CFD Markets News and Forecasts — 22-03-2023

• US Dollar on its knees after the Fed dovish hike. 
• The Weekly M-formation could hamstring the downside. 

Federal Reserve hikes rates by 25 bps, as expected but the Fed statement deleted reference to 'ongoing increases' in rates. Ahead of the decision, the money markets were pricing in a year-end target rate of 4.36%. This has dropped in volatile reactions to the statement to 4.26%.

In the Fed's statement, the members of the Federal Open Markets Committee (FOMC) suggested it was on the verge of pausing future hikes in view of the recent turmoil in the financial sector. however, Jerome Powell vowed to commit to reining in inflation. 

On top of that, we had hawkish comments by European Central Bank President Christine Lagarde on Wednesday that gave the Euro a boost when she said the ECB would take a "robust" approach to inflation risks.

Specifically, ECB President Lagarde said, "we do not see clear evidence that underlying inflation is trending downwards," and the ECB will take a "robust" approach that allows it to respond to inflation risks as needed but also aid financial markets if threats emerge.

Consequently, the US 2-year Treasury yields were dropping from 4.259% on the day to print a low of 3.958%. Consequently, the US Dollar index, DXY, fell to a low of 102.065 from a high of 103.265.

Fed Powell´s key notes

Powell speech: Isolated banking problems can threaten banking system if left unaddressed

Powell speech: Recent banking events will result in tighter credit conditions

Powell speech: Before banking stress, thought we would have to raise terminal rate

Powell speech: Tightening in credit conditions may mean monetary tightening has less work to do

´´If we need to raise rates higher we will, for now we see likely hood of credit tightening.´

US Dollar technical analysis

From a weekly perspective, the price is headed to the support zone while leaving an M-formation in its tracks. This is a bullish reversion pattern that would be expected to see the index correct back toward the neckline in due course. 

• EUR/GBP is looking to add gains further as ECB Lagrade sees inflation to remain high ahead.
• UK’s inflation showed a surprise rise led by higher food prices and energy costs.
• A 25bp rate hike by the BoE looks likely as UK inflation continues to stay in the double-digit figure.

The EUR/GBP pair has shifted its auction above the critical resistance of 0.8850 in the early Asian session. The cross is aiming to deliver more gains ahead despite bumper odds of 25 basis points (bps) by the Bank of England (BoE) in its monetary policy meeting, scheduled for Thursday.

On Wednesday, the United Kingdom (UK) Office for National Statistics reported a surprise rise in the Consumer Price Index (CPI) data. Monthly CPI (Feb) accelerated by 1.1% while the street was anticipating growth of 0.6%. The annual headline CPI jumped to 10.4%, higher than the consensus of 9.8% and the former release of 10.1%.

ONS chief economist Grant Fitzner cited "Food and non-alcoholic drink prices rose to their highest rate in over 45 years with particular increases for some salad and vegetable items as high energy costs and bad weather across parts of Europe led to shortages and rationing," as reported by Telegraph.

The release of the higher-than-anticipated UK inflation is going to make the interest rate decision from the BoE extremely difficult for policymakers. The central bank has already remained split between hiking rates further to continue to weigh on sticky inflation or pausing the restrictive spell amid the banking fiasco.

The street is anticipating a 25bp interest rate hike by the BoE to 4.25% as the inflation situation has become vulnerable.

On the Eurozone front, the Euro was heavily bought by the market participants on Wednesday after European Central Bank (ECB) President Christine Lagarde reiterated "Inflation is still high and uncertainty around its path ahead has increased." She further added, "While more restrictive credit conditions are part of the mechanism by which our tightening ultimately brings inflation back to target, we will make sure that the process will be orderly."

Going forward, Germany and Eurozone’s preliminary S&P Global PMI (March) data will be keenly watched, which will release on Friday.

• GBP/JPY keeps pullback from one-week high, fades corrective bounce off 160.80.
• Yields tumbled after Federal Reserve, US Treasury announcements.
• Reuters Tankan Survey for Japan suggests pessimism at big manufacturing firms.
• Strong UK inflation backs BoE’s 0.25% rate hike but Brexit woes, banking fears may probe GBP bulls.

GBP/JPY drops to 161.00 as it traces downbeat Treasury bond yields during early hours of “Super Thursday”, ahead of the Bank of England (BoE) monetary policy announcements. In doing so, the cross-currency pair not only traces bond coupons but also portrays the broad weakness in the British Pound (GBP) ahead of the key event.

US 10-year and two-year Treasury bond yields both dropped the most in a week after the US Federal Reserve (Fed) failed to push back the banking sector fears despite announcing a 0.25% rate hike. The reason could be linked to the statements saying, “some additional policy firming may be appropriate,” instead of previous remarks like “ongoing increases in the target range will be appropriate”.

It should be noted that Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen’s comments triggered a corrective bounce in the bond market but the same couldn’t last long.

Fed Chair Powell said that officials do not see rate cuts for this year, which in turn allowed breathing space to the greenback bears in the last. On the other hand, US Treasury Secretary Janet Yellen ruled out considering “blanket insurance” for bank deposits. Recently, Bloomberg also came out with the news suggesting that the Federal Deposit Insurance Corporation is said to delay the bid deadline for a silicon valley private bank.

Amid these plays, the US 10-year and two-year Treasury bond yields stay pressured around 3.45% and 3.96% at the latest while the S&P 500 Futures print mild gains even after Wall Street’s downbeat performance.

It’s worth noting that the GBP/JPY pair’s latest losses ignore downbeat results from the monthly Reuters Tankan survey as it said, “Big Japanese manufacturers remained pessimistic about business conditions for a third straight month in March.”

Furthermore, strong inflation data from the UK and British PM Rishi Sunak’s victory in getting the Brexit bill passed through the House of Commons, despite major Tory rebels, also should have favored the GBP/JPY buyers but could not.

That said, UK’s headline inflation data, namely the Consumer Price Index (CPI) rose to 10.4% YoY in February versus 9.8% expected and 10.1% previous readings while the Core CPI rose to 6.2% compared to 5.8% market forecasts and previous readings. Given the improvement in the British inflation figures, the Bank of England (BoE) may be able to perform well in its likely last hawkish dance.

On the other hand, The Guardian said, "Rishi Sunak has escaped an overly damaging Commons rebellion over his revised plan for post-Brexit Northern Ireland trade, winning a vote on the measure with 22 of his own MPs voting against the deal."

Moving on, the BoE's 0.25% rate hike is already given and may not entertain GBP/JPY traders much, apart from initial whipsaw, unless the inflation outlook and BoE Minutes suggest further rate lifts.

Also read: BoE Interest Rate Decision Preview: Preparing the ground for a rate hike pause in May

Technical analysis

A one-month-old descending trend line and 200-DMA, respectively around 163.15 and 163.30, restrict short-term upside of the GBP/JPY pair.

• USD/JPY is sensing hurdles around 131.50 as Yen's solid appeal has faded the impact of Fed’s rate hike.
• Fed Powell has confirmed that rate cuts are not on the agenda in 2023.
• The recent US banking debacle cannot rule out the expectations of credit tightening for businesses and households.

The USD/JPY pair is struggling to stretch its recovery above the immediate resistance of 131.50 in the early Tokyo session. It seems that attempts made by the major to surpass the 131.50 resistance are delicate. The asset is failing in following the footprints of the US Dollar Index (DXY) as the latter has displayed a decent recovery after a perpendicular sell-off.

It looks like the solid appeal of the Japanese Yen as a safe-haven has faded the impact of the interest rate hike by the Federal Reserve (Fed). Investors should be aware of the fact that the market participants were ‘gung-ho’ for the Japanese Yen amid fears of United States banking sector turmoil.

While delivering the monetary policy statement, Fed chair Jerome Powell confirmed that rate cuts are not on the agenda in 2023 as the central bank is dedicated to scaling down the stubborn inflation. However, commentary on interest rate guidance remained absent to which the street is anticipating that the Fed is close to pausing the policy-tightening program.

On the recent banking fiasco, Fed Powell has loaded blame on the management of Silicon Valley Bank (SVB) citing it as ‘failed badly’. He further added that the US banking system is sound and resilient. Still, the recent debacle cannot rule out the expectations of credit tightening for businesses and households, which will cool off overall demand and inflation further.

The burden of consecutive 25 basis points (bps) rate hikes by the Fed critically impacted S&P500. The 500-US stocks banks were heavily dumped as further credit tightening would result in more contraction in the economic activities, portraying a risk-off market mood. The US Dollar Index (DXY) is demonstrating a back-and-forth action around 102.50 after a recovery move as investors await a Q&A session with Fed Powell for further clarity.

Big Japanese manufacturers remained pessimistic about business conditions for a third straight month in March, the closely watched Reuters Tankan survey showed. The results also reflect worry about slowing global growth that could hurt the country's export engine.

“The sentiment index for big manufacturers stood at minus 3, slightly up from minus 5 seen in the previous month, according to the survey conducted March 8-17,” reported Reuters.

Key results

USD/JPY stays pressured

USD/JPY holds onto the Fed-induced losses near 131.30, fading the bounce off previous low surrounding 131.00 by the press time.

Also read: USD/JPY drops on the dovish Fed 25 bp rate hike

• The US Federal Reserve’s 25 bps rate hike undermined the US Dollar.
• WTI shrugged off the rise in US oil inventories to a 22-month high.
• OPEC+ countries would likely adhere to its output cut of 2 million barrels daily.

Western Texas Intermediate (WTI), the US crude oil benchmark, rises 0.17% as Thursday’s Asian session begins. On Wednesday, the black gold advanced 0.59% to $68.94 a barrel as New York finished its session. However, WTI is pushing for a second attempt in the week, above the $70.00 a barrel. At the time of writing, WTI exchanges hands at $70.02.

WTI advanced steadily, boosted by a soft US Dollar

Wall Street finished the session with losses. The US Federal Reserve (Fed) decided to lift rates a quarter of a percentage point, as estimated, though it remained worried about inflation and the tightness of the labor market. However, Powell and Co. backpedaled against a 50 bps hike and removed the phrase “ongoing increases” that might be “appropriate” from the monetary policy statement.

That sent US Treasury bond yields collapsing and undermining the greenback. The US Dollar Index (DXY), a measure of the buck’s value vs. a basket of six currencies, falls 0.66%, at 102.533. That helped the US Dollar denominated commodity by making crude cheaper for buyers that use other currencies but the US Dollar.

Although oil rallied, it was capped by weekly data revealed by the US Energy  Information Administration (EIA) agency, which showed that US stockpiles rose by 1.1 million in the last week.

Since December, US inventories have grown to their highest level since May 2021.

The Organization of the Petroleum Exporting Countries (OPEC) and its partners, such as Russia, who are collectively known as OPEC+, are expected to continue with its agreement to reduce oil production by 2 million barrels per day until the year-end, even though there has been a significant drop in the price of crude oil, according to three representatives from OPEC.

WTI Technical levels

• NZD/USD prints mild gains after bouncing off two-week-old ascending support line.
• Bullish MACD signals, steady RSI (14) joins sustained trading beyond 200-DMA to favor bulls.
• 100-DMA, 50-DMA restrict short-term upside before mid-February high.
• Bears need validation from 0.6130 before challenging monthly low.

NZD/USD grinds higher past 0.6200, mildly bid near 0.6225 during early Thursday, as it defends the Federal Reserve (Fed) inspired gains despite the latest pullback from the 100-DMA.

In doing so, the Kiwi pair stays firmer above a fortnight-long support line, as well as the 200-DMA. Adding strength to the upside bias could be the bullish MACD signals and the firmer RSI (14).

As a result, the NZD/USD price is likely to mark another attempt in crossing the 100-DMA hurdle of 0.6280, which in turn will highlight the 50-DMA resistance surrounding the 0.6300 threshold for the Kiwi pair buyers.

In a case where the quote remains firmer past 0.6300, the odds of its run-up towards challenging the mid-February high of near 0.6390 and then to the 0.6400 round figure can’t be ruled out.

Alternatively, NZD/USD pullback remains elusive unless the quote stays beyond the aforementioned immediate support line, close to 0.6200 by the press time.

Following that, the 200-DMA level of 0.6158 and the 0.6130 level may act as the last defenses of the buyers before directing the quote toward the monthly low of 0.6084.

Overall, NZD/USD is likely to grind higher but the road toward the north appears bumpy.

NZD/USD: Daily chart

Trend: Further recovery expected

• USD/CAD has reclaimed the previous day’s high around 1.3740 as Fed’s Powell rules out hopes of rate cuts in 2023.
• The Loonie is hovering near the downward-sloping trendline of the Descending Triangle chart pattern.
• Investors should be aware of the fact that responsive selling is expected as the Loonie asset is at make-or-break levels.

The USD/CAD pair has recovered its entire losses and has reclaimed region around Wednesday’s high at 1.3740 in the early Asian session. The Loonie asset witnessed a significant buying interest near 1.3680 as the Federal Reserve (Fed) ruled out hopes of rate cuts in 2023 citing price stability as their utmost priority.

S&P500 futures were heavily dumped by the market participants as a continuation of higher rates by the Fed would bolster the case of a recession in the United States. The continuation of severe policy tightening in times when banking turmoil is promising a cooing demand and credit tightening is assuring a dismal economic outlook.

The US Dollar Index (DXY) has turned sideways below 102.60 after a stellar recovery from 102.00 as the market participants are digesting a whole lot of commentary from Fed chair Jerome Powell.

USD/CAD is hovering near the downward-sloping trendline of the Descending Triangle chart pattern on a two-hour scale, which is plotted from March 10 high at 1.3862. While the horizontal support of the chart pattern is placed from March 14 low around 1.3652.

The Loonie asset has scaled above the 20-period Exponential Moving Averages (EMAs) at 1.3713, which indicates that the short-term trend is bullish.

Investors should be aware of the fact that responsive selling can be kicked in as the Loonie asset is at make-or-break levels.

The Relative Strength Index (RSI) (14) is hovering near 60.00. A break above the same would trigger the upside momentum.

A decisive breakdown of March 14 low at 1.3652 would drag the loonie asset toward March 07 low at 1.3600, followed by March 03 low at 1.3555.

In an alternate scenario, a confident recovery above March 14 high at 1.3773 would drive the major toward March 09 high at 1.3835 and the round-level resistance at 1.3900.

USD/CAD two-hour chart

• USD/CHF fades bounce off one-week low ahead of Swiss National Bank Monetary Policy announcements.
• Fed’s dovish rate hike drown US Dollar even as Chairman Powell, US Treasury Secretary Yellen offered corrective bounce afterward.
• SNB is likely to announce 0.50% rate hike but Monetary Policy Assessment will be crucial to watch amid banking crisis.

USD/CHF retreats to 0.9173, following the Federal Reserve (Fed) induced slump to one-week low, as traders prepare for the Swiss National Bank (SNB) announcements during early Thursday.

On Wednesday, US Federal Reserve (Fed) matched market forecasts and announced 0.25% rate hike but failed to propel the US Dollar as the Fed statement mentioned “some additional policy firming may be appropriate,” instead of “ongoing increases in the target range will be appropriate”. Fed Chair Jerome Powell, however, tried to tame the rate cut hopes by saying that officials do not see rate cuts for this year, which in turn allowed breathing space to the greenback bears in the last.

Apart from the Fed announcements, US Treasury Secretary Janet Yellen’s comments also allowed the US Dollar Index to rebound from a seven-week low, by way of challenging the risk appetite, as she ruled out considering “blanket insurance” for bank deposits. 

Against this backdrop, Wall Street closed in the red but yields and the US Dollar Index (DXY) both closed in the red.

Looking ahead, the Swiss National Bank’s (SNB) Interest Rate Decision is the key for the USD/CHF pair traders to watch as the bank is likely to announce a dovish hike considering the latest banking sector fallouts, mainly surrounding Credit Suisse. Should the SNB accepts challenges to the economic outlook from the latest banking sector turmoil, the USD/CHF may pay recent losses.

Apart from the SNB, the second-tier US data relating to activities and jobs will also be important to watch for clear directions.

Technical analysis

A sustained break of the 50-DMA, around 0.9255 by the press time, directs USD/CHF towards the 0.9100 threshold but multiple lows marked near 0.9085 and 0.9070 can probe the bears afterward.

• EUR/USD grinds near multi-day top despite retreating in the last hour, stabilizes after five-day uptrend.
• US Dollar fails to cheer Fed’s 0.25% rate hike despite bouncing off multi-day low in the last.
• Fed Chair Powell’s rejection of rate cuts in 2023, US Treasury Secretary Yellen’s comments on deposit insurance favored USD rebound.
• ECB policymakers appear more hawkish than Fed signals, suggesting more room for Euro upside.

EUR/USD bulls take a breather close to a two-month high, following a five-day uptrend, after Federal Reserve’s (Fed) failure to please US Dollar bulls despite announcing a 0.25% rate hike. That said, the Euro pair seesaws around 1.0860, after a brief run-up to 1.0912, as the latest greenback licked its wounds during the last hour.

Fed matched market forecasts by announcing 25 basis points (bps) rate hike but statements like “some additional policy firming may be appropriate,” instead of “ongoing increases in the target range will be appropriate” gained major attention and drowned the USD.

Fed Chair Jerome Powell, however, tried to tame the rate cut hopes by saying that officials do not see rate cuts for this year, which in turn allowed breathing space to the greenback bears in the last.

Apart from the Fed announcements, US Treasury Secretary Janet Yellen’s comments also allowed the US Dollar Index to rebound from a seven-week low, by way of challenging the risk appetite, as she ruled out considering “blanket insurance” for bank deposits. 

On the other hand, policymakers from the European Central Bank (ECB) appear more hawkish and stand ready for heavy rate hikes if the banking crisis eases, which in turn propelled the EUR/USD more. That said, ECB President Christine Lagarde reiterated on Wednesday that underlying inflation dynamics in the Eurozone remain strong, as reported by Reuters. ECB’s Lagarde, however, also said that they are neither committed to raising further nor are we finished with hiking rates. Further, ECB policymaker and Bundesbank Chief Joachim Nagel said, “There’s still some way to go, but we are approaching restrictive territory.”

Amid these plays, Wall Street closed in the red but yields and the US Dollar Index (DXY) both closed in the red.

Moving on, the Asia-Pacific market’s reaction to the Fed moves and second-tier US data will be important for fresh impulse.

Technical analysis

A clear upside break of the mid-February top, around 1.0800, allows EUR/USD to aim for 1.0930 horizontal hurdle before targeting the YTD high surrounding 1.1033.

• AUD/USD dropped below 0.6700 after Fed’s dovish rate hike.
• Fed policymakers remained compromised to tame inflation and mentioned the tight labor market.
• The Fed’s dot plot remained unchanged, with officials expecting to raise rates toward 5.10%.

The AUD/USD finished Wednesday’s session in the green, gaining 0.26%, though well below the day’s highs at 0.6758. As the Asian Pacific session begins, the AUD/USD trades at 0.6683, slightly below its opening price by 0.01%.

AUD/USD opens the Asian session flat after Fed’s hike

On Wednesday, the US Federal Reserve (Fed) revealed its decision to raise rates by 25 bps and opened the door for an additional quarter of a percentage hike. The banking crisis spurred three weeks ago changed Fed officials’ approach to the March meeting. Given that the US government had to step in after the collapse of two regional banks in the United States (US), it pushed Fed’s Powell 50 bps off the table.

Fed policymakers stressed that inflation remains elevated, and the labor market is tight. Policymakers commented that the balance sheet reduction, known as Quantitative Tightening (QT), would continue as planned. The dot plot was almost unchanged, with most Fed officials expecting the Federal Funds Rate (FFR) to peak at around 5.10%.

At the same time, the US Secretary of Treasure Janet Yellen said that “regulators aren’t looking to provide “blanket” deposit insurance to stabilize the US banking system,” according to Bloomberg. That rattled the US equity markets, which ended with an average of 1.60% losses on its three major indices, blamed on Yellen comments.

All that said, US Treasury bond yields registered losses as investors reassessed a less hawkish Fed. The US 10-year benchmark note rate collapsed 17 bps at 3.451%, undermining the greenback. The US Dollar Index fell to a fresh monthly low of 102.065 but reversed its course and is trading at 102.544, down 0.65%.

On the Australian front, an absent economic docket will leave traders adrift to US Dollar (USD) dynamics and market sentiment.

AUD/USD Technical analysis

The AUD/USD remains neutral to downward biased after failing to hold to gains above the 20-day Exponential Moving Average (EMA). Furthermore, the Relative Strength Index (RSI) is bearish, while the Rate of Change (RoC) suggests that sellers are gathering momentum. Hence, the AUD/USD first support would be 0.6600, followed by the YTD low at 0.6564. Once broken, the AUD/USD pair would tumble as low as the November 10 low at 0.6386.

• Gold price is under pressure following the knee-jerk rally.
• Fed´s dovish 25bp rate hike leaves the sentiment mixed and Gold price in limbo. 

As per the start of the week´s analysis, Gold, Chart of the Week: XAU/USD is front side of the trend ahead of the Fed, where a correction was expected ahead of the Federal Reserve, we have seen two 'way business into and around the event. 

The Federal Reserve´s dovish interest rate decision when the central bank announced its 25 bp rate hike flagged “some additional policy firming” with the dot plot median pointing to one more hike. Before today´s Federal Reserve event, markets were pricing in a year-end target rate of 4.36%. This has dropped in volatile reactions to the statement to 4.26%. At the time of writing, US 2-year Treasury yields are down to 4.77%, dropping from 4.259% on the day to print a low of 3.958%. Consequently, the US Dollar index, DXY, fell to a low of 102.065 from a high of 103.265 and Gold price ook off. 

Gold prior analysis

Gold update

Ahead of the event, the Gold price was poised for a move up:

After the Fed:

Gold price 5-min chart

The bears have moved in but they need to get below the $1,960s for a look-in at the $1,950s support area. If the $1,950s were to give then the H&S on the daily chart´s target will be eyed below the prior double bottom.

• GBP/USD corrects vertically from 1.2335 as Fed Powell denies rate cuts this year.
• US Yellen commented that they are not considering insuring all uninsured bank deposits.
• Going forward, the interest rate decision by the BoE will be keenly watched.

The GBP/USD pair has surrendered the majority of its gains generated after the Federal Reserve (Fed) announced a 25 basis point (bp) rate hike to 4.75-5.00% in its monetary policy meeting. The Cable has dropped vertically after printing a fresh six-week high at 1.2335 as Fed chair Jerome Powell has cleared that the central bank is not expecting any rate cut this year.

The main agenda of the Fed that inflation has to bring down to the desired rate of 2% is intact and the central bank would do ‘whatever it takes’ required for the same. Fed Powell has cleared, "Recent liquidity provision for rescuing the collapse of commercial banks that has increased balance sheet size is not intended to alter the stance of monetary policy."

Meanwhile, S&P500 has surrendered its entire gains delivered on Tuesday after Fed Powell cleared that rate cuts are not in pipeline at least this year. This has strengthened the fears of a recession in the United States. Apart from that, commentary from US Treasury Secretary Janet Yellen that they are not considering insuring all uninsured bank deposits has spooked market sentiment further. The statement came contradictory as she stated on Tuesday that the administration will safeguard all deposits.

The US Dollar Index (DXY) has shown some recovery after dropping to near 102.00 as hopes of rate cuts have faded well. The USD Index has recovered to near 102.60 and a volatility contraction is expected ahead.

On the United Kingdom front, investors are awaiting the interest rate decision by the Bank of England (BoE) for fresh impetus. A surprise rise in the UK inflation released on Wednesday has bolstered the need of more rate hikes from the BoE. Analysts at UOB are of the view that BoE Governor Andrew Bailey would hike rates further by 25 bps.

Here is what you need to know on Thursday, March 23:

On a volatile session, Wall Street finished lower on Fed’s monetary policy decision day. The US central bank raised rates as expected by 25 bps. The end of the tightening cycle is near as the Federal Reserve balances between elevated inflation and banking turmoil. Stocks jumped after the announcement but then pulled back, making a reversal, helped by US Treasury Secretary Janet Yellen’s comments. She said they are not considering “blanket insurance” for bank deposits. 

US yields dropped on Wednesday, with the US 10-year falling to 3.43% and the 2-year to 3.92%. The US Dollar Index lost 0.65%, falling for the fifth consecutive day. Despite reaching weekly lows against most of its rivals, the greenback finished far from the lows, giving some positive signs. Volatility across the FX board will likely stay elevated and could trigger a broad-based recovery or send the Dollar to fresh lows. 

The Japanese Yen was among the top performers, helped by the decline in US yields. USD/JPY posted the second-lowest close in a month, below 131.50. 

The Euro also rose across the board, supported by comments from European Central Bank (ECB) officials that suggest that if the banking crisis eases, more rate hikes seem the way to go. The combination of a weaker US Dollar post-FOMC and a robust Euro, sent EUR/USD to 1.0911, the highest since February 2, before retreating to 1.0860. 

The Bank of England is likely to deliver another rate hike on Thursday after its Monetary Policy Committee meeting. Forecast consensus point to an increase of 25 bps, particularly after inflation accelerated unexpectedly in February, with the annual rate rising to 10.4%. GBP/USD hit levels above 1.2300 on Wednesday, but finished around 1.2260. It still holds a bullish bias, but continues to be unable to consolidate above 1.2300. 

USD/CHF dropped below 0.9200 to the lowest in a week. The Swiss National Bank (SNB) announces its monetary policy decision on Thursday, with market participants expecting a rate hike of 50 bps to 1.50%. 

SNB Preview: Forecasts from six major banks, acting with caution

Commodity currencies were hit by the decline in equity prices on Wall Street.  AUD/USD reversed sharply from 0.6759 to 0.6680, NZD/USD approached 0.6300 and ended closer to 0.6200 while USD/CAD spiked down to 1.3655, to finish the day higher above 1.3730. Stocks are driving the directions of the pairs at the moment. 

Bitcoin tumbled after the FOMC meeting, falling from $28,800 to as low as $27,700. Gold and Silver jumped, boosted by lower US yields. Crude oil prices finished practically flat after reaching weekly highs. 
 

• Dow Jones Industrial Average lost 530.49 points, or 1.63%, to 32,030.11.
• The S&P 500  dropped 65.9 points, or 1.65%, to 3,936.97.
• Nasdaq Composite slid 190.15 points, or 1.6%, to 11,669.96.

Wall Street ended sharply lower on Wednesday despite the dovish US Federal Reserve that delivered a widely expected 25 basis point policy hike. The Fed also hinted that it was on the verge of pausing future increases in view of the recent turmoil in the financial sector.

The three major US stock indexes, lept higher on dovish language tweaks in the statement and then deflated as investors digested both the accompanying statement and Chair Jerome Powell's subsequent Q&A press conference. 

In the Fed's statement, the members of the Federal Open Markets Committee (FOMC) suggested it was on the verge of pausing future hikes in view of the recent turmoil in the financial sector. however, Jerome Powell vowed to commit to reining in inflation. 

By the closing bell, all three indexes were off more than 1.6% The Dow Jones Industrial Average lost 530.49 points, or 1.63%, to 32,030.11, the S&P 500  dropped 65.9 points, or 1.65%, to 3,936.97 and the Nasdaq Composite slid 190.15 points, or 1.6%, to 11,669.96.

S&P 500 falling wedge

The weekly chart shows the index in a falling wedge scenario, bullish, but the market is on the backside of the bullish trend and the M-formation´s neckline resistance is proving to be a tough nut to crack, so far. 

• Silver shoots to test the $23.00s as markets adjust to a less hawkish Fed.
• A dovish 25BP rate hike sent the US Dollar and yields lower.

The Silver price shot higher on Wednesday following the Federal Reserve´s dovish interest rate decision when the central bank announced its 25 bp rate hike.  The decision was mostly expected while the Federal Open Market Committee Statement flagged “some additional policy firming” with the dot plot median pointing to one more hike. 

Before today´s Federal Reserve event, markets were pricing in a year-end target rate of 4.36%. This has dropped in volatile reactions to the statement to 4.26%. At the time of writing, US 2-year Treasury yields are down to 4.77%, dropping from 4.259% on the day to print a low of 3.958%. Consequently, the US Dollar index, DXY, fell to a low of 102.065 from a high of 103.265 and the bird took off. 

Fed event main points

• The median forecast shows rates at 5.1% end-2023, 4.3% end-2024.
• 'Some additional policy firming may be appropriate.'
• FOMC deletes reference to ongoing increases.
• US banks are sound, resilient but events to weigh on growth.
• Likely to see tighter credit conditions that weigh on economic activity, hiring and inflation.

Meanwhile, Fed´s chairman Jerome Powell spoke to the press:

• Powell speech: Isolated banking problems can threaten banking system if left unaddressed

• Powell speech: Recent banking events will result in tighter credit conditions
• Powell speech: Before banking stress, thought we would have to raise terminal rate
• Powell speech: Tightening in credit conditions may mean monetary tightening has less work to do
• ´´If we need to raise rates higher we will, for now we see likely hood of credit tightening.´´

In summary, analysts at RBC Economics explained that ´´today’s move was in line with consensus and market pricing but much less of a foregone conclusion than typical Fed decisions.´´

the analysts explained that ´´two weeks ago the market was leaning toward a 50 bp hike with Chair Powell having opened the door to a larger move if the totality of incoming data warranted it. One week ago there were doubts that the Fed would raise rates at all amid turmoil in the banking sector. The market finally coalesced around a 25 bp increase, though there were some odds and several calls for the Fed to take a pass.´´

The analysts expected a hike but wouldn’t have argued with the Fed waiting six weeks until its next meeting to better assess the impact of recent events and any further risks to the banking sector. ´´Today’s dovish tone and guidance, at least, suggests policymakers are now more mindful of the risks of over-tightening. And if today’s hike isn’t the last, we’re getting very close to the terminal,´´ the analysts concluded. 

Meanwhile, with respect to Silver prices, analysts at TD Securities said, ´´ CTA trend followers are relatively under positioned in silver markets, where a break above $24.00/oz would spark large-scale buying activity.´´

• USD/CHF dived to its daily lows of 0.9147 after the Fed decided to raise rates.
• Powell Q&A: Fed officials are not expecting to cut rates in 2023, as it’s not their baseline scenario.
• US central bank policymakers foresee rates to stay at around 5.10%.

The USD/CHF stumbles to fresh 5-day lows beneath the 0.9200 figure as the Federal Reserve Chair Jerome Powell speaks. In addition, the US central bank decided to raise rates by 25 basis points on Wednesday, leaving the Federal Funds Rates (FFR) at 4.75% - 5.00%. At the time of writing, the USD/CHF is trading volatile, at around the 0.9170s – 0.9200 area.

Fed’s monetary policy statement and Powell’s remarks

The Federal Reserve announced on Wednesday that it has decided to increase interest rates by 25 basis points. The policymakers highlighted that inflation is currently high, and the labor market is experiencing a shortage of workers. Additionally, they recognized the banking crisis and said, “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.”

Regarding monetary policy forward guidance, the Summary of Economic Projections (SEP) revealed the dot plot, which showed that policymakers expect rates to finish at around 5.10% in 2023. Regarding the balance sheet reduction, also known as Quantitative Tightening (QT), would remain unchanged, as planned in May of 2022.

Meanwhile, the US Federal Reserve Chair Jerome Powell began his Q&A. According to the Fed Chair, Fed officials are not anticipating a reduction in interest rates in the current year, as it is not their primary prediction. He also mentioned a disinflation trend and that the upcoming monetary policy decisions will be made, meeting by meeting. Powell recently stated that if there is a need to increase interest rates, the Federal Reserve will take action.

USD/CHF Price action

The USD/CHF resumed its downward trajectory and printed a new daily/weekly low at 0.9147, shy of testing the S2 daily pivot at 0.9141. The USD/CHF bounced off that level and is testing the S1 daily pivot at 0.9183. Once that resistance is cleared, the USD/CHF might regain the 0.9200 mark, opening the door to the daily pivot point at 0.9250.

• NZD/USD bulls jump in on a dovish Federal Reserve 25bp rate hike. 
• Federal Open Market Committee Statement flags “some additional policy firming”.

With a dovish 25 bp hike, markets are pricing for the Fed's tightening cycle nearing an end and the US Dollar was sold off to test the bottom end of 102 DXY. Consequently, the NZ Dollar flew to a fresh high for the month at 0.6282 and was up from a low of 0.6171.

Today’s 25 bp hike was largely anticipated, but only aftermarket expectations whipsawed in recent weeks and the Federal Open Market Committee Statement flags “some additional policy firming” with the dot plot median pointing to one more hike. 

Before today´s Federal Reserve event, markets were pricing in a year-end target rate of 4.36%. This has dropped in volatile reactions to the statement to 4.26%. At the time of writing, US 2-year Treasury yields are down to 4.77%, dropping from 4.259% on the day to print a low of 3.958%. Consequently, the US Dollar index, DXY, fell to a low of 102.065 from a high of 103.265 and the bird took off. 

Fed event highlights

• The median forecast shows rates at 5.1% end-2023, 4.3% end-2024.
• 'Some additional policy firming may be appropriate.'
• FOMC deletes reference to ongoing increases.
• US banks are sound, resilient but events to weigh on growth.
• Likely to see tighter credit conditions that weigh on economic activity, hiring and inflation.

Meanwhile, Fed´s chairman Jerome Powell spoke to the press:

• Powell speech: Isolated banking problems can threaten banking system if left unaddressed

• Powell speech: Recent banking events will result in tighter credit conditions
• Powell speech: Before banking stress, thought we would have to raise terminal rate
• Powell speech: Tightening in credit conditions may mean monetary tightening has less work to do
• ´´If we need to raise rates higher we will, for now we see likely hood of credit tightening.´´

Analysts at ANZ Bank explained said, for NZD specifically, ´´it’s still a bit of a tug of war between stock and flow, with the bullish flow traders citing the cyclone rebuild, remoteness from global banking issues, and Reserve Bank of New Zealand hawkishness, and the bearish stock traders citing our current account deficit, one-trick pony housing-centric economy, and credit ratings at risk.´´

US Treasury Secretary Janet Yellen said on Wednesday that they are not considering or discussing anything to do with blank insurance or guarantees for bank assets. She is testifying before the Senate Appropriations Committee.

"I am working closely with financial stability oversight council on restoring capacity to designate non-bank financial institutions as systemic, subjecting them to regulation,” Yellen mentioned. 

“The failure of a small or community bank could trigger bank runs as much as a larger bank failure,” said Yellen. She mentioned they are not considering insuring all uninsured bank deposits. This comment weighed on market sentiment that is digesting the latest Federal Reserve meeting. 
 

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 25 basis points to the range of 4.75-5% following the March policy meeting.

Key quotes

 "We need to answer how Fed authorities enforce their warnings to banks in these situations."

"But this review is going on and I want to find out what we can do better."

"Then we will implement changes needed."

"I am confident this review will produce a satisfactory result."

"We have not talked about changing balance sheet implementation."

"Financial conditions have tightened probably more than by what traditional indices say."

"Other measures of bank lending etc, show some more tightening."

"Question for us is the extent and duration of financial conditions tightening."

"Our first task is to see if this is sustained tightening or not."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 25 basis points to the range of 4.75-5% following the March policy meeting.

Key quotes

"We have the tools to protect depositors when there is the threat to economy, and are prepared to use them."

"Depositors should assume their deposits are safe."

"Takeover of credit suisse seems to have been a positive outcome."

"Unemployment rate estimate for this year is a highly uncertain estimate."

"Recessions tend to be nonlinear so very hard to model."

"We are very focused on getting inflation down."

"Too early to say if recent effects change odds of soft landing."

"There is still a pathway to a soft landing, trying to find it."

• USD/MXN drops beneath $18.50 on Fed’s decision to raise rates.
• Federal Reserve: Inflation remains high, and the labor market is tight.
• Fed officials expect rates to peak at around 5.10%.

The USD/MXN drops to fresh 7-days lows at 18.3777 following the US Federal Reserve’s (Fed) decision to raise rates as expected by 25 bps, in a perceived dovish hike. Fed officials’ removal of the phrase “ongoing increases” spurred US Dollar (USD) weakness; therefore, the USD/MXN fell. At the time of writing, the USD/MXN is trading volatile within the 18.35-55 range as Fed Chair Jerome Powell takes the stand.

Summary of the monetary policy statement and Fed Projections

On Wednesday, the Federal Reserve decided to raise rates by 25 bps and emphasized that inflation is elevated and that the labor market is tight. Fed policymakers acknowledged the banking crisis and said, “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.”

In the meantime, the so-called dot plot was almost unchanged, with most Fed officials expecting the Federal Funds Rate (FFR) to peak at around 5.10%. The Quantitative Tightening (QT) would continue, with the balance sheet reduction set to continue as planned.

Meanwhile, the US Federal Reserve Chair Jerome Powell began his Q&A. He said that Fed officials are not expecting rate cuts this year; it’s not their baseline expectation. He added that disinflation is happening and that the following monetary policy decisions would be live. Of late, Powell said that if the Fed needs to raise rates, they will do it.

USD/MXN Price action on Fed day

As Jerome Powell speaks, the USD/MXN dived to its daily low at 18.3776, before reversing its course. Upward moves could be capped at the 20-EMA at 18.5595. On the other hand, any dovish comments by Powell could send the USD/MXN diving toward the $18.00 mark.

• US Dollar collapses after the FOMC decision, DXY drops by more than 1%. 
• Fed raises rates by 25 bps, as expected. 
• EUR/USD rises a hundred pips, reaching the highest level since early February. 

The US Dollar is falling sharply on Wednesday following the Federal Reserve meeting. The EUR/USD has risen so far more than a hundred pips and printed monthly highs above 1.0900. 

As expected, the US central bank raised rates by 25 bps to 4.75% - 5.00%. In the statement, the Fed sounded dovish, suggesting no clear path of action for the future. 

During the press conference, Chair Powell said that tighter credit conditions can be seen as a substitute for interest rate hikes. “Disinflation is absolutely occurring”, he said. Regarding the “dot plot”, Powell explained that Fed’s officials do not see a rate cut for this year. 

US bonds soared after the FOMC meeting, pushing the US Dollar to the downside. Wall Street indices are moving between gains and losses, without a clear direction. Markets are not moving in sync. 

The weaker US Dollar is keeping EUR/USD around 1.0900, at the momentum. The pair peaked at 1.0911 and then pulled back to the 1.0860 area. It is rising for the fifth consecutive day. 

Powell speech: Isolated banking problems can threaten banking system if left unaddressed

Powell speech: Recent banking events will result in tighter credit conditions

Powell speech: Before banking stress, thought we would have to raise terminal rate

Powell speech: Tightening in credit conditions may mean monetary tightening has less work to do

Technical levels

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 25 basis points to the range of 4.75-5% following the March policy meeting.

Key quotes

"If we need to raise rates higher, we will. But right, now we see the likelihood of credit tightening."

"We will be watching that carefully."

"Recent liquidity provision that has increased balance sheet size is not intended to alter stance of monetary policy."

"We don't see ourselves as running reserve shortages."

"We are always prepared to change if that changes, but see no evidence so far."

"Our supervisory team was very much engaged with SVB and escalated issues but we need to try and understand how the bank still failed."

"The speed of the run on SVB suggests need for possible regulatory, supervisory changes."

• US Dollar is pressured by a dovish Federal Reserve rate hike.
• Bears are in the market as the US yields sink during Fed Powell´s presser. 

The US Dollar is under pressure while traders price out the Federal Reserve´s hawkish stance due to a dovish rate hike of just 25 basis points. Additionally, traders are moving out of the greenback due to less hawkish language in the Federal Open Market committee´s statement and forward guidance from Federal Reserve´s Jerome Powell during his presser.

Before today´s Federal Reserve event, markets were pricing in a year-end target rate of 4.36%. This has dropped in volatile reactions to the statement to 4.26%. At the time of writing, US 2-year Treasury yields are down to 4.77%, dropping from 4.259% on the day to print a low of 3.958%. Consequently, the US Dollar index, DXY, fell to a low of 102.065 from a high of 103.265. 

Fed event highlights

• The median forecast shows rates at 5.1% end-2023, 4.3% end-2024.
• 'Some additional policy firming may be appropriate.'
• FOMC deletes reference to ongoing increases.
• US banks are sound, resilient but events to weigh on growth.
• Likely to see tighter credit conditions that weigh on economic activity, hiring and inflation.

Meanwhile, Federal Reserve chairman Jerome Powell is speaking to the press in an event that started at 18.30GMT.

• Powell Speech: Dovish remarks after raising interest rates to 5%

Powell speech: Isolated banking problems can threaten banking system if left unaddressed

Powell speech: Recent banking events will result in tighter credit conditions

Powell speech: Before banking stress, thought we would have to raise terminal rate

Powell speech: Tightening in credit conditions may mean monetary tightening has less work to do

´´If we need to raise rates higher we will, for now we see likely hood of credit tightening.´´

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 25 basis points to the range of 4.75-5% following the March policy meeting.

Key quotes

"Rate cuts this year are not our baseline expectation."

"Policy has to be tight enough to bring down inflation, some of that tightness can come from credit conditions."

"At end of day, we will do enough to bring inflation down to 2%."

"We are well aware of concentrations in commercial real estate."

"I don't think it is comparable to these other banking strains."

"100% certainty there will be outside investigations in SVB, we welcome them."

"I welcome all investigations into this banking failure."

"Fiscal impulse is not driving inflation right now."

• USD/JPY is dropping like a stone on a dovish Fed rate hike.
• Bears are in the market as the US yields US Dollar sinks during Fed Powell´s presser. 

USD/JPY is under pressure as the Federal Reserve drives markets to reprice interest rate expectations due to a dovish rate hike of just 25 basis points and tweaks to the Federal Open Market committee´s statement and forward guidance.

Ahead of the decision, the money markets were pricing in a year-end target rate of 4.36%. This has dropped in volatile reactions to the statement to 4.26%. At the time of writing, US 2-year Treasury yields are down to 4.77%, dropping from 4.259% on the day to print a low of 3.958%. USD/JPY is plummeting as a result to test the 131.20s and it has fallen from a high of 133.00. 

Fed event key notes, so far

• The median forecast shows rates at 5.1% end-2023, 4.3% end-2024.
• 'Some additional policy firming may be appropriate.'
• FOMC deletes reference to ongoing increases.
• US banks are sound, resilient but events to weigh on growth.
• Likely to see tighter credit conditions that weigh on economic activity, hiring and inflation.

Meanwhile, Federal Reserve chairman Jerome Powell is speaking to the press in an event that started at 18.30GMT.

Fed hikes policy rate by 25 bps as expected, focus shifts to Powell – LIVE

Powell speech: Isolated banking problems can threaten banking system if left unaddressed

Powell speech: Recent banking events will result in tighter credit conditions

Powell speech: Before banking stress, thought we would have to raise terminal rate

Powell speech: Tightening in credit conditions may mean monetary tightening has less work to do

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 25 basis points to the range of 4.75-5% following the March policy meeting.

Key quotes

"The story on disinflation is intact."

"Goods inflation is coming down even if more slowly than we would like."

"We still don't have sign of progress on services ex housing sector."

"That's just something that will have to come through softening of demand, labor conditions."

"We don't yet see progress on core services inflation excluding housing."

"Inflation data, however, did point to stronger inflation."

"We don't know the extent of impact of tighter credit conditions."

"We don't know how significant, or sustained, the effect of this credit tightening will be."

"That said, we think it's quite real."

"That argues for being alert when we think of further rate hikes."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 25 basis points to the range of 4.75-5% following the March policy meeting.

Key quotes

"Last two weeks will cause a weigh on demand and inflation."

"Need for further hikes will be based on actual and expected effects of credit tightening in particular."

"Focus is on the words 'may' and 'some' as opposed to 'ongoing' increases."

"Our statement was trying to reflect uncertainty in outlook from banking strains."

"It's possible that banking stresses ebb and we have more work to do; opposite may also be true."

"Possible tightening in credit conditions may mean monetary tightening has less work to do."

"We are really focused on potential credit tightening and what that can produce."

"With banks, we are focused on our financial stability tools."

"At the meeting, I heard a significant number of people anticipating tightening credit conditions."

"This was included in their projections."

"Therefore, they were including that foreceast for tighter credit conditions in their forecasts."

"But banking strains are so recent, there is so much uncertainty."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 25 basis points to the range of 4.75-5% following the March policy meeting.

Key quotes

"Banking system is sound and resilient."

"Deposit flows in banking system have stabilized."

"We are undertaking thorough review to see if we need to strengthen regulation."

"Considered banking system issues in days running up to meeting."

"Inter-meeting data on jobs and inflation came in stronger than expected."

"A couple of weeks ago we thought we would have to raise terminal rate, before banking stresses."

"Important to sustain confidence with actions and words."

"In principle, we can think of banking strain as equivalent to a rate hike."

"In assessing need for further hikes, we will particularly be focused on actual, expected effects of credit tightening."

• USD/CAD collapsed below the 1.3700 figure, trades volatile in the 1.3670-1.3740 range.
• The Federal Reserve raised rates by 25 bps, as expected by analysts.
• Traders eyed the Federal Reserve Chair Jerome Powell’s press conference.

The USD/CAD collapsed toward its daily lows at 1.3678 after the US Federal Reserve decided to lift rates by 25 bps. The so-called dot-plot was almost unchanged compared to December’s Summary of Economic Projections (SEP), meaning another 25 bps increase is expected. Therefore, the USD/CAD is trading volatile, around 1.3680-1.3720, ahead of the Fed Chair Powell press conference.

Fed’s monetary policy decision

In their decision, Federal Reserve officials decided to raise rates by a quarter percentage point and acknowledged the recent turmoil in the financial markets, which caused the collapse of two regional banks. Though, the US central bank commented that the US banking system is solid and resilient

Aside from this, the monetary policy statement was in line with expectations, with the Fed emphasizing that inflation is too high and that the labor market is too tight. In addition, the balance sheet reduction would continue as planned in May, reiterating that the Committee “is strongly committed to returning inflation to its 2 percent objective.”

Nevertheless, it should be said that the phrase “ongoing increases as appropriate” was removed from March’s monetary policy statement.

Fed’s Summary of Economic Projections

The Summary of Economic Projections (SEP) has remained largely the same, with little change. The dot plots, which represent the interest rate projections of Federal Reserve officials, have remained at 5.10%. The expected Real GDP for this period has been revised slightly downward from 0.5% to 0.4%, while the predicted Unemployment Rate has been modified slightly upward from 4.5% to 4.6%. The preferred inflation gauge of the Federal Reserve, the core PCE, is expected to be 3.6%, up from 3.5% in December’s SEP report. Meanwhile, headline inflation is estimated at 3.3%, up from 3.1% in the previous SEP report.

USD/CAD reaction to the headline

The USD/CAD collapsed toward its daily low at 1.3678, beneath the daily pivot point at 1.3700. A further fall below the S1 daily pivot at 1.3658 would pave the way toward the 1.3600 figure, but firstly the USD/CAD needs to crack the March 21 daily low at 1.3643. Once that happens, 1.3600 is up for grabs.

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 25 basis points to the range of 4.75-5% following the March policy meeting.

Key quotes

"Inflation has moderated somewhat but strength of recent readings indicate inflation pressures continue to run high."

"Process of getting inflation back down has a long way to go."

"Longer-term inflation expectations remain well anchored."

"We are continuing process of significantly reducing our balance sheet."

"Since last meeting, economic data has come in stronger than expected."

"But we think recent banking events will result in tighter credit conditions."

"That would impact the economy and how we need to respond."

"We will closely monitor incoming data, actual and expected effects of tighter credit conditions."

"We will use that as basis for decisions."

"Path of policy will adjust as appropriate, and we'll make decisions meeting by meeting."

"Reducing inflation is likely to require period of below trend growth and also softer labor conditions."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 25 basis points to the range of 4.75-5% following the March policy meeting.

Key quotes

"Isolated banking problems if left unaddressed can threaten banking system."

"That's why we took decisive action."

"All depositors' savings are safe."

"Our lending programs are effectively meeting banks needs."

"Also shows ample liquidity available."

"Will use all the tools needed."

"We will continue to closely monitor, prepared to use all tools to keep banking system safe and sound."

"We will also learn lessons from this episode."

"Inflation remains too high."

"Labor market still too tight."

"We remain strongly committed to bringing inflation to 2%."

"Economy doesn't work for anyone without low inflation."

"Consumer spending appears to have picked up this quarter although some of that is weather related."

"Activity in housing remains weak."

"Policymakers generally expect subdued growth to continue and almost all on FOMC sees risks on growth as weighted to the downside."

"Wage growth has shown some signs of easing but demand still outstrips supply."

"We expect that to come into better balance over time."

"Inflation remains well above our goal."

• Fed raises rates by 25 bps, as expected.
• US yields and Dollar tumble on initial reaction; before Powell.
• AUD/USD testing key resistance around 0.6730

The AUD/USD jumped to 0.6727 after the decision of the Federal Reserve, hitting a fresh daily high. It is testing the critical resistance zone around 0.6730 amid the broad-based Dollar’s weakness.

The Federal Reserve (Fed) raised its key interest rate by 25 bps as expected to 4.75%-5.00%. The vote was unanimous. The Fed warned that inflation remains elevated while at the same time dropping the forward guidance toward further rate hikes. The central bank said it was too soon to assess the impact of the banking crisis on the economy.

 The greenback tumbled together with US yields. The US 10-year fell to 3.50% before bouncing to 3.53% while the 2-year reached momentarily levels under 4.00%.

Wall Street indices reacted to the upside; however, they have retreated a bit during the last minutes. The improvement in market sentiment offers extra support to the AUD/USD.

Fed Chair Powell is about to start its press conference. If his words align with the statement, the US Dollar could continue its slide, boosting AUD/USD above the key resistance zone of 0.6730.

Powell Speech Preview: Dovish remarks after raising interest rates to 5% - Follow LIVE

Technical levels

• GBP/USD rallied towards its daily high at 1.2304 on the headlines.
• The US Federal Reserve hikes rates by 25 bps to the 4.75% - 5.00% range.
• Traders eyed the Federal Reserve Chair Jerome Powell’s press conference.

The GBP/USD is rallying sharply after the US Federal Reserve raised rates by 25 bps. Federal Reserve officials updated its dot-plot, with 10 out of 18 policymakers expecting another 25 bps rate hike by the end of the year. At the time of typing, the GBP/USD is trading volatile within the 1.2240-1.2300 range as traders brace for Fed’s Powell press conference.

Summary of the Federal Reserve’s statement

In its statement, the Fed acknowledged that the recent developments in the financial markets could tighten monetary conditions for households and businesses. However, the US central bank emphasized that the US banking system is solid and resilient.

Fed officials commented that the labor market remains strong and inflation is still elevated. Regarding the Quantitative Tightening (QT), the Fed commented that the balance sheet reduction would continue as planned and reiterated that the Committee “is strongly committed to returning inflation to its 2 percent objective.”

From the monetary policy statement, Federal Reserve’s policymakers removed the phrase “ongoing increases.”

The Summary of Economic Projections (SEP) was almost unchanged. The dot plots, the Federal Reserve’s officials’ projections for interest rates, remained unchanged at 5.10%. Real GDP is expected at 0.4% vs. December 0.5%, while the Unemployment Rate is expected at 4.6% vs. 4.5%. The Federal Reserve’s preferred gauge for inflation, the core PCE is expected at 3.6%, compared to the last SEP report in December at 3.5%, while headline inflation is estimated at 3.3%, vs. 3.1% of the prior’s SEP.

GBP/USD’s reaction to the headline

The GBP/USD skyrocketed in the first 10 minutes following the Fed’s monetary policy statement release. The GBP/USD rallied to new 7-week highs but has retraced its gains ahead of the Fed Chair Powell press conference.

GBP/USD Technical levels

The Federal Reserve's revised Summary of Economic Projections (SEP), the so-called dot plot, showed that the median view of the policy rate at end-2023 stood at 5.1%, matching December's projection.

Additional takeaways

"Fed's median view of fed funds rate at end-2024 4.3% (prev 4.1%)."

"Fed's median view of fed funds rate at end-2025 3.1% (prev 3.1%)."

"Fed's median view of fed funds rate in longer run 2.5% (prev 2.5%)."

"Fed policymakers see slower 2023 GDP growth, lower unemployment and less progress on inflation than they saw in December."

"Fed projections imply one more 25-basis-point rate hike this year and 75 bps of rate cuts in 2024."

• Gold price rallies to session highs on the Federal Reserve statement and interest rate decision.
• Gold price prints a high of $1,966.55 and pulls back ahead of Federal Reserve chairman Jerome Powell´s presser.

Gold price rallies some $20.00 on the knee-jerk reaction to the Federal Reserve´s interest rate decision and statement. At the time of writing, Gold price is trading near $1,962 and up 1.14% on the day from a low of $1,934.

Federal Reserve hikes rates by 25 bps, as expected but the Fed statement deleted reference to 'ongoing increases' in rates. Ahead of the decision, the money markets were pricing in a year-end target rate of 4.36%. This has dropped in volatile reactions to the statement to 4.26%.

Key points so far

• The median forecast shows rates at 5.1% end-2023, 4.3% end-2024.
• 'Some additional policy firming may be appropriate.'
• FOMC deletes reference to ongoing increases.
• US banks are sound, resilient but events to weigh on growth.
• Likely to see tighter credit conditions that weigh on economic activity, hiring and inflation.

Next up will be the Federal Reserve´s chairman Jerome Powell whop will speak to the press. 

Fed hikes policy rate by 25 bps as expected, focus shifts to Powell – LIVE

Gold price technical analysis

(Daily and H1 charts, ahead of the Fed, above and below respectively)

Gold price reaction to the Fed

On the knee-jerk to the decision, Gold price rallied as follows:

(5-min charts)

The price popped and dropped as markets await Fed´s Powell.

• FOMC raises key rate by 25 bps as expected, despite recent turmoil. 
• US Dollar tumbles after FOMC statement, attention turns to Chair Powell. 
• EUR/USD breaks 1.0800 and climbs toward 1.0850.

The EUR/USD jumped from 1.0790 to 1.0845, following the decision of the Federal Reserve (Fed) to raise interest rates by 25 bps as expected. The US Dollar tumbled as US yields dropped sharply. 

Fed moves as expected

The Federal Reserve (Fed) raised its key interest rate by 25 bps as expected to 4.75% -5.00%. The vote was unanimous. They dropped the forward guidance, mentioning that “some additional policy firming may be appropriate”, instead of “ongoing increases in the target range will be appropriate”. In a few minutes, Chair Powell's press conference will begin. 

The US Dollar dropped sharply boosting the EUR/USD to the upside. Markets are looking at the decisions as a “dovish hike”. Wall Street indices printed fresh highs. The improvement in risk sentiment weighs on the US dollar. 

Technical levels 

• XAG/USD is firm at around the $22.60s area, with traders eyeing Powell and his colleagues.
• Silver Price Analysis: Neutral upwards, but Powell’s press conference could rock the boat.

Silver price tests the higher boundaries of the week, at around $22.70s, as the Fed’s decision looms. Falling US Treasury bond yields and an offered US Dollar (USD) are the main drivers of Silver’s gain of 1.28%.

XAG/USD Price action

Silver price remains neutral to upward biased, as shown by the daily chart. Oscillators like the Relative Strength Index (RSI) turned bullish, while the Rate of Change (RoC) displays that buying pressure is waning. Due to mixed signals, caution is warranted.

For a bullish continuation, the XAG/USD needs to reclaim the $23.00 barrier, exposing the February 3 daily high at $23.59, followed by the $24.00 figure, ahead of the YTD high at $24.62. On the other hand, if the XAG/USD drops below the week’s low of $22.14, that would put into play essential support levels.

Given the backdrop, the XAG/USD first support would be the 50-day Exponential Moving Average (EMA) at $21.94. A breach of the latter will expose the 100-day EMA at $21.91, followed by the 200-day EMA at $21.81, and the 20-day EMA at $21.71.

XAG/USD Daily chart

XAG/USD Technical levels

• EUR/USD bulls are in the market and target a move beyond 1.08 resistance. 
• Bulls need to stay committed between 1.0700/50.
• First key support is located near 1.0770/85.

EUR/USD is meeting supply at the 1.08 resistance ahead of the Federal Reserve interest rate decision at 1400ET/1800 GMT. Implied Fed futures are erring towards pricing in a 25 bp rate hike.

The Fed is due to publish new economic projections and the market will be focussing on whether the dot plots are pricing in an easing of policy. ´´In our view, there is the risk that the market will not see the dovish hike that has been predicted today. This should provide support to the USD and reinforce the strength of the EUR/USD1.08 resistance,´´ analysts at Rabobank argued. 

EUR/USD technical analysis

The 4-hour charts have the price on the backside of the bullish trend, which is a bearish factor. However, the falling wedge, and triple bottom are bullish:

So long as the support structure holds between 1.0700 and 1.0750/60, there will be prospects of a bullish continuation for the foreseeable future. 

In the meanwhile, we have a W-formation in play. This is a reversion pattern and the bears are already moving in.

The price remains on the front side of the bullish dynamic trendline support so if there are any pullbacks, bulls will be keen to see a deceleration above the 78.6% Fibonacci retracement and in line with the neckline and trendline support. 
 

• AUD/USD is subdued around the 0.6670s ahead of the Fed’s decision.
• The US Federal Reserve is expected to raise rates to the 4.75% - 5.00% range.
• The RBA’s latest minutes were dovish, as the central bank took off higher interest rate increases.

The Australian Dollar (AUD) holds to its earlier gains against the US Dollar (USD) amidst a so-far dull trading session with traders awaiting the Fed’s decision. Sentiment remains fragile and mixed, while US Treasury bond yields have turned south. At the time of writing, the AUD/USD is trading at 0.6675 after hitting a high of 0.6702.

The Fed is expected to hike, Powell’s press conference eyed

Investors’ mood shifted sour as the time closed to read the Federal Reserve’s monetary policy statement and hear its Chairman Jerome Powell at the stand. Money market futures foresee a 25 bps rate hike, with odds at an 86.4% chance.

Three weeks ago, Jerome Powell opened the door for faster rate hikes before a banking crisis hit the US and abroad. Two lenders in the United States (US) collapsed, while First Republic Bank got aided by 11 banks pledging $30 billion. Late Tuesday, the US Secretary of Treasury Janet L. Yellen calmed the financial markets after stating that the government would intervene to protect depositors of small banks.

That was a green light for traders hungry for risk ahead of the Fed’s decision. Nevertheless, the three major US equity indices are trading below Tuesday’s close by a minimum percentage.

US Treasury bond yields had recovered some ground in the fixed income space, with 2s and 10s almost unchanged at 4.197% and 3.583%, respectively. The greenback is on the defensive, as shown by the US Dollar Index (DXY), down 0.07%, at 103.144.

On the Australian front, the minutes of the last meeting of the Reserve Bank of Australia (RBA) forgot to mention discussions for a higher rate hike, with board members considering only 25 bps. Regarding the strength of the banking system, the RBA’s Governor Kent states that banks are “unquestionably strong.”

AUD/USD Technical levels

Gold saw a brief retest of $1,973/98. A break above here would see the yellow metal gaining further upside momentum, strategists at Credit Suisse report.

55-DMA at $1,881 to floor Gold

“A sustained move beyond $1,973/98 stays seen needed to clear the way for a retest of long-term resistance from the $2,070/75 record highs of 2020 and 2022. Whilst this should clearly be respected, a clear and sustained break higher would be seen to open the door to a move to $2,300 next.”

“Ideally, the 55-DMA, currently seen at $1,881 floors the market now. If this breaks, we could see further weakness towards the recent range low at $1,805, before the crucial 200-DMA, currently seen at $1,778, which we would once more expect to provide a floor.”

• Jerome Powell will explain Fed interest rate decision, economic projections in press conference.
• Fed chair will face tough Q&A session trying to balance inflation and financial stress risks.

Jerome Powell, Chairman of the Federal Reserve System (Fed), will speak in a press conference on Wednesday at 18:30 GMT, 30 minutes after the Fed Interest Rate decision is announced. The speech of Powell will reflect the current views of the Federal Open Market Committee (FOMC) on monetary policy and will also update the Summary of Economic Projections, also known as the dot plot.

Powell will face tough questions from the press on whether the US central bank can keep going with its interest rate hikes considering the financial stress that the banking system has suffered recently. Jerome Powell’s words will carry enormous importance for the market, with the US Dollar, and the US Treasury bonds leading the way and affecting the valuation of most asset classes. 

According to Yohay Elam, Senior Analyst at FXStreet, Powell should persevere in the interest rate hikes and “convey a message of confidence” to the markets. Elam expects Powell’s press conference to alleviate any market over-reaction to the likely interest rate hike: 

National Bank of Belgium Governor and European Central Bank (ECB) Governing Council member Pierre Wunsch, said on Wednesday that the central bank will probably need to raise rates further if market stabilize, but he warned they need time to assess the full impact of the recent banking crisis.

Wunsch, one of the more hawkish ECB members, argued that recent developments could have an impact on lending, helping the central bank in curbing inflation. Eurozone banks have strong liquidity ratios, he added.

Earlier, ECB President Christine Lagarde said it is important that ECB's monetary policy “works robustly in the restrictive direction and that process is only starting to take effect now."

Last week, the ECB raised its key interest rates by 50 basis points and dropped their forward guidance of significant rates ahead on the back of the financial turmoil. A different outcome, Wunsch explained, would make people say “they know something we don’t know” and he said that "what they know is what they see."

Market reaction

The EUR/USD is up for the fifth consecutive day on Wednesday, hovering slightly below 1.0800, moving sideways as market participants await the Federal Reserve’s decision.  

• USD/JPY will remain subdued as traders await the US Federal Reserve.
• Caution is warranted, given the fact that oscillators are giving mixed signals.
• USD/JPY Price Analysis: Short-term, a bearish continuation is likely; otherwise, buyers can reclaim 133.00.

USD/JPY remains in choppy trading price action, with investors eyeing Wednesday’s US Federal Reserve decision. At the time of typing, the USD/JPY pair exchanges hands at around 132.50s after traveling from a daily low of 132.25 and hitting a high at 133.00.

USD/JPY Price action

The USD/JPY pair trades nearby the weekly highs, though it remains sideways. The Exponential Moving Averages (EMAs) in the daily chart turned flat, while oscillators like the Relative Strength Index (RSI) and the Rate of Change (RoC) give mixed signals.

In the short-term, the USD/JPY 4-hour chat paints the pair as downward biased, trading below the 50, 100, and 200-EMAs. Also, a three-week-old downslope resistance trendline would cap any rallies should the USD/JPY exceed the 133.50 area.

For a bearish continuation, the USD/JPY is backed by oscillators, like the RSI is about to turn bearish, while the RoC portrays buying pressure waning. That said, the USD/JPY first support would be the 20-EMA at 132.38. A breach of the latter could send the pair to the daily pivot at 132.04, followed by a drop to the S1 pivot point at 131.46. Once cleared, the USD/JPY would challenge the 131.00 figure.

In an alternate scenario, the USD/JPY first resistance would be the R1 pivot at 133.06. Once broken, the pair would immediately test the 50-EMA at 133.11, followed by the R2 daily pivot point at 133.64, ahead of the confluence of the 100/200-EMAs at 133.76/77.

USD/JPY 4-hour chart

USD/JPY Technical levels

Economists at TD Securities discuss the Federal Reserve interest rate decision and its implications for EUR/USD and USD/JPY.

Hawkish (20%)

“The FOMC delivers a 25 bps rate hike, but separates ongoing liquidity strains in the banking system and its dual mandate of full-employment and on-target inflation, with the latter still significantly out of sync. Chair Powell signals that more interest-rate increases are in the pipeline. The median dot for 2023 rises. USD/JPY 133.90/00, EUR/USD 1.0680/00.”

Base Case (55%)

“Fed delivers a 25 bps rate hike, acknowledging recent financial-market turmoil has raised uncertainty about the outlook. However, the Committee signals that the job is not done yet, as inflation remains overly elevated. We expect the chairman to reiterate that, while the FOMC will remain ever more data-dependent, it judges that ongoing rate increases might still be appropriate. USD/JPY 132.70/80, EUR/USD 1.08.”

Dovish (25%)

“Fed pauses rate increases, and flags rising uncertainty in the path forward for policy. The Committee notes that recent market turmoil is likely to adversely impact financial conditions and curtail lending in the medium term even if there's no broad contagion in the banking system. Powell mentions that the best course forward is to be patient given the ongoing headwinds facing the economy. The median dot for 2023 is lowered, with the chairman also reiterating the Fed's desire for a soft landing. USD/JPY 130.60, EUR/USD 1.0880.”

• UK inflations accelerates unexpectedly  in February, ahead of BoE decision.
• US Dollar mixed as traders await Federal Reserve's announcements.
• GBP/USD retreats from six-week highs toward 1.2200.

The GBP/USD retreated more than 70 pips from the six-week high it reached earlier of 1.2297 and dropped to 1.2218 as Pound's momentum following UK CPI faded, ahead of the Federal Reserve's decision.

Pound erases gains, DXY holds to losses

Earlier on Wednesday, the UK inflation numbers surprised to the upside. The Consumer Price Index rose from 10.1% to 10.4% YoY, against expectations of a modest decline. The unexpected accelerations boosted the Pound, that then gave back all gains.

The inflation numbers increased the pressure on the Bank of England which will announce on Thursday its decision on monetary policy. A 25 bps rate hike is now more firmly expected.

The Fed announces its rate decision at 18:00 GMT. The consensus forecast indicates a 25 bps hike to 4.75% - 5.00%. The statement, the projections and Chair Powell's press conference could be as important as the rate decision considering the uncertainty surrounding the meeting.

Ahead of the meeting, the US Dollar Index is falling 0.15% as US yields move away from daily highs. GBP/USD is hovering around 1.2240 as a weaker US Dollar helped the pair find demand. The bias is still to the upside, with immediate support levels at 1.2220 and 1.2200/05. On the upside, a consolidation above 1.2300 could open the door to more gains.

Technical levels

GBP/USD maintains a strong tone after recovering back above its 200-Day Moving Average. Economists at Credit Suisse expect the pair to test the 1.2447/49 year-to-date highs.

Support at 1.2009 ideally holds to keep the immediate risk higher

“GBP/USD is attempting to push above the 1.2270 mid-February high and downtrend from February 2022. We continue to look for a sustained break to clear the way for a fresh look at the 1.2447/49 YTD highs, where we would look for a fresh cap again. Should strength directly extend though we would see resistance next at 1.2668/1.2783 – the May 2022 high, 61.8% retracement of the 2021/2022 fall and long-term downtrend from May 2021.

“Support at 1.2009 now ideally holds to keep the immediate risk higher. A break can see a retest of the 200-DMA, currently at 1.1895.”

• EUR/USD extends the upside bias and reaches the 1.0800 barrier.
• A close above the latter should allow for extra gains.

EUR/USD advances to new multi-week highs around the 1.0800 hurdle on Wednesday.

The continuation of the strong uptrend could now see the weekly high at 1.0804 (February 14) revisited shortly, while the surpass of this level in a convincing fashion should face the next obstacle not before the 2023 peak at 1.1032 (February 2).

Looking at the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0329.

EUR/USD daily chart

• USD/MXN registers minimal losses, with traders bracing for the Fed’s decision.
• Most analysts estimate a 25 bps rate hike by the Federal Reserve.
• US Treasury bond yields rising, capped the USD/MXN fall below the $18.50 mark.

USD/MXN extended its losses to three straight days and tumbled 0.03% or 51 pips on Wednesday. Wall Street trades with minimal losses ahead of the US Federal Reserve’s (Fed) monetary policy decision. At the time of writing, the USD/MXN is trading at 18.5909 after hitting a high of 18.6611.

USD/MXN drops ahead of Powell and Co. decision

Sentiment shifted sour as the time closes to know the Fed’s decision. Most analysts expect a 25 basis points (bps) rate hike, and the “dot-plots” remain unchanged compared to December’s meeting. Three weeks ago, before the Silicon Valley Bank (SVB) crisis, which spread to another two US banks across Europe with Credit Suisse (CS), put central banks under heavy stress. However, once the dust settled, the European Central Banks (ECB) raised rates by 50 bps and removed any forward guidance.

Analysts at Deutsche Bank commented, “Fed will follow through with a +25bp hike today, and futures are pricing in a roughly 82% chance they’ll go ahead with one.” They added, “Before the SVB collapse, Chair Powell had said in congressional testimony that they were prepared to increase the pace of rate hikes, which led investors to price in a strong chance of a 50bps move.” Nevertheless, the scenario is different after two US banks collapse. Another one remains at the brisk of falling under the water, though 11 banks in the United States provided aid to contain the contagion.

Consequently, US Treasury bond yields continued their recovery after dropping a substantial amount of bps. The US 10-year Treasury bond yield sits at 3.615%, unchanged, while the 2-year bond is yielding 4.221%, gains five bps.

The US Dollar Index, which tracks the buck’s value vs. a basket of six currencies, remains firm at 103.195, unchanged.

Data-wise, the US economic docket will feature the US Fed monetary policy decision, followed by the Federal Reserve Chairman Jerome Powell press conference at around 18:30 GMT.

On the Mexican side, private consumption in Mexico increased by 0.5% in Q4 of 2022, compared to the previous quarter, with a revised increase of 0.3%. However, the year-on-year growth rate of private spending slowed to 4.5%, as opposed to the revised 6.4% rise in the preceding period.

USD/MXN Technical analysis

After falling below the 100-day, Exponential Moving Average (EMA) at 18.6737 exacerbated the USD/MXN fall toward the $18.50 area. But the fall was capped by the 20-day EMA at 18.5526, though price action touched a low of around 18.5113. With the Fed’s decision looming, price action would likely remain sideways, awaiting Jerome Powell’s speech and Q&A.

If the USD/MXN breaks above 18.6611, that will pave the way toward the 100-day EMA, followed by the March 21 high at 18.8769. Conversely, the USD/MXN would collapse further if the pair dives below $18.50.

An attractive real interest rate is supporting the Brazilian Real, but financial market turmoil and political uncertainties remain dragging factors, economists at Commerzbank report.

Attractive real interest rate supports BRL

“Given an attractive Brazilian real interest rate, we see the Real well supported, although current market turbulence and political uncertainties are likely to create volatility.”

“Political risks, fiscal policy problems and a potentially more expansionary central bank after BCB President Neto's term ends at the end of 2024 are likely to weigh on the longer-term BRL outlook.”

Source: Commerzbank Research

• DXY looks offered and revisits the 103.00 region pre-Fed.
• The loss of 103.00 could spark a deeper correction near term.

DXY extends the weekly leg lower and retests the 103.00 neighbourhood, where some decent contention appears to have emerged so far.

The bearish mood appears unabated for the time being. Against that, there is a minor support at the weekly low at 102.58 (February 14), while the loss of this region could spark further losses to the 2023 low near 101.80 (February 2).

Looking at the broader picture, while below the 200-day SMA, today at 106.61, the outlook for the index is expected to remain negative.

DXY daily chart

EUR/USD consolidates at six-week highs before the FOMC decision. Economists at Société Générale expect the pair to enjoy further gains if the meeting manages to keep the market pricing where it is today.

A 25 bps hike looks like the most likely outcome

“There’s a world in which, with natural gas prices back at 2021 levels and the Fed approaching the end of the tightening cycle as the regional banking crisis tightens financial conditions in the US (but not so much, anywhere else), the Dollar is set for a significant fall.”

“If today’s FOMC meeting manages to keep the market pricing where it is today, the Euro ought at the very least to continue its slow grind higher.” 

“A 25 bps hike looks like the most likely outcome, though forecasters’ conviction levels are very low, and while we’ll get a new ‘dot plot’ and new economic projections, they will surely be shrouded in enough caveats to make it clear that the FOMC is simply buying time to see if the measures taken to stabilise the banking sector are working.”

The Swiss National Bank (SNB) is set to announce its Monetary Policy Decision on Thursday, March 23 at 08:30 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of six major banks regarding the upcoming central bank's Interest Rate Decision. 

The SNB is expected to deliver a 50 basis points rate hike, taking the policy rate to 1.5%, despite market turmoil. 

ING

“Our baseline scenario remains a 50 bps rate hike, but the probability of this has seriously diminished, and neither the status quo nor a 25 bps hike can be ruled out. Unlike the ECB, the SNB has not pre-announced anything, so it is freer in its choices.”

CitiBank

“We expect SNB to hike its policy rate by 50 bps to 1.5% this week despite the turmoil surrounding the banking system. If calm returns, we expect a terminal rate of 2.5%.”

Wells Fargo

“Even allowing for recent financial market strains, we believe the SNB's policy guidance, higher Swiss inflation and the rate hike delivered by the European Central Bank point to a 50 bps rate hike in the SNB's policy rate, to 1.50%.”

BBH

“Banking sector developments should not impact the SNB decision.  Madame Lagarde stressed last week that there is no trade-off between price and financial stability. We concur. This was a very strong statement that suggests any banking sector issues won't derail the tightening cycle. We think this view is held by pretty much every central bank, including the SNB, which supports market consensus for a 50 bps hike to 1.5%. The market is pricing in a peak policy rate near 1.75%, which sounds about right.” 

Standard Chartered

“We expect the SNB to hike by 50 bps, taking the policy rate to 1.5% from 1.0%. Hawkish policy comments, higher-than-expected February inflation and a widening interest rate differential with other major central banks support our view. We now see a final 25 bps hike in June to a terminal rate of 1.75% (1.5% previously), followed by a pause.”

Credit Suisse

“Given recent events and the high volatility of financial markets, it seems to us that the probability of a 75 bps rate hike as initially expected has dropped significantly. Yet, a 50 bps rate hike seems appropriate, in our view.”

• GBP/JPY gains strong positive traction for the third successive day on Wednesday.
• The stronger UK CPI lifts bets for more BoE rate hikes and boosts the British Pound.
• The pre-Fed anxiety benefits the safe-haven JPY and acts as a headwind for the cross.
• Bulls also seem reluctant to place fresh bets ahead of the BoE meeting on Thursday.

The GBP/JPY cross builds on this week's strong rally from the vicinity of mid-158.00s and scales higher for the third successive day on Wednesday. Spot prices, however, trim a part of the intraday gains to a one-week high and retreat below mid-162.00s in the last hour.

The British Pound strengthens across the board following the release of stronger-than-expected UK consumer inflation figures, which turns out to be a key factor pushing the GBP/JPY cross higher. In fact, the UK Office for National Statistics (ONS) reported that the headline CPI jumped from 10.1% in the previous month to a 10.4% YoY rate in February, surpassing consensus estimates. Adding to this, the core CPI, which excludes volatile food and energy prices, rose to 6.2% last month after decelerating to 5.8% in January, adding pressure on the Bank of England (BoE) to keep raising rates further and boosting the Sterling Pound.

Apart from this, easing fears of a full-blown banking crisis turn out to be another factor behind the safe-haven Japanese Yen's (JPY) relative underperformance and provide an additional boost to the GBP/JPY cross. The recent news that UBS will rescue Credit Suisse in a $3.24 billion deal helped calm nerves about the contagion risk and prompted investors to cautiously return to riskier assets. This led to a strong two-day rally in the equity markets, which, in turn, drove flows away from traditional safe-haven assets. Apart from this, the Bank of Japan's (BoJ) dovish tilt might continue to weigh on the JPY.

That said, the anxiety ahead of the highly-anticipated FOMC monetary policy decision on Wednesday keeps a lid on the optimism in the markets and caps the GBP/JPY cross. Traders also seem reluctant to place aggressive bets and prefer to lighten their bets heading into the BoE policy meeting on Thursday. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the upside. That said, repeated failures to find acceptance above a technically significant 100-day Simple Moving Average (SMA) warrant some caution before positioning for further gains.

Technical levels to watch

The US Dollar is turning lower as looked for. Economists at Credit Suisse maintain a negative stance.

Strength in the USD from early January has been a corrective move higher

“We maintain our view that strength from January was corrective. We still look for a break below the 102.59 mid-February low to further reinforce our view for a retest of the 100.82 YTD low, then we think the 61.8% retracement of the 2021/2022 uptrend at 98.98.”

“Resistance at 105.10 now ideally caps to keep the immediate risk lower. Above can see a retest of 105.88/106.64.”

Yesterday’s Canadian inflation data for February was weaker than expected. Economists at Commerzbank expect the Loonie to remain under downside pressure.

Canadian inflation rates in February slightly better than expected

“The overall rate fell more notably than expected from 5.9% to 5.2%. The core rates (trim, median) on average fell as expected, leaving them slightly below the 5% mark.”

“The data is likely to have now made it clear for the market that further rate hikes are unlikely for the time being, above all while inflation continues to trend downwards. That is putting pressure on the Loonie, as it stands in contrast with the market’s Fed expectations.”

“As market attention will today focus on the Fed decision, the minutes of the last BoC meeting will remain an aside, in particular as the meeting was held prior to the recent financial market turbulence.”

• Silver remains on the defensive for the third successive day on Wednesday.
• The recent price action might still be categorized as a bullish consolidation.
• A convincing break below the $21.00 mark is needed to offset bullish bias.

Silver attracts some intraday selling near the $22.50 area on Wednesday and remains on the defensive heading into the North American session. The white metal is currently placed around the $22.30 area, just above the weekly low touched the previous day, as traders keenly await the highly-anticipated FOMC policy decision for a fresh impetus.

Looking at the broader picture, the recent price action witnessed over the past three trading sessions constitutes the formation of a rectangle on hourly charts. Against the backdrop of the recent strong recovery from levels just below the $20.00 psychological mark, or the YTD low, this might still be categorized as a bullish consolidation phase before the next leg up. The constructive outlook is reinforced by the fact that oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone.

Moreover, the recent breakout through the $21.65-$21.70 confluence favours bullish traders. Hence, any further slide towards the $22.00 mark could be seen as a buying opportunity and help limit the downside near the said resistance breakpoint, now turned support. This comprises the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibo. level, which should now act as a pivotal point.

That said, a convincing break below the latter could expose the $21.00 mark, representing the 23.6% Fibo. level. The XAG/USD might then turn vulnerable to accelerate the decline towards testing the $20.55-$20.50 intermediate support en route to the $20.00 psychological mark. The downward trajectory could get extended further towards the next relevant support near the $19.60 region.

On the flip side, immediate resistance is pegged near the $22.50 area ahead of the multi-week high, around the $20.70 zone set on Monday. This is closely followed by the $22.85 region (61.8% Fibo. level) and the $23.00 mark, which if cleared should pave the way for a move towards the $23.25-$23.35 hurdle. The XAG/USD might eventually aim to reclaim the $24.00 mark and climb further to the multi-month top, around the $24.65 zone touched in February.

Silver 4-hour chart

Key levels to watch

• EUR/JPY reclaims the area above the 143.00 mark.
• Further upside seems likely in the short term.

EUR/JPY advances for the third session in a row to multi-day peaks north of the 143.00 mark on Wednesday.

The rebound appears strong and the continuation of this price action should target the 2023 high at 145.56 (March 2) ahead of a potential visit to the December 2022 peak at 146.72 (December 15).

In the meantime, extra losses remain on the cards while the cross trades below the 200-day SMA, today at 141.79.

EUR/JPY daily chart

Gold tends to deliver a positive return whenever there is short term stress in the financial system. Nonetheless, economists at Standard Chartered expect the yellow metal to turn back lower toward $1,875 over the coming months.

High probability of XAU/USD overshooting in the very short term

“Investor positioning remains far from extremes, suggesting it is unlikely to stand in the way of further gains. These suggest there is a reasonably high probability of XAU/USD overshooting in the very short term, especially if banking sector fears persist. Having said that, we are mindful that Gold helps mitigate volatility over relatively short time horizons.”

“Over a longer three-month period, we would not chase recent gains excessively and instead expect Gold to settle back at around $1,875.”

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest results from the Malaysian trade balance.

Key Takeaways

“Malaysia’s external trade sector unexpectedly outperformed in Feb, largely due to year-ago low base effects. Gross exports advanced by 9.8% y/y last month (Jan: +1.4%), beating our estimate (+1.5%) and Bloomberg consensus (+4.7%). Gross imports also surpassed our expectation (+1.8%) and Bloomberg consensus (+6.4%), reclaiming a double-digit growth of 12.4% (Jan: +2.2%). This resulted in a trade surplus of MYR19.6bn (Jan: +MYR18.1bn).”

“The surprised export outturn in Feb was mainly driven by a growth rebound in shipments of manufactured goods particularly electrical & electronics (E&E) and refined petroleum products amid low statistical comparison a year ago. This alongside sustained demand for mining goods helped to cushion the persistent drag from exports of agriculture products. Stronger demand for Malaysian products was also observed from the US, Hong Kong, South Korea, and ASEAN region during the month.”

“Despite a decent year-to-date (ytd) export expansion of 5.4% in Jan-Feb, we continue to see downside risks to the external trade sector as the year progresses. Global headwinds will remain while year-ago high base effects become more prominent from Mar onwards. A slower-than-expected China recovery and further monetary tightening in the developed markets are also expected to further weigh on global demand momentum ahead, in addition to softer readings of Malaysia’s leading indicators such as imports of intermediate goods and manufacturing PMI. Hence, we keep our full-year export growth forecast of 1.5% for this year (MOF est: +2.2%, 2022: +25.0%).”

USD edges lower as markets await the Fed policy decision. Although the greenback could strengthen following Federal Reserve's policy announcements, the gains are unlikely to be significant, economists at Scotiabank report.

Main issue for USD is how much the policy statement and press conference shift terminal rate expectations 

“There is perhaps some risk that markets are overestimating how dovish Powell may sound today which might drive some USD gains in the short run.” 

“The main issue for the USD is perhaps how much the policy statement and press conference shift terminal rate expectations (and market pricing for late-year rate cuts); it seems hard to escape from the idea that the Fed’s rate cycle is looking very mature and that should limit the Dollar’s ability to strengthen significantly.” 

“I think the USD emerges a bit softer still from the Fed decision but it may be bumpy ride in the short run.”

USD/JPY may see a near-term pause. Nevertheless, analysts at Credit Suisse continue to look for an eventual retest of the 127.53/23 year-to-date lows.

Resistance at 135.12 ideally caps a near-term consolidation phase

“Whilst we may see a near-term phase of consolidation, our broader outlook stays negative for an eventual break below the uptrend and then price support at 129.80 for a retest of the 127.53/23 YTD low and 50% retracement of the 2021/2022 uptrend.”

“Resistance at 135.12 now ideally caps a near-term consolidation phase. Above though can see a retest of 136.67/137.46.”

• Gold price trims 3% after peaking above $2,000 at the start of the week.
• Market full attention is on FOMC meeting, with consensus expecting a 25 bps dovish rate hike.
• Federal Reserve members showed hawkish rhetoric before blackout period, banking crisis.
• Future rate hike projections will determine if the Gold uptrend can keep going.

Gold price is quietly trading below $1,950 on Wednesday during the European session as the market pauses action ahead of a decisive Federal Open Market Committee (FOMC) interest rate decision on Wednesday. The Federal Reserve (Fed) will release its monetary policy statement, including the Summary of Economic Projections (SEP), also known as the dot plot, at 18:00 GMT.

FOMC Speech Tracker: Do hawkish remarks still carry weight after banking crisis?

The Federal Reserve decision on Wednesday is a unique one, as FOMC members face sticky inflation levels well above the target on their mandate, but they probably can’t be as aggressive (or hawkish) as they would like to be after the collapse of Silicon Valley Bank triggered an international banking crisis. Higher interest rates mean tighter credit conditions, and bank balances might suffer as a result.

Gold price reaction to the meeting will depend on whether the FOMC leans more toward respecting their mandate and attacking inflation with higher interest rates in the current and future Fed meetings, or if they show cautiousness to prevent more issues in the financial system.

We have plugged together all the speeches from Federal Reserve board members, whether they have voting attributions in 2023 or not, since their last meeting on February 1 to review the bias the FOMC board might have when they meet and decide on interest rates and the dot plot. The question is whether their opinions have changed and if hawks have become doves after the SVB bank crisis surfaced, so this tracker might have to be taken with a grain of salt this time around.

This is the FOMC speech tracker for the February-March period:

*Voting members are highlighted in bold.

From 18 speeches tracked by our editorial team, eight were deemed as hawkish pieces, eight more were considered as balanced, and only two leaned dovish. The hawkish voices came mostly from voting members, which makes the hawkish bias more profound ahead of the FOMC Meeting. It’s also remarkable that the two dovish instances came both from non-voting members, Thomas Barkin and Raphael Bostic.

This would have presented a clear hawkish outlook going into this meeting, but a more dovish stance is on the cards after the banking crisis.

Gold price technicals show bullish bias

Gold price extended its pullback on Tuesday to a loss of around 3% from the peak seen early on Monday above $2,000, finding support at $1,940. This is close to the 23.6% Fibonacci retracement level of the big rally seen between March 9 and March 17.

Gold uptrend, as clearly seen in the daily chart below, is still intact, which might allow the bright metal bulls to trigger another upswing if the FOMC releases a dovish statement, with the SEP potentially hinting at an interest rate cut before the year-end, accompanying a 25 basis point rate hike for the current meeting.

Gold price daily chart

USD/BRL has staged a bounce after defending key support at 5.01 representing lows of last August/November. Economists at Société Générale expect the pair to trend gradually higher.

Risk of an extended down move on a break under 5.01

“The USD/BRL pair is expected to inch higher gradually towards 5.38 and projections of 5.46/5.48.”

“The trend line drawn since 2020 at 5.60 is a key resistance near term.”

“Only if the pair breaches graphical level at 5.01 would there be a risk of an extended down move.” 

• Federal Reserve expected to hike interest rates by 25 basis points.
• Summary of Economic Projections, known as the dot plot, will shape how the markets react.
• FOMC will need to find a balance between addressing inflation pressures and banking troubles.

The Federal Reserve (Fed) is expected to raise its policy rate by 25 basis points (bps) to the range of 4.75%-5% on Wednesday, March 22 at 18.00 GMT. 

The market positioning suggests that such a decision is already largely priced in, opening the door for a significant reaction to the Fed’s communication, the revised Summary of Economic Projections (SEP) and Chairman Jerome Powell’s press conference regarding future policy actions. 

According to the CME Group’s FedWatch Tool, the probability of a 25 bps hike this week stands at around 84%, an almost certain chance. For the March 22nd meeting, the market is currently pricing in only a 16% chance of the Fed leaving its policy rate, the federal funds rate, unchanged at the range of 4.5%-4.75%.

Federal Reserve interest rate decision: What to know in markets on Wednesday, March 22

• The US Dollar (USD) suffered heavy losses last week, pressured by falling US Treasury bond yields and the re-pricing of the Fed’s rate outlook following the collapse of the Silicon Valley Bank and Signature Bank. 
• As investors move to the sidelines ahead of the Fed’s policy announcements, the US Dollar Index consolidates its losses.
• US stock index futures trade mixed following Tuesday's risk rally and the 10-year US Treasury bond yield continues to fluctuate above 3.5%. 
• The European economic docket will not feature any high-impact data releases on Wednesday, allowing the USD’s reaction to the Fed to drive EUR/USD’s action.

When is the Fed meeting and how could it affect EUR/USD?

The Federal Reserve is scheduled to announce its interest rate decision and publish the revised Summary of Economic Projections (SEP), the so-called dot plot, this Wednesday, March 22, at 18:00 GMT. This will be followed by the post-meeting FOMC press conference at 18:30 GMT. Investors had begun to re-price the Fed’s policy outlook following last week's collapse of two mid-size US banks – Silicon Valley Bank and Signature Bank. 

That said, investors are still forecasting a 25 bps rate increase amid easing fears over a deepening liquidity crisis following the quick measures taken by the Fed. This, along with a positive development surrounding the Credit Suisse saga, suggests that the Fed could stay focused on battling inflation. Nevertheless, the terminal rate projection in the dot plot and Fed President Jerome Powell’s comments on the policy outlook and the market turmoil will provide fresh clues regarding potential future policy steps.

In December, the Fed’s SEP revealed that the median view of the policy rate at end-2023, the terminal rate, stood at 5.1%, up from 4.6% in September's SEP. At this point, an upward revision to the terminal rate projection shouldn’t be surprising. Having said that, where the terminal rate lands will reveal whether policymakers have turned reluctant to continue with rate hikes. Moreover, market participants will want to know if policymakers forecast a rate cut before the end of the year, given the negative impact of high interest rates on financing conditions. 

According to Yohay Elam, Analyst at FXStreet, “after the initial reaction, the focus will shift to interest rate projections. I expect no significant change for 2023 – the Fed will likely stick to its guns about refusing to slash borrowing costs this year. By signaling rates will near 5.50%, the Fed would continue conveying a message of confidence. It could offer a token reduction of its projections for 2024 and 2025 – but markets do not look that far.”

FOMC Chairman Jerome Powell will have to respond to tough questions on the state of the banking sector. His communication on how the Fed plans to continue to tame inflation while reassuring that SVB turmoil will remain contained will impact the action in US Treasury bond yields and the US Dollar’s performance against its major rivals.

Previewing Powell’s presser, “if fighting inflation is an overriding priority, even if it results in a recession, shares would tumble, and the Greenback would surge. Such a clear-cut message also has low chances,” Elam noted. “I expect Powell to dedicate significant emphasis and time to the labor market – the Fed's second official mandate, alongside price stability., He could tie the bank's next moves to jobs data rather than solely banks vs. inflation.” 

Eren Sengezer, European Session Lead Analyst at FXStreet, shares his outlook for EUR/USD: “Heading into the key central bank event risk, the EUR/USD pair trades with a positive bias comfortably above 1.0700. The Relative Strength Index (RSI) indicator on the daily chart stays near 60, suggesting that the pair has more room on the upside before turning technically overbought.”

“Nevertheless, a hawkish dot plot combined with Powell’s assurance that they will focus on taming inflation should help the US Dollar gather strength and cause the pair to turn south. In that scenario, the 50-day Simple Moving Average (SMA) is likely to act as dynamic support at around 1.0700. A daily close below that level could open the door for an extended slide toward 1.0600 (100-day SMA) and 1.0540 (static level).”

“On the upside, EUR/USD could face interim resistance at 1.0850 (static level) before targeting 1.0900 (psychological level, static level) and 1.1000 (psychological level),” Eren adds further.

Federal Reserve Related content

• The question today is how much will the Fed hike.
• No one really knows how much importance the Fed will assess to the latest banking stress [Video].
• Rates spark: The dam holds, just in time for the Fed.

About Federal Reserve

The Federal Reserve System (Fed) is the central banking system of the United States and it has two main targets or reasons to be: one is to keep unemployment rate to their lowest possible levels and the other one, to keep inflation around 2%. The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors, partially presidentially appointed Federal Open Market Committee (FOMC). The FOMC organizes 8 meetings in a year and reviews economic and financial conditions. Also determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.

• USD/CAD lacks any firm intraday direction and oscillates in a narrow trading band on Wednesday.
• The prevalent USD selling bias acts as a headwind in the wake of the recent recovery in Oil prices.
• Tuesday’s softer Canadian CPI print caps gains for the Loonie and lends support ahead of the Fed.

The USD/CAD pair struggles to capitalize on the previous day's goodish rebound from a two-week low and edges lower on Tuesday amid the prevalent US Dollar (USD) selling bias. The pair remains depressed around the 1.3700 mark through the mid-European session, though the downside seems cushioned as traders keenly await the highly-anticipated FOMC monetary policy decision.

The US central bank is scheduled to announce the outcome of a two-day meeting later during the US session and is expected to deliver a smaller 25 bps rate hike. Moreover, the collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - has been fueling speculations that the US central bank might even cut rates during the second half of the year. Hence, investors will closely scrutinize the accompanying policy statement, the updated economic projections and Fed Chair Jerome Powell's comments at the post-meeting press conference for clues about the future rate-hike path. This will play a key role in influencing the near-term US Dollar price dynamics and determine the next leg of a directional move for the USD/CAD pair.

Heading into the key central bank event risks, expectations that the Fed will adopt a less hawkish stance, along with easing fears of a full-blown banking crisis, drags the safe-haven USD to a fresh multi-week low. This, along with this week's solid recovery in Crude Oil prices from a 15-month low, underpins the commodity-linked Loonie and acts as a headwind for the USD/CAD pair. That said, the softer-than-expected Canadian consumer inflation released on Tuesday backed the case for the Bank of Canada (BoC) to refrain from raising interest rates any further. This, in turn, caps the upside for the Canadian Dollar and is seen lending some support to the pair, warranting some caution before positioning for a meaningful slide.

Technical levels to watch

EUR/USD nears 1.08. Economists at Scotiabank believe that the world’s most popular currency pair could retest the 1.10 area.

Short-term trend oscillators augur positively for the Euro

“Gains through 1.0760 and bullish-leaning, short-term trend oscillators augur positively for the EUR and suggest firm support on dips (1.0750/60 initially and, stronger, at 1.0700/25).”

“We spot some resistance at 1.0835/40 but gains through the upper 1.07s rather suggest the EUR is aiming for a retest of the 1.10 zone.”

See – EUR/USD: Break above 1.0806 should see the rally gain more momentum – Credit Suisse

Cable gains are extending to near 1.23. A sustained move above 1.2380 would clear the way toward 1.25, then a potential move on to the 1.28/30 range, econmomists at Scotiabank report.

Firm and developing momentum under the GBP

“Short-term oscillators indicate firm and developing momentum under the GBP.”

“Consolidation resistance, stemming from the sideways channel that has developed since the turn of the year, stands at 1.2380. A clear move above here targets 1.25 and, potentially, a move on to the 1.28/1.30 range.”

• AUD/USD regains positive traction on Wednesday amid sustained USD selling.
• Bets for a less hawkish Fed and easing fears of a banking crisis weigh on the buck.
• Investors now look to the crucial FOMC decision for a fresh directional impetus.

The AUD/USD pair attracts fresh buying on Wednesday and reverses a major part of the previous day's retracement slide from the vicinity of a two-week high. The pair sticks to its intraday gains through the first half of the European session and is currently placed near the top end of its daily range, around the 0.6700 mark.

As investors look past the Reserve Bank of Australia's (RBA) hint of a rate pause, the prevalent selling bias around the US Dollar (USD) turns out to be a key factor that assists the AUD/USD pair to regain positive traction. It is worth recalling that the minutes of the RBA meeting held on March 7 revealed a step down in hawkishness as policymakers only considered a 25 bps hike and agreed to revisit the case for a pause at the April meeting amid the uncertain economic outlook. The Fed, meanwhile, is expected to soften its hawkish stance, which drags the USD to a fresh multi-week low and acts as a tailwind for the major.

In fact, the markets have been pricing in a greater chance of a 25 bps rate hike at the end of a two-day FOMC meeting later this Wednesday. Furthermore, the recent collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - fueled speculations that the Fed might cut rates during the second half of the year. Hence, investors will scrutinize the accompanying monetary policy statement, the updated economic projections and Fed Chair Jerome Powell's remarks at the post-meeting press conference for clues about the future rate-hike path, which will provide a fresh impetus to the AUD/USD pair.

Heading into the key central bank event risk, the aforementioned mixed fundamental backdrop might hold back traders from placing aggressive directional bets. That said, easing fears about a full-blown banking crisis should keep the USD bulls on the defensive and continue to lend some support to the risk-sensitive Aussie, at least for the time being.

Technical levels to watch

USD/CAD is trading little changed around the 1.37 point. Economists at Scotiabank highlight that seasonal patterns turn more positive for the Loonie in the second quarter. 

USD/CAD remains in a fairly orderly sideways range

“It’s worth reiterating that the seasonal backdrop does turn more positive for the CAD in Q2 (Q1 is typically poor for the CAD, as has been the case this year) and Apr in particular tends to be a weak month for USD/CAD (down 1.1% on average over the past 25 years).” 

“The reality is that USD/CAD remains in a fairly orderly sideways range and, if anything, there is a modest downward tilt to prices from the mid-March highs in the 1.3800/50 area.”

“The rejection of support around 1.3650 does reinforce support at the point but it will take a push back above 1.38 to generate a stronger, bullish impulse from here.” 

“Intraday resistance is 1.3725/50.”

EUR/USD extends the advance for the fifth consecutive session on Wednesday. A break above 1.0802/06 would clear the way toward the year-to-date high of 1.1035, analysts at Credit Suisse report.

Support moves higher to 1.0631

“We continue to look for a break above price resistance at 1.0802/06 to reassert an upward bias for strength back to the 50% retracement of the 2021/2022 fall at 1.0944, then a retest of the 1.1035 YTD high.”

“Support moves higher to 1.0631 initially. Only below 1.0463 would be seen to mark a ‘head & shoulders’ top and a potentially more significant downturn.”

The Bank of England (BoE) meeting on Thursday could see Sterling suffering if the central bank pauses rate hike cycle, economists at Commerzbank report.

The BoE will probably be seen as the more hesitant central bank

“It is decisive whether the BoE actually delivers on Thursday. If it does not do that Sterling is likely to suffer notably.”

“One way or the other the BoE will probably be seen as the more hesitant central bank, in particular in comparison with the ECB, so that we remain sceptical for Sterling medium term.”

• A combination of supporting factors pushes GBP/USD to its highest level since early February.
• The strong UK CPI lifts bets for more BoE rate hikes and provides a goodish lift to the Sterling.
• The prevalent USD selling bias remains supportive of the move ahead of the FOMC decision.

The GBP/USD pair catches fresh bids on Wednesday and the buying interest picks up pace during the first half of the European session in reaction to the strong UK consumer inflation figures. The momentum lifts spot prices to a fresh high since February 02, with bulls now awaiting a sustained strength beyond the 1.2300 mark before positioning for any further appreciating move.

The hotter-than-expected UK CPI print adds pressure on the Bank of England (BoE) to hike interest rates by 25 bps at the very least on Thursday, which, in turn, boosts the British Pound. The US Dollar (USD), on the other hand, drops to a fresh multi-week low amid expectations for a less hawkish Fed and further pushes the GBP/USD pair higher ahead of the key central bank event risks. 

From a technical perspective, the emergence of fresh buying on Wednesday validates this week's breakout through the 1.2200 mark, representing the 61.8% Fibonacci retracement level of the January-March downfall. Given that positive oscillators on the daily chart are still far from being in the overbought zone, some follow-through buying beyond the 1.2300 level will be seen as a fresh trigger for bulls.

The GBP/USD pair might then climb to test the next relevant hurdle near the 1.2320 region before eventually climbing to the 1.2400 round-figure mark. The momentum could get extended further towards the double-top resistance near the 1.2450 region, or the YTD peak touched in January, above which bulls are likely to aim to reclaim the 1.2500 psychological mark for the first time since June 2022.

On the flip side, the 1.2235 area now seems to protect the immediate downside ahead of the 1.2200 mark (61.8% Fibo.) and the overnight swing low, around the 1.2180-1.2175 region. A convincing break below might prompt some technical selling and drag the GBP/USD pair towards the 1.2125 confluence, comprising the 50% Fibo. level and the 200-day Exponential Moving Average (SMA).

The latter should act as a strong base for the GBP/USD pair, which if broken decisively might shift the near-term bias back in favour of bearish traders and pave the way for deeper losses. The subsequent downfall could drag spot prices further towards the 38.2% Fibo. level, around the 1.2050-1.2045 region en route to the 1.2000 psychological mark and the 23.6% Fibo. level, near the 1.1955-1.1950 zone.

GBP/USD daily chart

Key levels to watch

• Gold price finds its feet after losing almost $60 in 48 hours.
• The next directional move depends heavily on the outcome of the FOMC. 
• Gold Futures Open Interest is signaling a possible rebound to $2,000 on the cards, says analyst.
• Longer-term uptrend remains intact if bruised, according to technical analysis. 

Gold price finds a floor at around $1,940 in the calm before the FOMC storm on Wednesday. The recent banking crisis appears to have eased temporarily with the completion of the takeover of Credit Suisse by UBS. Markets may have drawn comfort from the news UBS may buy back the AT1 bonds that were sold as a sacrificial lamb to sweeten the takeover.

Despite Gold price’s sell-off over the last two days, the precious metal still remains very much in an uptrend on higher timeframes. Now, much depends on the outcome of the US Federal Reserve’s meeting as to whether the uptrend resumes or bears push Gold price a step lower. 

Gold news: Market expectations of 25 bps rate hike firm

The probability the Federal Reserve will hike the Fed Funds Rate by 0.25% to a target range of 4.75%-5.00% jumped to 88% overnight, according to the CME FedWatch Tool, a highly regarded market gauge of future rate moves based on Fed Funds Futures. 

This sets the market expectation heading into the event and leaves the chances of no hike whatsoever at an unlikely 12%. 

According to experts, the longer term view is also important. If the Fed expects rates to peak this year with the possibility of a cut before year-end, markets may respond as if the decision was dovish. For the Gold price this will be a bullish result.

On the other hand, a 25 bps rate hike accompanied by a commitment to continue raising rates to a higher terminal rate will be interpreted as hawkish and weigh on the Gold price. 

One possibility, suggested by analysts at Commerzbank, is that the Fed may signal a pause whilst the banking crisis passes, before signaling it will resume a more aggressive hiking strategy to combat inflation at a later date. 

“The Fed would first have to convince market participants again that it will continue to raise rates after a pause in order to fight inflation. This poses the risk of additional volatility in the markets," said Commerzbank.

FXStreet’s own Yohay Elam believes the Fed may make a hawkish decision followed by softer dovish tones from Fed Chairman Jerome Powell in the meeting, designed to smooth volatility. 

“The short version of my scenario is: risk-off on the rate hike and the dot plot, followed by an immediate and slight recovery in response to the statement. Then, Powell would further boost the risk-on mood with promises to react to the situation and with caring words about the labor market," says Elam. 

Gold Futures Open Interest suggests a rebound in Gold 

Gold price is likely to rebound to the $2,000 level, according to FXStreet Senior Analyst and Editor, Pablo Piovano, based on an analysis of the Gold Futures market. 

Tuesday March 21 marked the first day where traders scaled back their Futures positions following three consecutive days of increased open interest, the term used to describe the volume of open positions in the Futures market.

“Gold prices extended the negative start of the week and retreated to the $1,940 region on Tuesday. The strong downtick was on the back of shrinking open interest and volume and suggests that a potential rebound could be in the offing in the very near term,” said Piovano in a note on Wednesday morning. 

Gold price technical analysis: Uptrend still intact, if bruised 

Gold price touches down at the $1,940s on Wednesday after falling almost $70 in only 48 hours. Whilst the precious metal looks vulnerable on the intraday charts a pan out to the daily chart, shows that the broader uptrend remains intact and there is every chance it could resume on the back of a more dovish takeaway from the FOMC meeting. 

Gold price: Daily Chart

Whilst the declines over the past two days have been steep, they still don’t wipe out all the gains made on Monday when bank contagion fears peaked. This continues to suggest the downturn, though steep, may just be a correction before bulls resume their push higher. A move back up will likely retouch the $2,009 yearly highs before consolidating. 

Nevertheless, Gold price has now broken out of its rising channel, which is a bearish development. The Relative Strength Index (RSI) momentum indicator has tracked price lower and is actually diverging when compared to where XAU/USD was when it last dipped. Nor are there any signs on the 4-hour chart of a bullish reversal forming, so in the very short-term the trend looks a little bearish. 

More losses could result in a further decline to $1,930 first, and the level of the 50-4hr Simple Moving Average (SMA), and then, if really volatile, to the March 15 low at $1,885, which is just above support from the 50-day SMA.  

The BoE is seen keeping its tightening stance and could raise the policy rate by 25 bps at both the March and May meetings, comments UOB Group’s Economist Lee Sue Ann.

Key Quotes

“We are penciling in 25bps hikes at the next 2 meetings on 23 Mar and 11 May, seeing the Bank Rate peak at 4.5%.”

“We recognize, though, the risks to our forecasts given the BOE’s challenge of fighting inflation amid a difficult economic outlook, as reflected by the range of views on the MPC at their last meeting on 2 Feb.”

• EUR/USD keeps the upside bias near the 1.0800 region.
• ECB Lagarde said underlying inflation dynamics remain strong.
• The Fed is expected to hike rates by 25 bps at its meeting later.

The buying interest around the European currency remains well and sound and pushes EUR/USD to the boundaries of the 1.0800 neighbourhood, or 5-week highs, on Wednesday.

EUR/USD remains bid on Fed-day

EUR/USD extends the advance for the fifth consecutive session on Wednesday and remains well bid ahead of the key FOMC event due later in the European evening. On this, the Federal Reserve is widely expected to hike the Fed Funds Target Range (FFTR) by 25 bps to 4.75%-5.00%.

Investors’ attention, in the meantime, is seen shifting to the updated dots plot along with the press conference by Chief Powell, where a potential impasse in the Fed’s tightening stance should take centre stage.

Earlier in the session, Chair Lagarde was once again on the wires and reiterated the absence of a trade-off between price and financial stability. She also renewed the bank’s pledge to bring down inflation at the time when she acknowledged that underlying inflation dynamics remain firm.

In the domestic calendar, the Current Account surplus in the broader Euroland widened to €17B in January (from €13B).

What to look for around EUR

EUR/USD keeps pushing higher and already trades at shouting distance from the key barrier at 1.0800 the figure ahead of the FOMC gathering.

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: 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 gaining 0.20% at 1.0787 and the break above 1.0793 (monthly high March 22) would target 1.0804 (weekly high February 14) en route to 1.1032 (2023 high February 2). On the flip side, there is initial support at 1.0516 (monthly low March 15) seconded by 1.0481 (2023 low January 6) and finally 1.0329 (200-day SMA).

Economists at ING think there is room for the Dollar to recover some ground on the back of a moderate hawkish surprise by the Fed.

Fed to hike by 25 bps

“It’s a close call, but we expect a 25 bps hike by the Fed today. Ultimately, Powell’s primary goal is to restore investor confidence and a hold might signal a lack of trust in the financial system.”

“The dot plots may also be revised slightly higher, and the Dollar could recover a bit.”

“Still, the gradual improvement in sentiment points to another USD decline ahead.”

See – Fed: Banks Preview, no pause yet, going ahead with 25 bps hike

• Gold price reverses an intraday dip to a fresh weekly low, though the upside seems limited.
• The USD drops to a fresh multi-week low amid bets for a less hawkish Fed and lends support.
• Easing fears of a full-blown banking crisis act as a headwind ahead of the key FOMC decision.

Gold price struggles for a firm intraday direction on Wednesday and oscillates in a narrow trading band just above the weekly low touched during the early European session. The XAU/USD is currently placed around the $1,941-$1,942 region and for now, seems to have stalled this week's sharp pullback from levels beyond the $2,000 psychological mark, or a one-year peak.

Weaker US Dollar benefits Gold price

The US Dollar (USD) drops to its lowest level since February 14 amid expectations that the Federal Reserve (Fed) will soften its hawkish stance. Moreover, the collapse of two mid-size banks in the United States (US) - Silicon Valley Bank and Signature Bank - fueled speculations that the Fed might cut interest rates during the second half of the year. This drags the USD lower for the fourth straight day and turns out to be a key factor lending some support to the US Dollar-denominated Gold price. That said, a combination of factors might keep a lid on any meaningful upside and warrants some caution for bullish traders.

Easing fears of a banking crisis act as a headwind

The recent news that UBS will rescue Credit Suisse in a $3.24 billion deal helped calm nerves about the contagion risk and prompted investors to cautiously return to riskier assets. This led to a strong two-day rally in the equity markets, which, in turn, resulted in receding demand for traditional safe-haven assets and should as a headwind for Gold price. Moreover, easing fears of a full-blown banking crisis lifts expectations that the Fed will continue its fight against inflation. In fact, the markets are still pricing in a 25 bps rate hike at the end of a two-day Federal Open Market Committee (FOMC) meeting later this Wednesday.

Bets for more rate hikes by major central banks to cap gains

Furthermore, the stronger consumer inflation figures from the United Kingdom (UK) released this Wednesday add pressure on the Bank of England (BoE) to hike by 25 bps at the very least on Thursday. This, along with the prospects for additional jumbo rate hikes by the European Central Bank (ECB), should cap the non-yielding Gold price. This makes it prudent to wait for a strong follow-through buying before positioning for any further appreciating move. Traders might also prefer to wait for fresh clues about the Fed's future rate-hike path, which will determine the next leg of a directional move for Gold price.

Hence, the market focus will remain glued to the FOMC monetary policy statement and the updated economic projections, especially the dot plot. Apart from this, investors will closely scrutinize Fed Chair Jerome Powell's remarks at the post-meeting press conference, which will play a key role in influencing the near-term USD price dynamics. and provide some meaningful impetus to Gold price.

Gold price technical outlook

From a technical perspective, any subsequent move up is likely to confront some resistance near the $1.955-$1,960 region. A sustained move beyond has the potential to lift the Gold price to the $1,978-$1,980 zone en route to the key $2,000 round figure and the one-year high, around the $2.010 area touched on Monday. On the flip side, the daily low, around the $1,934 level, seems to protect the immediate downside ahead of the $1,918 horizontal support. A convincing break below will expose the $1,900 mark, which should act as a strong base for the XAU/USD and a pivotal point for short-term traders.

Key levels to watch

Economist at UOB Group Lee Sue Ann suggests the Bangko Sentral ng Pilipinas is likely to raise the policy rate by 25 bps later in the week.

Key Quotes

“We are expecting BSP to jack up its RRP rate to 6.75% by the middle of this. This is largely on the back of an upward revision (in early Feb) in inflation and a revised timeline for US Fed Funds Target Rate (FFTR) to hit its peak in 2Q23.”

“We currently pencil in 25bps hike for each of the next three meetings in 1H23 (Mar, May and Jun).”

Economists at Credit Suisse expect the Chinese Yuan to remain supported and maintain their USD/CNH forecast range of 6.70-7.10.

RRR cut should help

“We think the Yuan will continue to be a haven of relative stability amidst ongoing concerns regarding US and European bank liquidity.”

“We reiterate our USD/CNH forecast range of 6.70-7.10.”

“The directionality in US yields will still drive USD/CNH, but the RRR cut will add to the prior narrative of growth-friendly Chinese policies. That should help stabilize the yuan relative versus other EM and cyclical currencies.”

EUR/USD preserved its bullish momentum and closed the fourth straight trading day in positive territory on Tuesday. Economists at ING expect the pair to surpass the 1.08 barrier.

FOMC announcement can trigger some recovery in the Dollar

“We think that today’s FOMC announcement can trigger some recovery in the Dollar, and therefore see mostly downside risks for EUR/USD.” 

“At the same time, regulators’ efforts to contain the adverse side-effects of the UBS-CS deal for some bondholder categories appear to be yielding some positive effects for European sentiment, and possibly means that the balance of market concern is now tilted to the US given the still unresolved regional banking crisis.” 

“Beyond the FOMC impact, we think there is room for a break above 1.0800 in the near term as long as sentiment continues to stabilise.”

European Central Bank (ECB) President Christine Lagarde reiterated on Wednesday that underlying inflation dynamics in the Eurozone remain strong, as reported by Reuters.

Additional takeaways

"We must and we will bring down inflation to target."

"Times are very uncertain."

"Inflation is still high and uncertainty around its path ahead has increased."

"While more restrictive credit conditions are part of the mechanism by which our tightening ultimately brings inflation back to target, we will make sure that the process will be orderly."

"We are neither committed to raise further nor are we finished with hiking rates."

"If, for example, banks start to apply a larger intermediation wedge – then transmission is stronger."

"Recent tensions have added new downside risks and have made the risk assessment blurrier."

"The greater role today played by sectors that rely on discounted future earnings, such as tech, could also make monetary transmission more powerful."

"We do not see clear evidence that underlying inflation is trending downwards."

"Excess savings and the low pass-through to deposit rates could mean a weaker pass-through to consumption."

"We could see a more prolonged cost-push shock coming from wage growth."

"It is important that our monetary policy works robustly in the restrictive direction and that process is only starting to take effect now."

Market reaction

EUR/USD has gained traction following these comments and was last seen rising 0.13% on the day at 1.0780.

Fed cannot afford to make any mistakes today. Esther Reichelt, FX Analyst at Commerzbank, analyzes how the FOMC decision could move the Dollar.

Dollar’s balancing act

“The more the Fed focuses on the disinflationary aspects of the recent market turmoil, the more difficult it will be for the Dollar to hold its ground, especially against the Euro, now that the ECB has clearly spoken out in favor of further interest rate hikes.” 

“If the focus remains on inflation risks when setting interest rates, while at the same time, the Fed manages to calm the markets by pointing to its options beyond interest rates, the Dollar should be able to regain ground. Today's decision, therefore, remains a balancing act.”

See – Fed: Banks Preview, no pause yet, going ahead with 25 bps hike

• USD/JPY lacks any firm direction on Wednesday and oscillates in a narrow trading band.
• A subdued USD price action acts as a headwind; a positive risk tone lends some support.
• Traders also seem reluctant and prefer to wait for the highly-anticipated FOMC decision.

The USD/JPY pair struggles to capitalize on the previous day's rally of over 150 pips and oscillates in a narrow band below the weekly high touched earlier this Wednesday. The pair trades around the 132.55-132.60  area during the early European session, nearly unchanged for the day, as traders keenly await the outcome of the highly-anticipated FOMC monetary policy meeting.

The Fed is scheduled to announce its decision later during the US session and is widely expected to deliver a smaller 25 bps rate hike. Moreover, the recent collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - fueled speculations that the US central bank might even cut interest rates during the second half of the year. Hence, the focus will be on the accompanying monetary policy statement, the updated economic projections and Fed Chair Jerome Powell's remarks at the post-meeting press conference.

Investors will look for fresh cues about the future rate-hike path, which, in turn, will play a key role in influencing the near-term US Dollar price dynamics and provide a fresh directional impetus to the USD/JPY pair. Heading into the key central bank event risk, the USD languishes near its lowest level since February 14 touched on Tuesday and acts as a headwind for the major. That said, a stable performance around the equity markets undermines the safe-haven Japanese Yen (JPY) and lends some support to the pair.

The Fed on Sunday unveiled an enhanced seven-day dollar swap to add liquidity into the monetary system. Moreover, the news that UBS will rescue Credit Suisse in a $3.24 billion deal helps ease fears of a full-blown global banking crisis and boosts investors' confidence. This led to a strong rally across the global equity markets since the beginning of this week. This, along with a more dovish stance adopted by the Bank of Japan (BoJ) should continue to act as a tailwind for the USD/JPY pair, at least for the time being.

Technical levels to watch

Further losses look not favoured while USD/CNH remains above 6.8550, noted Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that USD ‘is likely to edge lower but a clear break of 6.8550 is unlikely’. However, USD traded in a muted manner between 6.8654 and 6.8854 before closing largely unchanged at 6.8762 (+0.02%). The quiet price actions offer no fresh clues and today, we expect USD to trade sideways between 6.8600 and 6.8900.”

Next 1-3 weeks: “Our update from yesterday (21 Mar, spot at 6.8800) is still valid. As highlighted, downward momentum is waning rapidly and USD has to break and stay below 6.8550 in the next couple of days or it is unlikely to weaken further. Conversely, a breach of 6.9100 (‘strong resistance’ level) would suggest USD could trade sideways for a period of time.”

• The index navigates the lower end of the range near 103.00.
• The Fed is largely expected to hike rates by 25 bps.
• Investors’ attention will be on Powell’s presser and the dots plot.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main competitors, trades within a tight range and keeps business near the 103.00 region on Wednesday.

USD Index focuses on the FOMC event

The index looks weak in the wake of the opening bell in the old continent and hovers around the 103.00 neighbourhood against the backdrop of rising cautiousness among investors ahead of the FOMC gathering due later in the NA session.

So far, a 25 bps rate hike by the Fed seems widely anticipated, although renewed attention is expected to be on the usual press conference by Chair Powell as well as the updated dots plot, while market participants will also look for any hint of a potential pivot/pause in the ongoing tightening cycle.

Other than the Fed gathering, the weekly Mortgage Applications by MBA will be in the calendar later on Wednesday.

What to look for around USD

The index remains under pressure and keeps the trade near the 103.00 zone ahead of the key FOMC event later in the European evening.

In the meantime, diminishing banking jitters continues to lend support to the risk complex and keeps the price action around the buck depressed for the time being, or at least until the interest rate decision by the Fed.

So far, speculation on a potential Fed’s pivot in the short-term horizon should weigh on the dollar, although the still elevated inflation, the resilience of the US economy and the hawkish narrative from Fed speakers is seen playing against that view.

Key events in the US this week: 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 0.06% at 103.15 and the breach of 103.00 (monthly low March 21) 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 resistance emerges at 105.88 (2023 high March 8) seconded by 106.61 (200-day SMA) and then 107.19 (weekly high November 30 2022).

EUR/GBP traded close to 0.8850 yesterday but dropped back below 0.8800 today after a surprise acceleration in UK inflation. Nonetheless, economists at ING maintain a bullish bias over the coming weeks. 

Surprise acceleration in inflation

“Headline CPI YoY rose from 10.1% to 10.4%, defying expectations for a drop below 10.0%. Core inflation also accelerated, from 5.8% to 6.2%.”

“Today’s data – along with the tentative recovery in market sentiment - reinforces the prospect of a Bank of England rate hike tomorrow (which is also our base case). Still, we still deem a May pause as highly likely, and we continue to see the direction for EUR/GBP as bullish over the coming weeks.”

NOK’s relentless underperformance points to tomorrow’s Norges Bank rate decision as a make-or-break moment for the currency. Economists at Credit Suisse expect the EUR/NOK pair to test 11.70 if the Norges Bank fails to deliver a 25 basis points rate hike.

EUR/NOK can fall as far as ~10.81 on a 50 bps hike

“With markets primed for hawkish risks around a 25 bps hike scenario, failure to deliver can push EUR/NOK to quickly test 11.70.”

“Conversely, EUR/NOK can fall as far as ~10.81 on a 50 bps hike.”

See – Norges Bank Preview: Forecasts from five major banks, 25 bps hike, but there could be a hawkish surprise

USD/JPY is expected to navigate between 130.50 and 134.60 in the next weeks comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We did not anticipate the strong rebound in USD to a high of 132.62 yesterday (we were expecting USD to test the major support at 130.45). While there is room for USD to rebound further, any advance is unlikely to break 133.50. Support is at 132.00, followed by 131.50.”

Next 1-3 weeks: “We have expected USD to weaken since early last week. After USD dropped to 130.52, we highlighted yesterday (21 Mar, spot at 131.20) that a break of 130.45 would not be surprising. However, USD rebounded sharply and took out our ‘strong resistance’ level at 132.60 (high of 132.62). The breach of the ‘strong resistance’ level indicates that the more than weeklong USD weakness has ended. From here, USD is likely to trade in broad range, expected to be between 130.50 and 134.60.”

Open interest in natural gas futures markets increased for the fourth consecutive day on Tuesday, this time by nearly 21K contracts, the largest single day build since February 1. In the same line, volume went up by around 146.7K contracts, reversing at the same time three consecutive daily pullbacks.

Natural Gas looks side-lined for the time being

Prices of natural gas printed decent gains on Tuesday in tandem with increasing open interest and volume, which exposes a near-term bounce, although always against the backdrop of the current consolidative fashion. So far, the commodity remains stuck within the $2.00-$3.00 MMBtu range fort the time being.

In the opinion of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, the likelihood of extra gains in AUD/USD seems to have lost some traction for the time being.

Key Quotes

24-hour view: “Our view that AUD would strengthen yesterday was incorrect as it slumped to a low of 0.6650 in NY trade. Despite the decline, downward momentum has not improved much. While AUD could edge lower today, any decline is likely part of a lower range of 0.6640/0.6700. In other words, a clear break of 0.6640 is unlikely.”

Next 1-3 weeks: “Two days ago (20 Mar, spot at 0.6700), we noted that improved upward momentum would likely lead to AUD trading with an upward bias towards 0.6780. However, AUD has not been able to make any headway on the upside. The rapid loss of momentum has diminished the odds for AUD to strengthen. However, only a breach of 0.6640 (no change in ‘strong support’ level) would indicate that AUD is likely to trade in a broad consolidation range instead of heading higher.”

NZD/USD seems to have stalled a two-day-old corrective slide from over a one-month high touched earlier this week. NZD bears cite deficits and poor trade data as risk factors, economists at ANZ Bank report.

More volatility is likely, brace for that

“It looks like the NZD is being singled out for some of its ‘sins’; our huge current account deficit and yesterday’s poor trade data.”

“The big picture looks pretty binary, with the market oscillating on a whim from bullish (cyclone rebuild, remote from global banking issues, RBNZ likely to keep hiking) to bearish (current account deficit, one-trick pony housing-centric economy, USD safe haven, credit ratings at risk).”

“Ahead of the Fed decision, more volatility is likely; brace for that.”

“Support 0.5750/0.5900/0.6090 – Resistance 0.6540/0.6675.”

Considering advanced prints from CME Group for crude oil futures markets, open interest resumed the uptrend and went up by nearly 5K contracts on Tuesday, leaving behind the previous daily drop. Volume, instead, shrank for the second session in a row, this time by around 63.5K contracts.

WTI: Upside appears capped by $70.00

Prices of the barrel of the WTI advanced markedly on Tuesday. The move was amidst increasing open interest and favours the continuation of the rebound in the very near term. That said, the next hurdle of note for the commodity comes at the key $70.00 mark per barrel.

• NZD/USD regains some positive traction on Wednesday and snaps a two-day losing streak.
• Bets for a less hawkish Fed continue to weigh on the USD and act as a tailwind for the pair.
• The upside remains limited as investors await the highly-anticipated FOMC policy decision.

The NZD/USD pair attracts some buyers near the 0.6170 area on Wednesday and for now, seems to have stalled a two-day-old corrective slide from over a one-month high touched earlier this week. The pair sticks to its modest intraday gains through the early European session and is currently placed around the 0.6215 region, up

The US Dollar (USD) struggles to gain any meaningful traction and languishes near its lowest level since February 14 amid the prospects for a less aggressive policy tightening by the Federal Reserve (Fed). Apart from this, a stable performance around the equity markets further seems to undermine the safe-haven Greenback and turns out to be a key factor lending some support to the NZD/USD pair.

In fact, the markets now seem convinced that the US central bank will soften its hawkish stance and deliver a smaller 25 bps rate hike at the end of a two-day policy meeting later this Wednesday. Furthermore, the recent collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - fueled speculations that the Fed might even start cutting interest rates during the second half of the year.

Hence, investors will closely scrutinize the accompanying monetary policy statement, the updated economic projections and Fed Chair Jerome Powell's comments at the post-meeting press conference for clues about the future rate-hike plan. This will play a key role in influencing the near-term USD price dynamics and help in determining the next leg of a directional move for the NZD/USD pair.

Heading into the key central bank event risk, easing fears of a full-blown global banking crisis remains supportive of a generally positive risk tone and might continue to lend some support to the risk-sensitive Kiwi. That said, any meaningful upside still seems elusive as traders are likely to move to the sidelines and wait for a fresh catalyst before placing aggressive bets around the NZD/USD pair.

Technical levels to watch

Norges Bank will announce a new rate decision on Thursday, March 23 at 09:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks regarding the upcoming central bank's Interest Rate Decision.

Norges Bank is expected to hike rates by 25 basis points to 3.0%. At the last policy meeting on January 19, Norges Bank kept rates steady at 2.75%. Updated macro forecasts and expected rate path will come at this week’s meeting.  

Nordea

“We expect Norges Bank to deliver a 25 bps hike, but will not be surprised if they match ECB's 50 bps. A weaker currency, a resilient labour market and higher wage growth mean the central bank has more work to do.”

Danske Bank

“We expect Norges Bank to raise its policy rate by 25 bps to 3.00%. We also expect the bank to signal a further increase, probably in June. This will be reflected in the policy rate path in the new monetary policy report, which will probably also show a possibility of a third hike in late summer/autumn. The reaction in global financial markets to the failure of Silicon Valley Bank has clearly introduced a downside risk to future interest rates. Still, for now, we expect Norges Bank to treat it exactly as that, a risk factor.”

ING

“Norges Bank should hike by 25 bps as previously announced, but the recent developments will likely reduce the willingness to sound hawkish on the future path of rate hikes.”

TDS

“We expect Norges Bank to follow through on its guidance and hike by 25 bps. While the much stronger than expected Jan inflation report combined with a hawkish shift in global central banks suggested that a 50 bps increase might be possible, weak Feb inflation and the global banking turmoil should take this off the table.”

Swedbank

“We expect a 25 bps hike at the March meeting, followed by a signal that the policy rate may be increased further in Q2 and Q3 if financial stability concerns do not worsen, meaning the terminal rate will probably peak at around 3.50%.”

Here is what you need to know on Wednesday, March 22:

Financial markets stay quiet mid-week as investors step aside while preparing for the US Federal Reserve's (Fed) policy announcements and Chairman Jerome Powell's press conference. Ahead of this event, several European Central Bank (ECB) policymakers, including President Christine Lagarde, are scheduled to deliver speeches. Weekly Mortgage Applications and EIA Crude Oil Stock Change will be the only data featured in the US economic docket.

Fed March Meeting Preview: Too many moving parts.

The Fed is widely expected to raise its policy rate by 25 basis points to the range of 4.75%-5% following its March policy meeting. The revised Summary of Projections (SEP) will also be published alongside the policy statement at 1800 GMT. Half an hour later, Powell will deliver his prepared remarks and respond to questions from the press. The terminal rate projection in the SEP and Powell's approach to the market turmoil that was triggered by the collapse of Silicon Valley Bank will likely impact the risk perception in a significant way in the second half of the day.

Federal Reserve Preview: Powell to persevere and raise rates, US Dollar set to (temporarily) rise.

In the early European session, the US Dollar Index continues to fluctuate in a tight range above 103.00 and the 10-year US T-bond yield consolidates its gains above 3.5% following Tuesday 3.5% increase. Reflecting the cautious market stance, US stock index futures trade virtually unchanged.

Fed Preview: A dovish last hike?

EUR/USD preserved its bullish momentum and closed the fourth straight trading day in positive territory on Tuesday. The pair holds steady slightly above 1.0750 early Wednesday.

Following a consolidation phase at around 1.2200 in the Asian session on Wednesday, GBP/USD turned north and climbed above 1.2250 in the European morning. The UK's Office for National Statistics reported that annual inflation in the UK, as measured by the Consumer Price Index (CPI), jumped to 10.4% in February from 10.1% in January. This reading surpassed the market expectation of 9.8% and provided a boost to Pound Sterling ahead of the Bank of England's (BOE) policy announcements on Thursday.

USD/JPY registered strong daily gains on the back of rising US T-bond yields on Tuesday. The pair trades in a tight range at around 132.50 in the European morning.

Following the rejection from the $2,000 area at the beginning of the week, Gold price extended its downward correction on Tuesday and broke below $1,940. XAU/USD holds steady near $1,940 early Wednesday.

Bitcoin registered small daily gains on Tuesday and continues to in a tight range above $28,000 early Wednesday. After having lost nearly 3% on Monday, Ethereum regained its traction and rose nearly 4% on Tuesday. ETH/USD fluctuates in a tight channel at around $1,800 in the early European session.

The prospects for GBP/USD to revisit the 1.2400 region now appear somewhat curtailed, according to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “Our expectations for GBP to ‘strengthen further’ were incorrect as it tumbled to a low of 1.2180 before rebounding. The price actions are likely part of a consolidation phase. Today, we expect GBP to trade sideways between 1.2180 and 1.2275.”

Next 1-3 weeks: “After GBP soared, we highlighted yesterday (21 Mar, spot at 1.2270) that it is likely to strengthen further to 1.2400. We did not anticipate the sharp pullback that came close to taking out our ‘strong support’ level at 1.2180 (low has been 1.2180). We will hold on to our positive GBP view for now but with a ‘strong support’ level at 1.2140. Overall, the chance of GBP rising to 1.2400 has diminished. Note that there is another solid resistance level at 1.2330.”

CME Group’s flash data for gold futures markets noted traders scaled back their open interest positions by around 6.8K contracts after three consecutive daily builds on Tuesday. Volume followed suit and dropped for the second session in a row, this time by around 95.5K contracts.

Gold: Another visit to $2000 remains on the cards

Gold prices extended the negative start of the week and retreated to the $1940 region on Tuesday. The strong downtick was on the back of shrinking open interest and volume and suggests that a potential rebound could be in the offing in the very near term. That said, the immediate target on the upside emerges at the key $2000 mark and beyond.

• GBP/USD catches fresh bids on Wednesday and reverses a major part of the overnight losses.
• The stronger UK CPI report lifts bets for at least a 25 bps BoE rate hike and boosts the Sterling.
• Expectations that the Fed will soften its hawkish stance undermine the USD and lend support.

The GBP/USD pair regains positive traction following the previous day's pullback from its highest level since February 02 and builds on its intraday gains through the early European session on Wednesday. The buying interest picks up pace following the release of the UK consumer inflation figures and pushes spot prices to a fresh daily high, beyond mid-1.2200s in the last hour.

The UK Office for National Statistics (ONS) reported that the headline CPI rose more than anticipated, by 1.1% in February as compared to the 0.6% decline recorded in the previous month. Adding to this, the yearly rate unexpectedly climbed to 10.4% during the reported month from 10.1% in January, again beating consensus estimates. The data increases pressure on the Bank of England (BoE) to hike by 25 bps at the very least on Thursday and provides a modest lift to the British Pound.

The US Dollar (USD), on the other hand, languishes near a multi-week low amid the prospects for a less aggressive tightening by the Federal Reserve (Fed). In fact, the markets seem convinced that the US central bank will soften its hawkish stance and deliver a smaller 25 bps at the end of the two-day FOMC policy meeting later this Wednesday. Apart from this, a modest pullback in the US Treasury bond yields, along with easing fears of a full-blown banking crisis, undermine the safe-haven buck.

The upside for the GBP/USD pair, however, seems limited as traders might prefer to move to the sidelines heading into the key central bank event risks - the highly-anticipated Fed decision on Wednesday, followed by the BoE meeting on Thursday. Hence, any subsequent move-up runs the risk of fizzling out rather quickly. That said, a sustained move beyond the weekly swing high, around the 1.2285 region, will be seen as a fresh trigger for bulls and pave the way for a further appreciating move.

Technical levels to watch

• EUR/GBP takes offers to refresh intraday low, pares the biggest daily gains in three weeks.
• UK CPI rose to 10.4% in February versus 0.6% expected and -0.6% prior.
• Former UK PM Johnson joins ERG, DUP to renew Brexit woes.
• Banking crisis may probe ECB’s Lagarde to soften hawkish bias.

EUR/GBP renews intraday low to 0.8781 as upbeat UK inflation data bolsters hawkish hopes from the Bank of England (BoE) on early Wednesday. That said, the cross-currency pair’s rallied the most three weeks the previous day as pessimism surrounding the Brexit deal joined hawkish comments from the European Central Bank (ECB) officials.

UK’s headline inflation data, namely the Consumer Price Index (CPI) rose to 10.4% YoY in February versus 9.8% expected and 10.1% previous readings while the Core CPI rose to 6.2% compared to 5.8% market forecasts and previous readings. Given the improvement in the British inflation figures, the Bank of England (BoE) may be able to perform well in its likely last hawkish dance on Thursday, which in turn helps the EUR/GBP bears.

Also read: Breaking: UK annualized CPI inflation jumps to 10.4% in February vs. 9.8% expected

It’s worth noting, however, that the pessimism surrounding UK Prime Minister (PM) Rishi Sunak’s Brexit deal among some fellow Conservatives and the European Research Group (ERG), as well as the Democratic Unionist party (DUP), put a floor under the EUR/GBP prices. As per the latest headlines from The Telegraph, “Boris Johnson will vote against Rishi Sunak’s Brexit deal on Wednesday in a major boost for Tory rebels who warn it is not the right solution for Northern Ireland.”

Elsewhere, ECB policymaker Martins Kazaks said on Tuesday, “Uncertainty in the financial markets is high, but European banks are well capitalized.” The policymaker also added that there is no reason to compare the situation with 2008. Additionally, the ECB board member and Spanish central bank head Pablo Hernandez de Cos said on Tuesday, “market expectations of a 3.25% rate peak cannot be validated.” Recently, ECB policymaker and Bundesbank Chief Joachim Nagel said, “There’s still some way to go, but we are approaching restrictive territory.”

Having witnessed the initial reaction to the UK’s inflation data, EUR/GBP pair traders should pay attention to the Brexit developments in the House of Commons, as well as a speech from ECB President Christine Lagarde for fresh impulse. Above all, Thursday’s Bank of England (BoE) announcements are crucial for the cross-currency pair traders to watch as the British central bank appears running out of steam to back the hawkish moves. 

Also read: BoE Interest Rate Decision Preview: Preparing the ground for a rate hike pause in May

Technical analysis

Failure to cross the convergence of 21-DMA and 50-DMA, around 0.8820 by the press time, keeps EUR/GBP bears hopeful.

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group suggest EUR/USD could extend gains once 1.0800 is cleared.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘there is room for EUR to rise to 1.0760 before a pullback is likely’. We added, ‘The major resistance at 1.0800 is unlikely to come into view’. The anticipated advance was stronger than expected as EUR soared to a high of 1.0788. While overbought, the rapid rise is not showing signs of weakness just yet. Today, EUR could rise above 1.0800 but it remains to be seen if it can maintain a foothold above this major resistance level (the next resistance is at 1.0850). Support is at 1.0745, a breach of 1.0720 would indicate that EUR is not advancing further.”

Next 1-3 weeks: “On Monday (20 Mar, spot at 1.0680), we indicated that EUR appears to be trading in a consolidation phase, likely in a broad range between 1.0600 and 1.0800. Yesterday (21 Mar, spot at 1.0720), we highlighted that ‘the firm short-term outlook suggest EUR is likely to test 1.0800 in the next few days’.  Upward momentum is beginning to improve but EUR has to break and stay above 1.0800 before a sustained rise is likely. The likelihood of EUR breaking clearly will remain intact as long as it stays above 1.0680 in the next couple of days. Looking ahead, the next resistance level above 1.0800 is at 1.0850.”

• UK CPI rises to 10.4% YoY in February vs. 9.8% expected.
• Monthly UK CPI arrives at 1.1% in February vs. 0.6% expected.
• GBP/USD jumps above 1.2250 on upbeat UK CPIs.

According to the latest data published by the UK Office for National Statistics (ONS) on Wednesday, Britain’s annualized Consumer Prices Index (CPI) jumped to 10.4% in February against the 10.1% increase recorded in December while missing estimates of a 9.8% clip.

Meanwhile, the Core CPI gauge (excluding volatile food and energy items) increased to 6.2% YoY last month versus 5.8% seen in January. The market expectations are for a 5.8% figure.

The monthly figures showed that the UK consumer prices rose to 1.1% in February vs. 0.6% expectations and -0.6% last.

The UK Retail Price Index for February stood at 1.2% MoM and 13.8% YoY, beating expectations across the time horizon.

Additional takeaways (via ONS)

“The largest upward contributions to the annual CPIH inflation rate in February 2023 came from housing and household services (principally from electricity, gas, and other fuels), and food and non-alcoholic beverages.”

“The largest upward contributions to the monthly change in both the CPIH and CPI rates came from restaurants and cafes, food, and clothing, partially offset by downward contributions from recreational and cultural goods and services (particularly recording media), and motor fuels.”

FX implications

In an initial reaction to the UK CPI numbers, the GBP/USD pair jumped to session highs of 1.2264 before retreating to 1.2245, where it now wavers. The pair is up 0.29% on the day.

GBP/USD: 15-minutes chart

Why does UK inflation matter to traders?

The Bank of England (BOE) is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase in interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Gold price licks its wounds below $1,950. XAU/USD bulls could come up for last dance ahead of Federal Reserve, FXStreet’s Dhwani Mehta reports.

Gold price action leans toward a bullish bias

“Acceptance above the $1,950 psychological level is needed to initiate any recovery toward the previous static resistance at $1,960. The Fed-driven volatility could lead Gold buyers to retest the $2,000 mark and beyond on a dovish outlook.”

“A break below the previous day’s low of $1,935 could reinforce selling interests toward the $1,900 level. Hawkish Powell could challenge Gold’s bullish commitments at the March 17 low of $1,918 before attacking the $1,900 round level.”

See – Fed: Banks Preview, no pause yet, going ahead with 25 bps hike

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

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

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

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

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

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

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

Levels to watch

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

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

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

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

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

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

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

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

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

Also read: Fed Preview: A dovish last hike?

Technical analysis

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

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

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

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

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

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

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

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

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

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

AUD/JPY hourly chart

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

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

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

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

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

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

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

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

Silver price: Four-hour chart

Trend: Further downside expected

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

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

Additional quotes

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

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

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

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

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

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

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

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

USD/CAD: Daily chart

The UK CPIs Overview

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

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

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

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

Deviation impact on GBP/USD

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

How could it affect GBP/USD?

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

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

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

Key notes

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

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

About the UK CPIs

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

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

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

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

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

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

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

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

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

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

GBP/JPY hourly chart

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

Additional quotes

“Our fight against inflation is not over.”

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

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

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

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

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

Market reaction

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

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

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

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

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

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

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

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

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

Technical analysis

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

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

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

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

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

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

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

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

Levels to watch

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

US Dollar Index: Daily chart

Trend: Further downside expected

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

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

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

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

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

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

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

Technical analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

EUR/USD: Daily chart

Trend: Limited upside expected

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

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

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

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

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

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

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

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

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

Levels to watch

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

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

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

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

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

Gold technical analysis

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

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

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

Gold hourly chart

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

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

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

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

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

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

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

Technical analysis

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

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

Additional quotes

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

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

“Govt watching fx moves carefully.”

Market reaction

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

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

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

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

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

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

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

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

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

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

USD/MXN: Four-hour chart

Trend: Limited downside expected

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

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

AUD/NZD H4 chart

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Levels to watch

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

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

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

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

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

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

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

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

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

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

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

NZD/USD two-hour chart

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

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

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

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

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

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

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

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

USD/JPY: Daily chart

Trend: Further upside expected

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

More to come...

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

About the fix

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

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

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

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

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

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

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

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

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

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

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

AUD/USD daily chart

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

AUD/USD H4 charts

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Technical analysis

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

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

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

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

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

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

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

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

GBP/USD: Daily chart

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

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

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

Recovery in yields weighs on Gold price

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

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

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

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

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

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

Gold price fails to justify geopolitical tension surrounding China

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

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

Federal Reserve action could direct XAU/USD moves

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

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

Gold price technical analysis

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

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

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

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

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

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

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

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

Gold price: Daily chart

Trend: Further downside expected

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

Key notes

USD/JPY update

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

EUR/CHF: Daily chart

Trend: Further downside expected

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

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

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

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

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

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

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

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

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

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

EUR/JPY hourly chart

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

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

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

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

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

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

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

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

Also read: Fed Preview: A dovish last hike?

Technical analysis

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