Forex-novosti i prognoze od 07-03-2023

• USD/CAD seesaws around four-month high, remains sidelined after rising the most since late September 2022.
• Hawkish comments from Fed Chair Powell, downbeat Oil price propels Loonie price.
• Expectations of no change in interest rates from Bank of Canada adds strength to the upside momentum.
• Powell’s Testimony 2.0, US ADP Employment Change also appear important for clear directions.

USD/CAD bulls take a breather around the highest levels since early November 2022, following the biggest daily jump in five months. That said, the Loonie pair seesaws around 1.3750 as traders appear cautious ahead of the Bank of Canada (BoC) Interest Rate Decision on Wednesday.

Hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell in his Semi-Annual Testimony to the US Congress propelled the USD/CAD prices late Tuesday. That said, policymaker surprised markets by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March.

With the “higher for longer” Fed rate expectations back on the table, the market’s risk appetite roiled and weighed on the commodity prices, while also fueling the US Dollar Index (DXY). It should be noted that Wall Street closed in the red and the US Treasury bond yields remained firmer with the two-year counterpart flashing the highest levels since 2007.

The risk-aversion wave joined fresh US-China tensions to exert more downside pressure on the WTI crude oil prices, Canada’s key export. It should be noted that the slump in the Oil price ignored a surprise draw in the Weekly Crude Oil Stock details from the American Petroleum Institute (API), an industry source. That said, the WTI crude oil marked the heaviest daily slump in two months the previous day, making rounds to $77.20-30 during the early hours of Wednesday.

Looking forward, the BoC’s pause in the rate hike trajectory will be crucial to watch and can propel the USD/CAD prices further if the inaction is likely to be stretched forward. It’s worth noting, however, that a surprise rate hike won’t be taken lightly and can allow the Loonie pair to consolidate the previous day’s heavy gains.

Also read: Bank of Canada Preview: Canadian Dollar set to climb on hawkish hold, market positioning

Apart from the BoC, Canadian Trade Balance for February and the US ADP Employment Change, the early signal for Friday’s US Nonfarm Payrolls (NFP), will be in focus. Furthermore, the second round of Fed Chair Jerome Powell’s testimony, this time in front of the US House of Representatives Financial Services Committee, will also be crucial to watch for clear directions.

Technical analysis

A one-month-old ascending resistance line joins the overbought RSI (14) line to challenge USD/CAD bulls around 1.3775.

• AUD/JPY is looking for a cushion around 90.20 despite less-hawkish remarks from RBA Lowe.
• The RBA may pause its aggressive rate hike cycle amid the presence of signs of inflation softening.
• Last BoJ Kuroda’s monetary policy announcement is likely to be dovish.

The AUD/JPY pair is building a firm cushion around 90.20 in the early Asian session. The risk barometer is displaying signs of exhaustion in the downside momentum. It seems that the cross is building ground for a fresh move ahead of the interest rate decision by the Bank of Japan (BoJ), which is scheduled for Friday.

Meanwhile, commentary from Reserve Bank of Australia (RBA) Governor Philip Lowe has failed to trigger any reaction from the Australian Dollar. RBA Lowe cited “The central bank is closer to pausing its aggressive cycle of rate increases as the policy is now in the restrictive territory and there are signs the economy was responding.” However, economists at ANZ Bank believe that the RBA will deliver more hikes in April and May to a peak of 4.1%.

On Tuesday, the RBA said, “Monthly Consumer Price Index (CPI) indicator is confirming a peak in Australian inflation.” The statement came after a fifth consecutive 25 basis points (bps) rate hike announcement by RBA Lowe, which pushed the Official Cash Rate (OCR) to 3.60%

Investors should be aware of the fact that Australia’s monthly CPI (Jan) dropped to 7.4% from the former release of 8.4%.

Apart from that, RBA Lowe has said “China reopening is positive for our economy,” while also adding that no particular implications for inflation from China reopening. It is worth noting that Australia is a leading trading partner of China and the upbeat Chinese economic outlook also supports the Australian Dollar.

Meanwhile, investors in Tokyo are preparing for the BoJ monetary policy meeting scheduled for Friday. This will be the last monetary policy meeting to be announced by BoJ Governor Haruhiko Kuroda and maintenance of expansionary policy is highly expected.

The street is skeptical about tweaking yield curve control (YCC) further as the majority of inflationary pressures in the Japanese economy are coming from international forces and wages and domestic demand seems incapable of keeping the inflation rate above 2%.

• WTI drops more than 4% or more than $3.00 pb on Tuesday.
• Powell opened the door for faster rate hikes and higher terminal rates.
• China’s reopening put a lid on WTI’s fall, at around the 20-day EMA at $77.21.

Western Texas Intermediate (WTI) collapsed 4% on Tuesday, following hawkish remarks by the US Federal Reserve (Fed) Chair Jerome Powell at an appearance in the US Senate. The US Dollar (USD) rose, and US Treasury bond yields, mainly 2s, reached the 5% threshold. At the time of typing, WTI is exchanging hands at $77.17 PB.

WTI dropped on Fed Powell’s remarks, though it was capped by future demand

Jerome Powell, the Federal Reserve Chair, said the Fed needs to increase rates above previous forecasts. Powell added that the US central bank would be ready to hike rates in large increments if upcoming data was solid.

The US Dollar Index (DXY), a gauge for the buck’s value vs. six currencies, advances more than 1%, at 105.597, a headwind for the US Dollar denominated commodity.

Oil prices tumbled earlier on China’s data, with Exports shrinking 6.8% YoY, lower than the previous reading. Imports were 10.2% weaker, worst than December figures at 7.5%, less than a year earlier.

However, WTI’s fall was capped by speculations of an oil shortage. According to the US Energy Information Administration (EIA), US crude production and demand will increase in 2023 as Chinese travel drives consumption.

WIT Technical levels

Federal Reserve (Fed) Chairman Jerome Powell’s hawkish surprise pushed multiple market players, including BlackRock, to inflate their Fed rate forecasts and back the “higher for longer” concerns.

“The US Federal Reserve could raise interest rates to 6% and keep them there for an extended period of time to fight inflation,” said Rick Rieder, chief investment officer of global fixed income at BlackRock, the world’s largest asset manager per Reuters.

"We think there’s a reasonable chance that the Fed will have to bring the Fed Funds rate to 6%, and then keep it there for an extended period to slow the economy and get inflation down to near 2%," adds BlackRock’s Rieder.

The news also quotes Goldman Sachs as saying in a note on Tuesday that it had raised its forecast for the so-called terminal rate by 25 basis points to a range of 5.5%-5.75%.

Elsewhere, Jeffrey Gundlach, Wall Street's bond king and Founder and Chief Executive Officer of DoubleLine Capital, also backs the hawkish Fed bias by saying, “Fed is 'very likely' to hike rates by half point this month,” per CNBC.

Also read: Forex Today: Dollar bulls welcome hawkish Powell, volatility to stay

• GBP/USD has taken a sigh of relief after a nosedive move near 1.1825, more downside looks inevitable.
• Fed Powell’s extremely hawkish remarks on interest rate guidance have spooked market sentiment.
• A breakdown of crucial support after a Double Top formation has confirmed a bearish reversal.

The GBP/USD pair has turned sideways around 1.1825 in the early Asian session after a nosedive move from the psychological resistance of 1.2000. The downside bias in the Cable looks not over yet as the currencies have to bear the volatility associated with the US Automatic Data Processing (ADP) Employment Change (Feb) after sheer volatility inspired by the commentary from Federal Reserve (Fed) chair Jerome Powell.

S&P500 futures were heavily dumped by investors as more rates from the Federal Reserve (Fed) have made the US economy prone to recession. A dismal US economic outlook sent the US Dollar Index (DXY) to a fresh three-month high at 105.65. The return delivered on 10-year US Treasury bonds is around 3.97%.

The remarks from Fed Powell in his testimony before Congress forced investors to underpin the risk aversion theme. Powell said the “ultimate level of interest rates is likely to be higher than previously anticipated,” after the “latest economic data have come in stronger than expected.”

GBP/USD has delivered a breakdown of the Double Top chart pattern formed on a daily scale plotted from December 15 high at 1.2447. A slippage below the horizontal support placed from January 06 low at 1.1841 confirms a bearish reversal.

The 50-period Exponential Moving Average (EMA) at 1.2064 is acting as a major barricade for the Pound Sterling.

Meanwhile, the Relative Strength Index (RSI) (14) has slipped below 40.00 for the first time in the past one month. More downside looks inevitable as the RSI (14) is not showing any sign of divergence and oversold.

Should the Cable break below the round-level support of 1.1800, US Dollar bulls will drag the asset further toward November 17 low at 1.17633 followed by November 14 low around 1.1700.

On the flip side, a move above February 24 high at 1.2040 will drive the asset toward February 23 high around 1.2080. A breach of the latter will expose the asset to February 21 high around 1.2140.

GBP/USD daily chart

Reserve Bank of Australia's governor, Phillip Lowe, adds some more comments while speaking at the Australian Financial Review Business Summit in Sydney early Wednesday. The policymaker said, “China reopening is positive for our economy,” while also adding that no particular implications for inflation from China reopening.

Also read: RBA’s Lowe: Closer To Pausing On Rate Hikes

Additional comments

AUD/USD remains depressed

AUD/USD fails to react to the dovish comments as it seesaws around the four-month low, last seen marking mild losses near 0.6585 on intraday during early Wednesday.

Also read: AUD/USD stays pressured at four-month low under 0.6600 as RBA’s Lowe sounds dovish

• EUR/USD bears take a breather after posting the biggest daily slump since late September 2022.
• Failure to cross a fortnight-long horizontal resistance joins bearish MACD signals to favor Euro sellers.
• Upward-sloping support line from early January 2023 appears the last defense of EUR/USD buyers.
• Bulls need validation from 200-SMA to retake control.

EUR/USD remains pressured around the lowest levels in a week, making rounds to 1.0550-45 after falling the most in nearly 3.5 months the previous day. That said, the major currency pair snapped a two-day winning streak while posting a U-turn from the 13-day-long horizontal hurdle, as well as pleasing the bears, the previous day.

Not only the quote’s U-turn from the short-term key horizontal resistance, around 1.0690-700 but the bearish MACD signals and sustained trading below the 200-SMA also keeps the EUR/USD sellers hopeful.

That said, an upward-sloping support line from early January, currently around 1.0540, appears the immediate challenge for the Euro bears to tackle.

Following that, the previous monthly low surrounding 1.0530 may act as an intermediate halt during the fall towards the January 2023 bottom of 1.0483.

In a case where EUR/USD remains bearish past 1.0483, a late December 2022 trough near 1.0445 could act as an extra downside filter.

On the flip side, a clear break of the aforementioned horizontal hurdle near 1.0690-700 becomes necessary to convince the Euro buyers.

Even so, the 200-bar Simple Moving Average (SMA), close to 1.0735 by the press time, could act as a validation point for the EUR/USD pair’s further advances.

EUR/USD: Four-hour chart

Trend: Further downside expected

• EUR/GBP climbed above 0.8900 and a one-month-old downslope trendline.
• EUR/GBP Price Analysis: Upward biased, at the brisk of cracking 0.9000.

The EUR/GBP soars past the 0.8900 psychological price level, hitting a three-week high of 0.8925. However, buyers could not lift the exchange rate towards the YTD high at 0.8978 but held to solid gains of 1.06%. At the time of writing, the EUR/GBP is trading at 0.6918.

EUR/GBP Price action

The EUR/GBP rallied on the back of fundamental news from the United States (US). The US Federal Reserve (Fed) Chair Jerome Powell commented that rates would peak higher than foreseen and added larger size hikes are back in the table.

Therefore, the EUR/GBP rallied above a one-month-old resistance trendline, which, once cleared, opened the door towards 0.8900. For a bullish continuation, the EUR/GBP must claim the February 17 high of 0.8928. Once cleared, the EUR/GBP next stop would be the YTD high at 0.8978 before testing the 0.9000 area.

As an alternate scenario, the EUR/GBP first support would be 0.8920, followed by the 0.8900 figure. Once the EUR/GBP clears that area, the cross could dive towards the 20-day EMA at 0.8854.

EUR/GBP Daily chart

EUR/GBP Technical levels

• Gold price has been dumped by investors on extremely hawkish Fed Powell’s commentary.
• S&P500 plummeted on Tuesday as more rates from the Fed confirm a United States recession.
• Gold price looks set to re-test an eight-day low at $1,804.00 amid a dismal market mood.

Gold price (XAU/USD) has witnessed an intense sell-off from the market participants as Federal Reserve (Fed) chair Jerome Powell, in his testimony before Congress, has confirmed that the central bank is prepared for more rates than previously anticipated. Considering the fact that consumer spending is resilient and the labor market is extremely tight, the Fed has no other option than to make monetary tools more restrictive.

S&P500 plummeted on Tuesday as more rates from the Fed confirm a United States recession, portraying a dismal market mood. The US Dollar Index (DXY) received exceptionally high bids as investors underpinned the risk-aversion theme. The USD Index has refreshed its three-month high at 105.65. The 10-year US Treasury yields have failed to catch the 4.0% resistance despite the extremely hawkish stance from Fed chair Jerome Powell.

This was the first commentary from Fed Powell after a less-than-anticipated decline in US Consumer Price Index and unusual solid payroll data for January. It shows that fears of persistent inflation are certain and the Fed is ready to gear up the terminal rate ahead. As per the CME FedWatch tool, the chances of 50 basis points (bps) rate hike have scaled above 70%.

For further guidance, US Automatic Data Processing (ADP) Employment Change (Feb) will remain in focus. According to the estimates, the US economy has added fresh payrolls by 200K in the labor market, higher than the former release of 106K.

Gold technical analysis

Gold price is declining towards the eight-day low support placed from February 28 low at $1,804.70. A break below the same would drag it further toward the horizontal support plotted from December 15 low at $1,773.90. The mighty 200-period Exponential Moving Average (EMA) at $1,850.88 has acted as a major barricade for the Gold bulls.

Tuesday’s sell-off in the Gold price has pushed the Relative Strength Index (RSI) (14) into the bearish range of 20.00-40.00, which indicates more weakness ahead.

Gold four-hour chart

• AUD/USD licks its wounds at multi-day low after falling the most in a month.
• RBA’s Lowe hints at a pause in rate hike after the central bank signalled peak in inflation.
• Fed’s Powell appears hawkish and bolstered case for 50 bp rate hike in March.
• Challenges to sentiment from China exert more downside pressure on Aussie price.

AUD/USD holds lower grounds near 0.6585-80, the lowest levels since early November 2022, showing little reaction to Reserve Bank of Australia (RBA) Governor Philip Lowe’s dovish remarks during early Wednesday. The reason could be linked to the previous day’s RBA statement that already revealed the dovish bias of the Aussie central bank, as well as the bear’s taking of a breather after posting the biggest daily slump in a month.

RBA’s Lowe said on Wednesday that it was closer to pausing its aggressive cycle of rate increases as the policy was now in the restrictive territory and there were signs the economy was responding.

Also read: RBA’s Lowe: Closer To Pausing On Rate Hikes

On Tuesday, RBA matched market forecasts of lifting the benchmark interest rate by 25 basis points (bps) to 3.60%. The Aussie central bank even said that the RBA expects further monetary tightening will be needed. However, the RBA Statement said that the Consumer Price Index (CPI) indicator hints at the inflation peak and seemed to have weighed on the AUD/USD prices upon the announcements.

More importantly, hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell in his Semi-Annual Testimony to the US Congress propelled the market’s risk-off mood, as well as the bets of a 50 bp Fed rate hike in March, which in turn drowned the AUD/USD prices.

It’s worth noting that the fresh US-China tensions are an extra burden for the risk-barometer pair helping in weighing on the price at the multi-day low. The anticipated meeting of the US and Taiwanese Officials could be cited as the key reason for the same. On the same line, China’s new Foreign Minister, Qin Gang, said that they resolutely oppose all forms of hegemony, cold war mentality. The same indirectly criticizes the US pressure and criticism for the China-Russia ties and escalated the fears of a fresh round of Sino-American tensions. Further, Financial Times (FT) headlines suggesting China’s lowest growth target in decades signals a new era of caution.

Amid these plays, Wall Street closed in the red and the US Treasury bond yields were firmer to underpin the US Dollar’s safe-haven demand, which in turn pleased the AUD/USD bears.

Looking ahead, the round of Fed Chair Jerome Powell and the US ADP Employment Change, the early signal for Friday’s US Nonfarm Payrolls (NFP) will be in focus. Also important to watch will be the risk catalysts surrounding China and the movements of the bond market.

Technical analysis

A clear downside break of a one-month-old descending support line, now immediate resistance around 0.6625, directs AUD/USD towards the October 2022 peak surrounding 0.6545.

RBA’s Lowe: Closer To Pausing On Rate Hikes

Morew to come..

• USD/JPY bulls eye a break of the 200 DMA on the back of firm US Dollar prospects. 
• A break of the 200 DMA opens risk of a significant run higher. 

USD/JPY is bid with The DXY index, a measure of the US Dollar vs. a basket of currencies including the Yen, vaulting 105 the figure in a move that started out from 104.43 and kept going until 105.435. 

, Federal Reserve's chair Jerome Powell said that the US central bank will stay the course until the job is done. However, Fed's Powell added that the ultimate level of interest rates is likely to be higher than previously anticipated. Federal Reserve's chairman Jerome Powell also said that the Fed is prepared to increase the pace of rate hikes if data indicates it is warranted:

 "The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

This has left a bullish bias on the charts as follows:

USD/JPY H1 chart

After a series of failed breakouts, both ways, the bulls are breaking out of the upside channel resistance as a fresh wave of longs enters the market, Day 1 or D1 longs. 

Bulls eye the 200 DMA as shown as a line on the hourly graph above. A break of there, neat 137.50 opens the risk of a significant recovery higher as follows: 

USD/JPY daily chart

• NZD/USD dropped 85 pips of 1.38% in Tuesday’s session on hawkish comments by Fed officials.
• The US Federal Reserve Chair Jerome Powell commented that higher rates are needed and opened the door for aggressive tightening.
• NZD/USD Price Analysis: A break below 0.6100 will pave the way toward 0.6000.

NZD/USD plummets as the New York session wanes following the US Federal Reserve Chairman Jerome Powell’s testimony at the US Senate. Powell rattled equity markets as it shifted toward a hawkish stance and turned sentiment sour. Therefore, the NZD/USD is dropping 1.29% and exchanges hands at 0.6114.

NZD weakens on an aggressive Fed that bolstered the USD

Wall Street closed with losses following Powell’s speech. The US Fed Chair commented that the US central bank would increase rates at larger sizes if needed. Powell added, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

The US economy showed improvement in January, as wholesale trade rose by 1.0% MoM, beating forecasts. Stock levels dropped 0.4%, matching what the market expected.

Money market futures are beginning to reprice an aggressive Fed, as shown by the CME FedWatch Tool, with odds that the Fed would hike 50 bps at 70.5% at the upcoming meeting. Consequently, the US Dollar Index (DXY) hit a fresh nine-week high at 105.654, gaining more than 1%. The US 10-year bond yields pierced the 4% threshold before retreating to 3.972%.

The NZD/USD tumbled to new YTD lows of 0.6103, and levels last reached on November 21, 2022. The NZD/USD collapsed from around 0.6190s toward the day’s low when Powell’s headlines crossed news screens.

On the New Zealand (NZ) front, the kiwi was slightly bolstered by the Reserve Bank of Australia’s (RBA) 25 bps interest rate increase, which was perceived as a “dovish” hike. Data-wise, the latest Global Dairy Trade (GDT) in the NZ docket showed that most dairy products cooled down, except for whole milk powder. The GDT Price Index fell 0.7%, shrugging off analysts’ expectations of higher prices.

NZD/USD Technical analysis

The NZD/USD daily chart portrays the pair as bearish-biased, further cemented by oscillators with negative readings. A death cross is confirmed, with the 50-day Exponential Moving Average (EMA) crossing below the 200-day EMA, which would warrant further downside in the NZD/USD.

Once the NZD/USD tumbles below 0.6100, that would exacerbate a fall toward the November 17 low at 0.6064. A breach of the latter would clear the path towards 0.6000.

What to watch?

• USD/CHF bulls still in play but there are prospects of a meanwhile correction. 
• Bears eye the 61.8% Fibonacci target to the downside. 

The US Dollar smashed a three-month month high against a basket of currencies on Tuesday due to the uber-hawkish rhetoric from Federal Reserve Chair Jerome Powell.

Powell explained that the US central bank is likely to raise rates more than previously expected and warned that the process of getting inflation back to 2% has "a long way to go."

This has seen USD/CHF fly and test a key resistance area ahead of channel resistance as follows: 

USD/CHF daily chart

There is plenty of upward momentum in this daily channel with 0.9450 eyed ahead of 0.9500. 

USD/CHF H4 chart

At this juncture, we have prospects of a correction but it may take some doing to really impact the demand that we have seen on the Fed's revived hawkish rhetoric. 

USD/CHF H1 chart

The bulls are still in play as we can see on the lower time frame and the bears will need to get onto the backside of the micro bullish trendline with 0.9400 as a key support ad structure point. The above chart offers a bearish scenario and price flow that could occur on a break of such structure with the 61.8 Fibonacci target level eye near 0.9340. 

Here is what you need to know on Wednesday, March 8: 

In a hearing before the US Senate, Federal Reserve (Fed) Chair Jerome Powell spoke about the possibility of largest interest rate hikes given the latest round of US economic data have come in stronger than expected and warned that inflationary pressures are higher than anticipated. His comments increased expectations of a 50 basis points rate hike at the March meeting. Wall Street tumbled and the US Dollar jumped.

The US Dollar heads into the Asian session still with impulse, despite overbought readings. It appears to be looking for a new equilibrium, but the rally is exposed to the incoming US data, which includes the ADP private sector employment report on Wednesday and Nonfarm payrolls on Friday. Those events could add volatility across financial markets. Powell will testify again before the US Congress. Will he attempt to cool down Tuesday’s message? 

Powell’s remarks hit market sentiment. Major US indexes dropped around 1.50%, the VIX soared by more than 4%. The US 2-year Treasury yield rose above 5% for the first time since 2007. Crude oil prices tumbled by nearly 4%. Cryptocurrencies fell moderately, with Bitcoin holding near $22,000. 

EUR/USD is testing 1.0550 after trading near 1.0700 a day ago, while GBP/USD fell to the lowest level in almost four months at 1.1830. The pound was also affected by the deterioration in market sentiment. EUR/GBP rose to weekly highs above 0.8900. 

USD/CAD broke above the crucial 1.3700 area. On Wednesday, the Bank of Canada will have its monetary policy meeting, with rates expected to remain unchanged. 

The Australian Dollar was among the worst performers after the Reserve Bank of Australia (RBA) meeting. The RBA raised rates by 25 bps as expected but said inflation may have peaked. RBA Governor Philip Lowe will speak on Wednesday, with analysts looking for fresh guidance. AUD/USD broke below 0.6700, extending losses below 0.6600. The pair is under pressure after the soft message from the RBA and the Dollar’s rally. 

USD/JPY jumped and is trading above around 137.00 and near the 200-day Simple Moving Average (SMA). Despite falling versus the Greenback, the Japanese Yen performed well against other currencies, supported by risk aversion. On Thursday, Bank of Japan Governor Haruhiko Kuroda will preside his last monetary policy meeting. 

• EUR/USD has been falling throughout the day on the back of an uber-hawkish Fed. 
• Fed's Powell testified to Congress and the US Dollar took-off.

EUR/USD keeps falling as we move into late US trade in what has been a maximum drop in the single currency following uber-hawkish rhetoric from the Federal Reserve's chairman on Tuesday who testified to Congress. 

The main words that got the US Dollar going coming from the Fed's chair Powell were, "the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

As a consequence, the yield on the US 10-year Treasury note rose to 4% before easing back to 3.96%, remaining marginally below the three-month high of 4.07% touched on March 2nd as investors assessed the pace of future rate hikes by the Federal Reserve. This gave the greenback a boost. The DXY index, a measure of the US Dollar vs. a basket of currencies, vaulted 105 the figure in a move that started out from 104.43 and kept going until 105.435. 

Meanwhile, the Euro is likely to be hamstrung as Germany may still suffer a technical recession in Q4 2022/Q1 2023. However, analysts at Rabobank argued that ''at least more recent data are indicating resilience in the economy.'' On the other hand, the analysts also said, ‘resilient’ is not ‘strong’ and ''the market is facing these data releases with longer EUR positions than at the end of last year.  This suggests that the hawkish rhetoric of the ECB may struggle to coax the EUR significantly higher particularly given the recent buoyancy of the greenback.''

Of note, inflation remains stubbornly high in the Euro Area which was evident from the February inflation numbers. Officials, such as ECB's Pierre Wunsch indicated that it was not unreasonable to expect ECB to hike to 4%. ECB policymaker Klaas Knot said on Tuesday that the ECB can be expected to keep raising interest rates for “quite some time” after March. Knot said that the current pace of hikes could continue into May if underlying inflation does not materially abate. “Once we see a clear, decisive turn in underlying inflation dynamics, I expect the ECB to move to smaller steps.”

Knot also argued that inflation appears to have peaked. The sharp decrease in energy prices seen over the last months could bring down headline inflation even faster than what the ECB is projecting, the policymaker added. He does not see a recession in the winter and pointed out that the slowdown in economic growth seems “even more shallow, short-lived than expected”.

Swiss National Bank (SNB) Chairman Thomas Jordan is crossing the wires on Tuesday and stated the inflation in Switzerland is low in international comparison but above the price stability target of the SNB. On Monday, data showed the Consumer Price Index reached in February 3.4% YoY and the core CPI at 2.4% YoY. He explained that the appreciation of the Swiss Franc has protected them from imported inflation.

The monetary policy conducted by the SNB is still “too loose”, according to Jordan. They do not rule out more tightening.

“We are ready to sell currencies”, said the SBN Chairman. He explained that they can use interest rates and also currency intervention to get the right monetary conditions in order to achieve price stability.

Market reaction

The Swiss Franc appreciated modestly with Jordan’s comments. The USD/CHF moved off highs and trimmed losses during the last hour. The pair peaked at 0.9417 boosted by a rally of the US Dollar following Fed Chair Powell’s testimony and recently pulled back under 0.9400. EUR/CHF turned negative and fell to test daily lows around 0.9920/25.

• Silver, XAG/USD is under pressure as US Dollar rallies.
• Federal Reserve Powell strikes an uber-hawkish tone to Congress. 

Silver has dropped like the heavyweight that it is, breaking through a couple of layers of key support following uber rhetoric from the Federal Reserve's chairman, Jerome Powell on Tuesday. At the time of writing, Silver, or XAG/USD, is down some 4.26% after falling from a high of $21.1412 to a low of $20.0853. 

In remarks to Congress, Federal Reserve's chair Jerome Powell said that the US central bank will stay the course until the job is done. He also said that the ultimate level of interest rates is likely to be higher than previously anticipated, adding that the Fed is and will be prepared to increase the pace of rate hikes if data indicates it is warranted:

 "The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

Meanwhile, Fed funds futures traders have now raised bets that the Fed will hike rates by 50 basis points at its March 21-22 meeting to 56% and a 25 basis points increase is now seen as just a 44% likelihood. Traders are now also pricing for the rate to peak at 5.57% in September and the US Dollar is firmly bid as result.

As a consequence, the DXY index, a measure of the US Dollar vs. a basket of currencies, vaulted 105 the figure in a move that started out from 104.43 and kept going until 105.435. The yield on the US 10-year Treasury note rose to 4% before easing back to 3.96%, remaining marginally below the three-month high of 4.07% touched on March 2nd as investors assessed the pace of future rate hikes by the Federal Reserve.

• USD/CAD climbs past the 1.3700 figure on Powell’s hawkish stance,
• USD/CAD Price Analysis: Buyers are eyeing 1.3800 after trading at 4-month highs.

The USD/CAD rallied to fresh YTD highs at 1.3743 on the US Federal Reserve’s (Fed) Chair Jerome Powell’s comments. Powell added that inflation is high and the Fed could tighten monetary conditions faster depending on the incoming data. Therefore, the USD/CAD jumped from around 1.3670. A the time of writing, the USD/CAD exchanges hands at 1.3744.

USD/CAD Price action

The USD/CAD has extended its gains past the 130 pips in the day, with bulls eyeing to test the November 3 high, which confluences with an upslope trendline that passes around 1.3808. If the USD/CAD pierces the latter, that wound put into play a test of 2022 high at 1.3977. But first, buyers need to reclaim 1.3900, followed by the latter and the psychological 1.4000 mark.

In an alternate scenario, the USD/CAD first support would be the 1.3700 figure for a bearish continuation, followed by the prior’s YTD high at 1.3685. Once cleared, the USD/CAD next support would be March 3, daily low at 1.3550.

It should be noted that the Relative Strength Index (RSI) in bullish territory suggests that bulls are in charge, further cemented by the Rate of Change (RoC) aiming higher.

USD/CAD Daily chart

USD/CAD Technical levels

European Central Bank (ECB) policymaker Klaas Knot said on Tuesday that the ECB can be expected to keep raising interest rates for “quite some time” after March. According to him, the current pace of hikes could continue into May if underlying inflation does not materially abate. “Once we see a clear, decisive turn in underlying inflation dynamics, I expect the ECB to move to smaller steps.”

Knot mentioned that inflation appears to have peaked. The sharp decrease in energy prices seen over the last months could bring down headline inflation even faster than what the ECB is projecting, the policymaker added. He does not see a recession in the winter and pointed out that the slowdown in economic growth seems “even more shallow, short-lived than expected”.

Market reaction

Trades have all their attention on the effects of Fed Chair Powell’s remarks. The EUR/USD is sharply lower trading at 1.0565, while EUR/GBP is at two-week highs above 0.8900.

• AUD/USD bears move in due to the divergence between the Reserve Bank of Australia and the Federal Reserve. 
• Federal Reserve's chairman Jerome Powell strikes an uber-hawkish tone in his testimony to Congress. 
• The Reserve Bank of Australia has toned down its rhetoric, leaning more dovish 

Risk assets are under immense pressure on Tuesday which is weighing on the high beta currencies such as the Australian Dollar. AUD is down a whopping 2% on the day after dropping like a stone from 0.6661 US session highs to a low of 0.6591 thus far vs. the US Dollar, the lowest since Nov. 22. AUD/USD's high for the day, however, was up at 0.6747 before markets started to position for possible hawkish rhetoric from Federal Reserve Chair Jerome Powell's testimony to Congress in US trade.

Hawkish rhetoric was what the market's got and stubborn investors holding their bets against the US Dollar were taken to the cleaners. The DXY index, a measure of the US Dollar vs. a basket of currencies, vaulted 105 the figure in a move that started out from 104.43 and kept going until 105.435. The trigger? 

Reserve Bank of Australia and Federal Reserve divergence

In recent trade, Federal Reserve's chair Jerome Powell said that the US central bank will stay the course until the job is done. However, Fed's Powell added that the ultimate level of interest rates is likely to be higher than previously anticipated. Federal Reserve's chairman Jerome Powell also said that the Fed is prepared to increase the pace of rate hikes if data indicates it is warranted:

 "The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

Federal Reserve's chairman Jerome Powell's comments come after the bank slowed the pace of its tightening to 25 basis points at its last two meetings, following larger hikes last year. Fed funds futures traders have now raised bets that the Fed will hike rates by 50 basis points at its March 21-22 meeting to 56% and a 25 basis points increase is now seen as just a 44% likelihood. Traders are now also pricing for the rate to peak at 5.57% in September and the US Dollar is firmly bid as result.

Meanwhile, prior to Federal Reserve's chairman Jerome Powell's hawkish testimony, the Reserve Bank of Australia, RBA, had already sawn the seed for a disparity between the Aussie and US Dollar. AUD was the weakest G10-performing currency due to what was perceived as a move towards a more dovish stance from the RBA at Tuesday's interest rate meeting. 

The Reserve Bank of Australia's policy-makers hiked interest rates by 25 bps. This was the 10th consecutive tightening but there was a switch up in the language which motivated the market to position for the possibility of a lower peak in rates which in turn weighed on AUD. The RBA has put down the foundations for a forthcoming pause in policy moves. 

''In our view, the Fed is set to stick with its hawkish guidance for now suggesting that AUD/USD could remain on the back foot into the middle of the year,'' analysts at Rabobank said. 

''That said, on a relative basis, the Australian economy remains fairly well positioned in terms of growth and we expect AUD/USD to pick up some ground in the latter part of the year,'' the analysts argued, adding that this forecast assumes that Fed rates have peaked by then.

AUD/USD technical analysis

In prior AUD/USD analysis, it was explained that the downside scenario in a break of AUD/USD support opened risk to a test of the 0.6580s and then the 0.6520s:

AUD/USD update

AD/USD was coiled below the 200 DMA and on the break of support near 0.6700, the bears moved in and ground into 0.6650 orders that made way for a strong impulse down into the 0.6590s that guards the 0.6580s.

From here, we may see a correction in AUD/USD into the shorts before further downside:

AUD/USD H4 & H1 charts

• GBP/USD nosedived more than 150 pips and fell from 1.2000 to 1.1840s.
• Hawkish commentary by the US Federal Reserve Chair Jerome Powell at the Senate keeps investors assessing a 50 bps hike in March.
• GBP/USD Price Analysis: A breach of the YTD low at 1.1841 could drag the pair towards the 1.1800 figure.

GBP/USD plunges over 100 pips as the US Federal Reserve (Fed) Chairman Jerome Powell testifies at the US Senate on Tuesday. The US Dollar is rising despite US Treasury bond yields dropping. At the time of writing, the GBP/USD is trading at 1.1854 after hitting a daily high of 1.2065.

Powell's appearance at the US Senate rocked the boat and bolstered the US Dollar

In prepared remarks for his appearance at the US Senate, the Federal Reserve Chair Jerome Powell commented that the Fed is ready to increase the speed of rate hikes. Powell added, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

The US Dollar Index (DXY), a gauge of the buck’s value against its peers, hit a fresh nine-week high at 105.435 before retracing to current levels of 105.421, up 0.86% in the day. US Treasury bond yields, namely the 10-year yield, pierced the 4% threshold before resting at 3.968%.

The GBP/USD dived from around 1.2000 toward the daily low of 1.1848 as Powell’s Q&A with US Senators ended. However, the GBP/USD meanders around 1.1860s.

The swaps market indicated that bond traders adjusted their expectations for interest rates and now think that a more significant increase of half a point is more probable than a smaller one of a quarter point for the Fed’s meeting on March 22.

On the UK front, Catherine Mann, a monetary policy member of the  Bank of England (BoE), commented that the Pound Sterling (GBP) could face downward pressure if traders had not priced in hawkish comments by the Federal Reserve. She said in an interview that the weakness in the value of the GBP was “significant for inflation,” which has fallen from 11.1 in October though it remained above 10% in January.

GBP/USD Technical analysis

Following Powell’s remarks, the GBP/USD distanced from the daily Exponential Moving Averages (EMAs) as bears moved in aggressively, dragging the major nearby the YTD low of 1.1841. Additionally, the Relative Strength Index (RSI) remains in bearish territory, while volatility increased as portrayed by the Rate of Change (RoC).

Therefore, the GBP/USD path of least resistance is downwards, and its first support would be the YTD low at 1.1841. Break below, and the 1.1800 figure would be tested before diving to the October 27 daily high-turned-support at 1.1645.

What to watch?

FOMC Chairman Jerome Powell testifies on the Semi-annual Monetary Policy Report before the US Senate Banking Committee.

Key quotes

"Hard to make case we have overtightened."

"We need to continue to tighten, we are very mindful of lags."

"We don't think we need a significant increase in the unemployment rate."

"But will need softening in labor market to get to 2%."

"Social costs of failure are very, very high."

"If inflation were to continue that would become the psychology."

"If we fail, it would mean an up and down economy."

"Capital allocation is also difficult in that type of world."

Market reaction

The US Dollar Index continues to push higher and was last seen rising 1.05% on the day at 105.38.

FOMC Chairman Jerome Powell testifies on the Semi-annual Monetary Policy Report before the US Senate Banking Committee.

Key quotes

"We don't think we need to see a sharp rise in unemployment to get inflation under control."

"We are not targeting a higher unemployment rate."

"4.5% unemployment rate is still well better than most times historically."

"No obvious candidate that could replace dollar as world's reserve currency."

"Size of corporate profits can affect the inflation rate."

"Without large increase in productivity you would not be able to sustain high wage inflation over the longer term but could in short term."

"Some softening in labor market will need to happen to get inflation under control."

"Overall data on labor market shows it is extremely tight and contributing to inflation."

"What we are seeing in economy is mostly about supply chain problems and blockages."

"When that gets fixed, corporate profit margins will come down."

Market reaction

The US Dollar's bullish rally remains intact with the US Dollar Index rising more than 1% on the day at 105.40 following these comments.

FOMC Chairman Jerome Powell testifies on the Semi-annual Monetary Policy Report before the US Senate Banking Committee.

Key quotes

"Nothing about data suggests we've tightened too much; rather suggests we have more work to do."

"Data so far suggests we'll have a higher terminal rate in our next Summary of Economic Projections."

"Inflation is extremely high and hurting working people of this country badly."

"We are taking only measures we have to bring inflation down."

"Working people will not be better off if we don't get inflation down."

Market reaction

The US Dollar rally continues during Powell's testimony with the US Dollar Index rising nearly 1% on the day at 105.30.

FOMC Chairman Jerome Powell testifies on the Semi-annual Monetary Policy Report before the US Senate Banking Committee.

Key quotes

"Not big spike in business debt generally."

"However, there are pockets of concern including upcoming refinancing."

"We are watching that carefully."

"In terms of commercial real estate, occupancy of office space is remarkably low."

"Over time that space will be changed into condos."

"Most big banks though don't have a lot of exposure to commercial real estate."

"We carefully monitor small and medium size banks' exposure to commercial real estate."

"Fed is very strongly committed to tailoring regulations for banks."

Market reaction

The US Dollar Index clings to impressive daily gains during Powell's testimony and was last seen rising 0.9% on the day at 105.22.

• USD/MXN is aiming aggressively higher on Fed Chair Powell’s comments.
• Federal Reserve Chair Jerome Powell added that the pace of rate hikes could increase based on incoming data.
• USD/MXN Price Analysis: Begins to approach the 20-day EMA at 18.3533.

The Mexican Peso (MXN) weakened sharply on hawkish remarks by the US Federal Reserve (Fed) Chair Jerome Powell has opened the door for a “faster pace” of rate hikes, which strengthened the US Dollar (USD). Therefore, the USD/MXN is surging more than 0.97%, climbing from daily lows of 17.9664. At the time of writing, the USD/MXN pair is trading at 18.1432, volatile, in the North American session.

USD/MXN surges more than 1500 pips or 0.94% on Fed hawkish comments

In an appearance at the United States (US) Congress, Fed Chair Jerome Powell commented that the Fed will have to increase rates more and faster. He also said, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

Powell stated that even though inflation is moderating, “the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.” On its Q&A with US Senators, Chair Powell commented that core inflation has not come down as fast as hoped and emphasized that it has “a long way to go.”

The US Dollar Index (DXY), which tracks the greenback’s value against a basket of six currencies, is climbing 0.70%, up at 105.023. At the same time, the US 10-year Treasury bond yield reached a high of 4.005% before retreating to current levels at 3.960%.

The docket featured consumer confidence on the Mexican front, which improved from 44.3 to 44.8 in February. The same report highlighted that the financial situation for households has deteriorated to 56.1, while consumers commented that they are more likely to make large purchases.

USD/MXN Technical analysis

As of writing, the USD/MXN is forming a morning star candle pattern, further cementing the case that the USD/MXN could have bottomed around the $17.90 area. The USD/MXN has jumped to fresh three-day highs above March’s 3 high of 18.1208 while the Fed Chair Powells Q&A is underway.

Although in bearish territory, the Relative Strength Index (RSI) is surging toward the 50-mid line, showing that buying pressure is increasing. In addition, the Rate of Change (RoC), from being negative, shifted gears and portrays that bulls are gathering momentum, so further upside in the near term is warranted.

The USD/MXN first resistance would be the MTD  high at 18.3296. A breach of the latter will expose the 20-day Exponential Moving Average (EMA) at 18.3556, followed by 18.5000, which, once cleared, would pave the way toward the 100-day EMA At 18.6975.

USD/MXN Technical Levels

Economists at TD Securities discuss the Bank of Canada (BoC) interest rate decision and their implications for the USD/CAD pair.

Hawkish (10%)

“Bank lifts overnight rate to 4.75%, abandoning its conditional pause. Statement notes that overheated labour market has introduced upside risks to its outlook, and that pace of job growth has cleared the high bar for additional tightening. New guidance does not rule out further hikes. USD/CAD -0.80%”

Less Hawkish (10%)

“Bank leaves overnight rate unchanged at 4.50%, with outlook evolving in line with January MPR. Statement notes flat print on Q4 GDP, but economy remains in excess demand. Bank also notes that surging labour market has lowered bar to resume tightening, and shifts its guidance from a conditional pause to a more balanced data-dependent stance. USD/CAD -0.20%”

Base-Case (80%)

“Bank leaves the overnight rate unchanged at 4.50%, with a short policy statement that echos its message from January. Bank cites flat print on Q4 GDP as evidence that higher rates are working to slow demand. Bank also notes that inflation outlook has evolved in line with MPR, with only a cursory mention of labour market strength. Minor tweaks to forward guidance to amplify conditional nature of pause. USD/CAD +0.10%”

• Powell says the Fed is prepared to increase the pace of rate hikes if needed.
• US Dollar jumps amid growing expectations of a larger rate hike from the Fed.
• XAU/USD to remain under pressure while under $1,820/oz.

Gold price accelerated to the downside following the release of Fed Chair Powell's remarks. XAU/USD bottomed at $1,815, the lowest level in a week. It is falling almost $30 on Tuesday, the worst day in a month.

US Dollar jumps on Powell

Federal Reserve Chairman Jerome Powell mentioned in prepared remarks that strong economic data will likely lead to higher interest rates than previously thought, in order to curb inflation.

The speech was seen as hawkish by market participants. The odds of a 50 basis points rate hike jumped. According to interest-rate futures tracked by CME Group, market-implied probabilities of a 50 bps increase at the March FOMC meeting rose from nearly 30% to 50%.

Jerome Powell Live: Fed Chair delivers hawkish testimony in US Senate

US Treasury bonds collapsed. The US 10-year yield rose from nearly 3.94% to above 4% and then pulled back; the 2-year yield hit at 4.97%, the highest level since 2008.

Gold prices extended the decline even as US yields moved off lows, affected by a stronger US Dollar and risk aversion. Silver is losing 4%, trading at $20.19, the lowest level in four months.

Technical levels

FOMC Chairman Jerome Powell testifies on the Semi-annual Monetary Policy Report before the US Senate Banking Committee.

Key quotes

"We are seeing goods inflation coming down for some time now."

"Housing services inflation coming down is in the pipeline for the next 6–12 months."

"But core services ex-housing is where the challenge is now."

"We can't impact that sector without affecting others."

"Our tools are powerful but blunt."

"Wages have been moderating without softening in labor market."

"We have many unusual factors affecting inflation and we don't think anyone knows how this is going to play out."

Market reaction

The US Dollar Index retreated slightly following the initial upsurge but holds comfortably in positive territory. As of writing, the pair was up 0.77% on the day at 105.10.

FOMC Chairman Jerome Powell testifies on the Semi-annual Monetary Policy Report before the US Senate Banking Committee.

Key quotes

"Congress needs to raise the debt ceiling."

"Failing to do so, the consequences could be extraordinarily adverse and do longstanding harm."

"Fed will do what it can to restore price stability while preserving maximum employment."

"Fed is not in conflict right now on its dual mandate."

"There could be a time when our mandates are in conflict."

"We are very far from price stability mandate."

"We are not trying to raise the unemployment rate."

"We are trying to realign supply and demand through a bunch of channels including job openings."

"We are trying to create disinflation."

Market reaction

The US Dollar Index retreated slightly following the initial upsurge but holds comfortably in positive territory. As of writing, the pair was up 0.77% on the day at 105.10.

FOMC Chairman Jerome Powell testifies on the Semi-annual Monetary Policy Report before the US Senate Banking Committee.

Key quotes

"There is mismatch between supply and demand; we still see that in the goods sector, you also see it in the labor market."

"We will keep capital requirements strong."

"We have the tools to get inflation down over time."

"We will achieve 2% inflation goal."

"Core inflation has not come down as fast as we hoped, has a long way to go."

Market reaction

The US Dollar Index clings to strong daily gains at around 105.00 following these comments.

Last week, Gold gained 2.5% to reach $1,855. This week, Gold’s direction is likely to be determined by today’s testimony by Fed Chair Powell and the US labour market data on Friday, strategists at Commerzbank report.

Interest rates are expected to peak at 5.5%

“According to the Fed Fund Futures, interest rates are expected to peak at 5.5%. Powell would have to adopt a very hawkish tone and labour market data would have to surprise significantly to the upside again for expectations to be ramped up any higher. In this scenario, Gold would come under pressure again – but otherwise, it looks as if it has completed its correction.”

“Interest rate expectations would need to fall again for prices to rise, yet neither Powell nor the labour market data are likely to send out any such signals.”

The Mexican Peso continues to power ahead. Economists at ING expect the USD/MXN to continue its move downward.

Nearshoring in action

“Late February saw Tesla announce that its next gigafactory would be built in Mexico, potentially delivering $5bn of Foreign Direct Investment (FDI). Typically, Mexico sees $30-32bn of FDI inflow per year, so the Tesla news is a big deal. The welcome FDI news comes on top of the MXN providing one of the highest risk-adjusted yields in the world, backed by a local central bank, Banxico, matching the Federal Reserve hike-for-hike.”

“It will probably take either a financial crisis in core markets or Banxico refusing to hike any further to reverse MXN strength.”

“USD/MXN – 1M 18.20 3M 18.10 6M 18.00 12M 17.75”

• Fed Powell: Ready to increase pace of rate hikes if incoming data suggests faster tightening is warranted.
• Markets see hawkish bias in Powell’s remarks, US Dollar soars.
• EUR/USD tumbles more than 50 pips.

The EUR/USD lost more than 50 pips after the release of Fed Chair Powell's remarks. The pair is trading under 1.0600, under pressure as the US Dollar soars across the board.

Fed Chair Jerome Powell said in his prepared remarks that the central bank is ready to increase the pace of rate hikes. He added that the strength of the economy suggests that the terminal rate will be higher than previously anticipated. "Long way to go on getting inflation back down, road likely to be bumpy”.

Powell is testifying on Tuesday in the US Congress in front of the Senate Committee on Banking, Housing and Urban Affairs. He is presenting the “The Semi-Annual Monetary Policy Report to Congress” and will take questions from lawmakers. On Wednesday, he will be back to testify in front of the House of Representatives Committee on Financial Services.

Jerome Powell Speech Live: All about Fed Chair US Senate testimony

Immediately after the release, the US Dollar jumped across the board and US yields rocketed. The US 10-year yield rose from 3.92% reaching levels above 4%, while the 2-year hit 4.97%, the highest since 2007.

EUR/USD dropped from near 1.0650 to as low as 1.0585, the lowest level since Friday. The next support is seen at 1.0560/65 and below attention would turn to February lows around 1.0530. A recovery above 1.0640 would alleviate the bearish pressure.

Volatility is set to remain elevated over the next minutes, with markets digesting Powell’s initial remarks and later, taking questions from lawmakers.

Technical levels

• USD/JPY rallies sharply on hawkish remarks of Federal Reserve Chair Powell.
• Powell: “the ultimate level of interest rates is likely to be higher than previously anticipated.”
• USD/JPY Price Analysis: The pair is neutral upwards, but it could reach 137.00 in the near term.

The USD/JPY climbs 0.63% on Tuesday as the US Federal Reserve (Fed) Chair Jerome Powell’s testimony began at the United States (US) Congress. Sentiment shifted sour after US equities opened in the green. Nevertheless, as Powell took the stand, he rocked the boar. At the time of writing, the USD/JPY is exchanging hands at 136.87.

USD/JPY aims toward 136.90s on Powell’s hawkish speech

In a speech prepared by the Federal Reserve Chair Powell, he said that the Fed would need to raise rates more than expected and that the pace of rate hikes could increase. He added, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

Powell reiterated that even though inflation is moderating, “the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.”

The US Dollar Index (DXY), a measure of the buck’s value against a basket of peers, is rallying 0.84%, up at 105.161. At the same time, the US 10-year Treasury bond yield recovered its lost ground and is back above the 4% threshold, a headwind for the USD/JPY.

Once Powell’s speech crossed the screens, the USD/JPY jumped towards daily highs at 136.90 after meandering around 136.20.

On the Japanese front, in its final policy meeting with Governor Haruhiko Kuroda this week, Japan’s central bank will maintain its very loose monetary stance. Tuesday’s data showed that real wages in Japan fell the most in nine years in January amidst four-decade-high inflation squeezing Japanese purchasing power.

Also read: Powell speech: Prepared to increase pace of rate hikes

USD/JPY Technical analysis

From a daily chart perspective, the USD/JPY remains neutral to upward biased. A decisive break above the YTD high at 137.10 would provide the USD/JPY fresh impetus towards the December 20 high of 137.48. Once cleared, the USD/JPY would rally toward the December 15 high of 138.15, followed by the 139.00 figure. On the flip side, if the USD/JPY turns bearish, the major could fall as low as March’s 6 low of 135.36 before testing the 135.00 threshold.

USD/JPY Technical levels

Below are the key takeaways from FOMC Chairman Jerome Powell's prepared statement for delivery at the Semi-annual Monetary Policy Report testimony before the US Senate Banking Committee.

Key quotes

"If totality of incoming data indicates faster tightening is warranted, we are prepared to increase pace of rate hikes."

"Ultimate level of interest rates likely to be higher than previously anticipated."

"Will continue to make our decisions meeting by meeting, based on totality of incoming data and implications for outlook for growth and inflation."

"Some of strength in overall January data likely reflects unseasonably warm weather."

"Little sign of disinflation so far in core services excluding housing."

"To get inflation back down to 2% need lower inflation in core services ex housing and very likely some softening in labor market."

"Ongoing increases in policy rate likely appropriate in order for stance to be sufficiently restrictive to get inflation back to 2% over time."

"Long way to go on getting inflation back down, road likely to be bumpy."

"We still stay the course until job is done."

Market reaction

The US Dollar Index shot higher with the initial reaction and was last seen rising 0.6% on the day at 104.92.

The AUD is the weakest G10 performing currency following what was perceived as a shift in tone from the RBA at today’s meeting. Economists at Rabobank expect the AUD/USD pair to remain under pressure near term but the Aussie is set to pick up some ground in the latter part of the year.

Change in tone

“As expected, policy-makers hiked interest rates by 25 bps. However, a change in language in the RBA’s statement meant that the market now sees the possibility of a lower peak in rates and the potential for a forthcoming pause in policy moves.” 

“In our view, the Fed is set to stick with its hawkish guidance for now suggesting that AUD/USD could remain on the back foot into the middle of the year. That said, on a relative basis, the Australian economy remains fairly well positioned in terms of growth and we expect AUD/USD to pick up some ground in the latter part of the year. This forecast assumes that Fed rates have peaked by then.”

“We have adjusted our AUD/USD modestly lower and see risk of dips to 0.66 on a one to three-month view.”

“Our forecast of a move back to 0.70 at the end of the year assumes Fed funds will peak at 5.5% this year in line with our current house view.”

• EUR/USD comes under some selling pressure near 1.0650.
• The pair’s bullish attempt falters once again ahead of 1.0700.

EUR/USD triggered a corrective knee-jerk following another attempt to test/surpass the 1.0700 neighbourhood on Tuesday.

The resumption of the buying interest should encourage the pair to challenge and leave behind the 1.0700 region as well as the provisional 55-day SMA (1.0716) to allow for a potential visit to the weekly top at 1.0804 (February 14).

Looking at the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0326.

EUR/USD daily chart

The CAD weakened against the USD over the past month. Economists at ING expect the USD/CAD pair to slide below the 1.30 level in the second half of the year.

BoC to stay put

“We expect no more hikes by the BoC given a worsening outlook for the property market and the broader economy.”

“When adding an energy commodity bloc that is struggling to rebound and the very low exposure to the good China story, it seems likely that CAD won’t be at the forefront of a risk rally.”

“USD/CAD below 1.30 is still what we expect to see in the second half of 2023, but that should mostly reflect a broad improvement in risk sentiment and USD weakness rather than idiosyncratic CAD strength.”

• DXY leaves behind two consecutive sessions with losses.
• Extra losses look likely on a breakdown of the 104.00 zone.

DXY regains some composure and prints decent gains near 104.70 on Tuesday.

So far, the continuation of the range bound theme seems the most likely scenario in the very near term for the index. In the meantime, the dollar needs to clear the February peak at 105.35 (February 27) to allow for extra recovery and a potential challenge of the 2023 top at 105.63 (January 6).

On the downside, the loss of the 104.00 region should likely spark a deeper pullback to, initially, the 55-day SMA, today at 103.45.

In the longer run, while below the 200-day SMA at 106.56, the outlook for the index remains negative.

DXY daily chart

• Market participants await the release of Fed Chair Powell's opening statement.
• US Dollar strengthens while Treasury yields remain steady.
• XAU/USD corrects further to the downside after being rejected from above $1,850.

Gold prices dropped further ahead of Federal Reserve Chair Jerome Powell's testimony on Capitol Hill as the US Dollar strengthened. XAU/USD bottomed at $1,831/oz, the lowest level since Thursday. Price remains near the lows, moving with a bearish bias.

Federal Reserve Chairman Jerome Powell will testify before the Senate Banking Committee at 15:00 GMT, but his initial remarks are expected to be released earlier. Ahead of that, the US Dollar is rising across the board while US yields stay steady.

Jerome Powell Speech Preview: Fed Chair testifies in US Congress

The US 10-year yield stands at 3.94% and the 2-year at 4.87%. Wall Street futures point to a positive opening with modest gains. Despite steady yields and marginally higher stocks, Gold is under pressure. Silver is also falling, at a more pronounced pace. XAG/USD bottomed at $20.65, the lowest level in a week, and it traded at $20.68, down 1.66% for the day.

On Monday, XAU/USD peaked at $1,858 the highest level since February 15 but it failed to hold above $1,850 and also dropped back under the 20-day Simple Moving Average. The immediate support stands at $1,830 followed by the $1,820 zone. On the upside, Gold would recover strength above $1,845. The next key resistance is located around $1,860.

Technical levels

While equity markets continue to rally, the key to the end of the bear market may be in the fundamentals, Mike Wilson, Chief Investment Officer and Chief US Equity Strategist for Morgan Stanley, reports.

Bear market is not over

“There is plenty of bullish and bearish fodder in the technicals in our view, and one will need to take a view on the fundamentals to decide this bear market for stocks is over.”

“Our view remains the same, the bear market is not over, but we acknowledge that Friday's price action may push out the next leg lower for a few more weeks.”

GBP/USD has been sluggish near 1.20. Economists at ING expect the pair to remain under pressure for now before recovering to 1.23/1.25 by the summer.

BoE tightening could be coming to a close

“Unlike the Federal Reserve (+75 bps) and European Central Bank (+100 bps), we think the Bank of England may only have 25 bps more of tightening left to do – taking Bank Rate to 4.25%. This is partly because more equivocal speeches from BoE officials and key survey data suggest tightness in the UK labour market is abating.”

“Our game plan sees GBP/USD staying soft through March on the strong Dollar (1.1850 the potential and outside risk to 1.1650), before broader Dollar weakness sees cable return to 1.23/1.25 this summer.”

“A difficult equity environment could also challenge Sterling.”

• AUD/USD dives to a fresh YTD low on Tuesday and is pressured by a combination of factors.
• A dovish assessment of the RBA policy statement weighs heavily on the domestic currency.
• Hawkish Fed expectations underpin the USD and contribute to the steep intraday downfall.
• Acceptance below 0.6700 aggravates bearish pressure ahead of Fed Chair Powell’s testimony.

The AUD/USD pair comes under intense selling pressure on Tuesday and drops to its lowest level since late December heading into the North American session. The pair is currently placed around the 0.66600.6665 region, down nearly 1% for the day, and seems vulnerable to decline further.

The Australian Dollar is turning out to be the worst-performing G10 currency amid a dovish assessment of the Reserve Bank of Australia's (RBA) policy statement, which, along with renewed US Dollar buying, exerts heavy pressure on the AUD/USD pair. In fact, the Australian central bank earlier this Tuesday raised its cash rate to the highest level since June 2012, though signalled that it might be nearing the end of its rate-hiking cycle. The speculations were fueled by the accompanying policy statement, wherein the RBA changed a reference from “further increases in rates” to “further tightening of monetary policy” would be needed.

In contrast, the Federal Reserve is universally expected to stick to its hawkish stance and keep interest rates higher for longer to tame stubbornly high inflation. This, in turn, continues to act as a tailwind for the Greeback, which further contributes to the heavily offered tone surrounding the AUD/USD pair. The steep intraday decline, meanwhile, confirms a breakdown below a one-week-old trading range support, around the 0.6690 zone, and further aggravates the bearish pressure. This, along with China's more conservative outlook for 2023 GDP growth, suggests that the path of least resistance for the China-proxy Aussie is to the downside.

Bearish traders, however, might take a breather and refrain from placing fresh bets ahead of Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee, due later during the North American session. Investors will look for fresh cues about the Fed's future rate-hike path, which will play a key role in influencing the near-term USD price dynamics and determine the next leg of a directional move for the AUD/USD pair. Nevertheless, the fundamental backdrop seems tilted firmly in favour of bearish traders. Hence, any meaningful recovery attempt might still be seen as a selling opportunity and remain capped.

Technical levels to watch

• EUR/JPY adds to the positive start of the week above 145.00.
• Beyond the YTD high near 1456.60 the pair should meet 146.70.

EUR/JPY advances for the second session in a row and manages to surpass the key 145.00 barrier on Tuesday.

The continuation of the current upside momentum faces the next hurdle at the 2023 high at 145.56 (March 2). The breakout of this level could motivate the cross challenge the December 2022 top at 146.72 (December 15) prior to the 2022 high at 148.40 (October 21 2022).

In the meantime, while above the 200-day SMA, today at 141.70, the outlook for the cross is expected to remain positive.

EUR/JPY daily chart

EUR/CHF popped back above parity last week but slipped below 0.9950 again on Monday. The 0.9840/0.9830 area is crucial support, analysts at Société Générale report.

New high for core inflation cements 50 bps at next SNB meeting

“CPI again surprised to the upside in February. This could seal another increase in the policy rate of 50 bps at the meeting in two weeks. The headline rate was unchanged at 3.2% YoY but core CPI drifted up to a new high of 2.4% from 2.2%.”

“Currently, a pullback is taking shape however 50-DMA at 0.9920 should be first support.”

“In case the pair overcomes 1.0040, the bounce could extend towards January high of 1.0100 and 1.0220.”

“Only if recent low at 0.9840/0.9830 gets violated would there be a risk of a deeper downtrend.”

• Jerome Powell testimony in the US Congress will be a top-tier market moving event.
• New clues on the Federal Reserve interest rate hike path are awaited.
• US Dollar, stock markets and other asset classes could see big swings on Fed Chair words.

Jerome Powell, Chairman of the Federal Reserve System, will testify on March 7 in the US Congress, in front of the Senate Committe on Banking, Housing and Urban Affairs. The hearing, entitled as “The Semi-Annual Monetary Policy Report to the Congress”, will start at 15:00 GMT (10:00 US Eastern Standard Time), and it will have the full attention of all financial market players. 

Jerome Powell, Federal Reserve Chaiman, will deliver a key speech today in front of the US Senate

Jerome Powell is expected to address the main takeaways of the semi-annual Federal Reserve Monetary Policy Report, published last Friday. In that report, the Fed mentioned that “ongoing increased in the fed funds rate target are necessary” and that “bringing inflation back to 2% likely requires a period of below-trend growth, and some softening of labor market conditions.” 

Expect US representatives in the Senate to inquire Powell in a long Q&A session about the future path of interest rates and how will the Fed assess how much more monetary policy tightening is needed. Markets could see strong moves to the US Dollar, US Treasury bond yields, stock markets and all asset classes, including Gold price and all major currency pairs, during Powell’s testimony. 

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

• USD/CAD regains positive traction on Tuesday and draws support from a combination of factors.
• Retreating Crude Oil prices undermines the Loonie and acts as a tailwind amid fresh USD buying.
• The fundamental backdrop favours bulls; the focus remains glued to Fed Chair Powell’s testimony.

The USD/CAD pair attracts fresh buying near the 1.3600 round-figure mark on Tuesday and builds on its steady intraday ascent through the mid-European session. The momentum lifts spot prices to a fresh daily top, around the 1.3645 region in the last hour, and is sponsored by a combination of factors.

Crude Oil prices retreat from the highest level since late January touched this Tuesday amid fading optimism about a strong fuel demand recovery in China. In fact, data released earlier today showed a contraction in China's crude imports in January and February, which, to a larger extent, overshadows supply concerns and weighs on the black liquid. This, in turn, undermines the commodity-linked Loonie, which, along with the emergence of fresh US Dollar buying, is seen lending support to the USD/CAD pair.

Growing acceptance that the Federal Reserve will continue to tighten its monetary policy and keep rates higher for longer acts as a tailwind for the Greenback. The bets were reaffirmed by the incoming US macro data, which indicated that inflation isn't coming down quite as fast as hoped and pointed to an economy that remains resilient despite rising borrowing costs. Moreover, a slew of FOMC officials backed the case for higher rate hikes and opened the door for a 50bps lift-off at the March policy meeting.  

Hence, the focus will remain glued to Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee, due later during the North American session. Heading into the key event risk, some repositioning trade is seen dragging the US Treasury bond yields lower. This, along with a stable performance around the equity markets, might hold back traders from placing aggressive bullish bets around the safe-haven buck and keep a lid on any meaningful upside for the USD/CAD pair.

The Bank of Canada (BoC), meanwhile, had signalled in January a likely pause in its tightening cycle and is now expected to leave rates unchanged at the upcoming policy meeting on Wednesday. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the upside. Some follow-through buying beyond the February swing high, around the 1.3665 region, will reaffirm the near-term positive outlook and allow spot prices to make a fresh attempt to conquer the 1.3700 round-figure mark.

Technical levels to watch

Prices of the MMBtu of natural gas keeps the inconclusive price action around the $2.60 region on Tuesday, or the lower end of the weekly range, following the strong pullback recorded at the beginning of the week.

Indeed, and after hitting multi-week peaks just above the key $3.00 mark on March 3, prices of the commodity resumed the downtrend in response to reports that confirmed that a milder weather lies ahead, which in turn undermined the expected outlook for heating demand.

As observed from the futures markets tracked by CME Group, natural gas prices could have carved a near-term top around the key $3.00 mark per MMBtu (March 3).

Later in the week, the EIA will publish its usual report on natural gas storage for the week ended on March 3 (Thursday).

Natural Gas levels to watch

At the moment, Natural Gas prices are advancing 1.40% at $2.608 and faces the next up-barrier at $3.009 (monthly high March 3) seconded by $3.182 (Fibo retracement) and finally $3.410 (55-day SMA). On the downside, a break below $1.967 (2023 low February 22) would expose $1.795 (monthly low September 21 2020) and then $1.605 (monthly low July 20 2020).

Economists at ING update their USD/JPY forecast for the coming months. The pair could remain elevated near term, but a reversal lower is expected by the second half of the year.

Bank of Japan event risks loom large

“US 10-year Treasury yields were dragged 60 bps higher in February. We see outside risk to 4.25% over the coming weeks, but the year-end target is 3.00%. That should be bearish for USD/JPY – but more a story for later in the second quarter and through the second half of the year.”

“USD/JPY could hang around these 135/137 levels through March, with outside risk to 140 if the Fed is very hawkish.”

“Outgoing BoJ Governor Haruhiko Kuroda holds his last policy meeting on 10 March. Incoming BoJ Governor Kazuo Ueda holds his first policy meeting on 28 April. Both could pose positive event risks for the Japanese Yen.”

“USD/JPY – 1M 135.00 3M 130.00 6M 125.00 12M 120.00”

Today’s semi-annual testimony from Fed Chair Powell will be important in determining whether the US Dollar can regain upward momentum in the week ahead, economists at MUFG Bank report.

Focus shifts to Powell's testimony

“Market participants will be looking for clear signals from the Fed Chair Powell today that he is considering adjusting his plans for only a couple more hikes this year, and displays some concern over recent stronger US activity and inflation.”

“If Fed Chair Powell remains cautious over the need to change their current plans to deliver only a couple of more hikes then there could be some disappointment today that could trigger the DXY to fall further below the 105.00 level ahead of the release of the NFP report on Friday.”

• GBP/USD retreats sharply from a four-day top amid the emergence of fresh USD buying.
• A break below the 200-day SMA is needed to support prospects for any further downside.
• Traders now look to Fed Chair Jerome Powell’s testimony for some meaningful impetus.

The GBP/USD pair comes under some renewed selling pressure following an early uptick to the 1.2065 area, or a multi-day top touched earlier this Tuesday and extends the downfall through the mid-European session. The pair slides back below the 1.2000 psychological mark in the last hour and is pressured by the emergence of fresh US Dollar buying.

Growing acceptance that the Federal Reserve will stick to its hawkish stance and keep interest rates higher for longer turn out to be a key factor that continues to act as a tailwind for the USD. Apart from this, looming recession risks further seem to benefit the Greenback's relative safe-haven status amid some repositioning trade ahead of Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee.

Looking at the broader picture, the two-way price moves witnessed over the past four weeks or so constitute the formation of a rectangle on the daily chart. The lower end of the trading band coincides with a technically significant 200-day Simple Moving Average (SMA). Bearish traders need to wait for a convincing break through the said support, currently pegged around the 1.1910 area, before placing fresh bets.

The GBP/USD pair might then turn vulnerable to accelerate the fall towards retesting the YTD low, around the 1.1840 region touched in January. Some follow-through selling will complete a bearish double-top pattern formation near the 1.2445-1.2450 area and pave the way for deeper losses. The downward trajectory could eventually drag spot prices below the 1.1800 mark, towards the 1.1725 support zone.

On the flip side, the daily swing high, around the 1.2065 area, now seems to act as an immediate barrier ahead of the 1.2100 mark. Any subsequent move-up could attract fresh sellers and remain capped near the 50-day SMA, around the 1.2135-1.2140 region. That said, a sustained strength beyond could lift the GBP/USD pair towards the 1.2200 mark en route to the February 14 peak, around the 1.2265-1.2270 zone.

GBP/USD daily chart

Key levels to watch

GBP/USD has seen a pullback toward the 200-Day Moving Average (DMA) at 1.1913. Economists at Société Générale note that risks are tilted to the downside.

Neckline at 1.1840/1.1800 is a crucial support

“The run of decent UK macro hasn’t rubbed off on GBP/USD and near-term risks remains skewed to the downside on the outlook for a widening of Fed/BoE policy spread.”

“Cable continues to toil around the 200-DMA at 1.1913 and could be under threat if Powell and US NFP elicit fresh Dollar buying this week.”

“The price action has turned idle denoting lack of clear direction. Neckline at 1.1840/1.1800 is a crucial support.”

UOB Group’s Head of Research Suan Teck Kin and Economist Ho Woei Chen review the latest decision by the Chinese government regarding the growth target.

Key Takeaways

“China maintained that economic stability is its priority. The government has set a GDP growth target of “around 5.0%” for 2023, the lowest annual growth target on record. This is at the lower end of market’s expectation but in line with our estimate.”

“Despite a modest growth target, China has set a higher urban employment creation goal of 12 mn this year compared to 11 mn in 2022. The target for urban surveyed jobless rate is set similar to the two preceding years at around 5.5%. In our view, the unemployment rate may be a better indicator for the labour market given the employment creation does not account for job losses.”

“By setting a lower growth target, this likely implies less pressure on the officials to expand the monetary and fiscal support this year. But with China moving to Covid endemicity and less resources to be spent on testing and virus containment, we believe the effectiveness of its fiscal and monetary policy will be improved despite not announcing a more expansionary policy.”

“Key developments to watch ahead will include the reform of the party and state institutions and the key personnel appointments on 10-12 Mar including President (10 Mar), Premier (11 Mar), State Council Vice Premiers, Ministers, PBOC Governor (12 Mar) before the NPC draws to a close on 13 Mar.”

After a solid start to the year, NZD/USD reversed course in February and wiped out all the year-to-date gains and some more. Economists at MUFG Bank expect the Kiwi to remain under pressure for the time being.

Over-tightening fears could come to undermine NZD

“While the RBNZ maintained its view that the policy rate would need to be raised to 5.50%, Governor Orr stated that the RBNZ was in a ‘more flexible position’ – this points to the potential for a slowdown in the pace of tightening to 25 bps moves, which we believe lowers the prospect of reaching the 5.50% level.” 

“The housing market continues to suffer from the tightening already implemented. Still, evidence of weakness in other areas of the economy is not as clear and hence further hikes seem likely.” 

“NZD downside will persist for now reflecting broader risk aversion and when the US Dollar begins to weaken again more broadly, NZD may underperform AUD as such aggressive tightening hits the economy.”

“NZD/USD  – Q1 2023 0.6200 Q2 2023 0.6300 Q3 2023 0.6400 Q4 2023 0.6600”

“AUD/NZD – Q1 2023 1.0970 Q2 2023 1.1110 Q3 20231.1250 Q4 2023 1.1210”

FOMC Chairman Powell is likely to note in his testimony before the Senate Banking Committee that strong economic activity this year could lead the Fed to raise rates more than expected, the Wall Street Journal's Nick Timiraos reported on Tuesday. 

Market reaction

These comments don't seem to be having a significant impact on the US Dollar's performance against its rivals. As of writing, the US Dollar Index was up 0.15% on the day at 104.43.

Powell's two-day testimony will start at 1500 GMT on Tuesday.

RBA raises the cash rate target (CRT) by 25 bps to 3.60% but hints at a pause as early as next meeting. The AUD enjoyed a terrific start to 2023, but enthusiasm has died down, economists at Société Générale report. 

More frustration for AUD after RBA

“The RBA did not surprise and raised the CRT by 25 bps to 3.60%, as widely expected. The statement reiterated that further tightening will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary. However, it also acknowledged that inflation has probably peaked and hinted at possible pause as soon as April.” 

“Our economists maintain their view for a peak at 3.85% in April, below the 4.05% implied by futures.”

“AUD/USD is close to graphical support of 0.6680/0.6660 representing low of January and the 50% retracement from last October. An initial bounce is expected however 200-DMA and neckline of the formation at 0.6800/0.6850 could cap upside. Next potential support is at target of the pattern near 0.6550.”

The Lira continued to remain stable in February. Elections remain pivotal for TRY and policy outlook in Turkey, economists at MUFG Bank report.

Additional stimulus measures will add to concerns over the inflation outlook

“President Erdogan has announced fresh fiscal stimulus measures to support rebuilding efforts and the CBRT has resumed their rate cutting cycle by delivering another 0.50 point cut in February. While the developments will help to dampen the hit to growth in Turkey this year, the additional stimulus measures will add to concerns over the inflation outlook.”

“The parliamentary and presidential elections in May are still expected to prove pivotal for the outlook for policy and Lira in the year ahead. Unless there is a shift away from unorthodox policy settings after the elections, we expect the TRY weakening trend to resume.” 

“USD/TRY – Q1 2023 19.000 Q2 2023 20.250 Q3 2023 21.750 Q4 2023 23.000”

• USD/JPY extends its sideways consolidative price move for the second successive day on Tuesday.
• Hawkish Fed expectations continue to act as a tailwind for the USD and lend support to the major.
• Looming recession risks underpin the safe-haven JPY and cap gains ahead of Powell’s testimony.

The USD/JPY pair continues with its struggle to gain any meaningful traction and extends its sideways consolidative price move for the second successive day on Tuesday. The pair is currently placed just below the 136.00 mark, nearly unchanged for the day, and remains well within the striking distance of the YTD peak, around the 137.10 region touched last Friday.

The prospects for further policy tightening by the Fed continue to act as a tailwind for the US Dollar (USD) and lend support to the USD/JPY pair. In fact, the markets seem convinced that the US central bank will stick to its hawkish stance and keep rates higher for longer in the wake of stubbornly high inflation. The bets were lifted by the incoming US macro data, which indicated that inflation isn't coming down quite as fast as hoped and pointed to an economy that remains resilient despite rising borrowing costs.

Adding to this, a slew of FOMC policymakers recently backed the case for higher rate hikes and opened the door for a 50 bps lift-off at the March meeting.  Hence, the market focus will remain glued to Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee, due later during the North American session. Investors will look for fresh clues about the Fed's future rate-hike path, which will influence the USD price dynamics and determine the next leg of a directional move for the USD/JPY pair.

Heading into the key event risk, a modest pullback in the US Treasury bond yields is holding back the USD bulls from placing aggressive bets and acting as a headwind for the USD/JPY pair. The downside, however, remains cushioned amid expectations that the Bank of Japan will maintain the ultra-loose policy settings to support the fragile domestic economy. In fact, the incoming BoJ Governor Kazuo Ueda said last week that the central bank isn't seeking a quick move away from a decade of massive easing.

Hence, the BoJ monetary policy decision, scheduled to be announced on Friday, is unlikely to provide any respite to the JPY, suggesting that the path of least resistance for the USD/JPY pair is to the downside. Investors this week will also confront the release of the closely-watched US monthly employment details, popularly known as NFP. In the meantime, looming recession risks could limit deeper losses for the JPY and keep a lid on any meaningful appreciating move for the major, at least for the time being.

Technical levels to watch

The Euro was able to appreciate against the Dollar last week and extend its gain yesterday. The current data heavyweight, the US labour market report, is due for publication on Friday. The duel is far from decided, according to economists at Commerzbank. 

The Dollar remains in control this week

“Many market participants will still be apprehensive following the Dollar’s strong upside move four weeks ago after the surprisingly positive NFP for January. As a result, they will probably be cautious about taking a too strong position against the USD over the course of the week.”

“If it becomes evident that the labour market is not showing any signs of weakening at all despite the massive rate hikes in the past, the market is going to rely more heavily on further Fed rate hikes and interest rates remaining at these levels for longer. That would be positive for USD.”

“Next week focus is likely to be back on the Euro, as the ECB meeting too might provide some surprises after the inflation data in the Eurozone surprised on the upside. After that it is back to the USD though as the FOMC meeting will be held during the following week. That means, the battle between EUR and USD is far from decided.”

Further upside is likely in USD/CNH, although it is expected to meet a solid hurdle around the 7.0000 region, 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 rise in USD to 6.9520 yesterday (we were expecting USD to trade in a range). While the sharp advance appears to be running ahead of itself, there is scope for USD to edge above 6.9600. However, USD is unlikely to be able to maintain a foothold above this level. On the downside, a breach of 6.9280 (minor support is at 6.9360) would indicate that USD is unlikely to advance further.”

Next 1-3 weeks: “Yesterday (06 Mar, spot at 6.9085), we indicated that USD is likely to trade in a broad range of 6.8500/6.9600. USD rose to a high of 6.9520 in NY trade and upward momentum appears to be building. USD is likely to trade with an upward bias but any advance is likely to encounter solid resistance at 7.0000. The upside bias is intact as long as USD does not break the ‘strong support’ level, currently at 6.9000.”

• Gold price remains on the defensive on Tuesday, though lacks any follow-through selling.
• Retreating US bond yields keeps the US Dollar bulls on the defensive and lends support.
• Traders also seem reluctant ahead of Federal Reserve Chair Jerome Powell’s testimony.

Gold price struggles to capitalize on its modest intraday gains beyond the $1,850 area on Tuesday and remains well below a nearly three-week high touched the previous day. The XAU/USD languishes below the $1,845 level through the first half of the European session as traders await a testimony by Federal Reserve (Fed) Chair Jerome Powell before placing fresh directional bets.

Jerome Powell’s testimony eyed for clues about future rate-hike path

Powell's remarks will be closely scrutinized for clues about the Fed's future rate-hike path, which, in turn, will play a key role in influencing the near-term trajectory of the non-yielding Gold price. Several policymakers recently backed the case for higher rate hikes and opened the door for a 50 bps lift-off at the upcoming Federal Open Market Committee (FOMC) meeting later this month. Moreover, the incoming macro data from the United States (US) indicated that inflation isn't coming down quite as fast as hoped and pointed to an economy that remains resilient despite rising borrowing costs. Hence, a more hawkish commentary will offset any near-term positive outlook for the XAU/USD and shift the bias back in favour of bearish traders.

Retreating US bond yields, subdued US Dollar demand, recession fears lend support

Some market participants, however, are unsure about Powell's tone amid expectations that the US economy might be cooling. This, in turn, prompts some repositioning trade, which is evident from a modest pullback in the US Treasury bond yields and keeps the US Dollar (USD) bulls on the defensive. Heading into the key event risk, a subdued USD price action lends some support to the US Dollar-denominated Gold price. Apart from this, looming recession risks further contributes to limiting the downside for the safe-haven XAU/USD, at least for the time being. This, in turn, warrants caution for aggressive bearish traders and before positioning for any meaningful retracement slide from a multi-week high touched the previous day.

Traders might refrain from placing directional bets around Gold price

Hence, strong follow-through selling is needed to confirm that the recent recovery from the vicinity of the $1,800 round-figure mark, or the YTD low touched on February 28, has run its course. In the absence of any relevant market-moving economic releases from the US, the US bond yields could drive the USD demand and provide some impetus to Gold price. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities around the XAU/USD, though any meaningful movement in either direction seems unlikely.

Gold price technical outlook

From a technical perspective, the $1,835 horizontal zone is likely to protect the immediate downside. Any subsequent decline might find some support near the $1.822-$1,821 area ahead of the $1,810 level and last week's swing low, near the $1,805-$1,804 region. This is closely followed by the $1,800 round-figure mark, which coincides with the 100-day Simple Moving Average (SMA). A convincing break below the latter will be seen as a fresh trigger for bearish traders and make Gold prices vulnerable to slide further.

On the flip side, the $1,856-$1,858 region seems to have emerged as an immediate hurdle, above which the XAU/USD could climb to the 100-day SMA, currently around the $1,870 area. This should act as a pivotal point, which if cleared decisively will set the stage for a further near-term appreciating move and allow bulls to reclaim the $1,900 mark with some intermediate barrier near the $1,884-$1,886 supply zone.

Key levels to watch

• EUR/USD comes under pressure and revisits 1.0660.
• Germany’s Factory Orders surprised to the upside in January.
• Chief Powell testifies before the Congress later in the session.

Renewed selling pressure forces EUR/USD to give away part of the earlier bull run to the boundaries of 1.0700 the figure on turnaround Tuesday.

EUR/USD remains capped by 1.0700… for now

After two consecutive daily advances, EUR/USD seem to have met some tough resistance just ahead of the key barrier at 1.0700 amidst some tepid bounce in the greenback. Further upside, however, should not be ruled out in the very near term, as Monday’s uptick was underpinned by increasing open interest and volume in the futures markets.

In the meantime, cautiousness continues to prevail among market participants in light of the upcoming semiannual testimony by Fed’s Powell before the Congress in the wake of the closing bell in the Euroland on Tuesday.

No reaction in the FX universe after the ECB published its Consumer Expectations Survey, where it sees 12-month consumer inflation expectations a tad lower at 4.9% (from 5.0%) and 2.5% (from 3.0%) when it comes to the three-years’ time horizon. Regarding economic growth, the survey still points to a contraction of 1.2% in the next 12 months.

Earlier in the session, Factory Orders in Germany expanded at a monthly 1.0% in January.

In the US data space, Wholesale Inventories, the IBD/TIPP Economic Optimism index and Consumer Credit Change are all due later.

What to look for around EUR

EUR/USD seems to have met a solid resistance near the 1.0700 neighbourhood against the backdrop of persistent prudence ahead of Powell’s testimony later in the day.

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 after the bank has already anticipated another 50 bps rate raise at the March event.

Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency as well as the hawkish narrative from the ECB.

Key events in the euro area this week: Germany Factory Orders (Tuesday) – Germany Retail Sales, EMU Advanced Q4 GDP Growth Rate, ECB Lagarde (Wednesday) – Germany Final Inflation Rate, ECB Lagarde (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is retreating 0.15% at 1.0657 and faces the next support at 1.0532 (monthly low February 27) seconded by 1.0481 (2023 low January 6) and finally 1.0326 (200-day SMA). On the other hand, the breakout of 1.0716 (55-day SMA) would target 1.0804 (weekly high February 14) en route to 1.1032 (2023 high February 2).

Today, the highlight will be Fed Chair Jerome Powell's testimony on monetary policy. The US Dollar can hold gains on limited Powell pushback, in the view of economists at ING.

Little incentive for Powell to push back

“The highlight of today's FX session will be Fed Chair Powell's first leg of his monetary policy testimony to Congress.” 

“While welcoming the start of a broad disinflation process in early February, we doubt Powell will push back much against expectations of another 75 bps+ of Fed hikes. This should see the USD hold gains.”

Bank of England (BoE) policymaker Catherine Mann said on Tuesday, “I think more needs to be done with rates.”

Additional comments

“Concerned about the persistence of core inflation.”

“Weak pound is significant for inflation.”

“There has been quite a hawkish tone from Fed and ECB.”

“But the question is how much is priced into sterling.”

“In comparison to recent increases, property price drops are minor.”

“I believe the housing market is in the process of recovering rather than continuing to fall.”

“I am concerned about the UK economy's supply side.”

When asked about Brexit, Mann said, “the real source of concern is the uncertainty that affects business investment.”

“QT is currently operating in the background.”

“Altering the inflation target is more difficult when you're above it.”

Market reaction

Despite the hawkish comments, the GBP/USD is testing lows just above 1.2000, down 0.15% on the day.

Swiss inflation for February surprised sharply to the upside. Thus, the Swiss National Bank (SNB) is unlikely to end its hiking cycle or allow a significant depreciation of the Franc, economists at Commerzbank report.

Inflation surprise from Switzerland

“Consumer price inflation climbed to 3.4% in February. Core inflation too continued to rise to 2.4% compared with 2.2% before.”

“In the light of recent inflation data the SNB is likely to hike its key rate once again with a renewed 50 bps step quite possible, accompanied by hawkish comments.”

“The SNB will probably still want to prevent the Franc from weakening, so as to avoid creating additional inflation pressure. So if the CHF were to depreciate, the SNB would probably intervene on the FX market.”

“Even if the ECB is supporting EUR with its hawkish comments the SNB is likely to do similarly and hike rates itself and deliver hawkish comments, as well as intervening against franc depreciation if necessary. That means that it is probably too early for a sustainable jump above parity in EUR/CHF.”

• AUD/USD comes under heavy selling in reaction to a dovish assessment of the RBA policy statement.
• A positive risk tone undermines the safe-haven USD, albeit fails to benefit the risk-sensitive Aussie.
• The backdrop supports prospects for additional losses ahead of Fed Chair Jerome Powell’s testimony.

The AUD/USD pair attracts fresh selling in the vicinity of mid-0.6700s on Tuesday and drops to its lowest level since December 23 during the first half of the European session. The pair now seems to have found acceptance below the 0.6700 round-figure mark and seems vulnerable to prolonging its downward trajectory witnessed over the past month or so.

The Australian Dollar weakens across the board in reaction to the Reserve Bank of Australia's (RBA) signal that a pause in its 10-month rate-hiking cycle is on the way. The RBA earlier this Tuesday raised its overnight cash rate as expected by 25 bps to 3.6%, or the highest since June 2012. In the accompanying policy statement, the RBA changed a reference from “further increases in rates” to “further tightening of monetary policy” would be needed and boosted expectations for an eventual pause in the policy tightening.

Adding to this, RBA Governor Philip Lowe warned that the path to achieving a soft landing for the Australian economy remains a narrow one and fueled worries that the economy could suffer a recession over the next 24 months. This, along with the disappointing release of Australia's trade balance data, is seen weighing on the domestic currency and dragging the AUD/USD pair lower for the second successive day. Bulls, meanwhile, fail to gain any respite and seem rather unimpressed by a subdued US Dollar demand.

A generally positive tone around the equity markets seems to undermine the safe-haven Greenback, though does little to benefit the risk-sensitive Aussie or lend any support to the AUD/USD pair. The latest leg down, meanwhile, confirms a fresh breakdown through over a one-week-old trading range support. Apart from this, growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance for longer favours the USD bulls and suggests that the path of least resistance for spot prices is to the downside.

Traders, however, might refrain from placing aggressive bets and prefer to wait for Fed Chair Jerome Powell's semi-annual congressional testimony. Investors will look for fresh clues about the Fed's future rate-hike path, which will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair.

Technical levels to watch

European Central Bank’s (ECB) policymaker and Spanish central bank head Pablo Hernandez de Cos said on Tuesday, “Spanish core CPI is to remain high in the short term, then gradually decline.”

“Spain’s GDP forecast is anticipated to be revised up, while CPI is expected to fall.” De Cos added.

Market reaction

At the time of writing, EUR/USD is trading 0.08% lower at 1.0669, undermined by a broad-based US Dollar rebound.

The Indian Rupee is almost back to where it started the year. Economists at ING expect the INR to struggle to gain ground against the Dollar.

RBI has not completed its tightening cycle just yet

“Inflation remains stubbornly high, with the most recent prints showing a return to above-target headline inflation and a new focus on core rates making it unlikely that the Reserve Bank of India has completed its tightening cycle just yet.”

“And the whole issue of global bond inclusion has gone awfully quiet. With $30bn-$40bn of estimated inflows at stake, this will make a difference, if it happens. Announcement due 30 March.”

“USD/INR – 1M 83.00 3M 82.00 6M 81.00 12M 83.00”

AUD is lower after RBA’s rate decision. However, Antje Praefcke, FX Analyst at Commerzbank, warrants caution about pricing an end to hiking cycling in Australia anytime soon.

Market must focus on price and economic data for the time being

“In principle, the RBA continues to sound hawkish. It raised the key interest rate by 25 bps to 3.60% and expects that the key rate will have to be raised further. In short, the interest rate cycle is not over yet, with the RBA making further action data dependent.”

“But if the RBA's statement was restrictive, why did the AUD weaken as a result of the rate decision? The statement was seemingly not restrictive enough for the market, which is why it sold the AUD in an initial reaction. However, I would be cautious to bet on an end to the interest rate cycle in Australia anytime soon.” 

“Similar to other countries, while headline inflation is falling due to falling energy prices and base effects, upward pressure remains in many other areas, especially services and wages. As the RBA makes its further course of action data dependent, the market must and will continue to focus on price and economic data for the time being.”

• GBP/USD attracts some intraday selling following an early move up to a four-day peak.
• Recession fears, hawkish Fed expectations act as a tailwind for the USD and cap gains.
• Traders now keenly await Fed Chair Powell’s testimony before placing directional bets.

The GBP/USD pair struggles to capitalize on its intraday positive move to a four-day peak and meets with a fresh supply near the 1.2065 region on Tuesday. Spot prices retreat to the lower end of the daily range, around the 1.2020-1.2015 region during the first half of the European session and remain at the mercy of the US Dollar price dynamics.

A generally positive tone around the equity markets, along with retreating US Treasury bond yields, initially weighed on the safe-haven Greenback and offered some support to the GBP/USD pair. That said, looming recession risks continue to keep a lid on any optimistic move in the markets. Apart from this, the prospects for further policy tightening by the Federal Reserve act as a tailwind for the US bond yields, which, in turn, help limit the downside for the USD and cap the upside for the major, at least for the time being.

Investors seem convinced that the US central bank will stick to its hawkish stance and keep interest rates higher for longer in the wake of stubbornly high inflation. The bets were reaffirmed by the incoming US macro data, which indicated that inflation isn't coming down quite as fast as hoped and pointed to an economy that remains resilient despite rising borrowing costs. Moreover, a slew of FOMC policymakers recently backed the case for higher rate hikes and opened the door for a 50 bps lift-off at the March meeting. 

Hence, the market focus will remain glued to Fed Chair Jerome Powell's semi-annual congressional testimony on Tuesday and Wednesday. Investors will look for clues about the Fed's future rate-hike path, which will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the GBP/USD pair. In the meantime, anxiety over the new UK-EU Brexit deal on the Northern Ireland Protocol further seems to hold back the bullish traders from placing fresh bets around the major.

The price action, meanwhile, indicates that an additional rate hike by the Bank of England (BoE) is already fully priced in the markets. Moreover, some analysts still hope that the UK central bank would pause the current tightening cycle. This, in turn, suggests that the path of least resistance for the GBP/USD pair is to the downside and any meaningful upside could be seen as a selling opportunity. That said, sustained weakness below the 200-day Simple Moving Average (SMA) is needed to confirm a fresh bearish breakdown.

Technical levels to watch

In the opinion of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, USD/JPY remains poised to extend the 134.50/137.10 range in the next few weeks.

Key Quotes

24-hour view: “We expected USD edge lower yesterday but we were of the view that ‘a sustained decline below 135.50 is unlikely’. Our view was not wrong as USD dropped to 135.36 before rebounding to end the day little changed at 135.91 (+0.04%). USD appears to have moved into a consolidation phase and it is likely to trade in a range of 135.60/136.35 today.”

Next 1-3 weeks: “Our update from yesterday (06 Mar, spot at 135.90) still stands. As highlighted, the recent USD strength has ended. USD appears to have moved into a consolidation phase and it is likely to trade within a range of 134.50/137.10 for now.”

Open interest in natural gas futures markets shrank by just 599 contracts on Monday, keeping the erratic performance well in place for yet another session. On the other hand, volume went up for the second session in a row, this time by nearly 120K contracts.

Natural Gas: Near-term top around $3.00?

Monday’s negative price action in natural gas was on the back of shrinking open interest, which hints at the idea that a deeper decline is not favoured for the time being. The acute build in volume, however, reinforces the current bearish outlook for the commodity. On the upside, the $3.00 mark per MMBtu should offer decent resistance for the time being.

EUR/USD climbed to its highest level in nearly two weeks at 1.0700 on Monday. But the pair could edge lower toward 1.06 today, in the view of economists at ING.

European hawks in focus

“Helping EUR/USD yesterday were comments from ECB ultra hawk, Robert Holzmann, that the ECB should deliver four more 50 bps rate hikes. ECB Chief Economist Philip Lane tried to calm things down by suggesting the ECB should not go onto autopilot after what should be a 50 bps hike this month. But the market is more sensitive to the hawks given the sticky inflation data.”

“We do not see any ECB speakers scheduled today. Powell's testimony should dominate today and might nudge EUR/USD back to the lower end of the 1.0600-1.0700 range.”

FX option expiries for Mar 7 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0570 1.3b
• 1.0620 1b
• 1.0670 922m
• 1.0710 938m
• 1.0740 1b

- GBP/USD: GBP amounts     

• 1.1950 572m
• 1.1975 721m
• 1.1994 1b

- USD/JPY: USD amounts                     

• 136.00 783m
• 136.50 774m

- USD/CAD: USD amounts       

• 1.3600 1.3b

The Reserve Bank of Australia (RBA) hiked the cash rate by 25 bps to 3.6% as expected. Economists at ANZ Bank the central bank to deliver more hikes in April and May to a peak of 4.1%.

Further tightening ahead

“The RBA delivered the expected 25 bps rate increase. Today’s statement confirmed the RBA plans to take the cash rate higher over coming months. Changes to the statement, however, suggest the timing will be more data dependent giving the RBA an option to pause if the recent run of soft data continues.”

“We don’t expect that to be the case and continue to forecast the cash rate target to rise 25 bps in both April and May to a peak of 4.1%.”

“In his speech tomorrow on Inflation and Recent Economic Data, we expect Governor Lowe will further downplay the recent softness in the data and highlight ongoing high inflation and the costs to the economy, as well as the likelihood of tightening in coming months.”

• NZD/USD regains positive traction on Tuesday, though any meaningful upside still seems elusive.
• A generally positive risk tone undermines the safe-haven USD and benefits the risk-sensitive Kiwi.
• The market focus remains on Fed Chair Jerome Powell’s semi-annual congressional testimony.

The NZD/USD pair attracts some buying on Tuesday and builds on the overnight late rebound from a technically significant 200-day Simple Moving Average (SMA). The pair maintains its bid tone through the early European session and is currently placed near the daily peak, just above the 0.6200 round-figure mark.

A generally positive tone around the equity markets is seen undermining the safe-haven US Dollar and turning out to be a key factor benefitting the risk-sensitive Kiwi. Apart from this, a modest pullback in the US Treasury bond yields further weighs on the Greenback and acts as a tailwind for the NZD/USD pair. That said, looming recession risks should keep a lid on any optimism in the markets. Moreover, any meaningful downside for the USD seems elusive amid the prospects for further policy tightening by the Federal Reserve. This, in turn, warrants some caution before positioning for any further appreciating move for the major.

Traders might also refrain from placing aggressive bullish bets around the NZD/USD pair ahead of Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee, due later during the North American session. A slew of FOMC policymakers recently backed the case for higher rate hikes and opened the door for a 50 bps lift-off at the upcoming policy meeting later this month. Hence, Powell's comments will be scrutinized for fresh clues about the Fed's future rate-hike path, which, in turn, will play a key role in influencing the USD price dynamics and help determine the next leg of a directional move for the major.

Investors this week will also confront the release of the closely-watched US monthly employment details, popularly known as NFP on Friday. Nevertheless, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the NZD/USD pair has formed a bottom near the 0.6135-0.6130 region, or the YTD low set last week. From a technical perspective, repeated failures to find acceptance below the 200-day SMA could keep bearish traders on the sidelines. This, in turn, suggests that the pair is more likely to oscillate in a narrow trading band heading into the key event/data risks.

Technical levels to watch

NZD/USD is seen keeping the consolidative mood unchanged within 0.6155/0.6280 in the short-term horizon, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We expected NZD to trade sideways between 0.6195 and 0.6240 yesterday. However, NZD dropped to a low of 0.6174. Downward momentum has improved slightly and NZD is likely to edge lower. That said, any decline is unlikely to break the major support at 0.6155. On the upside, a breach of 0.6225 (minor resistance is at 0.6210) would indicate that the current mild downward pressure has eased.”

Next 1-3 weeks: “We continue to hold the same view as yesterday (06 Mar, spot at 0.6215) where NZD is likely to consolidate within a range of 0.6155/0.6280.”

USD/INR has evolved within a sideways consolidation since last October. Analysts at Société Générale expect the pair to challenge the 80.80/50 support zone.

Next supports at 81.20 and 80.80/80.50

“A pullback is taking shape; the pair is expected to drift towards an ascending trend line at 81.20 and the lower part of the formation at 80.80/80.50 which is also the 200-DMA. This is an important support zone.” 

“Defence of the 200-DMA could result in a bounce. However, a break above 82.95/83.30 would be essential to affirm the next leg of uptrend.”

• The index trades without clear direction in the low-104.00s.
• US yields lose some momentum following Monday’s uptick.
• All the attention will be on Powell’s semiannual testimony.

The USD Index (DXY), which gauges the greenback vs. a basket of its main rivals, exchanges gains with losses around 104.30 ahead of the opening bell in the old continent on turnaround Tuesday.

USD Index focuses on Powell

The index remains directionless in the low-104.00s following two consecutive daily pullbacks amidst steady prudence ahead of the semiannual testimony by Chief Powell later in the European afternoon.

In the meantime, yields appears slightly tilted to the negative side and continue to navigate in the upper end of the rally in place since the beginning of February. The move higher in yields has been underpinned by the resumption of the hawkish narrative from most Fed speakers, which has been equally propped up by better-than-expected results from US fundamentals and speculation of a higher terminal rate (5.0%-5.25%).

Later in the US calendar, investors expect Chair Powell to reiterate his recent message when he testifies before the Senate Committee on Banking, Housing, and Urban Affairs. Data wise, Wholesale Inventories, the IBD/TIPP Economic Optimism index and Consumer Credit Change are also due later in the NA session.

What to look for around USD

The index keeps the erratic performance well in place around the 104.30 region so far on Tuesday.

The probable pivot/impasse in the Fed’s normalization process narrative is expected to remain in the centre of the debate along with the hawkish message from Fed speakers, all after US inflation figures for the month of January showed consumer prices are still elevated, the labour market remains tight and the economy maintains its resilience.

The loss of traction in wage inflation – as per the latest US jobs report - however, seems to lend some support to the view that the Fed’s tightening cycle have started to impact on the still robust US labour markets somewhat.

Key events in the US this week: Powell’s Semiannual Monetary Policy Report, Wholesale Inventories, Consumer Credit Change (Tuesday) – MBA Mortgage Applications, ADP Employment Change, Balance of Trade, Powell’s Semiannual Monetary Policy Report, Fed’s Beige Book (Wednesday) – Initial Jobless Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Monthly Budget Statement (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 losing 0.09% at 104.20 and the breakdown of 104.09 (weekly low March 1) would open the door to 103.45 (55-day SMA) and finally 102.58 (weekly low February 14). On the flip side, the next resistance emerges at 105.35 (monthly high February 27) seconded by 105.63 (2023 high January 6) and then 106.56 (200-day SMA).

Here is what you need to know on Tuesday, March 7:

The US Dollar holds its ground early Tuesday as markets eagerly await for FOMC Chairman Jerome Powell to testify before the Senate Banking Committee at 1500 GMT. The US Dollar Index moves sideways above 104.00 following a two-day slide and the 10-year US Treasury bond yield fluctuates in a narrow band below 4%. The US economic docket will also feature IBD/TIPP Economic Optimism Index for March and Consumer Credit Change for January.

Markets stayed indecisive on Monday and Wall Street's main indexes closed the virtually unchanged after having opened decisively higher. Early Tuesday, US stock index futures post small daily gains, reflecting participants' willingness to remain on the sidelines.

During the Asian trading hours, the Reserve Bank of Australia (RBA) announced that it hiked the policy rate, the Official Cash Rate (OCR), by 25 basis points (bps) to 3.60% from 3.35%. Although this decision came in line with the market expectation, AUD/USD fell sharply with the initial reaction. In its policy statement, the RBA reiterated that further tightening of the policy will be needed but noted that the monthly Consumer Price Index (CPI) indicator suggests that inflation has peaked in Australia. AUD/USD stays on the backfoot early Tuesday and trades near 0.6700.

Meanwhile, the data from China revealed that the trade surplus widened to $116.8 billion in February from $78 billion in January, surpassing analysts' estimate of $81.8 billion by a wide margin. 

EUR/USD climbed to its highest level in nearly two weeks at 1.0700 on Monday amid renewed US Dollar weakness but retreated modestly. The pair was last seen trading near 1.0680. Germany's Destatis reported early Tuesday that Factory Orders in Germany increased by 1% in January, compared to the market expectation for a decline of 1%, but this data failed to trigger a reaction in the Euro.

GBP/USD continues to move up and down in a tight channel above 1.2000 for the second straight day on Tuesday. 

USD/JPY ended the first day of the week virtually unchanged despite having edged lower during the European trading hours. The pair hold steady at around 136.00 in the European morning.

Despite the US Dollar's poor performance, Gold price struggled to build on the previous week's gains as the 10-year US T-bond yield managed to stay afloat above 3.9%. Following Monday's downward correction, XAU/USD fluctuates below $1,850 early Tuesday. 

Following a quiet weekend, Bitcoin extended its sideways grind on Monday. BTC/USD continues to have a hard time gathering directional momentum and trading near $22,400 early Tuesday. Similarly, Ethereum is moving sideways for the fourth straight day on Tuesday, trading below $1,600. 

• USD/CAD extends its sideways consolidative price moves through the early European session.
• Bullish Oil prices underpin the Loonie and act as a headwind amid a modest USD weakness.
• The downside remains cushioned ahead of Fed Chair Jerome Powell’s semi-annual testimony.

The USD/CAD pair continues with its struggle to gain any meaningful traction on Tuesday and remains confined in a familiar trading range around the 1.3600 mark through the early European session.

The latest optimism over a fuel demand recovery in China pushes Crude Oil prices to the highest level since last January, which, in turn, underpins the commodity-linked Loonie. Apart from this, a generally positive risk tone is seen weighing on the safe-haven US Dollar and acting as a headwind for the USD/CAD pair. The downside, however, remains cushioned as traders seem reluctant to place aggressive bets ahead of this week's key event/data risks and await a fresh catalyst before positioning for the next leg of a directional move.

Tuesday's key focus will be on Fed Chair Jerome Powell's semi-annual congressional testimony, which will be looked upon for clues about the future rate-hike path amid bets for a 50 bps lift-off at the March FOMC meeting. The expectations were lifted by the incoming US macro data, which indicated that inflation isn't coming down quite as fast as hoped and pointed to an economy that remains resilient despite rapidly rising borrowing costs. Adding to this, a slew of FOMC policymakers recently backed the case for higher rate hikes.

In contrast, the Bank of Canada (BoC) had signalled in January a likely pause in its tightening cycle and is now expected to leave rates unchanged at the upcoming policy meeting on Wednesday. This will be followed by the monthly employment details from Canada and the US (NFP), which should help determine the near-term trajectory for the USD/CAD pair. Nevertheless, the divergent Fed-BoC policy outlook suggests that the path of least resistance for spot prices is to the upside and any meaningful dip is likely to get bought into.

Technical levels to watch

Gold price is resuming the recent uptrend toward the three-week high of $1,858 on Tuesday, reversing a temporary drop seen a day before. Will XAU/USD defend the 21-Daily Moving Average at $1,843? FXStreet’s Dwani Mehta analyzes the pair’s technical outlook.

Daily closing below the 21-DMA could call for a bearish reversal

“Should the recovery momentum pick up pace, the Gold price rebound could retest the multi-month high at $1,858. Further up, the mildly bullish 50 DMA at $1,870 could be challenged. At that level, Valentine’s Day high aligns. Recapturing the latter is critical to sustaining the Gold price recovery from two-month troughs of $1,805.”

“Daily closing below the 21-DMA at $1,844 could call for a bearish reversal, opening floors for a test of Friday’s low of $1,835. Additional declines will threaten the $1,830 round level.”

CME Group’s flash data for crude oil futures markets noted traders reduced their open interest positions by around 2.7K contracts at the beginning of the week, maintaining the choppy activity unchanged. Volume followed suit and shrank by around 168.3K contracts, partially reversing the previous daily build.

WTI meets a tough barrier above $80.00

Prices of the barrel of WTI extended the rebound and reached the key $80.00 mark per barrel on Monday. The continuation of the uptrend was amidst diminishing open interest and volume and suggests that a sustainable move beyond this key resistance area (where coincides February and the so far March highs) is not favoured for the time being.

• Silver price retreats towards intraday low, defends previous day’s pullback from one-week high.
• One-week-old rising wedge bearish chart pattern joins downbeat MACD signals to favor sellers.
• Previous resistance line from early February lures XAG/USD bears.

Silver price (XAG/USD) stays on the bear’s radar, despite an early-day attempt to tease buyers, as the metal drops to $21.05 amid the initial European session on Tuesday. In doing so, the bullion defends the week-start pullback from the highest levels since February 24.

That said, the bright metal portrays a one-week-old rising wedge bearish chart pattern. The same join the bearish MACD signals to strengthen the downside bias.

However, a clear break of $21.00 becomes necessary to witness a downtrend towards a one-month-old previous resistance line, near $20.10 by the press time.

It should be observed that the latest swing low near $20.40 and the $20.00 round figure appear as the extra filters toward the south.

On the flip side, a downward-sloping resistance line from February 09, close to $21.20 at the latest, restricts the XAU/USD’s immediate recovery ahead of the stated wedge’s top line, near 21.40 by the press time.

Even if the Silver price crosses the $21.40 hurdle, the late February swing high near the $22.00 round figure could act as the validation point for the metal’s run-up toward the previous monthly high surrounding $24.65.

Overall, the Silver price is likely to remain pressured as traders await the key weekly event, namely Federal Reserve (Fed) Chairman Jerome Powell’s Testimony.

Silver price: Four-hour chart

Trend: Further downside expected

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group suggest GBP/USD cold extend the side-line theme between 1.1925 and 1.2120 in the next weeks.

Key Quotes

24-hour view: “We expected GBP to edge higher to 1.2070 yesterday. Our expectation did not materialize as GBP traded in a relatively quiet manner between 1.1998 and 1.2049. The price actions appear to be consolidative and today, GBP is likely to trade within a range of 1.1990/1.2060.”

Next 1-3 weeks: “Our update from yesterday (06 Mar, spot at 1.2035) is still valid. As highlighted, GBP is likely to consolidate for now, expected to be between 1.1925 and 1.2120.”

Considering advanced figures from CME Group for gold futures markets, open interest rose for the fifth consecutive session on Monday, this time by more than 5K contracts. Volume, instead, kept the choppiness well and sound and dropped by nearly 22K contracts.

Gold: Another visit to $1800 should not be ruled out

Gold prices started the week on the back foot and closed below the $1850 mark on Monday. The move was on the back of increasing open interest, which is indicative that further weakness could be waiting for the precious metal in the very near term. Against that, a potential drop and visit to the key $1800 area per ounce troy should remain in store for the time being.

• Gold price remains lackluster ahead of the key weekly event, fades previous day’s retreat.
• Mixed sentiment restricts XAU/USD from cheering softer US Dollar.
• Fed Chair Powell appears before Senate Banking Committee to testify, hopes of dovish outcome underpin Gold price.

Gold price (XAU/USD) portrays the market’s cautious mood as it treads water around the key moving averages during early Tuesday in Europe, close to $1,848 by the press time. In doing so, the precious metal struggles with the mixed catalysts amid anxiety ahead of Federal Reserve (Fed) Chairman Jerome Powell’s semi-annual testimony before the US Senate Banking Committee.

It’s worth noting that the previous day’s upbeat prints of the US Factory Order for January joined the recent shift into the Fed policymakers’ tones to probe the market players. On the other hand, downbeat prints of Durable Goods Orders, Consumer Confidence and ISM PMIs keep the Fed doves hopeful of confirming the policy pivot chatters.

Elsewhere, an improvement in China’s international trade figures for February joins the hopes of more stimulus from the Communist Party to underpin a positive mood. However, fears of fresh US-China tussles, due to the likely meeting between the officials from the US and Taiwan, as well as amid Beijing’s criticism of Washington’s cold war strategies, join the dovish hopes from Fed Chair Powell to probe the market’s momentum.

While portraying the mood, S&P 500 Futures print mild gains around a two-week high marked the previous day, up 0.15% intraday near 4,060 at the latest. Further, US 10-year Treasury bond yields fade the previous day’s bounce off a one-week low while easing back to 3.95% by the press time.

Looking ahead, dovish expectations from Fed Chair Powell keep the optimists on the table but surprisingly hawkish statements could quickly roil the market sentiment and recall the US Dollar bulls, which in turn can drown the Gold price.

Gold price technical analysis

Gold price remains sidelined as buyers flirt with a convergence of the 21-day and 50-day Exponential Moving Average (EMA) near $1,848.

However, bullish MACD signals and the bullion’s sustained bounce off the 200-day EMA keep the buyers hopeful of crossing the previous day’s top surrounding $1,858.

Following that, the February 09 swing high surrounding $1,890 and the $1,900 threshold could act as the last defenses of the Gold bears.

On the contrary, the metal’s sustained trading below the stated EMA confluence of $1,848 needs validation from the 50% and 61.8% Fibonacci retracement level of the quote’s upside from November 2022 to February 2023, respectively near $1,840 and $1,812.

It’s worth noting that the Gold buyers remain hopeful unless witnessing a clear downside break of the 200-day EMA, close to $1,805 at the latest.

Gold price: Daily chart

Trend: Further upside expected

In the view of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, EUR/USD could be headed towards the 1.0750 region in the next few weeks.

Key Quotes

24-hour view: “Our view for EUR to trade sideways was incorrect as it rose to a high of 1.0694 before closing on a firm note at 1.0678 (+0.43%). The advance has gathered momentum and EUR is likely to rise above 1.0700. The next major resistance at 1.0750 is likely out of reach for today. Support is at 1.0660, followed by 1.0635.”

Next 1-3 weeks: “Our latest narrative was from last Friday (03 Mar, spot at 1.0605) where we were of the view that EUR is likely to consolidate and trade between 1.0530 and 1.0700. Yesterday, EUR rose to a high of 1.0694. Upward momentum is building and EUR appears poised to break above 1.0700 and head towards 1.0750. At this stage, the odds of a sustained advance above 1.0750 are not high. On the downside, a breach of the ‘strong support’ level, currently at 1.0615, would indicate that the upside risk has faded.”

• USD/JPY is oscillating around 136.00, downside looks favored amid the risk-on mood.
• An upbeat market mood has pushed the 10-year US Treasury yields below 3.96%.
• The BoJ is expected to remain dovish as current inflationary pressures in Japan are the outcome of international forces.

The USD/JPY pair is displaying a back-and-firth action around 136.00 in the early European session. The asset has turned sideways as investors are awaiting fresh triggers for further guidance. Right from Federal Reserve (Fed) chair Jerome Powell’s testimony to the interest rate decision by the Bank of Japan (BoJ) and the United States Employment report, plenty of events will be held this week.

Meanwhile, S&P500 futures have picked some bids after a choppy Monday, portraying a cheerful market mood. The US Dollar Index (DXY) is demonstrating signs of recovery after printing a day low at 104.16. The USD Index bulls could retreat amid the risk appetite theme, underpinned by the market participants. An upbeat market mood has also improved demand for US government bonds and has pushed the 10-year US Treasury yields below 3.96%.

Two-day Fed Powell’s testimony before Congress will provide meaningful cues. The street is having mixed responses toward commentary as one school of thought expects a hawkish commentary amid higher inflationary pressures while the other school of thought sees a neutral stance as many things bank upon February’s data.

Going ahead, if United States inflation continues to persist, the Unemployment Rate remains at lower levels, and consumer spending remains resilient, Fed Powell would have no other option than to push rates higher.

On the Tokyo front, the interest rate decision by the BoJ will remain in action. The BoJ is expected to remain dovish as current inflationary pressures in Japan are the outcome of international forces as the economy is struggling to accelerate wages and domestic growth.

• USD/MXN takes offers to reverse the week-start corrective bounce off multi-month low.
• Bearish MACD signals, sustained trading below 50-DMA keep sellers hopeful.
• Convergence of previous support line from November 2022, one-month-old descending trend line appears crucial hurdle towards the north.

USD/MXN bears are back to the table, following a one-day absence, as the Mexican Peso (MXN) pair drops to 17.99, down 0.10% intraday during early Tuesday in Europe.

In doing so, the currency pair reverses the previous day’s corrective bounce from the lowest levels since April 2018.

It’s worth noting that the USD/MXN pair’s latest losses take clues from the bearish MACD signals, as well as the sustained trading below the 50-DMA. Adding strength to the bearish bias could be the quote’s failure to cross the $1,810 resistance confluence during the previous day’s rebound.

That said, a downward-sloping trend line from early February and a 14-week-old descending trend line, previous support, together constitute the 18.10 resistance confluence.

Should the quote rises past the 18.10 hurdle, the pair’s run-up towards a five-week-old horizontal resistance near 18.50 can’t be ruled out. However, the USD/MXN bears remain hopeful unless the quote trades below the 50-DMA level of 18.75.

On the contrary, the latest bottom of around 17.95 and April 2018 low of 17.90 lure the USD/MXN pair sellers of late.

Following that, September 2017 low and the year 2017 trough, close to 17.60 and 17.45 in that order, may flash on the bear’s radar.

USD/MXN: Daily chart

Trend: Further downside expected

• Asia-Pacific markets remain mildly bid amid an inactive session.
• RBA’s hints of peak in inflation, China’s readiness for more stimulus keep buyers hopeful.
• Fears of Sino-American tension, anxiety ahead of Fed Chair Powell’s testimony restrict immediate moves.

Equities in the Asia-Pacific region keep the buyers on their table as markets anticipate dovish comments from Fed Chair Jerome Powell during the all-important semi-annual testimony. Adding to the optimism could be the headlines surrounding the Reserve Bank of Australia (RBA) and China, as well as upbeat data from Australia and Beijing. However, the cautious mood ahead of the key event restricts the market mood, aided by the Indian holiday.

While portraying the mood, the MSCI’s index of Asia-Pacific shares ex-Japan rises around 0.40% intraday whereas Japan’s Nikkei 225 copies the move to 28,335 amid early Tuesday.

That said, the Reserve Bank of Australia (RBA) matches market forecasts of lifting the benchmark interest rate by 25 basis points (bps) to 3.60%. However, the RBA Statement saying, “The Consumer Price Index (CPI) indicator hints at the inflation peak” seemed to have favored the Aussie equity traders. Furthermore, an improvement in the Aussie Export and Import numbers superseded the fall in the trade surplus and favored the optimists in Canberra. As a result, Australia’s ASX 200 rises half a percent at the latest.

On the other hand, an improvement in China’s international trade figures for February joins the hopes of more stimulus from the Communist Party to underpin positive mood in China, led by a nearly 1.0% intraday gain of the Hang Seng.

Elsewhere, fears of fresh US-China tussles, due to the likely meeting between the officials from the US and Taiwan, as well as amid Beijing’s criticism of Washington’s cold war strategies, join the dovish hopes from Fed Chair Powell to probe the market’s momentum.

It’s worth noting that stocks in New Zealand print mild gains amid a lack of a major fresh catalyst while India’s holiday adds to the Asia-Pacific markets’ inaction.

On a broader front, S&P 500 Futures print mild gains around a two-week high marked the previous day, up 0.15% intraday near 4,060 at the latest. However, US 10-year Treasury bond yields fade bouncing off a one-week low of 3.897% marked on Monday.

Moving ahead, a lack of major data/events before Fed Chair Powell’s testimony may restrict the market moves amid caution. Though, any hawkish surprise from Powell won’t be taken lightly.

• AUD/USD has failed to capitalize on the hawkish RBA policy.
• The RBA continued the 25 bps rate hike spree and pushed the OCR to 3.60%.
• Australia’s monthly CPI indicator suggests that inflation has peaked.

The AUD/USD pair is displaying a sideways auction in the early European session after a Reserve bank of Australia (RBA)’s monetary policy-inspired volatility. The Aussie asset looks vulnerable above the 0.6700 support despite the upbeat market mood.

In the interest rate decision, RBA Governor Philip Lowe pushed the Official Cash Rate (OCR) by 25 basis points (bps) consecutively for the fifth time to 3.60% to sharpen monetary tools in the battle against persistent Australian inflation. RBA’s Lowe cited “The monthly CPI indicator suggests that inflation has peaked in Australia,” as reported by Reuters.

Further downside in the US Dollar Index (DXY) looks likely amid the absence of recovery signs after printing a fresh day low near 104.16. S&P500 futures have reported more gains, indicating that investors have underpinned the risk-appetite theme.

AUD/USD is showing a tad longer consolidation in the range of 0.6700-0.6784 on an hourly scale. The 50-period Exponential Moving Average (EMA) at 0.6737 is acting as a major barricade for the Australian Dollar.

A slippage by the Relative Strength Index (RSI) (14) in the bearish range of 20.00-40.00 is indicating a downside momentum ahead.

A downside move below March 01 low around 0.6700 will drag the Aussie toward December 07 low at 0.6669 and December 20 low at 0.6629.

In an alternate scenario, a confident break above March 01 high at 0.6784 will send the asset toward the round-level resistance at 0.6800 followed by February 06 low at 0.6855.

AUD/USD hourly chart

• GBP/USD grinds near intraday high, pokes immediate horizontal resistance.
• Bullish MACD signals, sustained trading beyond 200-HMA keep buyers hopeful.
• 12-day-old trading zone restricts Cable pair moves past 1.2050-15 immediate range.

GBP/USD picks up bids to reverse the week-start losses around 1.2045 heading into Tuesday’s London open. In doing so, the Cable pair buyers poke the top line of a three-day-old ascending triangle.

It’s worth noting, however, that the quote’s successful trading above the 200-Hour Moving Average (HMA) joins the bullish signals from the MACD indicators to keep the GBP/USD buyers hopeful.

As a result, an upside break of the immediate horizontal resistance near 1.2050, forming part of the aforementioned triangle, becomes imminent.

Following that, the last Wednesday’s swing high near 1.2090 and 1.2100 could test the GBP/USD buyers before directing them to the two-week-old horizontal resistance area surrounding 1.2145-50.

On the contrary, a downside break of the stated triangle’s lower line, near 1.2025 by the press time, needs validation from the 200-HMA level of 1.2015 to convince GBP/USD bears.

Even so, the 1.2000 psychological magnet and 1.1960 level may test the Cable pair seller before directing them to a broad support zone between 1.1915 and 1.1930, stretched from February 17.

In a case where the GBP/USD sellers conquer the 1.1915 support, the 1.1900 round figure may act as an extra filter towards the south.

Overall, GBP/USD is likely to print more gains but the upside room appears limited.

GBP/USD: Hourly chart

Trend: Limited upside expected

• EUR/USD is approaching 1.0700 as investors have shrugged off US recession fears.
• Federal Reserve’s Powell might wait for February’s data before delivering guidance on interest rates.
• European Central Bank’s Centeno sounds less hawkish despite renewed fears of high inflation in the Eurozone.
• EUR/USD is aiming higher amid a bullish momentum as the RSI (14) has shifted into the bullish range.

EUR/USD is an inch far from the round-level resistance of 1.0700 after a gradual move from 1.0680 in the Asian session. The major currency pair has been strengthened as investors’ risk appetite has improved. Investors have shrugged off recession risks associated with the United States economy due to higher rates from the Federal Reserve (Fed).

The US Dollar Index (DXY) looks vulnerable above the 104.20 support. The downside in the USD Index seems favored amid a decline in safe-haven’s appeal. S&P500 futures have added decent gains in the Asian session after Monday’s sideways auction, portraying positive market sentiment. An improved risk appetite has supported demand for US government bonds. This has resulted in a decline in the 10-year US Treasury yields to 3.96%.

The Euro has been provided significant bids as investors are expecting more rate hikes from the European Central Bank (ECB) amid renewed fears of higher inflation in Eurozone.

Fed Powell’s testimony to provide interest rate guidance

Resilience observed in the United States through January’s consumer spending indicated that the Federal Reserve will continue hiking rates. Achieving price stability is the foremost agenda of Federal Reserve chair Jerome Powell and for that more rates are highly required to tame sticky inflation. However, modest dovish commentary from Federal Reserve (Fed) Governor Christopher Waller has trimmed fears of hawkish guidance. Fed Waller cited February’s inflation recovery as a one-time blip and the price pressures will resume their downtrend from next month.

Meanwhile, analysts at MUFG said “They don’t expect Fed Chair Jerome Powell to endorse that scale of further tightening” when the Fed chief takes to Capitol Hill to deliver his semi-annual testimony before Congress.

Analysts further added that Fed Powell is more likely to “wait to assess further data in the coming months to see if the strength in activity and inflation is sustained before strongly committing to more rate hikes.”

US labor market to lay ground for further Fed moves

A power-pack action is expected from the US Dollar this week as investors will shift their focus to the Employment data after Federal Reserve Powell’s testimony. On Wednesday, the United States Automatic Data Processing (ADP) will report the Employment Change data. According to the estimates, the US economy has added fresh 195K payrolls in February, higher than the former release of 105K.

Later this week, the US Bureau of Labor Statistics will report the Nonfarm Payrolls (NFP) and the Unemployment Rate data. Apart from that, Labor cost index data will be in the spotlight as higher earnings will propel consumer spending ahead. This could force the Fed to stretch its restrictive policy measures further. And, the US Dollar bulls will be in the beast mode.

European Central Bank’s Centeno sounds contrary to renewed inflation fears

Less-than-anticipated fall in the Eurozone’s Harmonized Index of Consumer Prices (HICP) and standalone recovery in German, Spain, and France inflation have renewed the risk of inflationary pressures. It seems that the impact of lower energy prices is fading away and Eurozone could fall into an inflation spiral ahead.

Citing inflation as ‘too high’, European Central Bank President Christine Lagarde has already announced that the central bank will push rates further by 50 bps in its March monetary policy meeting. However, ECB policymaker Mario Centeno looks a little diverged from the provided plan. When asked about a possible 50 basis points (bps) rate hike in March, European Central Bank (ECB) policymaker Centeno said that “the decision must be based on data.” Adding that the “interest rates have risen too fast.”

EUR/USD technical outlook

EUR/USD is marching towards the supply zone placed in a range of 1.0698-1.0705 on an hourly scale. The major currency pair is expected to recapture the same considering the strength in the upside momentum.

A bull cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 1.0674 and 1.0654 respectively, add to the upside filters.

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.

• USD/INR fades bounce off five-week low but struggles to gain momentum ahead of top-tier event.
• Cautious optimism, sluggish yield and mildly bid Oil price add to the Indian Rupee pair trader’s indecision.
• Fed Chair Jerome Powell’s Testimony eyed amid fears of dovish guidance versus mostly firmer yields.

USD/INR treads water around 81.80 during early Tuesday, following the successful rebound from a five-week low the previous day.

The Indian Rupee (INR) pair’s latest inaction could be linked to the market’s dicey performance ahead of Federal Reserve (Fed) Chairman Jerome Powell’s semi-annual testimony. Also acting as a trading hurdle could be the mixed headlines surrounding China, as well as mildly bid Oil prices.

That said, WTI crude oil prints mild gains around $80.80 after rising to the highest levels in five weeks, up for the sixth consecutive day in a row, amid hopes of more energy demand from China and a likely decline in supplies from the Middle East. India’s reliance on energy imports and record current account deficit make the INR vulnerable to Oil price changes.

On the same line could be fears of fresh US-China tussles, due to the likely meeting between the officials from the US and Taiwan, as well as amid Beijing’s criticism of Washington’s cold war strategies.

Alternatively, US Dollar Index (DXY) weakness underpins the bearish bias surrounding the USD/INR pair. That said, the greenback’s gauge versus the six major currencies drop for the third consecutive day to 104.18 at the latest.

Sluggish yields and mildly bid US stock futures, as well as an upbeat mood in the Asia-Pacific zone, due to China trade numbers, seem to weigh on the USD/INR prices.

That said, S&P 500 Futures print mild gains around a two-week high marked the previous day, up 0.15% intraday near 4,060 at the latest. However, US 10-year Treasury bond yields initially dropped to a one-week low of 3.897% on Monday before ending the day with mild gains near 3.96%, staying around the same level by the press time. On the same line, the two-year counterpart ended Monday’s North American trading session with 0.60% intraday gains at 4.88%, mostly unchanged at the latest.

Moving ahead, US/INR traders should pay attention to Fed Chair Powell’s Testimony and Friday’s US jobs report.

Technical analysis

A daily closing below the four-month-old ascending support line, near 81.60 at the latest, becomes necessary for the USD/INR bears to take control.

China's Trade Balance for January-February, in Chinese Yuan terms, came in at CNY810.3 billion versus CNY550.1 billion last.

The exports jumped by 0.9% in the reported period vs. -0.5% previous.

The country’s imports slumped by 2.9% vs. 2.2% prior.

more to come ....

• NZD/USD grinds higher around intraday top, stays firmer past the key supports.
• Upbeat MACD, RSI signals hint at the Kiwi pair’s further run-up.
• One-month-old horizontal resistance area challenges bulls; 200-DMA restricts immediate downside.

NZD/USD seesaws around intraday high near 0.6210, up 0.40% on a day, as bulls cheer the previous day’s inability to conquer the 200-DMA support amid early Tuesday. In doing so, the Kiwi pair buyers also benefit from the upbeat oscillators while heading into a short-term key resistance.

A looming bullish cross on the MACD joins the RSI (14) rebound towards the 50 line to underpin the hopes of the NZD/USD pair’s further recovery.

However, a horizontal area comprising multiple levels marked since early February, near 0.6270-75, appears a tough nut to crack for the Kiwi pair buyers to cross for conviction.

Following that, a run-up towards the mid-February swing high near 0.6390, quickly followed by the 0.6400 threshold, can’t be ruled out.

On the flip side, the 200-DMA support level of 0.6165 restricts short-term declines of the NZD/USD pair.

Even if the Kiwi prices drop below 0.6165 DMA support, the previous resistance line from early February, near 0.6130 at the latest, could challenge the bears. It’s worth noting that the 0.6130 level also becomes important as it encompasses the previous monthly low.

Should the NZD/USD bears remains weak past 0.6130, the odds of witnessing a slump toward the mid-November 2022 low near 0.6060 can’t be ruled out.

NZD/USD: Daily chart

Trend: Sideways

• AUD/NZD takes offers to refresh intraday low as RBA flashes downbeat signals.
• RBA announces 25 bps rate hikes, as expected, but talks surrounding inflation lures Aussie bears.
• US-China news, cautious optimism ahead of the top-tier data/events also weigh on the exotic pair.

AUD/NZD bears run on full-steam as the pair drops around 40 pips to 1.0820, marking the biggest daily slump in a week, following the Reserve Bank of Australia’s (RBA) monetary policy announcements during early Tuesday. Also weighing on the cross-currency pair could be the risk-negative headlines concerning China, a major customer of Australia and New Zealand both.

RBA matches market forecasts of lifting the benchmark interest rate by 25 basis points (bps) to 3.60%. However, the RBA Statement saying, “The Consumer Price Index (CPI) indicator hints at the inflation peak” seemed to have caused panic among the pair sellers.

Also read: Breaking: RBA hikes OCR by 25 bps to 3.60% in March, as expected

It should be noted that Aussie trade numbers and comments from Australian Prime Minister Anthony Albanese seemed to have favored the pair buyers earlier in the day. That said, the Pacific major’s January month Trade Balance came in softer but the details surrounding the Exports and Imports were upbeat. That said, Australia PM Albanese said earlier in the day, “I believe Australia can avoid a recession.” The policymaker also said that the relationship with China has improved.

On a different page, fears of fresh US-China tussles weigh on the sentiment but the cautious mood ahead of Fed Chairman Jerome Powell’s Testimony seems to restrict the momentum, which in turn exerts downside pressure on the AUD/NZD price. The likely meeting between the officials from the US and Taiwan, as well as amid Beijing’s criticism of Washington’s cold war strategies, seem to challenge the pair of late due to its risk-barometer status. On the same line could be the Financial Times (FT) headlines suggesting the start of a new era of caution due to China’s modest economic growth forecast.

Also read: China’s Qin: We resolutely oppose all forms of hegemony, cold war mentality

Looking ahead, risk catalysts may entertain AUD/NZD traders but Wednesday’s speech of RBA Governor Philip Lowe will be crucial for clear directions.

Technical analysis

A downside break of the 100-DMA, around 1.0850 isn’t an open invitation to the AUD/NZD bears as a convergence of the previous resistance line from February 21 and a six-week-old ascending support line, around 1.0810, appears a tough nut to crack for the bears.

• Gold price has picked up demand near $1,850.00 amid an improvement in investors’ risk appetite.
• Fed Powell might remain neutral in his testimony on the interest rate guidance.
• Gold price is testing the breakout of the Inverted H&S chart pattern.

Gold price (XAU/USD) has shown a recovery move after a correction to near $1,844.00 in the Asian session. The precious metal has been supported by the improved risk appetite of the market participants. The US Dollar Index (DXY) looks vulnerable above 104.20 as the risk aversion theme is losing its grip.

S&P500 futures are adding some gains after a flat Monday. The return delivered on 10-year US Treasury yields has dropped below 3.97%. A sheer volatility is expected ahead as Federal Reserve (Fed) chair Jerome Powell will testify before Congress on Tuesday and Wednesday.

MUFG said “It doesn’t expect Fed Chair Jerome Powell to endorse that scale of further tightening” when the Fed chief takes to Capitol Hill to deliver his semi-annual testimony before Congress.

Analysts further added that Fed Powell is more likely to “wait to assess further data in the coming months to see if the strength in activity and inflation is sustained before strongly committing to more rate hikes.”

On the economic data front, United States Automatic Data Processing (ADP) Employment Change will remain in the spotlight. According to the estimates, the US economy added fresh 195K jobs in February, lower than the prior release of 105K. A higher-than-anticipated payrolls addition will bolster the expectations of one more 25 basis points (bps) interest rate hike by the Fed.

Gold technical analysis

Gold price is testing the strength of the Inverted Head and Shoulder chart pattern breakout on an hourly scale. The precious metal is auctioning near the neckline plotted from February high at $1847.00. An Inverted H&S pattern demonstrates a prolonged consolidation and a breakout of the same result in a bullish reversal.

The 50-period Exponential Moving Average (EMA) at $1,847.84 is providing support to the Gold bulls.

The Relative Strength Index (RSI) (14) has gauged cushion around 40.00. A reversal can be spotted at this level.

Gold hourly chart

• AUD/JPY has slipped sharply below 91.30 as RBA continues the 25 bps rate hike spell for the fifth time.
• RBA Lowe has pushed the OCR to 3.60% to get competitive against stubborn inflation.
• A continuation of an expansionary monetary policy is expected from the BoJ ahead.

The AUD/JPY pair has surrendered the 91.30 support as the Reserve Bank of Australia (RBA) has announced a fifth consecutive 25 basis point (bps) interest rate hike. This has pushed the Official Cash Rate (OCR) to 3.60%. A hawkish stance on the interest rate was already expected by the market participants despite the Australian Inflation has shown evidence of deceleration.

Last week, the Australian Bureau of Statistics reported a significant decline in the monthly Consumer Price Index (CPI) to 7.4%. However, a one-time decline in the economy’s inflation is insufficient to claim a pause in the policy tightening spree by any central bank. Inflationary figures are still beyond the desired rate and it demands plenty of time to reach the level of price stability.

Also, Gross Domestic Product (GDP) numbers were softened as higher rates by the RBA have forced firms to postpone their expansion plans. The Q4 GDP was expanded by 0.5%, lower than the consensus of 0.8% and the former release of 0.7%.

Analysts at Standard Chartered have recently revised the terminal rate to 4.10% from 3.50% previously. RBA Governor Philip Lower is making significant efforts in achieving price stability, however, Australian inflation is extremely sticky.

This week, a power-pack action is expected from the Bank of Japan (BoJ), which will announce the interest rate decision on Friday, A continuation of expansionary monetary policy is expected from the BoJ as Tokyo inflation dropped in February after nine consecutive increments. The BoJ needs to spurt the inflationary pressures again to maintain the Japanese Yen as competitive against rival currencies.

• AUD/USD takes offers to refresh intraday low, reverses early-day gains on RBA moves.
• RBA matches 0.25% rate hike concerns to lift OCR to 3.60%.
• Fresh US-China tension, cautious mood ahead of Fed Chair Powell’s testimony also weigh on the risk barometer pair.

AUD/USD stands on slippery grounds as it drops nearly 30 pips to 0.6715 after the Reserve Bank of Australia (RBA) announced a monetary policy decision on early Tuesday. Adding strength to the Aussie pair’s pullback could be the geopolitical concerns surrounding the US-China ties.

RBA matches market forecasts of lifting the benchmark interest rate by 25 basis points (bps) to 3.60%. The Aussie central bank even said that the RBA expects further monetary tightening will be needed. However, fears of a lack of upside room for the Official Cash Rate (OCR) and an absence of hawkish surprise seem to have weighed on the AUD/USD price. On the same line could be the RBA Statement saying that the Consumer Price Index (CPI) indicator hints at the inflation peak.

Also read: Breaking: RBA hikes OCR by 25 bps to 3.60% in March, as expected

Earlier in the day, Australia’s January monthly Trade Balance came in softer but the details surrounding the Exports and Imports joined upbeat comments from Aussie Prime Minister Anthony Albanese to favor the buyers. Australia PM Albanese said earlier in the day, “I believe Australia can avoid a recession.” The policymaker also said that the relationship with China has improved.

Though, fears of fresh US-China tussles, due to the likely meeting between the officials from the US and Taiwan, as well as amid Beijing’s criticism of Washington’s cold war strategies, seem to challenge the AUD/USD pair of late due to its risk-barometer status.

While portraying the mood, S&P 500 Futures print mild gains around a two-week high marked the previous day, up 0.15% intraday near 4,060 at the latest. However, US 10-year Treasury bond yields initially dropped to a one-week low of 3.897% on Monday before ending the day with mild gains near 3.96%, staying around the same level by the press time. On the same line, the two-year counterpart ended Monday’s North American trading session with 0.60% intraday gains at 4.88%, mostly unchanged at the latest.

Moving ahead, AUD/USD traders should pay attention to Fed Chair Powell’s Testimony and Wednesday’s speech of RBA Governor Philip Lowe for clear directions.

Technical analysis

A five-week-old descending resistance line precedes the 200-DMA to restrict short-term AUD/USD up-moves around 0.6745 and 0.6790 in that order, making the pair lucrative for the bears below the stated hurdles.

Following are the key headlines from the March Reserve Bank of Australia (RBA) monetary policy statement, via Reuters, as presented by Governor Phillip Lowe.

• AUD/USD plummets towards 0.6700 even as RBA lifts interest rate by 25 bps, Fed's Powell eyed

About RBA rate decision

RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

The Reserve Bank of Australia (RBA) board members delivered the tenth consecutive interest rate hike in March, lifting the Official Cash Rate (OCR) by another 25 basis points (bps) from 3.35% to 3.60%, as widely expected.

Economists surveyed by Reuters revealed that the RBA would announce its fifth straight quarter-point interest rate hike on Tuesday, followed by one more lift next quarter, before pausing until next year.

AUD/USD reaction

In a knee-jerk reaction to the RBA decision, the AUD/USD pair dropped nearly 30 pips toward 0.6700. At the time of writing, the Aussie is down 0.06% on the day, trading at 0.6720.

AUD/USD: 15-minutes chart

About RBA rate decision

RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

• USD/CNH eases from a one-week high to pare the previous day’s gain.
• 100-DMA, support-turned-resistance from early February appears a tough nut to crack for bulls.
• Looming bear cross on MACD, steady RSI (14) hints at further grinding towards the previous resistance line.

USD/CNH takes offers to extend the initial pullback from a one-week high, down 0.15% intraday near 6.9400 during Tuesday’s Asian session. In doing so, the offshore Chinese Yuan (CNH) pair consolidates the previous day’s gains amid downbeat oscillators and a failure to cross the key upside hurdle.

That said, the MACD signals lose their bullish bias and the bear cross seems to loom. On the same line, the RSI (14) also remains mostly steady and backs the latest weakness of the pair.

It’s worth noting that the failure to cross the 38.2% Fibonacci retracement level of the pair’s October 2022 to January 2023 fall, near 6.9560, triggered the quote’s latest pullback.

Apart from the immediate Fibonacci retracement hurdle, a convergence of the 100-DMA and an upward-sloping trend line from early February, the previous support line, close to 6.9800, appears a tough nut to crack for the USD/CNH bulls.

Meanwhile, pullback moves appear on the way to test the resistance-turned-support line from October 2022, close to 6.8550.

Following that, the late January swing high near 6.7950 could entertain the USD/CNH bears before directing them to the yearly low of 6.6975.

USD/CNH: Daily chart

Trend: Further downside expected

At the Australian Financial Review (AFR) summit on Tuesday, Australia's Prime Minister (PM) Anthony Albanese made some comments on the Australian-Sino relationships and the economic outlook.

Key quotes

“Would accept an invitation to visit China.

"I think it is a good thing that the relationship has got more stable. We want a more stable, secure region.”

“The relationship with China has improved.”

“I believe Australia can avoid a recession.”

Related reads

• When is the RBA Interest Rate Decision and how could it affect AUD/USD?
• China’s Qin: We resolutely oppose all forms of hegemony, cold war mentality

After announcing consecutive nine rate increases so far, the Reserve Bank of Australia (RBA) is up for another hawkish monetary policy outcome, despite teasing the policy pivot of late, during the scheduled Interest Rate Decision of around 03:30 AM GMT on Tuesday.

The RBA is expected to carry out the slow and steady interest rate hike by lifting the benchmark interest rate by 25 basis points (bps) to 3.60%, the fourth such move in a row, during Tuesday’s Interest Rate Decision.

Given the recently mixed statements in the RBA minutes and a contrasting play between inflation and wage numbers, not to forget the talks of policy pivot, the AUD/USD traders will be more interested in hearing about the end of the rate hike trajectory, making this event crucial.

Ahead of the event, Analysts at ANZ said,

On the same line, FXStreet’s Dhwani Mehta said,

How could the RBA decision affect AUD/USD?

AUD/USD picks up bids to renew intraday high around 0.6750 amid the market’s cautious optimism, as well as upbeat Aussie Export and Import numbers for January, during early Tuesday. The quote’s recent recovery also takes clues from comments from Aussie PM Anthony Albanese who said earlier in the day, “I believe Australia can avoid a recession.” The policymaker also said that the relationship with China has improved.

That said, the RBA is up for a 0.25% rate hike and is less likely to surprise the markets with a 0.50% rate lift, considering the recently softer data and a shift in the RBA talks.

Should the RBA shows readiness to pause the rate hike trajectory from the next meeting, the AUD/USD may have a further downside to trace. However, the need for more rate lift could allow the quote to extend the latest rebound.

Technically, AUD/USD remains on the bear’s radar unless crossing the 200-DMA hurdle, around 0.6790 by the press time.

Key quotes

AUD/USD grinds past 0.6700 on mixed Australia trade numbers, RBA, Fed Chair Powell eyed

Reserve Bank of Australia Preview: AUD/USD set to suffer on a dovish outlook

About the RBA interest rate decision

RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view of the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

China’s new Foreign Minister, Qin Gang, is delivering his first briefing, noting that “we resolutely oppose all forms of hegemony, cold war mentality.”

Additional comments

“We resolutely defend national sovereignty and security.”

“We oppose decoupling and unilateral sanctions.”

Amidst the briefing, all eyes remain on his take on the US-Sino ties.

Market reaction

AUD/USD is extending its renewed upside toward 0.6750, adding 0.28% on the day. Traders are awaiting the Reserve Bank of Australia’s policy announcement for fresh cues.

• Markets remain dicey as traders await top-tier events amid mixed feelings.
• US Treasury bond yields remain sidelined after the week-start zigzag, S&P 500 Futures print mild gains around two-week high.
• China-linked news, recent improvement in US data probe previously optimism.
• Fed Chair Jerome Powell needs to defend hawkish stance amid policy pivot chatters.

Global traders portray the typical pre-event caution as multiple top-tier catalysts loom for release during early Tuesday. Adding strength to the market’s inaction could be the mixed signals from the US and China, as well as the month-start anxiety.

While portraying the mood, S&P 500 Futures print mild gains around a two-week high marked the previous day, up 0.15% intraday near 4,060 at the latest. It’s worth noting that Wall Street closed mixed the previous day. Elsewhere, US 10-year Treasury bond yields initially dropped to a one-week low of 3.897% on Monday before ending the day with mild gains near 3.96%, staying around the same level by the press time. On the same line, the two-year counterpart ended Monday’s North American trading session with 0.60% intraday gains at 4.88%, mostly unchanged at the latest.

An improvement in the US Factory Orders for January, to -1.6% MoM versus -1.8% expected and -1.7% prior, appeared to have triggered the rebound in the US Treasury bond yields after an initial pullback on Monday.

Elsewhere, the fears emanating from the likely Sino-American tension, due to the anticipated meeting of the US and Taiwanese Officials, join recent doubts about the Fed’s hawkish move to challenge the traders ahead of the key events. Additionally probing the optimists could be the Financial Times (FT) headlines suggesting China’s lowest growth target in decades signals new era of caution.

During the last week, the softer prints of the second-tier US data, including ISM PMIs, Consumer Confidence and Durable Goods Orders joined comments from Atlanta Fed President Raphael Bostic to renew concerns about the policy pivot and favored the risk-on mood.

Looking forward, Federal Reserve (Fed) Chairman Jerome Powell appears before the Senate Banking Committee on Tuesday and will be eyed for clear directions. The policymaker should defend the US central bank’s hawkish bias to keep the bears hopeful ahead of Friday’s US jobs report. Also important are monetary policy decision from the Reserve Bank of Australia (RBA) and China’s trade numbers for February.

Also read: Forex Today: Markets remain choppy as Powell takes centre stage

The Financial Times has written an article: ''China’s lowest growth target in decades signals new era of caution.''

It writes, ''China’s political leadership set a gloomy projection for growth in the world’s second-largest economy this weekend, despite the buzz of optimism following three years of closures during the coronavirus pandemic.''

The piece notes that policymakers at the annual meeting of China’s rubber-stamp parliament in Beijing set a growth target of just 5 per cent for 2023, the lowest in decades and trailing last year’s Covid-era figure of 5.5 per cent, which it failed to reach.

The FT says that, ''faced with a rolling property crisis, falling exports as global interest rates rise and the hangover from zero-Covid restrictions, policymakers are less concerned about a high target — a figure that has become closely watched after two decades of consistent outperformance — than with the threat of another disappointing reading.''Overall, quoting Tang Yao, associate professor of applied economics at Peking University, the FT portrays a government that was taking ''a very cautious approach in the face of a range of uncertainties.”

Meanwhile, Analysts see possible China RRR cut coming.

• USD/CAD has turned sideways amid anxiety ahead of Fed Powell’s speech and lackluster oil price.
• BOC might keep interest rates steady as announced earlier.
• The mighty 200-period EMA at 1.3580 is providing support to the US Dollar bulls.

The USD/CAD pair is demonstrating a sideways auction above the round-level resistance of 1.3600 in the Asian session. The Loonie asset has turned sideways ahead of Federal Reserve (Fed) chair Jerome Powell’s testimony and lackluster oil price.

Investors have refrained from going all-in as the commentary from Fed will determine the further direction in the FX domain. The US Dollar Index (DXY) is expected to resume the downside journey toward the critical support of 104.00 amid the risk-on market mood. S&P500 futures have added some gains after a lackluster Monday as the risk appetite of the market participants has improved.

This week, the interest rate decision by the Bank of Canada (BoC) will be the crucial highlight. BoC Governor Tiff Macklem has already announced a pause in the policy-tightening spell as he believes that the current monetary policy is restrictive enough to tame Canada’s sticky inflation.

USD/CAD is auctioning in an Ascending Triangle chart pattern formed on an hourly scale. The horizontal resistance of the aforementioned chart pattern is placed from February 24 high at 1.3665 while the upward-sloping trendline is plotted from February 27 low at 1.3534. An ascending triangle pattern shows a volatility contraction, which is followed by wider ticks and heavy volume after an explosion.

The mighty 200-period Exponential Moving Average (EMA) at 1.3580 is providing support to the US Dollar bulls.

A 40.00-60.00 range oscillation by the Relative Strength Index (RSI) (14) indicates an absence of a potential trigger.

The Loonie asset is expected to add more gains after surpassing February 24 high at 1.3665, which will drive the asset toward the horizontal resistance plotted from December 07 high around 1.3700 followed by November 03 high around 1.3800.

Alternatively, a break below February 6 high at 1.3474 will drag the asset to near January 26 high around 1.3408. A slippage below the same will expose the asset to February 16 low around 1.3357.

USD/CAD hourly chart

• USD/JPY picks up bids to defend the previous day’s recovery moves.
• Clear break of immediate resistance line, bullish MACD signals favor buyers.
• 100-HMA, previous support line from late February restricts the immediate upside.
• Multiple hurdles stand ready to challenge bulls below 137.10 final challenge.

USD/JPY holds onto the week-start recovery as it prints mild gains around 136.10 during Tuesday’s Asian session.

In doing so, the Yen pair justifies the previous day’s upside break of a three-day-old resistance line, now support near 135.90.

Apart from the trend line breakout, the bullish MACD signals also keep the USD/JPY buyers hopeful as they approach the 100-Hour Moving Average (HMA) hurdle of 136.20.

Following that, the support-turned-resistance line from February, near 136.50 by the press time, could challenge the USD/JPY pair’s further advances.

It’s worth noting that there are multiple levels around 136.60 and 137.00, marked during late February and early March, which can probe the USD/JPY bulls before directing them to the final defense of the bears, namely the previous weekly top of 137.10.

In a case where the Yen pair remains firmer past 137.10, the odds of witnessing a run-up toward the December 2022 peak of 138.17, can’t be ruled out.

Meanwhile, pullback moves remain elusive unless the USD/JPY pair remains beyond the previous resistance line from last Thursday, close to 135.90.

In a case where the Yen pair drops below 135.90, it can drop to a one-week-old ascending trend line near 135.40 will be in focus.

Overall, USD/JPY is likely to remain firmer but the pair’s further upside needs validation from 136.50.

USD/JPY: Hourly chart

Trend: Limited upside expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.9156 vs. previous fix of 6.8951 and prior close of 6.9335).

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.

China signaled a likely reduction in the reserve requirement ratio for banks to enhance their ability to expand credit for the purpose of supporting economic recovery and stabilizing market confidence. PBoC Governor Yi Gang recently said that a RRR below 8% provides support for the real economy after 14 reductions in the past five years. 

Meanwhile, China's National People Congress (NPC) kicked off, with a conservative growth target for 2023 announced at 5% compared to the market's expectations of a 5-5.5% target range. Other economic targets were broadly similar to last year: fiscal deficit at 3% (2022: 2.8%), special local government bond quota at CNY3.8tn (2022: CNY3.65tn), jobs creation at 12mill (2022:>11mill) and CPI inflation at around 3% (2022:3%).

• GBP/USD is demonstrating a sideways performance ahead of Fed Powell’s testimony.
• The street is having mixed responses to Fed Powell’s testimony for interest rate guidance.
• UK’s Industrial and Manufacturing Production data might contract due to higher rates by the Bank of England (BoE).

The GBP/USD pair is displaying a lackluster performance in an extremely narrow range around 1.2020 in the Asian session. The Cable has been gyrating in a range of 1.2000-1.2050 from Monday as investors look more interested in going gung-ho for building positions after Federal Reserve (Fed) chair Jerome Powell’s testimony.

S&P500 futures have added some gains after a directionless Monday, portraying a minor optimism among the market participants. The US Dollar Index (DXY) is displaying a subdued performance as investors are awaiting Fed Powell’s testimony for further impetus. The return provided on 10-year US Treasury bonds has dropped marginally to 3.97%.

The street has a mixed response to Fed Powell’s testimony. One school of thought is of the view that Fed Powell won’t endorse more rates as January’s upbeat consumer spending might not continue ahead. Higher interest rates by the Fed have critically made the United States economy vulnerable. However, the other school of thought believes that the Fed will deliver a hawkish stance as the battle against persistent inflation is well complicated yet.

Apart from that, labor market data will be the key event this week. Wednesday’s US Automatic Data Processing (ADP) Employment data is seen at 195K, higher than the prior release of 105K. Strong demand for labor could propel the fears of more rates from the Fed. And, could spurt fears of a recession in the US economy.

On the Pound Sterling front, Friday’s data will be keenly focused. United Kingdom’s monthly Industrial Production (Jan) is expected to contract by 0.2% against an expansion of 0.3% reported in December. Monthly Manufacturing Production is expected to contract by 0.2% ahead.

• EUR/USD portrays the pre-event anxiety after refreshing two-week high the previous day.
• Hawkish comments from ECB officials versus moderate Fed talks propel Euro pair.
• Recent improvement in US data, Treasury bond yields probe the pair buyers.
• Fed Chair Powell needs to defend the ‘higher for longer’ bias to recall Euro bears.

EUR/USD struggles for clear directions as it retreats from its intraday high to 1.0680 during the mid-Asian session on Tuesday. The major pair cheered the broad US Dollar weakness in the last two days to poke the highest levels in a fortnight. However, the cautious mood ahead of this week’s top-tier events seems to challenge the bulls of late.

Apart from the broad US Dollar weakness, hawkish comments from the European Central Bank (ECB) officials also allowed the EUR/USD pair to remain firmer. It’s worth noting that softer data at home contrasts with an improvement in the US statistics to probe the pair’s upside momentum and challenge the immediate moves.

That said, US Dollar Index (DXY) prints mild gains around 104.40 to snap a two-day downtrend. In doing so, the greenback’s gauge versus the six major currencies traces the recent rebound in the US Treasury bond yields.

US 10-year Treasury bond yields initially dropped to a one-week low of 3.897% on Monday before ending the day with mild gains near 3.96%, staying around the same level by the press time. On the same line, the two-year counterpart ended Monday’s North American trading session with 0.60% intraday gains at 4.88%, mostly unchanged at the latest.

Talking about the data, the Eurozone Sentix Investor Confidence index worsens to -11.1 in March from -8.0 in February and -8.6 expected. Further, the Current Situation in the Eurozone improved to -9.3 during the stated month, from -10.0 prior, whereas the Expectations Index tumbled to -13.0 from -6.0 in February. Eurozone Retail Sales grew by 0.3% MoM in February versus 1.0% expected and -1.6% prior while the YoY figures suggest the bloc’s Retail Sales arrived at -2.3% in February versus -2.8% seen in January and the 1.9% consensus forecast, per the official figures released by Eurostat showed on Monday.

On the other hand, US Factory Orders improved to -1.6% MoM in January versus -1.8% expected and -1.7% prior.

It should be observed that ECB President Lagarde told Spanish media group Vocento, per Reuters, “Underlying inflation in the Eurozone will stay high in the near term so a 50 basis point European Central Bank (ECB) interest rate increase later this month is increasingly certain.” However, when asked about a possible 50 basis points (bps) rate hike in March, European Central Bank (ECB) policymaker Centeno said that “the decision must be based on data.” Adding that the “interest rates have risen too fast.”

Elsewhere, the fears emanating from the likely Sino-American tension, due to the anticipated meeting of the US and Taiwanese Officials, join recent doubts about the Fed’s hawkish move to challenge the traders ahead of the key event.

Amid these plays, Wall Street closed mixed and the S&P 500 Futures also struggle for clear directions.

Moving ahead, Fed Chair Powell’s testimony will be crucial to watch for the EUR/USD pair traders. Fed’s Powell appears before the Senate Banking Committee on Tuesday and should defend the US central bank’s hawkish bias to recall the bears.

Technical analysis

Although the EUR/USD pair aptly portrays a clear bounce off the 200-day Exponential Moving Average (EMA), around 1.0540 by the press time, the pair’s upside moves appear elusive unless crossing the mid-January swing low surrounding 1.0766.

• Gold price bears are in the market and eye $1,830s. 
• Fed's Powell is the next major catalyst ahead of NFP.

Gold price was a touch softer in the US session even as the US Dollar dropped and yields rose ahead of Jerome Powell's testimony to Congress. The yellow metal was sliding below $1,850 after snapping a run of four straight weekly declines. China’s modest growth target led to the strengthening of the US Dollar initially but Powell is expected to underscore the view that rates will go higher than anticipated.

Recent comments by Fed officials have reiterated the need to continue hiking rates until they reach at least 5% and a slew of data has pointed in that direction in general. ''Several regional Fed presidents have indicated openness to higher interest rates and larger increases if the data remain strong. It would mark a shift in the Fed’s guidance if Powell articulates similar sentiments at tomorrow’s testimony and a step back from the cautious policy around rates,'' analysts at ANZ Bank said.

''Recent strength in Nonfarm Payrolls and Retail Sales data argue that policy is not restrictive enough, and the Fed may have been wrong-footed by soft Q4 data. The Fed might be well served in emphasizing the importance of short-term inflation expectations and current inflation in its estimates of restrictiveness,'' the analysts added. 

Meanwhile, the Nonfarm Payrolls data will be focal given many Fed members are looking for a cooling in jobs following the hot January numbers of over 500k new jobs. However, if jobs don’t cool sufficiently enough, the markets will likely see that has the green light for a 50bp hike at the March FOMC meeting which would be expected to weigh heavily on the Gold price. ''A return to CTA selling could be in the cards as prices still flirt with a break below the 200dma and key $1,800/oz mark,'' analysts at TD Securities argued. 

Gold price technical analysis

The 200dma is some way off but it is within striking distance depending on the outcome of this week's data and events. A $100.00 move last happened at the start of February (eclipsed in red below) following the European Central Bank and US Nonfarm Payrolls as the major catalysts:

Meanwhile, we have a 78.6% Fibonacci target on the 4-hour chart that meets a volume point of control of the prior bullish impulse (majority of March range) as follows: 

• AUD/USD licks its wounds after a downbeat Monday, amid mixed Aussie trade data.
• Australia Trade Balance eased but Imports, Exports improved in January.
• Dicey markets ahead of top-tier data/events restrict the risk-barometer pair’s moves.
• RBA is up for 0.25% rate hike, Fed Chair Jerome Powell appears before Senate Banking Committee to testify.

AUD/USD prints mild gains to consolidate the week-start losses around 0.6730-35 during early Tuesday. In doing so, the Aussie pair cheers positives from the Australian Exports and Imports while paying a little heed to the downbeat trade surplus. It’s worth noting that the quote remains dicey so far during the day as traders await the key Reserve Bank of Australia (RBA) announcements, as well as the key Testimony from Federal Reserve (Fed) Chairman Jerome Powell.

Australia’s January monthly Trade Balance came in 11,688M versus 12,500M market forecasts and 12,237M previous readings. The details suggest that the Exports reversed the previous -1.0% with 1.0% growth while Imports rose 5.0% from 1.0% previous readings.

In addition to the upbeat Exports and Imports, comments from Aussie Prime Minister Anthony Albanese also seemed to have teased the AUD/USD buyers after a downbeat start to the key week. That said, Australia PM Albanese said earlier in the day, “I believe Australia can avoid a recession.” The policymaker also said that the relationship with China has improved.

Elsewhere, dicey markets ahead of the key RBA and Fed Chair Powell’s announcements join the fears emanating from the likely Sino-American tension, due to the anticipated meeting of the US and Taiwanese Officials, which seem to weigh on the AUD/USD pair.

It should be observed that softer prints of the second-tier US data, including ISM PMIs, Consumer Confidence and Durable Goods Orders joined comments from Atlanta Fed President Raphael Bostic to renew concerns about the policy pivot and weighed on the DXY in the last week, which in turn favored the AUD/USD bulls.

Amid these plays, US 10-year Treasury bond yields initially dropped to a one-week low of 3.897% on Monday before ending the day with mild gains near 3.96%, staying around the same level by the press time. On the same line, the two-year counterpart ended Monday’s North American trading session with 0.60% intraday gains at 4.88%, mostly unchanged at the latest. That said, Wall Street closed mixed and the S&P 500 Futures also struggle for clear directions.

Looking forward, AUD/USD traders may witness disappointment from the RBA if the central bank teases the policy pivot, which is highly expected. As per the market forecasts, the Aussie central bank is up for the likely last 0.25% rate hike during today’s monetary policy meeting.

Following that, China's trade numbers and Fed Chair Powell’s testimony will be crucial to watch. Fed’s Powell appears before the Senate Banking Committee on Tuesday and should defend the US central bank’s hawkish bias to recall the AUD/USD bears.

Technical analysis

AUD/USD remains on the bear’s radar unless crossing the 200-DMA hurdle, around 0.6790 by the press time.

The trade balance released by the Australian Bureau of Statistics is out as follows:

• AUD11688M vs. exp AUD12250M; prev AUD12237M.
• Exports +1% MoM prior -1%.
• Imports +5% MoM vs. the prior +1%.

AUD/USD update

Unchanged at 0.6730 and flat on the day ahead of the Reserve Bank of Australia RBA and the Federal Reserve's chairman testimony to Congress.

 A 25bp hike is an overwhelming consensus for today's RBA. ''The focus will be on any changes to last month’s statement that “the Board expects that further increases in interest rates will be needed over the months ahead”. We’ll also be looking for the RBA’s take on the softer Q4 wage prints and whether these alter its view on the risk of a “price-wage spiral”. But the recent run of softer data won’t be enough to dispel the RBA’s concern that inflation expectations could become entrenched,'' the analysts at ANZ Bank said. 

About the Trade Balance

The trade balance released by the Australian Bureau of Statistics is the difference in the value of its imports and exports of Australian goods. Export data can give an important reflection of Australian growth, while imports provide an indication of domestic demand. Trade Balance gives an early indication of the net export performance. If a steady demand in exchange for Australian exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the AUD.

• WTI is demonstrating a sideways auction ahead of Fed Powell’s testimony for further action.
• China’s lower growth forecast is not spoiling oil bulls’ party.
• Moscow is supplying ore cargoes to the UAE at discounted prices due to international sanctions.

West Texas Intermediate (WTI), futures on NYMEX, is displaying back-and-forth action in the early Asian session. The oil price is oscillating around $80.50 as investors have turned sidelines ahead of Federal Reserve (Fed) chair Jerome Powell’s testimony before Congress. Investors are restricting themselves from making significant positions in the black gold as the guidance on interest rates from Fed Powell will provide cues about the oil demand ahead.

The street is expecting Fed Powell will refrain from sounding hawkish as January’s data was a one-time massive show and the United States economy is still struggling with higher rates from the Fed. However, the hawkish interest rate guidance is still in the picture as the current level of the price index is falling from the desired one.

On Tuesday, the oil inventory data from the US American Petroleum Institute (API) will be keenly watched. It is worth noting that the oil stockpiles data is displaying a huge build-up consecutively for the past three weeks.

Upside bias for the oil price would remain intact as the Vice Chair of China’s National Development and Reform Commission of the People's Republic of China (NDRC) said in a statement on Monday, the economy steadily improving. He further added, “We are confident and capable of reaching this year's CPI target.”

However, the lower growth target by the Chinese administration, this week, failed to uplift the sentiment of market participants. The economy has set a growth target of 5% while the street was expecting a 5.5% growth target.

On the supply front, Reuters reported “The United Arab Emirates (UAE) has been taking more cargoes of Russian crude oil, according to ship tracking data and trading sources, in another example of how Western sanctions on Russia have adjusted traditional energy trade flows. Under a special military operation, Moscow is delivering crude and other related products at discounted prices.

• GBP/JPY remains sidelined after breaking one-month-old ascending support line.
• Receding bullish bias of MACD adds strength to the downside bias.
• 200-day EMA appears the key support; descending trend line from late October strengths 163.80-90 resistance confluence.

GBP/JPY treads water around 163.50 during early Tuesday, following a daily closing beneath the one-month-old support line, now resistance, the previous day. Not only the trend line breakdown but the receding bullish bias of the MACD also keeps the cross-currency pair’s sellers hopeful.

That said, the 200-day Exponential Moving Average (EMA) level of 162.00 appears the short-term key support for the GBP/JPY pair.

However, multiple supports near 161.60, 161.00 and the 160.00 psychological magnet could challenge the bears afterward.

Should the quote remains bearish past 160.00, a two-month-old ascending support line near 159.00 will be crucial to watch for further directions.

On the flip side, the support-turned-resistance line from early February joins a downward-sloping trend line resistance from October 31, 2022, to highlight 163.80-90 as the key upside hurdle. Also acting as the additional filter to the north is the 164.00 round figure.

In a case where the GBP/JPY remains firmer past 164.00, February’s high of near 166.00 could act as the last defense of the pair bears, a break of which could quickly propel the prices towards late 2022 peak surrounding 169.30 before highlighting the 170.00 round figure.

Overall, GBP/JPY is likely to remain on the bear’s radar even if the 200-day EMA probes sellers.

GBP/JPY: Daily chart

Trend: Further downside expected

Markets remain dicey during early Tuesday as traders await the key Testimony from Federal Reserve (Fed) Chairman Jerome Powell, especially due to the challenges for the Fed’s hawkish monetary policy caused by the recently mixed US data and Fed talks.

While the geopolitics and Fed concerns are mixed, the trend from inflation precursors can allow Fed Chair Jerome Powell to defend the hawkish stance and recall the US Dollar buyers.

That said, the US inflation expectations per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) remain firmer around the monthly highs marked the previous day. It’s worth noting, however, that the benchmark inflation precursors eased ahead of the event.

10-year inflation expectations per the aforementioned measure retreated to 2.49% by the end of Monday’s North American trading session, after refreshing a four-month high to 2.52%. on Friday.

On the same line, the five-year US inflation expectations rose to the highest levels since late October 2022 on Friday before easing to 2.70% on Monday.

Also read: Forex Today: Markets remain choppy as Powell takes centre stage