 16 low at 1.0551, followed by March 15 low at 1.0516.

EUR/USD hourly chart