Forex-novosti i prognoze od 08-03-2023

• Silver price stabilizes after sliding close to 5% on Tuesday.
• XAG/USD Price Analysis: To resume its downward bias after dropping below $21.00.

Silver price reached a multi-month low of around $19.92, but buyers stepped in, dragging the XAG/USD price above the $20.00 figure.

Wall Street finished the session mixed. The US Federal Reserve Chair Jerome Powell rattled the US equities market after commenting that to testify against the US Congress with a consistent hawkish tone. Therefore, the US Dollar (USD) consolidates yesterday’s gains, as shown by the US Dollar Index up 0.09%, at 105.710.

XAG/USD Price Action

After dropping almost 5% on Tuesday, the XAG/USD collapse appears to have found a temporal bottom. The XAG/USD printed a new YTD low at $19.92. Wednesday’s price action formed a doji, indicating that buyers and sellers are at equilibrium. The Relative Strength Index (RSI) is at oversold conditions as sellers take a breather, while the Rate of Change (RoC) suggests that sellers are gathering momentum.

If the XAG/USD tumbles below the YTD low at $19.92, the next line of defense for XAG bulls would be $19.00, ahead of sliding toward November’s 3 low at $18.84.

In an alternate scenario, the XAG/USD first resistance would be February’s 28 daily low turned resistance at $20.43. A breach of the latter will clear the pave toward March’s 2 low at $20.68, before testing the $21.00 psychological level.

XAG/USD Daily chart

XAG/USD Technical levels

Japan's Gross Domestic Product has been released by the Cabinet Office as follows:

• Japanese GDP Annualised SA (QoQ) Q4 F: 0.1% (exp 0.8%; prev 0.6%).
• GDP SA (Q/Q) Q4 F: 0.0% (exp 0.2%; prev 0.2%).
• GDP Nominal SA (QoQ) Q4 F: 1.2% (exp 1.3%; prev 1.3%) .

USD/JPY is flat and hovers around 137.20 while the US Dollar paused its advance following Federal Reserve Jerome Powell's second day on Capitol Hill where he repeated his hawkish message that key interest rates could be raised faster than previously anticipated.

About Japan's Gross Domestic Product

The Gross Domestic Product released by the Cabinet Office shows the monetary value of all the goods, services and structures produced in Japan within a given period of time. GDP is a gross measure of market activity because it indicates the pace at which the Japanese economy is growing or decreasing. A high reading or a better than expected number is seen as positive for the JPY, while a low reading is negative.

US president Joe Biden and EU's Ursula Von der Leyen are expected to agree on Friday to work toward a trade deal and it is said the US will give the EUR a free-trade agreement-like status.

More to come...

• GBP/JPY is marching towards 163.00 on expectations of a dovish BoJ policy.
• According to a Reuters poll, the BoJ will tweak its YCC in April-June.
• It is expected that UK’s Manufacturing sector has contracted in January.

The GBP/JPY pair has witnessed a mild correction after a perpendicular upside move to near 162.80 in the early Asian session. The cross is approaching the critical resistance of 163.00 as investors are expecting the maintenance of ultra-loose monetary policy by the Bank of Japan (BoJ), which is scheduled for Friday.

BoJ Governor Nominee Kazuo Ueda has already confirmed that current inflationary pressures in Japan are backed by higher import prices. Japan’s labor cost index is still struggling to get on its feet and contribute to overall inflation. Also, domestic demand is insufficient to fuel the Consumer Price Index (CPI). Therefore, BoJ Ueda favored for the continuation of expansionary monetary policy.

The last monetary policy dictation by BoJ Governor Haruhiko Kuroda is expected to have an absence of a roadmap for an exit from prolonged easy policy.

According to a Reuters poll, April’s monetary policy, the first one by BoJ Ueda will be full of surprises. A Reuters poll indicates BoJ will start unwinding its ultra-easy policy in April. Also, the market participants are expecting further tweaks in the Yield Curve Control (YCC) in April-June.

Going forward, Japan’s Gross Domestic Product (GDP) (Q4) data will be keenly watched. The quarterly GDP is expected to remain steady at 0.2%. While the annualized figure is expected to improve to 0.8% from the former release of 0.6%.

On the United Kingdom front, investors are awaiting the release of the manufacturing sector data, scheduled for Friday. Monthly Manufacturing production (Jan) is expected to contract by 0.1% and the Industrial Production is seen contracting by 0.2% in the same period.

Dovish commentary from Bank of England (BoE) policy maker Swati Dhingra could put the Pound Sterling on the tenterhooks. BoE Dhingra has warned against further interest rate increases by citing “Overtightening poses a more material risk at this point.” She further added, “Many tightening effects are yet to fully take hold.”

Britain’s finance ministry said on Wednesday it will launch a review into how investor research on companies could be improved to attract more listings, a step that follows a decision by UK chip designer Arm Ltd to only list in New York, reported Reuters.

The Ministry also mentioned that the Investment Research Review will be launched next Monday and chaired by Rachel Kent, a veteran financial services lawyer at Hogan Lovells, who will report back to City minister Andrew Griffith within three months.

Also read: BCC: UK to avoid recession this year but outlook still weak

Key quotes

GBP/USD stays pressured

The news fails to improve the Cable’s conditions amid a light calendar in Asia. That said, the quote remains depressed near 1.1850 as the US Dollar bulls occupy the driver’s seat.

Also read: GBP/USD retreats from 1.1850 as risk-off mood rebounds amid tight US labor market

• US Dollar Index retreats from three-month high within an ascending trend channel from February.
• Sour-sentiment, 100-DMA and upbeat oscillators allow DXY bulls to stay hopeful.
• 200-DMA acts as an extra filter to the north; bears need validation from 104.30.

US Dollar Index (DXY) grinds near the highest levels since early December 2022, making rounds to 105.65-70 during early Thursday. In doing so, the greenback’s gauge versus the six major currencies remains inside a one-month-old bullish channel, as well as keeping the previous day’s corrective bounce off the 100-DMA.

Apart from the 100-DMA support, the bullish MACD signals also keep the DXY buyers hopeful. However, the RSI (14) line approaches the overbought territory as the US Dollar Index (DXY) nears the aforementioned trend channel’s top line, close to 106.15, which in turn suggests limited upside room for the greenback’s gauge.

Adding strength to the 106.15 hurdle is the 38.2% Fibonacci retracement level of the DXY’s fall from the last September to the previous month.

Even if the quote crosses the 106.15 resistance confluence, the 200-DMA hurdle surrounding 106.70 appears a tough nut to crack for the US Dollar Index bulls.

On the flip side, a clear break of the 100-DMA support of 105.25 isn’t an open invitation to the DXY bears as the previously mentioned bullish channel’s support line could test the quote’s further downside near 104.30.

In a case where the DXY remains bearish past 104.30, the odds of witnessing a slump toward the previous monthly low of 100.80 can’t be ruled out.

US Dollar Index: Daily chart

Trend: Limited upside expected

• AUD/JPY remains depressed around six-week low, fading the previous day’s corrective bounce.
• Sour sentiment joins pre-data anxiety to weigh on the risk barometer pair.
• Dovish comments from RBA’s Lowe, hopes of an end to BoJ’s ultra-easy monetary policy weigh on prices.
• Japan’s final readings of Q4 GDP, China inflation data for February will be crucial for immediate direction.

AUD/JPY renews its intraday low near 90.45 while posting mild losses on a day during the early hours of Thursday morning in Asia. In doing so, the cross-currency pair portrays the dicey markets ahead of the key data/events.

Traders appear cautious amid fears of the Bank of Japan’s (BoJ) exit from its multi-year low ultra-easy monetary policy once Haruhiko Kuroda bid adieu in April. On the same line are the dovish expectations from the Reserve Bank of Australia (RBA), mainly after downbeat comments from RBA Governor Philip Low.

On Wednesday, RBA’s Lowe said that the RBA 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. It should be noted that Lowe also mentioned, “China reopening is positive for our economy,” while also adding that no particular implications for inflation from China reopening.

On the other hand, BoJ announced one more unplanned bond market move and teased readiness for a hawkish stunt after April. That said, Reuters’ poll mentioned, "The Bank of Japan (BoJ) will end its long-term yield control policy this year." The  February 28 to March 6 survey of 26 respondents also anticipated that academic Kazuo Ueda's new leadership will dismantle the complex easing scheme and restore bond market functionality.

Elsewhere, the US removed testing restrictions on travelers from China and joined a light calendar to allow the traders to lick their wounds after a volatile Tuesday.

Amid these plays, Wall Street closed mixed and the US Treasury bond yields remained firmer with minor moves and keeping the yield curve inversion the widest since 1981.

Looking ahead, the final readings of Japan’s fourth quarter (Q4) Gross Domestic Product (GDP), expected to confirm the 0.2% QoQ initial estimate, will join China’s monthly Consumer Price Index (CPI) and the Producer Price Index (PPI) for February to direct immediate AUD/JPY moves. Above all, risk catalysts are the key for cross-currency pair traders to watch for clear directions.

Technical analysis

A 1.5-month-old horizontal support zone near 90.25-15 precedes an ascending support line from early January, close to 90.10, as well as the 90.00 round figure, to challenge immediate AUD/JPY downside.

• USD/CHF is constantly auctioning above 0.9400 and is expected to extend its upside journey amid the overall risk-off mood.
• The upside bias for the USD index is intact amid expectations of more resilience in the US labor market.
• An increase in US Average Hourly Earnings data might fuel inflationary pressures ahead.

The USD/CHF pair is holding its auction above the critical support of 0.9400 in the early Asian session. The Swiss Franc asset is expected to resume its upside journey later as solid United States labor market data indicates that the fears of persistent inflation in the sentiment of Federal Reserve (Fed) policymakers are real and bigger rates are in pipeline to squeeze galloping inflation.

S&P500 futures settled Wednesday’s session with modest gains despite mounting recession fears in the United States on expectations that the Federal Reserve (Fed) is considering a higher terminal rate due to renewed fears of a higher Consumer Price Index (CPI). The US Dollar Index (DXY) has shifted into a volatility contraction phase and the upside bias is still intact amid expectations of more resilience in the labor market.

Meanwhile, the overall risk-aversion theme has failed to infuse fresh blood into the US Treasury yields. The alpha delivered on 10-year US Treasury bonds has failed to sustain above 4.0%.

Fed chair Jerome Powell continued his hawkish remarks on Wednesday citing "Costs of not getting inflation down will be extremely high." He further added, "Costs of failure to control inflation would be much higher than costs of controlling it." Fed’s Powell also discussed the positive impact of China’s reopening to the prices of commodities, which will also propel price pressures. However, the reopening measures will also trim supply chain disruptions.

After an upbeat US Automatic Data Processing (ADP) Employment Change data, investors are shifting their focus toward US Nonfarm Payrolls (NFP) data, which is scheduled for Friday. The economic data is seen at 203K lower than the former bumper release of 517K. The Unemployment Rate is seen steady at 3.4%. Investors would be worried about Average Hourly Earnings data, which is expected to increase to 4.8% vs. the prior release of 4.4% on an annual basis.

On the Swiss Franc front, Swiss National Bank (SNB) Chairman Thomas J. Jordan stated the inflation in Switzerland is low in international comparison but above the handling capacity of the SNB. He further explained that the appreciation of the Swiss Franc has protected them from imported inflation.

“The country's economy is on track to shrink less than expected this year and avoid the two quarters of negative growth which mark a technical recession,” the British Chambers of Commerce (BCC) forecast on Wednesday per Reuters.

Key findings

Also read: GBP/USD retreats from 1.1850 as risk-off mood rebounds amid tight US labor market

• NZD/USD fades bounce off the lowest levels since late November 2022 inside one-month-old descending trend channel.
• Failure to cross previous support line from early January, bearish MACD signals keep sellers hopeful.
• Recovery remains elusive below 200-SMA, 0.6215-20 acts as an additional upside filter.

NZD/USD retreat towards the multi-day low marked the previous day while staying with a one-month-old descending trend channel, pressured around 0.6105 during the early Thursday morning in the Asia-Pacific zone.

In doing so, the Kiwi pair portrays the inability to cross the two-month-long previous support line, now immediate resistance near 0.6130. Adding strength to the downside bias are the bearish MACD signals.

It’s worth noting, however, that the lower line of the aforementioned bearish channel, around 0.6070 by the press time, as well as the lows marked during mid-November 2022 near 0.6060, can act as crucial supports to watch during the NZD/USD pair’s further downside.

Should the Kiwi pair remains bearish past 0.6060, the odds of witnessing a slump toward the 0.6000 psychological magnet can’t be ruled out.

Alternatively, recovery moves remain elusive unless the quote stays below the support-turned-resistance line near 0.6130.

Even so, a convergence of the 100-SMA and the stated channel’s top line, close to 0.6215-20 at the latest, will be important for the NZD/USD buyers to break before retaking control.

Above all, the Kiwi pair remains on the bear’s radar unless it successfully trades above the 200-SMA hurdle surrounding 0.6315.

NZD/USD: Four-hour chart

Trend: Further downside expected

• GBP/USD has sensed selling interest after a less confident recovery to near 1.1850 amid the risk-off mood.
• Fed’s Powell has reiterated the need for bigger rates to bring down persistent US inflation.
• BoE Dhingra cited that overtightening poses a more material risk at this point.

The GBP/USD pair is observing selling pressure around 1.1850 in the early Tokyo session after remaining sideways on Wednesday. The Cable might deliver sheer losses after surrendering the immediate support of 1.1800. The downside bias for the Cable looks favored as Federal Reserve (Fed) chair Jerome Powell has reiterated the need for bigger rates to bring down persistent United States inflation.

S&P500 futures are showing modest gains, however, the recovery move looks less confident, which could be capitalized as a selling opportunity by the market participants. The US Dollar Index (DXY) settled above 105.20 after a volatile day inspired by upbeat United States Employment data reported by Automatic Data Processing (ADP) agency.

The release of the fresh payrolls addition at 242K vs. the consensus of 200K and the prior release of 119K has confirmed that the US labor market is extremely tight and investors should be prepared to face the extreme stubbornness of inflation. It is highly expected that firms will offer higher wages to fetch talent onboard amid a shortage of labor. This will deliver more funds to households for disposal, which will increase resilience in overall consumer spending.

Also, upbeat Job Openings data added fuel to the fire. The economic data landed at 10.824 million vs. the consensus of 10.6K. Higher job openings demonstrate the overall demand, which is going to propel the Consumer Price Index (CPI).

Later this week, the official labor market data will be keenly watched by the street. As per the estimates, the US Nonfarm Payrolls (NFP) (Feb) is expected to land at 203K lower than the former bumper release of 517K.

On the United Kingdom front, falling odds of more restrictive monetary policy is expected to keep the Pound Sterling on the tenterhooks. Bank of England (BoE) policy maker Swati Dhingra warned against further interest rate increases by citing “Overtightening poses a more material risk at this point.” She further added, “Many tightening effects are yet to fully take hold.”

• EUR/USD has carved out an M-formation with a 50% mean reversion eyed.
• 1.0520 guards 1.0480 while bulls will need to get above 1.06 to open risk to 1.0700.

EUR/USD was little changed at 1.0547 but it fell to 1.0524 was trading just above this year's low of 1.04820 reached on Jan. 6. after Federal Reserve Chairman Jerome Powell offered no major surprises on his second day of testimony before Congress and as investors waited for jobs data on Friday.

The Fed's decisions will be hinging on data to be issued before the US central bank's policy meeting in two weeks which makes this week's US nonfarm Payrolls event key for EUR/USD. The price is rested above key structural support ahead of the event as the following illustrates:

EUR/USD daily charts

The price has carved out an M-formation which is a pattern that tends to see a retest of the neckline near a 50% mean reversion in this particular case.  1.0520 guards 1.0480 while bulls will need to get above 1.06 to open risk to 1.0700.

• AUD/USD reverses early Wednesday’s corrective bounce, remains pressured at four-month low.
• Sour sentiment, dovish comments from RBA’s Lowe joined upbeat US data to weigh on Aussie price.
• Inactive markets restrict AUD/USD moves ahead of key data.
• China CPI/PPI can entertain traders before Friday’s US jobs report.

AUD/USD holds its place on the bear’s radar, after an initial attempt to leave the zone, as it stays depressed near 0.6590 amid early Thursday morning in Asia.

The Aussie pair tried paring weekly losses at the lowest levels in four months during early Wednesday amid sluggish markets. However, dovish comments from Reserve Bank of Australia (RBA) Governor Philip Lowe joined upbeat US data and repetition of the hawkish statements from Federal Reserve Chairman Jerome Powell confirmed the bear’s dominance. It should be noted that the cautious mood ahead of today’s China inflation numbers seems to probe the risk barometer, due to its ties with the dragon nation.

On early Wednesday, the US removed testing restrictions on the travelers from China and joined a light calendar to allow the traders to lick their wounds after a volatile Tuesday. However, RBA’s Lowe said that the RBA 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. It should be noted that Lowe also mentioned, “China reopening is positive for our economy,” while also adding that no particular implications for inflation from China reopening.

Elsewhere, Fed’s Powell repeated his hawkish calls of readiness to lift the rate while highlighting stronger-than-expected inflation pressure. The same bolstered calls for the Fed’s 50 bps rate hike but the Testimony 2.0 didn’t have anything new from what’s already heard on Tuesday and hence traders were mostly afraid of taking any major steps.

Talking about the data, the US ADP Employment Change rose to 242K in February versus 200K market forecasts and 119K prior (revised). Further, the US Goods and Services Trade Balance dropped to $-68.3B from the $-67.2B previous reading (revised) and $-68.9B analysts’ estimations. It should be noted that the US JOLTS Job Openings for January improved to 10.824M versus 10.6M expected but eased from 11.234M revised prior.

Against this backdrop, Wall Street closed mixed and the US Treasury bond yields remained firmer with minor moves and keeping the yield curve inversion the widest since 1981, which in turn allowed the US Dollar Index (DXY) to remain firmer.

Looking ahead, China’s monthly Consumer Price Index (CPI) and the Producer Price Index (PPI) for February will be important after the latest improvements in the Aussie-China ties. However, RBA’s Lowe has already mentioned no effects of the inflation emanating from China reopening on Canberra and the same could weigh on the AUD/USD in case of a downbeat outcome. Above all, Friday’s US Nonfarm Payrolls are the key to clear directions.

Technical analysis

AUD/USD sellers appear to run out of steam amid oversold RSI (14) conditions. With this, the 0.6540-20 support zone, marked during September-November 2022, gains major attention. The recovery moves, however, remain elusive unless the quote offers a daily closing beyond the one-month-old descending trend line, previous support around 0.6615.

• USD/CAD has jumped above 1.3800 as hawkish Fed bets have strengthened the risk-off mood.
• The Canadian Dollar has been impacted by steady BoC policy and lower oil prices.
• An upbeat US ADP Employment data indicates an extension in the inflationary pressures.

The USD/CAD pair has scaled above the round-level resistance of 1.3800 in the early Asian session. The Lonnie asset has been strengthened further by unchanged monetary policy by the Bank of Canada (BoC) and hawkish remarks from Federal Reserve (Fed) chair Jerome Powell in his testimony before Congress.

S&P500 futures have shown a modest recovery but the recovery move looks insufficient in considering a decent improvement in the risk appetite of the market participants. The 10-year US Treasury yields dropped below 4.0%.

The US Dollar Index (DXY) is demonstrating volatility contraction after some volatile moves inspired by better-than-anticipated United States Employment data reported by Automatic Data Processing (ADP) agency. The economic data landed at 242K, higher than the expectations of 200K and the former release of 119K. Also, the job openings data soared to 10.824 million vs. the consensus of 10.6K. A follow-up solid labor market data indicates that the US inflation is expected to be sticky further as upbeat demand for talent will be offset by higher wages offered.

Fed’s Powell reiterated on Wednesday that the “Fed is prepared to increase the pace of interest rate hikes” to help inflation return to the 2% target. This kept the US Dollar bulls at the driving seat.

On the Canadian Dollar front, as expected the BoC Governor Tiff Macklem announced an unchanged interest rate policy. A steady interest rate decision by the BoC was highly expected as BoC’s Macklem already announced a pause in the policy tightening spell in January’s monetary policy meeting. The central bank believes that the current monetary policy is restrictive enough to tame Canada’s sticky inflation.

Meanwhile, oil prices have trimmed further amid deepening demand worries as the Fed sounds extremely hawkish on the interest rate guidance. It is worth noting that Canada is a leading exporter of oil to the United States and lower oil prices will impact the Canadian Dollar.

• WTI has dropped in the last two days 3% on speculations about future Federal Reserve rate hikes.
• US crude oil inventories dropped, putting a lid on WTI’s fall.
• WTI Price Analysis: Further downside is expected below $74.00.

Western Texas Intermediate (WTI), the US crude oil benchmark, falls 0.93% as Federal Reserve’s (Fed) Chair Jerome Powell’s two-day testify in the US Congress ended. The aftermath leaves the US Dollar (USD) gaining, US Treasury bond yields up, and speculations for a 50 bps rate hike at the Fed’s upcoming meeting looming. At the time of typing, WTI is trading at $76.44 PB.

Oil prices extended its losses based on hawkish commentary by Fed Chief Jerome Powell, who said that rates would peak higher than expected and at a faster pace if needed. The greenback appreciated sharply and jumped more than 1%, spurring WTI’s 3% fall.

US crude oil inventories fell 1.7 million last week, exceeding estimates for a 395K drop, according to the US Energy Information Administration (EIA) agency.

Oil demand is expected to increase based on China’s reopening. Barclays lowered its WTI forecast from $94.00 a barrel to $87.00. “(We) expect the continued recovery in civil aviation demand in China and neighboring countries, a stabilization in industrial activity, and slower non-OPEC+ supply growth to drive the oil market balance into a deficit later this year,” Barclays analysts added.

At a Houston meeting, oil officials discussed how tight the supply was. Angola’s oil and gas chief said OPEC did not have to raise production to compensate for Russia’s half-a-million-barrel-per-day reduction.

WTI Technical analysis

WTI consolidates at around the $74.00-$78.00 range, with the 20 and 50-day Exponential Moving Averages (EMAs) overlapping against each other. Contrarily, the 100 and 200-day EMAs, at 80.31 and 83.90, respectively, hover above WTI’s spot price, maintaining the bias tilted downwards. Traders should know that the Relative Strength Index (RSI) shifted bearish while the Rate of Change (RoC) followed suit.

For a bearish continuation, WTI needs to clear $74.00. Once done, the next support would be the February 22 daily low at 73.83, followed by the February 6 low at 72.30, before testing the YTD low of $70.10. Conversely, WTI needs to clear the $77.51-$78.03 area, the confluence of the 20/50-day EMAs. A breach of that area will expose the 100-day EMA at $80.31.

• Gold bears remain in play while below key resistance and eye a break of $1,800.
• US jobs market data is eyed as next key catalyst. 

Gold prices fell for a second day on Wednesday although markets stabilised following yesterday’s rout as traders await the February Nonfarm Payrolls this week and Consumer Price Index data next week. at the time of writing, Gold price is flat near $1,1814 and has traded between $1,809.42 and $1,824.30.

Fed Chair Powell’s remarks in his repeat testimony to the House Financial Service Committee were that the Fed is data dependent, and no decision has been made yet about the size of a March hike, analysts at ANZ Bank said.  ''This helped to calm price action, despite the fact that Powell’s assessment is that the Fed has underestimated the resilience of growth and inflation recently. Ahead of the March interest rate decision, Powell noted that the Fed will be watching JOLTS, CPI, PPI and the labour market report,'' they said, adding, ''we think it will require much weaker data for the FOMC to step back from Powell’s more hawkish assessment of the landscape.''

Meanwhile, Gold price is heavy due to the DXY Dollar index rising to the highest since December after Fed's Powell said in Tuesday's Senate testimony that the US economy is shrugging off higher interest rates and emphasised that the Fed was ready to raise rates higher and faster to slow growth and lower inflation. The ICE dollar index was last seen printing 105.66, making gold more expensive for international buyers. Bond yields were also higher, bearish for the metal since it offers no interest. The US 10-year note was last seen paying 3.979%. 

US Nonfarm Payrolls eyed

As for the Nonfarm Payrolls, markets anticipate a still firm pace in Feb after an unexpected 517k surge in Jan and the UE rate to stay unchanged at 3.4% with wage growth printing another strong 0.4% for the month. In a deeper dive, analysts at ANZ bank said that ''last year, the US economy created 4.8m nonfarm payroll jobs. In the 2010s, the average annual jobs creation was 2.2m. Returning jobs growth to that historical average pace requires monthly jobs growth to slow to just 180k. Even that may still be too strong for inflation to return to 2.0% given ongoing labour supply issues,'' the analysts explained. ''The CBO estimates that the increase in the workforce this year will be 1.2m, and 1.1m in 2024. This would suggest that balancing the labour market requires average monthly jobs growth of 100k or less. Given strong labour market demand, such projections by the CBO imply the scarcity of skilled workers will continue, firms will continue to hoard labour and unemployment may remain at current lows. That just means a more hawkish Fed.''

Gold technical analysis

As for the technical outlook, analysts at TD Securities said, ''a potential break below the $1806/oz level would serve as the next trigger to see trend followers modestly reduce their positions.''

It was explained in the Chart of the Week article, Gold, the Chart of the Week: XAU/USD bulls ride H4 dynamic support on key week ahead that the Gold price was riding dynamic support that would be expected to hold initial tests ''but a break thereof opens the risk of a move to test the $1,825 all-important support structure. A break there will most probably see a flurry of orders triggered and a fast subsequent move lower.'' 

As illustrated above, we have seen that break happen which leaves $1,800 vulnerable and the $1,770s.

Here is what you need to know on Thursday, March 9: 

It the second day of testimony, FOMC Chairman Jerome Powell did not surprise markets, after he left the door wide open to a 50 basis points rate hike at the March meeting, and the US Dollar jumped to monthly highs. After a brief retreat on Wednesday, the Greenback erased losses. If Dollar’s momentum holds, a test of the recent highs during the Asian session seems likely. China will report inflation, and Japan a new estimate of Q4 GDP. 
In the US, Automatic Data Processing (ADP) reported that private sector employment rose by 242K in February, surpassing expectations of 200K. The US Bureau of Labor Statistics (BLS) revealed that January job openings reached 10.8 million, slightly higher than the market expectation of 10.6 million. The numbers continue to show a tight labor market, helping the US Dollar and supporting Fed’s hawkish tone. On Thursday, the weekly Jobless Claims report is due. Market participants await the Nonfarm payrolls on Friday and next week’s Consumer Price Index. 

Markets stabilized somewhat following Tuesday’s sell-off, but risk aversion dominates. US Treasury yields moved in tandem with the US Dollar, falling and then rebounding toward Tuesday’s highs. The US 10-year yield settled around 3.97%, and the 2-year rose back above 5%. 

EUR/USD rose to 1.0575, only to decline later below 1.0550. Despite mixed data from the Eurozone, market participants are looking to a higher terminal rate from the European Central Bank, supporting the Euro. 

GBP/USD remains under pressure, although it holds near, but above, the critical 1.1800 area. EUR/GBP is hovering around 0.8900. Bank of England’s Swati Dhingra called for a no change in interest rates.

USD/JPY posted a close above 137.00 but, at the same time, far from the daily high and below the 200-day Simple Moving Average. On Friday, the Bank of Japan will announce its decision on monetary policy. 

The Bank of Canada kept interest rates unchanged and signaled it will continue on pause. As a result, the Loonie fell across the board. USD/CAD rose to four-month highs above 1.3800. 

Reserve Bank of Australia Governor Philip Lowe said the central bank will be guided by incoming data to decide on another hike or a pause at the next monetary policy meeting. His comments echoed Tuesday’s monetary policy meeting. AUD/USD rebounded after hitting a fresh four-month low; however, it failed to hold above 0.6600 and remains under pressure.

Gold showed a strong negative correlation to Treasury yields and the DXY. XAU/USD remained above the critical $1,800, unable to stage a recovery. Silver settled around $20.00 after testing levels below that psychological mark. 

Gold Price Forecast: Bulls losing the battle, $1,800 at sight

Crude oil prices kept going south, hitting fresh weekly lows. Cryptocurrencies oscillated between gains and losses on Wednesday. Bitcoin is moving around $22,000, while Ethereum around $1,560. 

Reuters reported on the Federal Reserve's Beige Book and noted that the report said that the US economic activity increased slightly from January through late February and price increases remained widespread, but businesses reported a moderation in inflation that they expect to continue this year.

• This report was prepared at the federal reserve bank of new york based on information collected on or before February 27, 2023. 
• Overall economic activity increased slightly in early 2023.
• Inflationary pressures remained widespread, though price increases moderated in many districts.
• Amid heightened uncertainty, contacts did not expect economic conditions to improve much in the months ahead.
• Six districts reported little or no change in economic activity since the last report, while six indicated economic activity expanded at a modest pace.
• On balance, loan demand declined, credit standards tightened, and delinquency rates edged up.

US Dollar update

The US dollar was steady near 105.70 as per the DXY index following the release but it was down from three-month highs reached earlier on Wednesday after Federal Reserve Chairman Jerome Powell offered no major surprises on his second day of testimony before Congress. eyes are now on the US Nonfarm Payrolls at the end of the week. 

• AUD/USD bears stay in charge with eyes on a downside extension.
• The pair have made a correction and bears have moved in again. 

As per the prior analysis, AUD/USD falls heavily as bears move in towards the 0.6580s target area, AUD/USD moved in on the target and holds within the region with a bearish bias ahead of the US Nonfarm Payrolls this Friday.

AUD/USD H4 & H1 charts

Prior analysis:

AUD/USD update

AUD/USD has already made a recovery that came in close contact with the 38.2% ratio which leaves prospects of a move to the downside with 0.6520 eyed. 

• USD/CHF is almost flat, retraces 0.04% at around 0.9410s.
• A USD/CHF bullish continuation would trigger if the major cracks the 200-day EMA, with 0.9500 up for grabs.
• Otherwise, the USD/CHF falling below 0.9400 will expose the 100-day EMA.

The USD/CHF is firm above 0.9400, shy of the 200-day Exponential Moving Average (EMA), after rallying 1.21% on Tuesday. Also, it’s forming a doji around current exchange rates, trading at 0.9414 at the time of typing.

Wall Street continues to trade with losses. The US Federal Reserve Chair Jerome Powell continues to testify against the US Congress with a consistent hawkish tone. Therefore, the US Dollar (USD) consolidates yesterday’s gains, as shown by the US Dollar Index up 0.09%, at 105.710.

USD/CHF Price action

The USD/CHF remains sideways, trapped within the 100 and the 200-day EMAs, at 0.9384 and 0.9449, respectively. The Relative Strength Index (RSI) turned bullish, aimed north on Tuesday, indicating buyers are moving in. However, as of late turned flat, consistent with the USD/CHF price action. The Rate of Change (RoC) portrays buyers taking a breather before attempting to attack the 200-day EMA.

If the USD/CHF resumes upwards, the first resistance would be the 200-day EMA. A breach of the latter will send the pair rallying toward 0.9500. Once buyers reclaimed the 0.95 figure, the seller’s following line of defense would be the November 30 daily high at 0.9547. That could pave the way towards the November 21 high at 0.9598 before challenging 0.9600.

As an alternate scenario, the USD/CHF first demand area would be the 0.9400 psychological barriers, followed by the 100-day EMA at 0.9384. Once cleared, sellers could drag prices toward the 20-day EMA at 0.9331.

USD/CHF Daily chart

USD/CHF Technical levels

• NZD/USD consolidates the US Dollar's strength and sits at key support
• The Kiwi is tucked in below horizontal and trendline resistance that has a confluence with the 38.2% ratio.

NZD/USD is flat on the day during the late lunch hour of the US session with the US Dollar's rally slowing up after reaching 105.88 vs. a basket of currencies, the highest since December 1. NZD/USD has ranged between a low of 0.6084 and 0.6137 thus far.

On Tuesday, Fed's chairman surprised markets with a more hawkish rate outlook by saying that the board would likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the "totality" of incoming information suggests tougher measures are needed to control inflation.

This has led the Fed funds futures markets to price in a 66% probability of a 50 basis-point hike at the Fed’s March 21-22 meeting, up from around 22% before Powell spoke on Tuesday. The rate is now expected to peak at 5.62% in September. ''Looking ahead, 25 bp hikes in May and June are priced in that would take Fed Funds to 5.50-5.75%, with nearly 30% odds of a last 25 bp hike in Q3 that would move the range up to 5.75-6.0%,'' analysts at Brown Brothers Harriman said.

''After all this, an easing cycle is still expected to begin in Q4, albeit at much lower odds.  Eventually, it should be totally and unequivocally priced out into 2024 during the next stage of Fed repricing. For now, we believe the uptrends in US yields and the dollar remain intact,'' the analysts added.

Looking ahead, investors are now focused on February jobs data in Nonfarm Payrolls that is due on Friday. ''US payrolls likely mean-reverted to a still firm pace in Feb after an unexpected 517k surge in Jan. We also look for the UE rate to stay unchanged at 3.4%, and wage growth to print a strong 0.4% MoM,'' analysts at TD Securities said.

RBNZ outlook

Meanwhile, analysts at ANZ Bank said that they continue to see the reserve Bank of New Zealand hiking the OCR to a peak of 5.25% by May 2023, and holding it there until at least the end of 2024. ''But the tight labour market and uncertain cyclone impacts represent upside risks to the outlook for both inflation and the OCR.''

NZD/USD technical analysis

NZD/USD is tucked in below horizontal and trendline resistance that has a confluence with the 38.2% ratio with prospects of a firmer correction as it holds in support near 0.61 the figure. 

• EUR/USD meanders slightly above the 200-day EMA, a magnet for EUR/USD bears.
• Hotter-than-expected US labor market data warrants further rate hikes by the Fed.
• ECB’s policymakers split by tightening aggressively or gradually.
• EUR/USD Price Analysis: If the pair tumbles below the 200-DMA, that would pave the way towards 1.0400.

EUR/USD remains unchanged at 1.0545, below the 200-day Exponential Moving Average (EMA) as Fed Chair Jerome Powell testifies before the US Congress. Meanwhile, US equities continued to fluctuate, portraying a mixed sentiment, while the US Dollar turned positive. At the time of writing, the EUR/USD is trading at 1.0545.

EUR/USD stays firm around familiar levels amidst the lack of a catalyst

The EUR/USD has failed to gain traction either way after US economic data backed the latest commentaries by Jerome Powell. Although January’s JOLTs report showed a decrease In openings at 10.8M, it exceeded estimates of 10.5M.

Earlier, the February US ADP Employment Change report revealed that the US private sector added 242,000 jobs, more than the expected 200,000. That said, figures from both reports reinforced what Federal Reserve officials have commented about a tight labor market, which would warrant further tightening by the Federal Reserve. That could weigh on the Euro (EUR); therefore, a further downside in the EUR/USD is expected.

Before Wall Street opened, the Richmond Fed President Thomas Barkin commented that inflation is still high and that the Fed stills have work to do. Later at the US House of Representatives, Fed Chief Jerome Powell said that the Fed had not decided yet about the upcoming March meeting. Powell added that China’s reopening could spur another round of inflation due to higher commodity prices.

In the Euro area (EU), European Central Bank (ECB) policymakers have remained hawkish. Earlier in the week, ECB’s Knot said that the central bank needs to keep hiking rates for some time, echoing Robert Holzmann’s words to raise rates by 50 bps due to stubborn inflation.

Ignazio Visco, ECB’s Governing Council (GC) member, commented that monetary policy must remain cautious and driven by economic data, favoring gradual rate increases. In the meantime, an ECB survey showed that EU consumers expect inflation to moderate and wages to rise. Meanwhile, Citigroup expects the ECB to raise rates to 4% by mid-2023.

EUR/USD Technical levels

The EUR/USD is neutral biased, though about to test the 200-day EMA. Tuesday’s fall below the 100-day EMA at 1.0554 exacerbated a fall toward the 200-day EMA, viewed as a trendsetter level for EUR/USD traders. A decisive break below 1.0536, the 200-day EMA would accelerate the EUR/USD pair fall toward 1.0500. Once cleared, the following support would be the YTD low at 1.0482, followed by the November 30 low at 1.0290.

What to watch?

• US Dollar dips modestly from three-month highs.
• USD/JPY sits tight as investors now focus on February jobs data in Nonfarm Payrolls.

USD/JPY is flat near 137 the figure and within the day's range of between 136.47 and 137.91 while the greenback dips modestly from three-month highs reached earlier on Wednesday following Federal Reserve Chairman Jerome Powell on Tuesday.

The US Dollar index, DXY,  was reaching 105.88, the highest since Dec. 1 as the Fed chair surprised markets with a more hawkish rate outlook. Powell said that the Fed will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the "totality" of incoming information suggests tougher measures are needed to control inflation.

This has led the Fed funds futures markets to price in a 66% probability of a 50 basis-point hike at the Fed’s March 21-22 meeting, up from around 22% before Powell spoke on Tuesday. The rate is now expected to peak at 5.62% in September. ''Looking ahead, 25 bp hikes in May and June are priced in that would take Fed Funds to 5.50-5.75%, with nearly 30% odds of a last 25 bp hike in Q3 that would move the range up to 5.75-6.0%,'' analysts at Brown Brothers Harriman said.

''After all this, an easing cycle is still expected to begin in Q4, albeit at much lower odds.  Eventually, it should be totally and unequivocally priced out into 2024 during the next stage of Fed repricing. For now, we believe the uptrends in US yields and the dollar remain intact,'' the analysts added.

Looking ahead, investors are now focused on February jobs data in Nonfarm Payrolls that is due on Friday. Another 280k increase would be unambiguously strong following a 517k increase in January, analysts at Societe Generale said. ''There is room for potentially greater giveback on the January  increase, which was likely aided by warm weather. We see readings above a 150,000-175,000  threshold as strong, since over time such a pace would contribute to further declines in the unemployment rate.''

On Wednesday, the Bank of Canada (BoC), as expected kept its key interest rate unchanged at 4.50% as expected and made small changes to its forward guidance. Analysts at CIBC point out the BoC will keep their focus on the Canadian economy after showing no concern over a larger gap to US rates.

Bank of Canada keeps its eyes on the home front

“Markets were reminded that the Bank of Canada is going to keep its eyes on the home front, as the central bankers showed no tendency to follow the increasing hawkish tone from their counterparts in Washington.”

“The absence of any stated concern over a larger gap to US rates, or the resultant recent weakening in the Canadian dollar, adds weight to our view that rates can stay on hold north of the border even as the Fed has signalled another 75 basis points to come.”

“Other than a reference to the US dollar strengthening (i.e. against other currencies in general), the Bank didn't highlight any concerns about a pass through to Canadian inflation from a weaker loonie. Canadian short term rates had drifted up in recent days as markets judged that a more hawkish Fed, and the resulting foreign exchange rate moves, might drag the Bank of Canada back to the rate hiking table, and today's statement could see a bit of that unwind.”

“A no-surprise statement from the Bank of Canada relative to our expectations naturally implies no change to our view that we're done with rate hikes on this side of the border.”

• GBP/USD trims Tuesday’s losses after hitting a YTD low of 1.1802.
• Labor market data in the United States portrays a tight labor market; focus shifts to Friday’s Nonfarm Payrolls.
• BoE’s Mann: The Pound Sterling could be vulnerable to weakening based on other central banks’ outlooks.

GBP/USD stays firm at around 1.1840s, following hawkish remarks by the US Federal Reserve (Fed) Chair Jerome Powell. Powell’s two-day meeting with the US Congress would conclude today at the US House o Representatives, with market participants expecting him to remain hawkish. Therefore, the GBP/USD is exchanging hands at 1.1843, gaining 0.10%.

Federal Reserve Chair Powell testifies at the US House of Representatives

The GBP/USD would likely remain at familiar levels, as the market has priced in Powell’s hawkishness on Tuesday. On Wednesday, labor market data revealed in the United States (US) economic docket reinforced the Federal Reserve’s worries about the tightness of the labor market. February’s ADP report revealed that the US private sector added 242,000 jobs, more than the expected 200,000.

Later, job openings for January in the United States dropped less than estimates, as shown by the JOLTS report. Job openings, a measure of labor demand, decreased to 10.8M. However, data came above forecasts of 10.5M. Given the backdrop, Jerome Powell and Co. could justify higher rates, which could be confirmed by next Friday’s US Nonfarm Payrolls report.

The US Dollar Index (DXY) has trimmed some of its losses and is down 0.08%, at 105.535, after diving to 105.365. US Treasury bond yields, namely the 10-year, is still pressured, falling two and a half bps to 3.942%.

At the time of typing, Fed Chair Jerome Powell is testifying at the US House of Representatives and has managed to stay hawkish as his previous appearance in the US Senate.

On the United Kingdom (UK) front, Bank of England (BoE) policymakers had been crossing the wires. Swati Dhingra said on Wednesday that risks of overtightening “pose a more material risk at this point, through potential negative impacts from increased borrowing costs and reduced supply capacity going forwards.” Of note, she voted for no change in the last two meetings.

Contrarily, Catherine Mann, one of the hawks at the BoE, commented that the Pound Sterling (GBP) could be vulnerable to other central banks’ outlooks. That could hurt the Pound’s prospects if the Federal Reserve and the Europen Central Bank (ECB) continued their tightening cycles.

What to watch?

GBP/USD Technical levels

FOMC Chairman Jerome Powell testifies on the Semi-annual Monetary Policy Report before the US House Financial Services Committee.

Key quotes

"We are aware of lags of monetary policy effects."

"They are highly uncertain in timeframe though."

"Slowing down pace of rate hikes this year is a way to better watch for those effects."

"Data we've seen so far suggests that ultimate level of rates will need to be higher."

"Still more data to analyze though."

"Will do everything I can to bring people into consensus on any change to bank capital requirements."

Market reaction

The US Dollar Index continues to fluctuate in its daily range at around 105.50 after these comments.

FOMC Chairman Jerome Powell testifies on the Semi-annual Monetary Policy Report before the US House Financial Services Committee.

Key quotes

"US Dollar is only serious candidate for world's reserve currency."

"We can pay bills when we have negative income."

"Inflation is coming down but it's very high."

"Some part of the high inflation we have is likely related to extremely tight labor market."

"Every forecaster is baking in lower rent increases this year."

"Costs of not getting inflation down will be extremely high."

"Costs of failure to control inflation would be much higher than costs of controlling it."

"Committed to bringing prices down."

"A faster reopening from China could have offsetting effects on inflation."

"China's faster reopening could put upward pressure on commodities prices but also quicker healing of supply chains."

"We expect China's impact to be moderate overall."

Market reaction

The US Dollar stays under modest bearish pressure during Powell's testimony and the US Dollar Index was last seen posting small daily losses at 105.50.

Gold Price has dipped below its 55-Day Moving Average of $1,864. Strategists at Credit Suisse expect the yellow metal to challenge the 200-DMA at $1,775

Break above $1,890/1900 needed to clear the way for a retest of $1,973/98

“Gold has broken below its 55-DMA, currently seen at $1,864 and with the USD strengthening is seen at risk to a test of the long-term 200-DMA, currently seen at $1,775. We continue to look for this to remain a floor and for the broader risk to turn higher again from here in due course.”

“A close below $1,775 though would warn of further weakness in the broader range to test the ‘neckline’ to the September/November 2022 base at $1,729.”

“Above $1,890/1900 is needed to clear the way for a retest of $1,973/98. Beyond here stays seen needed to reassert an upward bias for a test of long-term resistance from the $2,070/72 record highs of 2020 and 2022.”

FOMC Chairman Jerome Powell testifies on the Semi-annual Monetary Policy Report before the US House Financial Services Committee.

Key quotes

"We have important data before March meeting."

"I haven't seen JOLTS data yet."

"We have not made any decision yet about March meeting, it's data-dependent."

"We will be guided by incoming data."

"Terminal rate is likely to be higher than we expected."

"Extraordinarily strong jobs report and inflation reports pointed in the same direction."

Market reaction

The US Dollar came under modest bearish pressure following these comments and the US Dollar Index was last seen losing 0.15% on the day at 105.45.

The Norwegian Krone has weakened significantly after Fed Chairman Powell’s hawkish remarks yesterday. Economists at Nordea believe the NOK will remain under severe pressure in the short-term.

Will Norges Bank come NOK to the rescue?

“We believe the NOK will remain under severe pressure in the coming weeks and moves in EUR/NOK to 11.50 and USD/NOK to 11.15 are far from unlikely.”

“With the ECB, Riksbank, and now Fed as well expect to increase rates by 50 bps in the upcoming weeks, Norges Bank’s expected 25 bps rate hike will be overshadowed. Thus, Norges Bank would have to move back to a 50 bps rate hike as well if it wants to soften the blow for the NOK from more aggressive central banks elsewhere.”

• Bank of Canada keeps interest rates unchanged, as expected.
• Loonie weakens across the board, extending daily losses.
• USD/CAD resumes upside looks at 1.3800.

The USD/CAD rose after the Bank of Canada meeting, reaching the highest intraday level since early November at 1.3793. The Loonie weakened across the board. The central bank kept rates unchanged as expected

BoC: No more 'excess demand'

The Bank of Canada (BoC) kept its key interest rate unchanged at 4.50%, as expected. “Governing Council will continue to assess economic developments and the impact of past interest rate increases, and is prepared to increase the policy rate further if needed to return inflation to the 2% target.”

According to the statement, “the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year. Year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3½%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.” The BoC no longer sees “the economy in excess demand”.

The Loonie hit fresh daily lows after the report. USD/CAD moved to the 1.3790 zone, without significant impulse yet, limited by a weaker US Dollar. The Greenback is pulling back modestly amid a recovery in Treasury bonds.

Data from the US showed the Automatic Data Processing (ADP) report surpassed expectations by showing private sector employers added 242K jobs in February, above the 197K of market consensus. The JOLTS Job Openings survey came in also above expectations, at 10.82 million, down from January’s 11.23.

The US Dollar is holding onto important weekly gains after soaring Tuesday on the back of Fed Chair Jerome Powell’s testimony before the US Congress. He opened the doors to a larger rate hike at the March FOMC meeting. Powell is again at the US Congress and will take questions from lawmakers. Later, in the American session the Fed will release the Beige Book.

Jerome Powell Testimony: All about Fed Chair's second day in US Congress

The USD/CAD continues to move with a bullish bias, looking at the 1.3800 area. The next resistance might be located at 1.3825. Over the last 24 hours, the pair has risen almost 200 pips.

Technical levels

• The US ADP Employment Change report exceeded estimates but failed to boost the USD vs. the MXN.
• US Federal Reserve Chair Jerome Powell will testify in the US House of Representatives, expected to remain hawkish.
• USD/MXN Price Analysis: A break below 18.000 warrants further downside, with bears eyeing 17.4498.

The USD/MXN tumbled below the psychological $18.00 barrier on Wednesday despite hawkish remarks by US Federal Reserve’s (Fed) Chair Jerome Powell. On Tuesday, the Mexican Peso (MXN) depreciated towards the weekly high of 18.1800, but it’s staging an astonishing recovery, and dived to 5-year lows at 17.9255. At the time of writing, the USD/MXN is trading at 17.9690, down 0.76%.

US ADP employment data exceeded estimates ahead of the US NFP report

Wall Street opened in the green. The February US ADP National Employment Report showed that private hiring in the United States (US) increased by 242,000 jobs, above estimates of 200,000. That reinforces Fed Chair Jerome Powell’s stance that the labor market is tight and that there is work to do.

On Tuesday, Fed Chair Jerome Powell testified before the US Senate Finance Committee. He acknowledged that the rate peak would be higher and opened the door for significant rate hikes. Powell added that would be decided based on incoming data. Traders should be aware that the US Nonfarm Payrolls report for February and next week’s inflation data will be featured ahead of the Fed’s March meeting.

In the meantime, the US Dollar Index (DXY), a gauge of the buck’s value vs. six currencies, retraces 0.11%, down at 105.502, influenced by falling UST bond yields. The US 10-year T-note rate is at 3.913%, dropping five bps.

Aside from this, inflation in Mexico is expected to slow its pace in February, according to a Reuters poll. Seventeen analysts forecasted by Reuters expect inflation at 7.69% in February, below January’s 7.91%.

The Bank of Mexico (Banxico) central bank members expressed that rates could be raised moderately since the next monetary policy meeting, as shown by the latest meeting minutes. Even though there’s one dissenter, most of the board agreed that the tightening cycle is about to end.

That could favor a recovery of the US Dollar (USD) in the medium to long term. Therefore, the USD/MXN bias could shift upwards based on reduced interest rate differentials between the Fed and Banxico.

USD/MXN Technical analysis

The USD/MXN remains downward biased after plummeting below the 18.0000 barrier. Oscillators like the Relative Strength Index (RSI) accelerate to the downside. Meanwhile, the Rate of Change (RoC) is back below neutral, suggesting that sellers are gathering momentum. That said, the USD/MXN first support would be the July 2017 lows at 17.4498. A breach of the latter would expose April’s  2016 lows at 17.0509, ahead of $17.00.

What to watch?

• Job openings in the US declined marginally in January.
• US Dollar Index continues to fluctuate in daily range slightly above 105.50.

The data published by the US Bureau of Labor Statistics (BLS) revealed on Wednesday that the number of job openings on the last business day of January was 10.8 million, compared to 11.2 million in December. This reading came in slightly higher than the market expectation of 10.6 million.

"Over the month, the number of hires and total separations changed little at 6.4 million and 5.9 million, respectively," the BLS noted in its press release. "Within separations, quits (3.9 million) decreased, while layoffs and discharges (1.7 million) increased."

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen trading virtually unchanged on the day at 105.58.

The US Dollar Index (DXY) remains well supported and above the 55-Day Moving Average (DMA) at 103.47. Analysts at Credit Suisse look for DXY rally to extend further to its 200-DMA and 38.2% retracement of its fall from October.

106.15/62 remains seen as key inflection point to watch 

“We continue to look for a deeper recovery to 105.63 and then the 38.2% retracement of the 2022/2023 fall and 200-DMA at 106.15/62. Our bias for now remains to look for this to cap to define the top of a broader range.” 

“Should a close above the 200-DMA at 106.62 be seen though this would warn of a more protracted phase of USD strength and a test of 107.80/99 next.”

“Below the 55-DMA at 103.47 would suggest the recovery may already be coming to an end but with a break below 102.59 seen needed to clear the way for a retest of the 100.82 YTD low.”

The Bank of Canada (BoC) announced on Wednesday that it left the benchmark interest rate unchanged at 4.5% following the March policy meeting. This decision came in line with the market expectation. 

In its policy statement, the BoC reiterated that it expects to hold the key rate at its current level, conditional on the economy developing broadly in line with its forecasts.

Market reaction

USD/CAD edges slightly higher as investors assess the BoC's policy announcements. As of writing, the pair was trading at its highest level since early November, rising 0.2% on the day at 1.3778.

Key takeaways from the policy statement

"Latest economic data remain in line with bank's expectation that overall inflation will come down to around 3% in the middle of this year."

"Prepared to increase policy rate further if needed to return inflation to 2% target."

"Labor market remains very tight, employment growth has been surprisingly strong."

"Price increases for food and shelter remain high, causing continued hardship for Canadians."

"Restrictive monetary policy continues to weigh on household spending."

"Weak economic growth over the next couple of quarters means pressures in product and labor markets are expected to ease."

"Strength of China's recovery and impact of Russia's war in Ukraine remain key sources of upside risk to forecasts for commodity prices."

Gold fell sharply following the hawkish comments from the Fed Chair Powell. Strategists at TD Securities note that the yellow metal could suffer additional losses on a dip below the $1,806 mark.

Higher for longer narrative in rates to put more pressure on key support levels

“While central banks and physical flows have been of keen importance, and have offered support to Gold, the higher for longer narrative in rates is likely to put more pressure on key support levels.”

“A potential break below the $1,806 level would serve as the next trigger to see trend followers modestly reduce their positions.”

Ho Woei Chen, Economist at UOB Group, comments on the recently published trade balance results in the Chinese economy.

Key Takeaways

“In USD terms, exports and imports extended their declines in Jan-Feb, marking continuous declines since 4Q22.”

“China’s exports rose 29.9% in 2021 and a further 7.0% in 2022. Following the strong gains in the last two years, exports are set for a weaker trend this year as external demand slows and global semiconductor prices are pressured lower.”

“Meanwhile, imports may be boosted by China’s efforts to expand domestic consumption and an expected recovery in the economy this year.”

“Overall, we expect China’s export to register a contraction of -3.0% this year while imports may see a small gain of around +2.0% in 2023.”

• The index comes under some pressure near 105.90.
• The ADP report surpassed expectations in February.
• Powell will testify once again before Congress later in the session.

The greenback now gives away part of the initial impulse to the vicinity of the 106.00 mark and revisits the mid-105.00s when measured by the USD Index (DXY) on Wednesday.

USD Index now targets the 106.00 barrier and above

Following the earlier move to the proximity of 106.00, the dollar now faces some selling pressure as investors wait for the second semiannual testimony by Chair Powell before Congress.

The knee-jerk in the buck also comes in tandem with the now corrective drop in US yields across the curve, soon after the short end reached fresh multi-year highs past the 5% yardstick.

The recent move higher in the dollar and US yields has been propped up by the shift in investors’ sentiment towards a 50 bps rate hike by the Fed at the March event. On this,  CME Group’s FedWatch Tool sees the probability of such scenario at around 75%, from nearly 9% a month ago.

In the US, MBA Mortgage Applications rose 7.4% in the week to March 3 and the ADP report showed the US private sector added 242K jobs during last month, more than initially estimated. Additionally, the Balance of Trade showed a $68.3b deficit in January. Later in the session, the JOLTs Job Openings comes next ahead of the second semiannual testimony by Chief Powell, this time before the House Financial Services Committee.

What to look for around USD

The index accelerates the upside momentum and navigate in multi-month highs following the hawkish testimony by Fed’s Powell 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: 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 105.52 and the breakdown of 104.09 (weekly low March 1) would open the door to 103.50 (55-day SMA) and finally 102.58 (weekly low February 14). On the flip side, the next up-barrier emerges at 105.88 (2023 high March 8) seconded by 106.59 (200-day SMA) and then 107.19 (weekly high November 30 2022).

USD/CAD is at key breakout levels ahead of the NFP report on Friday. A weekly close above 1.3738 would trigger another leg higher, economists at Credit Suisse report.

USD/CAD is at a key inflection point at 1.3728

“A clear weekly closing break above the top of its 2-3 month range at 1.3728 would trigger a renewed trending phase to the upside, with the next levels at 1.3809, then the 1.3978/1.4000 2022 high. We note that there is also further important retracement resistance just above here at 1.4099/4100, which should be a tough barrier if reached. 

“In contrast, a reversal to hold below 1.3728 on a payrolls miss would likely keep the market in the broader ~1.3300-1.3750 range.”

EUR/USD lost more than 100 pips on Tuesday and closed below 1.0550 in response to the hawkish policy signals delivered by Fed Chair Powell at semi-annual testimony to Congress. The pair could dive below the 1.05 mark, economists at MUFG Bank report.

US Dollar to rebound further in the near-term

“Powell delivered two clear hawkish policy signals over the outlook for further monetary tightening. Firstly, he stated that the latest economic data ‘suggests that the ultimate level of interest rates is likely to be higher than previously anticipated’. The second hawkish policy signal that Powell delivered was the he re-opened the door to a quick return to larger 50 bps rate hikes.”

“The developments have clearly increased upside risks for the US Dollar. While we had not been expecting the Fed to deliver such a hawkish policy update yesterday, it does support our forecast for the USD to rebound further in the near-term.”

“We had maintained our forecast for EUR/USD to fall back to the 1.05 level by the end of Q1. It could fall further still if the Fed delivers a larger 50 bps hike this month.”

Economist at UOB Group Lee Sue Ann comments on the recent decision by the RBA to lift the OCR by 25 bps to 3.60% at its event on March 7.

Key Takeaways

“The Reserve Bank of Australia (RBA) decided to increase the cash rate target by 25bps to 3.60%. This is the 10th straight meeting that the RBA has raised rates. Taking into account today’s move, the cash rate has increased by 350bps since May 2022.”

“Once again, it was highlighted in the accompanying statement that ‘the Board’s priority is to return inflation to target’, and that ‘further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary’.”

“We are keeping our view of one more 25bps hike in Apr, which will take the OCR to 3.85%, as the RBA maintains a cautious approach. Attention will now turn to RBA Governor Philip Lowe’s speech at the AFR Business Summit in Sydney, early Wed (8 Mar) morning at 5.55am SGT.”

The S&P 500 has managed to hold 200-Day Moving Average and 38.2% retracement support at 3940/27. But a break past 4081/99 is needed to see further gains, economists at Credit Suisse report.

Close below 3927 would warn of a significant turn lower

“S&P 500 has managed to hold key support at 3940/27. Above 4081/98 though is needed to ease the pressure off this support for strength back to 4195/4203, then what we look to be tougher resistance at the 61.8% retracement of the 2022 fall and summer 2022 high at 4312/4325. We look for this to then prove a tough barrier to define the top of what we believe could be a broad and lengthy range.”

“A close below 3927 would now warn of a significant turn lower in the broader range with next support then seen at 3764/60 ahead of the long-term 200-week average at 3726.”

• EUR/USD extends the Powell-led steep drop to the 1.0520 region.
• Immediately to the downside now emerges the YTD low near 1.0480.

EUR/USD adds to Tuesday’s intense sell-off and hits new 2-month lows in the 1.0525/20 and on Wednesday.

The continuation of the selling pressure could force the pair to challenge the 2023 low at 1.0481 (January 6) ahead of the minor support at 1.0443 (weekly low December 7 2022).

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

EUR/USD daily chart

BoC Monetary Policy Decision – Overview

The Bank of Canada (BoC) is scheduled to announce its monetary policy decision this Wednesday at 15:00 GMT. The Canadian central bank said in January that if economic developments evolve broadly in line with the outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases. Having raised interest rates eight times since the first quarter of 2022, the BoC is now expected to leave the overnight rate unchanged at 4.5%. Investors will further take cues from the accompanying monetary policy statement in the absence of the post-meeting press conference.

Analysts at TD Securities (TDS) offer a brief preview of the event and write: “The downside surprise on Q4 GDP should allow the BoC to look past the blockbuster January jobs number and keep the overnight rate unchanged at 4.50%. The forward guidance is not expected to change too much from January, though the BoC might want to put more emphasis on the conditional nature of its pause.”

How Could it Affect USD/CAD?

Ahead of the key central bank risk, the USD/CAD pair holds steady near a four-month high touched earlier this Wednesday amid sustained US Dollar buying and a softer tone surrounding Crude Oil prices. Given that the markets have been expecting the BoC to keep rates unchanged, the announcement is unlikely to provide any meaningful impetus to the major. That said, the near-term policy outlook should infuse some volatility around the Canadian Dollar and allow traders to grab some meaningful opportunities.

From a technical perspective, the overnight sustained strength beyond the 1.3700 mark was seen as a fresh trigger for bullish traders. That said, the Relative Strength Index (RSI) on the daily chart is on the verge of breaking into the overbought territory. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move.

The USD/CAD pair, however, still seems poised to prolong the upward trajectory towards reclaiming the 1.3800 round figure. The momentum could get extended further towards an intermediate hurdle near the 1.3870-1.3880 region en route to the 1.3900 mark and the 2022 swing high, around the 1.3975-1.3980 zone.

On the flip side, the 1.3700 strong resistance breakpoint now seems to protect the immediate downside. Any subsequent pullback is more likely to attract fresh buyers and remain limited near the 1.3655-1.3650 region. The latter should act as a strong base for the USD/CAD pair.

Key Notes

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

 •  BoC Preview: Forecasts from seven major banks, leaving rates on hold

 •  USD/CAD Forecast: Bulls now await BoC policy decision before placing fresh bets

About the BoC Interest Rate Decision

BoC Interest Rate Decision is announced by the Bank of Canada. If the BoC is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the CAD. Likewise, if the BoC has a dovish view on the Canadian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

• XAU/USD remains in an intraday consolidation near $1,815 after US data.
• US ADP employment reports show an increase in private payrolls above expectations.
• US Dollar holds onto recent gains, US yields retreat.

Gold prices continued to move near $1,815/oz following the release of US employment data that surpassed expectations. XAU/USD dropped toward $1,810 and managed to remain above. The yellow metal is trading $35 below the level it had a day ago, hit by Fed Chair Powell’s testimony.

Data keeps pointing to a tight US labor market

Automatic Data Processing (ADP) reported on Tuesday that private sector employment rose by 242K in February, above the 200K expected. January’s numbers were revised higher from 106K to 119K. ADP’s Chief Economist commented that they are seeing robust hiring but warned pay growth “is still quite elevated”.

The numbers continue to show a tight labor market keeping the doors open to more action from the Federal Reserve. The ADP report contained no major surprises, having a modest impact on markets. The round of labor market data will continue on Thursday with Jobless Claims and on Friday with Nonfarm payrolls.

Next on Wednesday, is Fed Chair Jerome Powell testimony before the US Congress. On Tuesday, he triggered the decline in XAU/USD by opening the doors to a 50 basis points rate hike at the March FOMC meeting.

Jerome Powell Testimony: Fed Chair to answer US House of Representatives after hawkish remarks

The Dollar rose marginally after the report, while US yields retreat. Despite the recovery in Treasuries, XAU/USD remained steady. Dollar’s strength and risk aversion are keeping the upside limited, while at the same time, leave the metal vulnerable to more losses.

If XAU/USD breaks under $1,808 (daily low) over the next hours, a test of the critical $1,800 support zone seems likely. On the upside, it needs to consolidate firmly above $1,815 in order to gain some support.

Technical levels

• Canada's international trade surplus widened modestly in January.
• USD/CAD trades virtually unchanged on the day at around mid-1.3700s.

Canada's merchandise trade surplus with the world widened to C$1.92 billion in January from to C$1.19 billion in December, Statistics Canada reported on Wednesday. This reading came in better than the market expectation for a deficit of C$0.06 billion.

"In January, Canada's merchandise exports increased 4.2%, while imports were up 3.1%," the report further read.

Market reaction

USD/CAD's reaction to this data was largely muted with investors awaiting the Bank of Canada's policy announcements. As of writing, the pair was virtually unchanged on the day at 1.3755.

• US Goods and Services Trade Balance came in at -$68.3 billion in January.
• US Dollar Index stays in daily range above 105.50.

The United States international trade deficit in goods and services rose by $1.1 billion to $68.3 billion in January, the data published jointly by the US Census Bureau and the US Bureau of Economic Analysis revealed on Wednesday. This reading came in slightly better than the market expectation for a deficit of $68.9 billion.

"January exports were $257.5 billion, $8.5 billion more than December exports," the publication further read. "January imports were $325.8 billion, $9.6 billion more than December imports."

Market reaction

The US Dollar Index continues to fluctuate in its tight daily range after this data and was last seen little-changed on the day at 105.64.

• USD/JPY pulls back from a fresh YTD peak touched earlier this Wednesday.
• The upbeat US ADP report fails to impress bulls or provide a fresh impetus.
• The Fed-BoJ policy divergence should act as a tailwind and help limit losses.

The USD/JPY pair struggles to capitalize on its intraday positive move beyond the 200-day Simple Moving Average (SMA) and retreats from the 138.00 neighbourhood, or its highest level since mid-December touched earlier this Wednesday. Spot prices, however, manage to hold above the 137.00 mark through the early North American session and react little to the US macro data.

The US Dollar (USD) stands tall near a multi-month peak following the release of the better-than-expected US ADP report, which, in turn, is seen as a key factor acting as a tailwind for the USD/JPY pair. In fact, Automatic Data Processing (ADP) reported that the US private sector employers added 242K jobs in February, up sharply from the previous month's revised reading of 119K (109K estimated originally). The data points to the underlying strength in the US labor market and might have also lifted expectations for the official jobs report, popularly known as NFP on Friday.

The markets are now pricing in a greater chance of a jumbo 50 bps lift-off at the March FOMC meeting and the bets were lifted by the overnight hawkish comments by Fed Chair Jerome Powell. This continues to lend support to the Greenback, though a combination of factors keeps a lid on any meaningful upside for the USD/JPY pair. A modest pullback in the US Treasury bond yields is holding back the USD bulls from placing fresh bets. Apart from this, a softer risk tone - amid looming recession risks - benefits the safe-haven Japanese Yen and contributes to capping the major.

The fundamental backdrop, however, still supports prospects for an extension of the USD/JPY pair's recent upward trajectory witnessed over the past month or so. Investors seem convinced that the Bank of Japan (BoJ) will maintain the ultra-loose policy settings. It is worth mentioning that the incoming BoJ Governor Kazuo Ueda last week stressed the need to maintain the ultra-loose policy to support the fragile economy.  This marks a big divergence in comparison to the Fed's hawkish stance and validates the near-term positive outlook for the major.

Market participants now look forward to Powell's second day of testimony before the US Congress, which, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader risk sentiment might further contribute to producing short-term trading opportunities around the USD/JPY pair. The focus will then shift to the BoJ monetary policy meeting and the release of the closely-watched US monthly employment details on Friday, which will help determine the next leg of a directional move for the major.

Technical levels to watch

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest release of inflation figures in the Philippines.

Key Takeaways

“The Philippines’ headline inflation unexpectedly reversed course and moderated for the first time in six months to 8.6% y/y in Feb from a 14-year high of 8.7% in the preceding month. It defied our expectation and Bloomberg consensus for a continued acceleration to 9.1% and 8.9% respectively. The softer inflation outturn was primarily aided by lower prices of selected food items and fuels.”

“Despite slower headline inflation, both services and core inflation continued to see an uptick last month. Upside risks to the near-term inflation outlook remain owing to the prolonger Russia-Ukraine war, domestic policy changes, adverse weather, and currency volatility. We maintain our full-year average inflation forecast at 6.0% for this year (BSP est: 6.1%, 2022: 5.8%).”

“A one-month improvement in headline inflation reading is still not convincing enough for a rate pause by the BSP at the upcoming Monetary Board Meeting on 23 Mar. But, it may support a smaller quarter-point rate hike given that risks to the nation’s inflation outlook remain tilted to the upside and there are rising expectations for a higher US Fed Funds Target Rate. We stick to our call for a 25bps hike in the overnight reverse repurchase rate to 6.25% on 23 Mar.”

• DXY looks to extend the post-Powell rebound near 106.00.
• Further gains now target the 200-day SMA near 106.60.

DXY advances further and prints new multi-month highs in the 105.85/90 band on Wednesday.

The continuation of the rebound in the dollar seems like for the time being. The breakout of the round level at 106.00 should put the index en route to a probable test of the key 200-day SMA, today at 106.58.

A convincing move beyond the latter should shift the outlook to constructive in the short-term horizon and allow for the continuation of the uptrend.

DXY daily chart

The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 242,000 in February. This reading came in higher than the market expectation of 200,000. January's reading of 106,000 got revised higher to 119,000.

Commenting on the data,"we're seeing robust hiring, which is good for the economy and workers, but pay growth is still quite elevated," said Nela Richardson, chief economist, ADP. “The modest slowdown in pay increases, on its own, is unlikely to drive down inflation rapidly in the near-term.”

Further details of the publication revealed that annual pay was up 7.2% on a yearly basis in February, down slightly from 7.3% in January.

Market reaction

This data doesn't seem to be having a significant impact on the US Dollar's valuation for the time being. As of writing, the US Dollar Index was up 0.1% on the day at 105.70.

AUD/USD has fallen very sharply recently following the “perfect storm” of a more dovish than expected RBA meeting and hawkish comments from Powell. The pair is now below the key 0.6628 December low. A weekly close above or below here holds the key for the Aussie, analysts at Credit Suisse report.

A reversal back above 0.6628 into the weekly close would reassert a rangebound outlook

“A clear weekly close below the key 0.6628 December low, combined with key breakouts in other USD crosses, would suggest a much more pronounced trending phase to the downside, with next supports seen at 0.6548, then 0.6386 and possibly even the 0.6170 2022 low as a stretch objective.”

“In contrast, a reversal back above 0.6628 into the weekly close on a payrolls miss would reassert a rangebound outlook.”

Yesterday’s semi-annual Senate testimony by Federal Reserve Chair Jerome Powell surprised on the hawkish side and triggered a large Dollar rally. Economists at ING expect the greenback to remain firm near term, but a broad-based decline should occur in the long run.

Markets may be underestimating the risk of a hard landing for the US economy

“Can the Fed continue to push the Dollar higher? The short answer is yes, essentially because even assuming markets won’t price in a higher peak rate than the current 5.75%, a 50 bps move in March isn’t fully priced in (40 bps embedded in the OIS curve) and there is ample room to scale back rate cut expectations for end 2023 and early 2024.”

“However, we keep warning against building bullish-Dollar views beyond the short-term: markets may be underestimating the risk of a hard landing for the US economy, and we remain of the view that a broad-based Dollar decline is only delayed.”

• Silver bounces off a multi-month low set earlier this Wednesday, though lacks bullish conviction.
• Slightly oversold RSI turns out to be a key factor that prompts some intraday short-covering move.
• The technical setup still favours bearish traders and supports prospects for further near-term losses.

Silver shows some resilience below the $20.00 psychological mark and stages a modest recovery from its lowest level since early November touched earlier this Wednesday. The white metal sticks to its modest gains, around the $20.10-$20.15 area heading into the North American session, though any meaningful upside still seems elusive.

The intraday uptick could be solely attributed to some short-covering amid a slightly oversold Relative Strength Index (RSI) on the daily chart. That said, the overnight sustained break through the $20.50-$20.40 horizontal support, which coincided with the previous YTD low, was seen as a fresh trigger for bearish traders. Moreover, acceptance below a technically significant 200-day Simple Moving Average (SMA) supports prospects for an extension of the recent sharp pullback from the $24.65 area witnessed over the past month or so.

Some follow-through selling below the $20.00 mark will reaffirm the negative bias and pave the way for further losses. The XAG/USD could then slide to the $19.60 intermediate support before dropping to the $19.00 round figure. The downward trajectory could get extended towards the $18.80-$18.75 area en route to the next relevant support near the $18.30-$18.25 horizontal zone and the $18.00 level.

On the flip side, the $20.40-$20.50 support breakpoint now seems to act as an immediate strong resistance. Any further recovery is more likely to attract fresh sellers and remains capped near the 200-day SMA, currently pegged just ahead of the $21.00 mark. The latter should act as a pivotal point, which if cleared decisively might prompt some short-covering move and lift the XAG/USD towards the mid-$21.00s. Bulls might then aim back to reclaim the $22.00 round-figure mark.

Silver daily chart

Key levels to watch

• EUR/JPY fades the earlier bull run to the 145.20 region on Wednesday.
• Next on the upside comes the 2023 high near 145.60.

EUR/JPY now alternates gains with losses below the 145.00 mark after the initial move to 145.20 lacked follow through on Wednesday.

Further side-lined trading seems likely for the time being. However, the breakout of this theme should see the next hurdle at the 2023 high at 145.56 (March 2). Beyond this level, the cross could dispute 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 141.73, the outlook for the cross is expected to remain positive.

EUR/JPY daily chart

GBP/USD has broken support from its recent low and 200-DMA at 1.1914/12 to turn the spotlight on the key 1.1841 January low. A weekly close below here would warn of an important bearish “double top”, economists at Credit Suisse report.

Move above resistance at 1.2144/48 needed to ease immediate fears of a top

“A sustained break below the 1.1841 January low, especially post payrolls this Friday would complete a bearish ‘double top’ to signal a much deeper sell-off, and likely a stronger USD rally more broadly, with support seen next at the 38.2% retracement of the 2022/2023 rally at 1.1648/46. Whilst we would look for this to hold at first, we would note that the ‘double top measured objective’ would be seen set much lower at 1.1233.”

“Above resistance at 1.2144/48 is needed to ease immediate fears of a top, although we would need to see 1.2270 cleared in our view to warn of strength back to 1.2447/49.”

See – GBP/USD: Target for double top pattern is near 1.1230/1.1150 – SocGen

USD/CAD gathered bullish momentum and broke above 1.3700 on Tuesday. The pair is expected to trade again in the 1.38/40 arera into next week, economists at Société Générale report.

First layer of support is located at 1.3700/1.3660

“USD/CAD accelerated through 1.37 after Powell and a return to 1.38/1.40 into next week is now likely unless we get underwhelming US employment and inflation data.” 

“The pair looks poised to head higher gradually towards 1.3860 and peak of last year at 1.3980/1.4040.”

“First layer of support is located at the upper limit of previous range near 1.3700/1.3660.”

US ADP jobs report overview

Wednesday's US economic docket features the release of the ADP report on private-sector employment for February, due at 13:15 GMT. Estimates point to an addition of 200K private-sector jobs during the reported month, up sharply from 109K in January. The data will provide fresh insight into the US labor market conditions and could drive expectations for the official jobs report, popularly known as NFP scheduled for release on Friday.

How could the data affect EUR/USD?

Ahead of the key release, signs of stability in the equity markets hold back traders from placing fresh bullish bets around the safe-haven US Dollar. This, in turn, assists the EUR/USD pair to hold steady above the 100-day Simple Moving Average (SMA) support, currently pegged around the 1.0500 psychological mark. That said, rising bets for a jumbo 50 bps Fed rate hike in March remain supportive of elevated US Treasury bond yields and continue to act as a tailwind for the Greenback. A stronger ADP report will reaffirm hawkish Fed expectations, which, in turn, should push the US bond yields and the USD higher.

Conversely, any disappointment is unlikely to dent the underlying bullish sentiment surrounding the buck as investors might wait for the NFP report to see if the US labor market is cooling down. Hence, any immediate market reaction to a softer print is more likely to be limited, suggesting that the path of least resistance for the EUR/USD pair is to the downside. Traders, however, might refrain from placing aggressive bets and prefer to wait for Fed Chair Jerome Powell's second day of testimony before the House Financial Services Committee.

As Matías Salord, news Reporter at FXStreet explains: “If ADP shows the private sector employment rose by more than 200K, it would reaffirm the “higher for longer” scenario, offering support to the US Dollar and should be negative for US Treasury bonds. On the contrary, it would take a contraction in employment to weigh on expectations. A negative reading could be positive for equities, emerging market currencies… for all, except the US Dollar.”

Meanwhile, Eren Sengezer, Editor at FXStreet, outlines important technical levels to trade the EUR/USD pair: “Interim support for EUR/USD seems to have formed at 1.0530. With a four-hour close below that level, additional losses toward 1.0500 (psychological level), 1.0480 (2023-low) and 1.0450 (static level from December) could be witnessed.”

“On the upside, 1.0560 (former support, static level) aligns as initial resistance before 1.0580 (static level). In case the latter resistance fails, buyers could show interest and EUR/USD could extend its correction toward 1.0600/1.0610 (static level, 50-period Simple Moving Average (SMA) on the four-hour chart),” Eren adds further.

Key Notes

  •  ADP Jobs Preview: A sandwich between Powell and NFP

  •  EUR/USD Forecast: It's all about Powell-inspired USD strength

  •  EUR/USD: 1.0500 can be broken today or tomorrow – ING

About the US ADP jobs report

The Employment Change released by the Automatic Data Processing, Inc, Inc is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. So a high reading is traditionally seen as positive, or bullish for the USD, while a low reading is seen as negative, or bearish.

EUR/USD stays on course for a test of key price & 38.2% retracement support at 1.0483/63 which needs to hold to avoid a top, analysts at Credit Suisse report.

Break above 1.0806 remains needed to reassert an upward bias

“EUR/USD is seen on course to break its 1.0532 recent low for a test of key support from the 38.2% retracement of the 2022/2023 rally and early January YTD low at 1.0483/63 and our bias remains for this to hold for a broad range.” 

“Below 1.0463 would now warn of a ‘head & shoulders’ top and a potentially more significant downturn, although we would still need to see the 200-DMA at 1.0328 removed to suggest this is indeed the case for support next at 1.0223/1.0198.”

“Above 1.0806 remains needed to reassert an upward bias for strength back to the 50% retracement of the 2021/2022 fall at 1.0944.”

BoJ tightening and valuation are expected to send USD/JPY to 125, in the view of economists at Danske Bank.

BoJ set to start to normalise monetary policy

“We look for USD/JPY to drop over the coming months on monetary tightening and valuation. We forecast USD/JPY at 125 in 3M.”

“The transition to a new monetary policy framework for the BoJ will likely be gradual starting with tweaks or an abandonment of the YCC during Q2.”

“The three largest risks for the JPY are i) sticky US inflation ii) Japanese inflation turns out to be transitory iii) rising commodity prices.”

Enrico Tanuwidjaja, Economist at UOB Group, reviews the latest FX reserves figures in Indonesia.

Key Takeaways

“Indonesia’s foreign exchange reserves increased by almost USD1bn to USD140.3bn in Feb 2023.”

“The latest reserve level was equivalent to finance 6.2 months of import or 6 months’ worth of imports and servicing the government’s external debt, well above the international adequacy standard of 3 months of imports.”

“Tax payment revenue and government external debt drawdown accounted for last month’s increase in the reserves. BI maintains the view that the official reserve assets will remain adequate to anchor stability and safeguard the Indonesian economy.”

As for today’s BoC decision, economists at Credit Suisse think markets can react to any signs of complacency in forward guidance by pushing USD/CAD to test the October highs close to 1.4000.

Forward guidance holds the key for the USD/CAD

“A lack of acknowledgment by the BoC today of the improved employment numbers or any sign of complacency, in general, could very rapidly lead to an acceleration higher in USD/CAD through 1.3800.” 

“Conversely, evidence that the BoC is increasingly alert to the possibility that it might need to hike rates further would be seen as validating current market expectations and would likely result in more benign price action, with USD/CAD reversing part of yesterday’s spike.”

“We remain ready to anticipate further USD/CAD gains towards 1.4000 if the BoC were instead to embrace a more explicitly divergent policy stance vs the Fed.” 

See – BoC Preview: Forecasts from seven major banks, leaving rates on hold

GBP/USD is sliding towards 1.18 after erasing 1.1906 (200-Day Moving Average). The pair is at risk of a deeper down move, analysts Société Générale report. 

Failure to reclaim 1.2065 could mean persistence in decline

“GBP/USD formed a double top after struggling to reclaim December high near 1.2450. This has resulted in a steady pullback leading the pair below the 200-DMA. It is now challenging the neckline of the formation denoting risk of a deeper down move.” 

“Failure to reclaim recent pivot high at 1.2065 could mean persistence in decline towards 1.1770 and projections of 1.1640/1.1610. Target for the pattern is near 1.1230/1.1150.”

The US Dollar appreciated on a broad basis on Tuesday. Economists at Commerzbank expect the greenback to remain firm for the time being.

Risks for EUR/USD are clearly on the USD side of things for now

“The risks for EUR/USD are clearly on the USD side of things for now. Our US economists do not exclude a rate peak at 6% if the data due for publication is sufficiently strong. The immediate rate outlook, therefore, seems to offer further potential despite the renewed upside correction of the US Dollar.” 

“On the Euro side of things, the surprisingly strong fall in inflation expectations for the next three years in the monthly ECB consumer survey yesterday support the doves on the ECB board, thus limiting the upside in EUR/USD for now.”

“The focus today will be on the number of job openings and the ADP employment report. This set of data is often used as a first indication of the labour market report, but it does not really reduce the potential for surprises as was illustrated impressively last month. In other words: of course today’s data can cause volatility, but only the labour market report on Friday will create sustainable momentum for EUR/USD.”

• AUD/USD bounces off a four-month low, though any meaningful recovery seems elusive.
• RBA’s dovish shift, looming recession risks could cap gains for the risk-sensitive Aussie.
• Bets for aggressive rate hikes by the Fed underpin the USD and should act as a headwind.

The AUD/USD pair stages a modest intraday recovery from a nearly four-month low touched earlier this Wednesday and builds on its steady intraday ascent through the first half of the European session. The pair climbs back above the 0.6600 mark and reverses a part of the previous day's Reserve Bank of Australia (RBA)-inspired losses, though the fundamental backdrop still seems tilted in favour of bearish traders.

Against the backdrop of RBA's dovish shift on Tuesday, the prevalent strong bullish sentiment surrounding the US Dollar adds credence to the negative outlook for the AUD/USD pair. It is worth recalling that the Australian central bank signalled that it might be nearing the end of its rate-hiking cycle. In contrast, Federal Reserve Chair Jerome Powell indicated that interest rates might need to go up faster and higher than previously anticipated.

In the prepared remarks for his semi-annual testimony to Congress, Powell added that the Fed is prepared to increase the pace of rate hikes to combat stubbornly high inflation. This, in turn, lifted bets for a jumbo 50 bps lift-off at the March FOMC meeting and remains supportive of elevated US Treasury bond yields. In fact, the rate-sensitive two-year US Treasury note jumps to its highest level since 2007 and pushes the USD to a three-month peak.

Furthermore, the yield on the benchmark 10-year US government bond holds steady near the 4.0% mark and fuels worries about economic headwinds stemming from rapidly rising borrowing costs. This, along with fading optimism over a strong economic recovery in China and US-China tensions, continues to weigh on investors; sentiment and suggests that the path of least resistance for the risk-sensitive Aussie remains to the downside.

Hence, any subsequent move-up might be seen as an opportunity to initiate fresh bearish positions around the AUD/USD pair and runs the risk of fizzling out rather quickly. Traders now look to the US economic docket, featuring the ADP report and JOLTS Job Openings data. This, along with Powell's second day of congressional testimony, the US bond yields and the broader risk sentiment, will influence the USD and provide a fresh impetus.

Technical levels to watch

The US Dollar Index (DXY) reached its highest level since early November near 106.00. A break above this level could happen before Friday, but Friday’s US jobs data should trigger a correction, economists at ING report.

Volatility should remain elevated

“For now, volatility should remain elevated, and the Dollar’s balance of risks is moderately tilted to the upside ahead of Friday’s jobs numbers.”

“Today, we have the second round of Powell’s testimony (to the House), a speech by Thomas Barkin and the release of the Fed’s Beige Book. On the data front, ADP jobs figures will be published – they have not had good predictive power for official data – as well as JOLTS jobs openings.”

“DXY may well break above 106.00 before Friday, although we expect a correction with the NFP release.”

• Gold price stages a modest recovery from over a one-week low touched earlier this Wednesday.
• Bets for jumbo rate hikes by Federal Reserve, a stronger US Dollar to cap gains for the XAU/USD.
• Traders now look forward to the US labor market data and Powell’s testimony for a fresh impetus.

Gold prices bounces off over a one-week low touched earlier this Wednesday and steadily climbs to the $1,815 region during the first half of the European session. The XAU/USD, for now, seems to have snapped a two-day losing streak, though any meaningful recovery still seems elusive amid rising bets for more aggressive policy tightening by the Federal Reserve (Fed).

Hawkish Federal Reserve expectations to cap gains for Gold price

In the prepared remarks for his semi-annual testimony to Congress, Fed Chair Jerome Powell indicated on Tuesday that interest rates might need to go up faster and higher than previously anticipated. Powell added that the recent economic data from the United States (US) had been stronger than expected and that the Fed is prepared to increase the pace of rate hikes to combat stubbornly high inflation. The markets were quick to react and started pricing in a greater chance of a 50 basis points (bps) lift-off at the upcoming Federal Open Market Committee (FOMC) policy meeting later this month.  This remains supportive of elevated US Treasury bond yields and should act as a headwind for the non-yielding Gold price.

Stronger US Dollar could also act as a headwind for the XAU/USD

In fact, the yield on the benchmark 10-year US government bond holds steady near the 4.0% threshold and the rate-sensitive two-year Treasury note stands tall near its highest level since 2007. This, in turn, assists the US Dollar to build on the previous day's blowout rally and climb to a three-month peak. A stronger Greenback might also contribute to capping the upside for the US Dollar-denominated Gold price. Hence, it will be prudent to wait for strong follow-through buying before placing fresh bullish bets around the XAU/USD and positioning for any further intraday appreciating move. That said, a generally softer risk tone could lend some support to the safe-haven precious metal and help limit the downside.

US labor market data, Powell’s testimony eyed for fresh impetus

The market sentiment remains fragile amid worries about economic headwinds stemming from rapidly rising borrowing costs. Apart from this, fading hopes for a strong economic recovery in China and US-China tensions temper investors' appetite for perceived riskier assets. Market participants now look to the US economic docket, featuring the release of the ADP report on private-sector employment and JOLTS Job Openings data. This, along with Powell's second day of congressional testimony and the US bond yields, will influence the USD. Apart from this, the broader market risk sentiment should provide some impetus to Gold price and allow traders to grab short-term opportunities.

Gold price technical outlook

From a technical perspective, Gold price once again attracts some buyers ahead of the 100-day Simple Moving Average (SMA). The said support, currently pegged near the $1,800 round-figure mark, should act as a pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders and set the stage for deeper losses. The XAU/USD might then accelerate the fall towards testing the next relevant support near the $1,775 horizontal zone.

On the flip side, the $1,818-$1,820 region could offer some resistance ahead of the $1,835 horizontal zone. A sustained strength beyond the latter could trigger a short-covering rally and lift Gold price back towards the monthly peak, around the $1,858 area touched last Friday. This is followed by the 50-day SMA barrier, currently near the $1,869 region, which should keep a lid on any further gains, at least for the time being. 

Key levels to watch

Economist at UOB Group Lee Sue Ann suggests the Bank Negara Malaysia (BNM) could pause its tightening cycle at this week’s event.

Key Quotes

“Given a moderation in global commodity prices and softer domestic growth momentum amid lingering macro headwinds, we expect BNM to extend its interest rate hike pause at the next monetary policy meeting on 8-9 Mar.”

“That said, we think BNM will resume its policy rate hike by 25bps in May and maintain rates at 3.00% for the rest of the year.”

• EUR/USD extends the bearish note to the vicinity of 1.0520.
• EMU Q4 GDP Growth Rate came at 0% QoQ, 1.8% YoY.
• US ADP report, Powell’s testimony next of note later in the session.

Price action around the European currency remains subdued and prompts EUR/USD to navigate the lower end of the weekly range near 1.0540 on Wednesday.

EUR/USD weaker post-Powell

Following an earlier drop to new multi-week lows near 1.0520, EUR/USD manages to regain some balance and flirts with the 1.0550 region on the back of the persistent firm note in the greenback.

The pair, in the meantime, seems to have met some temporary contention in the 1.0525/20 band following the Powell-induced sell off on Tuesday against the backdrop of renewed bets of a 50 bps rate hike by the Fed later in the month.

On the latter, the US money market appears to confirm that change of expectations after the 2-year yield trade above the 5% threshold for the first time since June 2007.

A deeper retracement in the pair, however, seems not favoured for the time being, as traders reduced markedly their open interest positions on Tuesday according to advanced data from CME Group for EUR futures markets.

In the domestic docket, another revision of the Q4 GDP Growth Rate now sees the EMU's economy flat QoQ and expanding 1.8% over the last twelve months. Earlier in the session, the Industrial Production in Germany expanded 3.5% in January vs. the previous month.

In the NA session, Chief Powell will testify once again before the Congress. Other than that, the usual weekly Mortgage Applications are due seconded by the ADP report, Balance of Trade, JOLTs Job Openings and the Fed’s Beige Book.

What to look for around EUR

EUR/USD plummeted to fresh 2-month lows on the back of the acute rebound in the greenback after investors shifted their expectations to a larger rate hike by the Fed at the March gathering

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB 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 Retail Sales/Industrial Production, 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 0.11% at 1.0538 and faces the next support at 1.0524 (monthly low March 8) seconded by 1.0481 (2023 low January 6) and finally 1.0325 (200-day SMA). On the other hand, the breakout of 1.0713 (55-day SMA) would target 1.0804 (weekly high February 14) en route to 1.1032 (2023 high February 2).

Bank of England (BoE) policy maker Swati Dhingra warned against further interest rate increases, in her scheduled appearance on Wednesday.

Additional quotes

Market reaction

GBP/USD is defending minor bids around 1.1835 on the above comments. The pair is up 0.07% on the day.

The Powell-led EUR/USD drop yesterday means that the next key support for the pair is now 1.0500. This level could be broken in the next two days, economists at ING report.

Euro has not got many weapons to fight the Dollar strengthening at the moment

“The Euro hasn’t got many weapons to fight the Dollar strengthening at the moment. The Eurozone’s data calendar lacks market-moving releases and a speech by Lagarde today does not seem to have much to do with monetary policy. Two of the most dovish ECB members – Ignazio Visco and Fabio Panetta – are the other scheduled speakers today, so expect little support to the Euro on that front.”

“Today and tomorrow will offer the best opportunity – in our view – to press below 1.0500, while we favour a EUR/USD rebound on a softer US jobs report on Friday.”

The Bank of Canada (BoC) meets and is universally seen on hold. Thus, the central bank decision is unlikely to impact the Loonie, economists at Commerzbank report.

A non-event?

“It is unanimous consensus expectation that the BoC will keep its key rate unchanged at 4.5% today which seems to be largely priced in on the market too. That is what one could loosely describe as successful expectation management.”

“The market seems to be expecting further rate hikes of just over 25 bps as of the summer. If the statement confirms this impression, today’s rate meeting is not likely to provide much new momentum for the CAD exchange rates, rather it is going to hope that the next labour market report, due for publication on Friday, will provide that for CAD.”

See – BoC Preview: Forecasts from seven major banks, leaving rates on hold 

• USD/CAD climbs to a fresh YTD peak and draws support from a combination of factors.
• Softer Oil prices undermine the Loonie and act as a tailwind amid sustained USD buying.
• Traders look to the BoC policy decision and US labor market reports for a fresh impetus.

The USD/CAD pair builds on the previous day's bullish breakout momentum through the 1.3700 mark and climbs to its highest level since early November on Wednesday. The pair holds steady above mid-1.3700s through the first half of the European session and seems poised to prolong its recent upward trajectory witnessed over the past three weeks or so.

The emergence of fresh selling around Crude Oil prices undermines the commodity-linked Loonie, which, along with sustained US Dollar buying, continues to act as a tailwind for the USD/CAD pair. Investors remain worried that rapidly rising borrowing costs will dampen global economic growth and dent fuel demand. Apart from this, fading optimism over a strong economic recovery in China drags the black liquid lower for the second successive day.

The USD, meanwhile, stands tall near a multi-month peak and continues to draw support from the overnight hawkish remarks by Federal Reserve Chair Jerome Powell. In the prepared remarks for his semi-annual congressional testimony, Powell indicated that interest rates might need to go up faster and higher than previously anticipated. Powell further added that the US central bank is prepared to increase the pace of rate hikes to combat stubbornly high inflation.

This, in turn, lifts bets for a jumbo 50 bps lift-off at the March FOMC meeting and remains supportive of elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond is holding steady near the 4.0% threshold and the rate-sensitive two-year Treasury note hovers near its highest level since 2007. This, along with growing worries about economic headwinds stemming from rapidly rising borrowing costs, benefits the safe-haven buck.

That said, signs of stability in the equity markets hold back the USD bulls from placing aggressive bets. Traders also seem reluctant and prefer to wait on the sidelines ahead of the Bank of Canada (BoC) meeting later this Wednesday. The Canadian central bank is expected to pause its tightening cycle and leave the overnight rate unchanged. This widens the Fed-BoC policy divergence and supports prospects for a further near-term appreciating move for the USD/CAD pair.

Traders on Wednesday will further take cues from the US economic docket, featuring the release of the ADP report on private-sector employment and JOLTS Job Openings data. This, along with Powell's second day of congressional testimony, the US bond yields and the broader risk sentiment, will drive the USD demand. Apart from this, Oil price dynamics might further contribute to producing short-term trading opportunities around the USD/CAD pair.

Technical levels to watch

USD/CNH faces extra gains once 7.0000 is cleared, comment UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that ‘there is scope for USD to edge above 6.9600 but it is unlikely to be able to maintain a foothold above this level’. The anticipated advance exceeded our expectations as USD surged to a high of 6.9960. While overbought, the advance could edge above the major resistance at 7.0000. However, it remains to be seen if USD can remain above this level. The next resistance at 7.0200 is unlikely to come into view today. Support is at 6.9650, a breach of 6.9450 would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “Yesterday (07 Mar, spot at 6.9500), we noted, ‘upward momentum appears to be building’. We added, USD ‘is likely to trade with an upward bias but any advance is likely to encounter solid resistance at 7.0000’. While our view was not wrong, we did not quite expect the strong advance as USD soared to a high of 6.9960. The USD outlook is still positive but it has to break and stay above 7.0000 before further advance to 7.0200 is unlikely. The upside risk is intact as long as USD stays above 6.9140 (‘strong support’ level was at 6.9000 yesterday).”

European Central Bank (ECB) Governing Council member Ignazio Visco said in a statement on Wednesday, “monetary policy will have to remain prudent.”

“Monetary policy should be guided by data as it becomes available,” Visco added.

Market reaction

EUR/USD is in a downside consolidation mode below 1.0550 so far this Wednesday. The spot is down 0.05% on the day.

EUR/GBP faces upside risks. Economists at ING expect the pair to test key resistance at 0.8950, then 08970.

Still upside risks for EUR/GBP

“The Euro is looking more attractive than the pound, thanks to the ongoing hawkish repricing in ECB rate expectations and a more encouraging domestic outlook.”

“Like the Euro, the Pound is lacking internal drivers this week, but in light of the deterioration in sentiment and the EUR’s better fundamentals, we continue to see moderate upside risks for the pair, with a break above the near 0.8922 17 February high setting the next key resistances at 0.8950 first, and the 0.8970 February high then.”

The RBA’s decision to walk back its hawkish shift points to credibility issues ahead: economists at Credit Suisse now drop their bullish AUD bias and target AUD/USD 0.6400 by end Q1.

AUD: Are you GBP in disguise?

“The RBA’s decision to walk back its hawkish shift in its 7 Mar decision amid domestic political pressures points to renewed credibility issues, and casts AUD as the new GBP.”

“We think now markets will be more reluctant to price in a more hawkish outlook, even if data warrant it.”

“With the RBA view now fundamentally challenged, and against the backdrop of rising Fed tightening pressures, we now forgo our bullish AUD stance, and we see downside risks in AUD/USD as likely to extend as far as 0.6400 between now and quarter-end.”

• GBP/USD enters a bearish consolidation phase and oscillates in a range around the YTD low.
• Bets for more aggressive Fed rate hikes underpin the USD and act as a headwind for the pair.
• Recession risks favour the USD bulls and support prospects for additional losses for the major.

The GBP/USD pair consolidates the previous day's heavy losses and oscillates in a narrow band, just a few pips above its lowest level since November set earlier this Wednesday. The pair trades around the 1.1825 region during the first half of the European session and remains vulnerable below a technically significant 200-day Simple Moving Average (SMA).

The US Dollar bulls take a breather following the recent strong run-up to a three-month top amid signs of stability in the equity markets. This, along with the extremely oversold Relative Strength Index (RSI) on hourly charts, is seen lending some support to the GBP/USD pair. That said, any meaningful recovery still seems elusive amid rising bets for more aggressive policy tightening by the Federal Reserve.

In fact, the markets are now pricing in a greater chance of a jumbo 50 bps lift-off at the March FOMC policy meeting. The bets were lifted by Fed Chair Jerome Powell's remarks on Tuesday, indicating that interest rates might need to go up faster and higher than previously anticipated. Powell further added that the Fed is prepared to increase the pace of rate hikes to combat stubbornly high inflation.

The hawkish outlook remains supportive of elevated US Treasury bond yields, which, along with looming recession risks, support prospects for a further near-term appreciating move for the safe-haven Greenback. In fact, the yield on the benchmark 10-year US government bond holds steady around the 4.0% threshold and the rate-sensitive two-year Treasury note stands tall near its highest level since 2007.

This adds to worries about economic headwinds stemming from rapidly rising borrowing costs. Apart from this, fading hopes over a strong Chinese economic recovery and US-China tensions should keep a lid on any optimism in the markets. Moreover, an additional rate hike by the Bank of England (BoE) is already priced in, suggesting that the path of least resistance for the GBP/USD pair is to the downside.

Market participants now look to the US economic docket, featuring the release of the ADP report on private-sector employment and JOLTS Job Openings data. This, along with the broader risk sentiment, Powell's second day of testimony before the House Financial Services Committee and the US bond yields, should influence the USD and provide some meaningful impetus to the GBP/USD pair.

Technical levels to watch

In opinion of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, USD/JPY could extend the upside momentum to the 138.20 zone in the near term.

Key Quotes

24-hour view: “We expected USD to trade in a range yesterday. However, it lifted off and soared to 137.19 before extending its advance in early Asian trade. Strong momentum suggests USD is likely to rise further but the major resistance at 138.20 could be out of reach today. On the downside, any pullback is unlikely to threaten 136.50 (minor support is at 137.00).”

Next 1-3 weeks: “Two days ago (06 Mar, spot at 135.90), we indicated that the recent USD strength has ended. We added, 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’. We did anticipate USD to resume its upward trajectory so quickly as it leapt to a high of 137.19 in NY trade before extending its advance in Asia trade today. The surge in momentum is expected to lead to further USD strength, likely towards 138.20. On the downside, a breach of 136.20 (‘strong support’ level) would indicate that USD is not strengthening further.

Economists at ING expect the Bank of Canada (BoC) to stay put today, but no rates pushback. All in all, the Loonie is unlikely to see sustained gains following the central bank decision.

BoC to hold, but should leave door open for hikes

“The BoC announces monetary policy today, and is widely expected to keep rates unchanged.”

“Some cooling off in the jobs market will likely be required to make the BoC relaxed with some re-easing of financial conditions, and for now, it’s likely that Governor Tiff Macklem wants to keep the door open for more tightening if needed, also because inflation remains significantly above target.”

“More rate hikes in Canada will hardly be priced in without clear hints of a resumption of the tightening cycle. This means that CAD may see – if anything – only some short-lived benefits from the BoC announcement today, since the BoC pause makes the Loonie more vulnerable to USD appreciation compared to other currencies that can count on hawkish central banks.”

See – BoC Preview: Forecasts from seven major banks, leaving rates on hold

Considering advanced prints from CME Group for natural gas futures markets, open interest rose by around 3.6K contracts on Tuesday. Volume, instead, shrank by around 164.7K contracts after two consecutive daily builds.

Natural Gas remains supported around $2.50

Tuesday’s uptick in prices of the natural gas was accompanied by rising open interest and a marked drop in volume. Against that, the commodity could embark on a consolidative phase at the time when appears supported by the $2.50 region per MMbtu.

In early February EUR/USD traded at these 1.05 levels already. Ulrich Leuchtmann, Head of FX and Commodity Research, analyzes the pair’s outlook.

1.20 is totally unrealistic at present

“Being a safe haven is an attractive characteristic. Because it is the Dollar that possesses this characteristic, rather than the Euro as used to be the case, that means that EUR/USD exchange rates that used to be obtainable are no longer realistic from my point of view. To be precise: 1.20 is totally unrealistic at present.”

“Don’t get me wrong. 1.10 might be overly cautious, we can talk about that. And we reserve the right to adjust the EUR/USD target slightly to the upside, but as long as the described environment does not change fundamentally, I will stick to my view: the EUR/USD exchange rate is very limited on the upside.”

UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang suggest further downside is likely in AUD/USD in the next few weeks.

Key Quotes

24-hour view: “While we expected AUD to weaken yesterday, we were of the view that ‘any decline is expected to face solid support at 0.6695’. The anticipated support did not materialize as AUD nosedived to a low of 0.6580. The outsized decline appears to be overdone but AUD could drop to 0.6550 before stabilization is likely. The next support at 0.6500 is unlikely to come into view today. On the upside, any rebound is likely to stay below 0.6665 (minor resistance is at 0.6625).”

Next 1-3 weeks: “We have expected AUD to consolidate between 0.6695 and 0.6820 since two days ago. Yesterday (07 Mar, spot at 0.6760), we highlighted that ‘Looking ahead, if AUD were to break and stay below 0.6695, it would suggest the weakness in AUD has resumed’. That said, we did not expect the outsized drop as AUD cracked several strong support levels and nosedived to a low of 0.6580. While the price actions suggest AUD is likely to weaken further, any weakness is likely to be at a slower pace, and the major support at 0.6500 may not come into view so soon. The downside risk is intact as long as AUD stays below 0.6700 (‘strong resistance’ level) in the next few days.”

• NZD/USD languishes near its lowest level since November amid sustained USD buying.
• The USD remains pinned near a multi-month top amid bets for aggressive Fed rate hikes.
• The prevalent risk-off environment further acts as a headwind for the risk-sensitive Kiwi.

The NZD/USD pair seesaws between tepid gains/minor losses, around the 0.6100 mark through the early European session and consolidates its recent decline to the lowest level since November 17 touched earlier this Wednesday.

The US Dollar builds on the previous day's blowout rally led by more hawkish remarks by Federal Reserve Chair Jerome Powell and climbs to a fresh multi-month top, which, in turn, is seen acting as a headwind for the NZD/USD pair. Powell surprised investors and raised the possibility of larger rate hikes to tackle sticky inflation. In the prepared remarks for the semi-annual congressional testimony, Powell warned that interest rates might need to go up faster and higher than previously anticipated.

The markets were quick to react and started pricing in a greater chance of a 50 bps lift-off at the March FOMC policy meeting, which remains supportive of elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond is holding steady near the 4.0% threshold and the rate-sensitive two-year Treasury note stands tall near its highest level since 2007, which, along with a fresh wave of the global risk-aversion trade, continues to lend support to the safe-haven USD.

The market sentiment remains fragile amid worries about economic headwinds stemming from rapidly rising borrowing costs. Adding to this, fading optimism over a strong Chinese economic recovery, along with US-China tensions, temper investors' appetite for perceived riskier assets. This is evident from a sea of red across the equity markets, which further benefits the Greenback's status as the global reserve currency and contributes to capping any meaningful upside for the risk-sensitive Kiwi.

That said, the extremely oversold Relative Strength Index (RSI) on hourly charts helps limit losses for the NZD/USD pair, at least for the time being. Nevertheless, the fundamental backdrop seems tilted firmly in favour of bearish traders and suggests that the path of least resistance for spot prices is to the downside. Hence, any attempted recovery move is more likely to get sold into and runs the risk of fizzling out rather quickly. Investors look forward to the US macro data for a fresh impetus.

Wednesday's US economic docket features the release of the ADP report on private-sector employment and JOLTS Jobs Opening data later during the early North American session. This, along with the US bond yields and Powell's second day of testimony before the House Financial Services Committee, will drive the USD demand. Apart from this, the broader risk sentiment should influence the NZD/USD pair and allow traders to grab short-term opportunities.

Technical levels to watch

Open interest in crude oil futures markets increased by around 2.1K contracts on Tuesday, extending at the same time the erratic performance according to preliminary readings from CME Group. In the same line, volume maintained the choppiness well in place and rose by nearly 260K contracts, offsetting the previous daily drop.

WTI: Another drop to the $72.00 region should not be ruled out

Prices of the barrel of the WTI dropped markedly on Tuesday amidst increasing open interest and volume, suggesting that extra decline appears on the cards in the very near term. That said, a probable retracement to the area of 2023 lows near $72.00 remains on the table for the time being.

The Indonesian Rupiah in February lost some of the gains it made in January. Economists at ING expect the USD/IDR pair to move gradually lower over the coming months.

IDR could lag regional peers

“Bank Indonesia (BI) Governor Perry Warjiyo, declared victory against inflation, opting to keep rates untouched at the February meeting despite headline inflation staying well-above target. The end of the BI rate hike cycle means the IDR will be leaning heavily on the trade surplus for support.” 

“We expect the IDR to recover slightly given expectations for the trade balance to remain in surplus, but the end of the BI rate hike cycle means the IDR could lag regional peers.”      

“USD/IDR – 1M 14,900.00 3M 14,600.00 6M 14,450.00 12M 14,350.00”

• The index adds to Tuesday’s strong gains and approaches 106.00.
• Markets now price in a 50 bps rate hike at the March 22 event.
• ADP report, Powell’s testimony next on tap in the calendar.

The greenback, in terms of the USD Index (DXY), maintains the bid tone well and sound and approaches the 106.00 zone on Wednesday.

USD Index looks at data, Powell

The index extends the upside momentum sparked in the wake of the first semiannual testimony by Chair Powell on Tuesday and trades at shouting distance from the 106.00 region.

Indeed, the dollar gathered fresh upside traction after Powell left the door open to a half percentage point interest rate hike at the Fed’s next meeting on March 22 and hinted at the idea that the ultimate interest rate will likely be higher than previously thought.

According to CME Group’s FedWatch Tool, the probability of a 50 bps rate raise later in the month is now at around 75%, from nearly 9% a month ago.

In the meantime, the US 2-year yields navigate above the 5% mark for the first time since June 2007, always amidst the broad-based move higher in the rest of the curve.

Data wise in the US, MBA Mortgage Applications are due in the first turn seconded by February’s ADP report, Balance of Trade, JOLTs Job Openings and the second semiannual testimony by Chief Powell, this time before the House Financial Services Committee.

What to look for around USD

The index accelerates the upside momentum and navigate in multi-month highs following the hawkish testimony by Fed’s Powell 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: 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 gaining 0.12% at 105.74 and faces the next up-barrier at 105.88 (2023 high March 8) seconded by 106.59 (200-day SMA) and then 107.19 (weekly high November 30 2022). On the other hand, the breakdown of 104.09 (weekly low March 1) would open the door to 103.50 (55-day SMA) and finally 102.58 (weekly low February 14).

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, March 8 at 15:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of seven major banks, regarding the upcoming announcement.

BoC is expected to keep rates steady at 4.5% in March. There is no press conference this time.

ING

“We have much more confidence that the BoC will leave policy rates unchanged. At the 25 January BoC policy meeting, the governing council stated that it expects to ‘hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases’ at upcoming meetings. The data since then has shown inflation undershooting expectations and GDP growth stalling, yet the economy continues to create jobs. We will get an update on Canadian jobs at the end of the week and we wouldn’t be surprised to see a correction lower given the volatility in the series.”

TDS

“The downside surprise on Q4 GDP should allow the BoC to look past the blockbuster January jobs number and keep the overnight rate unchanged at 4.50%. The forward guidance is not expected to change too much from January, though the BoC might want to put more emphasis on the conditional nature of its pause. A low-energy BoC meeting would likely direct CAD's focus to the evolving global narratives. We see USD/CAD holding the 1.33/1.37 range unless US inflation goes awry this month.”

NBF

“We expect the BoC to keep its policy rate unchanged. The decision won’t come with updated projections, but the rate statement should nonetheless provide a high-level opinion on how Governing Council views recent economic developments. Our expectation is that it notes the economy is progressing ‘broadly as expected’, a characterization which should give investors more confidence that April will also result in no change to policy. A speech delivered by Senior Deputy Governor Carolyn Rogers on Thursday should reinforce this. After a year of frequent surprises on BoC announcement days, we’re relatively confident this will be a straightforward affair.” 

CIBC

“The BoC is a near lock to leave rates unchanged this month but will retain language indicating that the pause is conditional on seeing the economy track in line with the Bank’s expectations.”

MUFG

“We expect the BoC to remain in wait-and-see mode this week as they continue to assess the lagged impact of monetary tightening delivered to date.”

Citibank

“The BoC’s policy decision is very likely to see the cash target unchanged at 4.50% given that economic developments in Canada have evolved ‘broadly in line with the MPR outlook’. The most important adjustments in the policy statement will be to the guidance, where Citi analysts’ base case is for very little change.”

Wells Fargo

“For the first time since January last year, we expect the BoC to hold its policy rate steady at 4.50%. In January, the BoC raised rates 25 bps but also said if economic developments evolve broadly as expected, it would hold interest rates steady while it assessed the impact of its cumulative interest rate increases. That suggests a relatively high bar to resume rate hikes, and one we do not think has yet been met.”

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

While testifying before the US Senate on Tuesday, FOMC Chairman Jerome Powell opened the door wide open to a 50 basis points rate hike at the next meeting. Powell noted that they are prepared to increase the pace of rate hikes if data warranted it and triggered a rally in the US Dollar with the US Dollar Index (DXY) reaching its highest level since early November near 106.00. Eurostat will release the Q4 Gross Domestic Product (GDP) revision in the European session ahead of February ADP Employment Change and January Goods Trade Balance data from the US. Powell will testify before House Financial Services Committee.

In response to Powell's hawkish rhetoric, Wall Street's main indexes suffered heavy losses on Tuesday and the benchmark 10-year US Treasury bond yield recovered to the 4% area. Early Wednesday US Stock index futures trade mixed while the DXY consolidates its gains at around 105.70.

EUR/USD lost more than 100 pips on Tuesday and closed below 1.0550. The pair stays relatively quiet in the early European morning. The data from Germany showed that Industrial Production expanded by 3.5% on a monthly basis in January, surpassing the market expectation for an increase of 1.4%. On a negative note, Retail Sales contracted by 0.3% in the same period, coming in much worse than analysts' estimate for a growth of 2%. European Central Bank (ECB) President Christine Lagarde is scheduled to speak later in the session but she is not expected to touch on the policy or the economic outlook.

GBP/USD broke below 1.2000 with the initial reaction to Powell's statement and triggered a heavy technical selloff. The pair extended its slide toward in the second half of the day on Wednesday and touched its weakest level since late November. At the time of press, GBP/USD was fluctuating in a tight range at around 1.1820.

Boosted by surging US Treasury bond yields and the renewed USD strength, USD/JPY climbed to a new 2023-high above near 138.00 in the Asian trading hours before retreating modestly. The data from Japan showed earlier in the day that the Leading Economic Index and the Coincident Index in January declined to 96.5 and 96.1, respectively.

AUD/USD suffered heavy losses on Tuesday as Powell's hawkish remarks highlighted the divergence between the Fed's and the Reserve Bank of Australia's policy outlooks. Although the pair managed to recover modestly in the Asian session, it was last seen trading at around its weakest level since November near 0.6600.

Gold price erased all the previous week's gains in a single day on Tuesday as it declined below $1,810 from $1,850. XAU/USD moves up and down in a narrow channel slightly above $1,810 in the European morning.

Pressured by risk-aversion in the second half of the day, Bitcoin lost nearly 1% on Tuesday and continued to push lower early Wednesday. BTC/USD was last seen trading at $22,000, where it was down 0.9% on a daily basis. Ethereum also registered modest losses on Tuesday. ETH/USD stays on the back foot in the European morning and trades in negative territory at around $1,550.

• USD/JPY touches a fresh YTD peak on Wednesday amid sustained USD buying interest.
• Rising bets for a 50 bps Fed rate hike in March, elevated US bond yields boost the USD.
• The risk-off mood lends some support to the safe-haven JPY and caps gains for the pair.

The USD/JPY pair gains traction for the second straight day on Wednesday and climbs to its highest level since mid-December. The pair maintains its bid tone through the early European session and is currently placed around the 137.60 region, just above a technically significant 200-day Simple Moving Average (SMA).

The overnight hawkish remarks by Federal Reserve Chair Jerome Powell pushes the US Dollar to a three-month high, which, in turn, is seen acting as a tailwind for the USD/JPY pair. In the prepared remarks for his semi-annual congressional testimony, Powell indicated that interest rates might need to go up faster and higher than previously anticipated. Powell added that the Fed is prepared to increase the pace of rate hikes to combat stubbornly high inflation and warned against prematurely loosening policy.

This, in turn, lifts bets for a 50 bps rate hike at the March policy meeting and remains supportive of elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond is holding steady near the 4.0% threshold and the rate-sensitive two-year Treasury note stands tall near its highest level since 2007. This continues to lend support to the Greenback, which, along with expectations that the Bank of Japan (BoJ) will maintain the ultra-loose policy settings, is pushing the USD/JPY pair higher.

It is worth recalling that the incoming BoJ Governor Kazuo Ueda last week stressed the need to maintain the ultra-loose policy to support the fragile economy.  Ueda also said that the central bank isn't seeking a quick move away from a decade of massive easing. This marks a big divergence in comparison to the Fed's hawkish stance and supports prospects for a further appreciating move for the USD/JPY pair. That said, the risk-off mood benefits the JPY's safe-haven status and keeps a lid on any further gains for the major.

Nevertheless, the fundamental backdrop seems tilted firmly in favour of bullish traders. Market participants now look forward to the US economic docket, featuring the release of the ADP report on private-sector employment and JOLTS Job Openings data. Apart from this, Powell's second day of testimony before the House Financial Services Committee should influence the USD price dynamics and provide some impetus to the USD/JPY pair. The focus will then shift to the BoJ meeting and the US NFP report on Friday.

Technical levels to watch

In light of the recent price action, GBP/USD could weaken further and meet the next support around 1.1750 according to UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “The sharp drop in GBP came as a surprise (we were expecting GBP to trade in a range). The sharp and rapid drop is, not surprisingly, oversold. While further sharp decline is unlikely, there is room for GBP to weaken to 1.1790 before stabilization is likely. The next support at 1.1750 is unlikely to come into view today. Resistance is at 1.1860, followed by 1.1900.”

Next 1-3 weeks: “Our latest narrative was from two days ago (06 Mar, spot at 1.2035) where we highlighted that GBP ‘is likely to consolidate, expected to be between 1.1925 and 1.2120’. Yesterday, GBP plunged below 1.1925 (low has been 1.1822). While GBP could weaken further, the pace of any further decline is likely to be slower. Support is at 1.1750. The downside risk is intact as long as GBP stays below 1.1950 in the next few days.”

CME Group’s flash data for gold futures markets noted open interest extended the uptrend and rose by around 17.4K contracts on Tuesday, the largest single day build since July 22, 2022. Volume followed suit and went up sharply by nearly 143K contracts, also the highest level since late July 2022.

Gold could put the $1800 region to the test

Tuesday’s pronounced sell-off in gold prices was amidst increasing open interest and volume and opened the door to a deeper drop to, initially, the key $1800 zone per ounce troy, an area reinforced by the 100-day SMA. The loos of this zone could pave the way for a decline to the 200-day SMA, today at $1775.

FX option expiries for Mar 8 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0500 797m
• 1.0560 2.5b
• 1.0600 902m
• 1.0645 1.5b
• 1.0670 2.3b

- USD/JPY: USD amounts                     

• 135.00 1.2b
• 137.00 1.6b

- USD/CAD: USD amounts       

• 1.3350 623m

Industrial Production in Germany continued its uptrend in January, the official data showed on Wednesday, suggesting that the manufacturing sector recovery is gaining traction.

Eurozone’s economic powerhouse’s Industrial Output jumped by 3.5% MoM, the federal statistics authority Destatis said in figures adjusted for seasonal and calendar effects, vs. a 1.4% expected and -2.4% prior.

On an annualized basis, German Industrial Production arrived at -1.6% in January versus a -3.3% figure booked in December and -2.1% market expectations.

FX implications

The shared currency failed to draw inspiration from the upbeat German industrial figures, in the face of a slump in Retail Sales. At the time of writing, EUR/USD is trading at around 1.0635, losing 0.10% on the day.

About German Industrial Production

The Industrial Production released by the Statistisches Bundesamt Deutschland measures the outputs of German factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as positive (or bullish) for the EUR, whereas a low reading is seen as negative (or bearish).

• German Retail Sales plunged 6.9% YoY in January vs. -6.1% expected.
• Retail Sales in Germany came in at -0.3% MoM in January vs. 2.0% expected.

According to the official figures released by Destatis on Tuesday, Germany's Retail Sales dropped by 0.3% MoM in January versus 2.0% expected and -5.3% previous,

On an annualized basis, the bloc’s Retail Sales slumped by another 6.9% in January versus the -6.1% expected and a 6.4% decline seen in December.

FX implications

The Euro is unperturbed by the terrible German data. At the time of writing, the EUR/USD pair trades at 1.0535, down 0.10% on the day. 

About German Retail Sales

The Retail Sales released by the Statistisches Bundesamt Deutschland is a measure of changes in sales of the German retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. Positive economic growth is usually anticipated as "bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

In the view of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, further weakness could drag EUR/USD back below the 1.0500 region in the near term.

Key Quotes

24-hour view: “Our view for EUR to rise above 1.0700 was incorrect as it plunged to a low of 1.0544 in NY trade. While EUR could weaken further, any decline is unlikely to break the major support at 1.0485 today (there is another support at 1.0530). Any rebound is likely to stay below 1.0610 (minor resistance is at 1.0580).”

Next 1-3 weeks: “Yesterday (07 Mar, spot at 1.0685), we highlighted that EUR appears poised to head higher towards 1.0750. We added, ‘On the downside, a breach of the ‘strong support’ level, currently at 1.0615, would indicate that the upside risk has faded’. Our view was invalidated quickly as EUR plunged to a low of 1.0544 in NY trade. Downward momentum has improved, albeit not much. From here, as long as EUR does not move above 1.0650 (‘strong resistance’) in the next few days, it is likely to gravitate lower towards 1.0485.”

Gold price is looking to extend the downtrend into the third straight day this Wednesday. XAU/USD set for more pain if key $1,805-$1,800 support zone fails, FXStreet’s Dhwani Mehta reports.

Key $1,800 level eyed

“Should the downside gather steam, a sustained break below the critical support at $1,805 will confirm a parallel channel breakdown. The next bearish target for XAU/USD is now envisioned at the flattish 200-DMA at $1,775. Ahead of that the $1,800 round level and $1,790 could test the bullish commitments.”

“Any recovery attempts will need acceptance above the strong support-turned-resistance at $1,830, above which the bearish 21-DMA, now at $1,838, will come into the picture.”

• WTI retreats from intraday high, consolidates the biggest daily loss in two months.
• 200-HMA, sluggish RSI restricts immediate moves below the key resistances.
• One-week-old horizontal line, 100-HMA restricts immediate upside.
• Ascending trend line from late February challenges bears before giving them control.

WTI crude oil fades the early Asian session corrective bounce as it retreats to $77.65 amid Wednesday morning in Europe. That said, the black gold marked the biggest daily loss since early January the previous.

The energy benchmark’s losses on Tuesday dragged it below the 100-Hour Moving Average (HMA), as well as one-week-old horizontal support, now immediate resistance around $78.40. However, the oversold RSI (14) and the 200-HMA seem to have prodded the Oil bears afterward.

It should be noted that the commodity bears remain hopeful unless the quote trades below the 100-HMA level of $78.80.

In a case where the WTI buyers keep the reins past $78.80, the last Friday’s high near $79.90 and the $80.00 round figure could check the upside momentum before directing the run-up towards the monthly high surrounding $81.00.

On the flip side, an upward-sloping support line from February 22, close to $76.80, puts a floor under the Oil price.

Following that, a downturn towards the February 22 swing low of $73.85 and then to the previous monthly bottom surrounding $72.50 can’t be ruled out.

Overall, WTI crude oil remains on the bear’s radar despite the latest corrective move.

WTI: Hourly chart

Trend: Further downside expected

• Gold price seesaws around one-week low amid broad US Dollar strength, quiet markets.
• Fed Chair Powell’s influence on US Treasury bond yield curve acts as the key negative for XAU/USD price.
• Mixed China-linked headlines, light calendar restrict immediate Gold price decline ahead of US ADP Employment Change.
• Updates from Federal Reserve Chairman Jerome Powell’s Testimony 2.0 will also be important for Gold traders.

Gold price (XAU/USD) remains sidelined around $1,812, after refreshing the weekly low earlier in the day, as markets turn dicey ahead of the top-tier data/events scheduled for release on Wednesday. In addition to the pre-data anxiety, a light calendar in Asia and reassessment of the Federal Reserve’s (Fed) hawkish calls, as well as headlines surrounding China, also prod the XAU/USD bears after posting the biggest daily slump in a month.

The US removal of the testing restrictions on travelers from China appears an immediate challenge for the Gold bears amid silence after the storm. On the same line could be the talks surrounding a sooner end to the Bank of Japan’s (BoJ) ultra-easy money policy, which in turn allowed the US bond bears to take a breather as Tokyo is Washington’s biggest bond buyer.

That said, Fed Chair Powell surprised traders by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March during the Semi-Annual Testimony before the US Congress on Tuesday. The policymaker propelled the “higher for longer” Fed rate expectations and bolstered the US Treasury bond yields while weighing on the equities. His comments propelled the yields and the US Dollar.

Adding strength to the US Dollar’s upside were the market’s fears of more US-China tussles as officials from the US and Taiwan are up for a meeting, which in turn could tease Beijing.

It should be noted that Fed Chair Powell’s hawkish remarks widened the difference between the US 10-year and two-year Treasury bond yields, which in turn propelled the recession woes and exert downside pressure on the XAU/USD price. The US 10-year Treasury bond yields rose 0.15% while closing around 3.97% on Tuesday but the two-year counterpart gained 2.60% on a day when poking the highest levels since 2007, to 5.02% at the latest.

Against this backdrop, the S&P 500 Futures remain indecisive around the 3,988 level after falling the most in two weeks the previous day. On the other hand, the difference between the 10-year and two-year US bond coupons marked the deepest yield curve inversion in more than 40 years the previous day, keeping it intact by the press time

Looking ahead, the US ADP Employment Change for February and the second round of Fed Chair Jerome Powell’s Testimony will be important for fresh directions ahead of Friday’s US Nonfarm Payrolls (NFP).

Gold price technical analysis

Late during the last week, the Gold price marked another reversal from the 200-bar Exponential Moving Average (EMA). The pullback stretched towards breaking 13-day-old horizontal support, now resistance around $1,817, following Federal Reserve Chairman Jerome Powell’s first round of Semi-Annual Testimony on Monetary Policy.

Given the bearish signals from the Moving Average Convergence and Divergence (MACD) indicator, the XAU/USD is likely to witness further downside.

However, the Relative Strength Index (RSI) line, placed at 14, approaches the oversold territory, which in turn suggests a pause in the Gold price’s decline.

With this, the previous monthly low of around $1,804 and the $1,800 threshold could gain the market’s attention.

In a case where the XAU/USD drops below the $1,800 round figure, the 61.8% Fibonacci Expansion (FE) of the metal’s moves between February 02 to March 06, around $1,787, could lure the Gold bears.

Meanwhile, the aforementioned horizontal support-turned-resistance guards the XAU/USD’s immediate upside near $1,817, a break of which will again shift the market’s focus to the 200- EMA level surrounding $1,851.

It’s worth noting that the February 09 high and the 50% Fibonacci retracement level of the Gold price weakness during the last month, respectively near $1,890 and the $1,900 round figure, act as the last defense of the XAU/USD bears.

Overall, Gold remains on the bear’s radar but the downside room appears limited.

Gold price: Four-hour chart

Trend: Further downside expected

• AUD/USD picks up bids to pare the biggest daily loss in a month.
• Short-term support line joins oversold RSI (14) to trigger corrective rebound.
• Previous support line from February, 50-SMA restrict recovery moves.
• Multiple levels to prod the Aussie pair bears around 0.6540-20 region.

AUD/USD recovers from a four-month low surrounding 0.6565 as it approaches the 0.6600 threshold heading into Wednesday’s European session, poking 0.6595 by the press time.

In doing so, the Aussie pair bounce off a two-week-old descending support line while paring the biggest daily loss since February 03.

Not only the downward-sloping support line from February 17 but the oversold RSI (14) also puts a floor under the AUD/USD price.

The recovery moves, however, remain elusive as the previous support line from February 06, close to 0.6625 at the latest, guards the pair’s nearby upside. Following that, the 50-SMA hurdle surrounding 0.6725 can challenge the AUD/USD buyers.

It should be noted that the upside break of 0.6725 isn’t an open invitation to the AUD/USD bulls as the monthly high near 0.6775 appears the key hurdle.

Meanwhile, a downside break of the aforementioned support line, close to 0.6565 at the latest, could drag the Aussie prices towards the 0.6540-20 support zone as multiple levels marked in October 2022 might challenge the bears afterward.

In a case where the AUD/USD pair remains bearish past 0.6520, the odds of witnessing a slump toward the previous yearly low surrounding 0.6170 can’t be ruled out.

AUD/USD: Four-hour chart

Trend: Limited recovery expected

• Asia-Pacific equities ex-Japan witness losses amid fears of higher rates.
• Fed Chair Powell renews 50 bps rate hike concerns, widens yield curve inversion the most since 1981.
• Hopes from BoJ Governor’s last dovish shot, record high currency account deficit in Japan allowed Nikkei to remain firmer.
• US removes testing restrictions on travelers from China.

Share prices in the Asia-Pacific zone remain downbeat during early Wednesday amid fears of higher interest rates, as well as recession. Adding strength to the risk-off mood could be statements from Fed Chair Jerome Powell, as well as the US-China tension. However, a light calendar and reassessment of the Fed bets join cautious optimism in Japan to restrict the bearish moves of the market.

That said, MSCI’s index of Asia-Pacific shares outside Japan drops 1.75% intraday but Japan’s Nikkei 225 gained half a percent by the press time of early Wednesday morning in Europe.

While tracing the Japanese clues, a record-high Current Account Deficit in Japan joins the chatters surrounding Bank of Japan (BoJ) Governor Haruhiko Kuroda’s one last shot to defend the central bank’s easy money policy to gain major attention.

Elsewhere, Australia’s ASX 200 fails to benefit from dovish comments of Reserve Bank of Australia (RBA) Governor Philip Lowe whereas New Zealand’s NZX 50 traces its Aussie counterpart by marking the 0.75% intraday loss amid the broadly sour sentiment.

It should be noted that shares in China drop the most among the Asian markets even as the US announced the removal of the testing restrictions for China-linked travelers. The reason could be linked to fears of losing dovish bias at the People’s Bank of China (PBOC), as well as geopolitical tension between the US and China, recently over Taiwan.

On a broader front, the S&P 500 Futures remain indecisive around the 3,988 level after falling the most in two weeks the previous day. On the other hand, the difference between the 10-year and two-year US bond coupons marked the deepest yield curve inversion in more than 40 years the previous day, keeping it intact by the press time. It should be observed that the US 10-year Treasury bond yields rose 0.15% while closing around 3.97% on Tuesday but the two-year counterpart gained 2.60% on a day when poking the highest levels since 2007, to 5.02% at the latest.

Moving forward, Friday’s BoJ monetary policy meeting appears the biggest Asian event of the week. Ahead of that, the US ADP Employment Change for February and the speeches from ECB President Christine Lagarde and the second round of Fed Chair Jerome Powell’s Testimony will decorate the calendar.

Also read: S&P 500 Futures struggle as yield curve inversion turns deepest since 1981 on hawkish Fed bets

• USD/MXN struggles to extend two-day rebound from multi-month low, sidelined of late.
• Failure to cross 50-EMA, one-month-old falling trend line recalls bears.
• One-week-long horizontal support area can restrict immediate downside.

USD/MXN retreats from intraday high, snapping a two-day uptrend, as it drops to 18.10 heading into Wednesday’s European session. In doing so, the Mexican Peso (MXN) pair fades the early-week rebound from the lowest levels since April 2018.

USD/MXN rose the most in more than a month the previous day on crossing the one-week-old horizontal resistance area surrounding 18.03-07. The recovery moves also surpass a downward-sloping trend line from February 06.

However, failure to cross a convergence of the one-month-long descending resistance line and 50-bar Exponential Moving Average (EMA), around 18.15-16 by the press time, recalled the USD/MXN bears.

Even so, the previous support line from early February, around 18.10 restricts the quote’s immediate downside ahead of the resistance-turned-support zone near 18.07-03.

Following that, the 18.00 round figure could prod the USD/MXN bears before directing them to the recently flashed multi-month low of 17.94.

On the contrary, a clear upside break of the 18.15-16 resistance confluence becomes necessary for the USD/MXN bulls to take entries.

Though, the Mexican Peso pair buyers remain off the table unless witnessing a clear upside break of the one-month-old horizontal resistance, around 18.50.

Overall, USD/MXN is likely to remain depressed even as the buyers managed to keep the reins in the last two days.

USD/MXN: Four-hour chart

Trend: Further downside expected

• USD/CAD has printed a fresh four-month high at 1.3774 as the risk-aversion theme has strengthened further.
• Federal Reserve Powell has confirmed that the risk of persistent inflation is real and a higher terminal rate is expected than prior.
• Bank of Canada might keep interest rates steady as announced earlier.
• USD/CAD is running higher with sheer momentum considering the bullish message from indicators and oscillators.

USD/CAD has printed a fresh four-month high at 1.3774 in the Asian session. The Loonie asset witnessed a stellar buying interest after extremely hawkish remarks by Federal Reserve (Fed) chair Jerome Powell on Tuesday. The major has continued its upside journey as the impact of Federal Reserve Powell’s hawkish remarks has not been fully discounted yet.

S&P500 futures have retreated after an extremely weak recovery in the Asian session, portraying a healthy risk-off mood as the recovery movement has been capitalized by the market participants for making fresh shorts. The US Dollar Index (DXY) has refreshed its three-month high above 105.80 and is gathering strength for making more gains.

A confirmation of bigger rates from Federal Reserve’s Powell has resulted in more fuel for US Treasury yields. The return on 10-year US Treasury bonds has recaptured the 4.0%. Rising US yields might result in a heavy sell-off in growth and tech stocks as their future cash flows will be discounted at a higher rate.

Fed Powell endorses a higher terminal rate than previously anticipated

The street is aware of the United States' persistent inflation and the need of bringing it down quickly to comfort households from rising payouts. The US inflation was declining at a higher rate than anticipation till December. However, January’s above-targeted inflation figures, resilience in consumer spending, and surprising heavy addition of payrolls in the labor market have renewed fears of stubborn inflation.

This forced Fed’s Powell to sound extremely hawkish for interest rate guidance. Fed’s Powell in his testimony before Congress cited “ultimate level of interest rates is likely to be higher than previously anticipated,” after the “latest economic data have come in stronger than expected.”

US Employment to provide more clarity on interest rate guidance

This week, Federal Reserve (Fed) Governor Christopher Waller cited February’s strong economic indicators as a one-time blip and the price pressures will resume their downtrend from next month. Contrary to that, Federal Reserve’s Powell was extremely harsh on interest rate guidance. For clarity, investors are keenly awaiting the release of the United States Automatic Data Processing (ADP) Employment Change data, which is seen at 200K, higher than the former release of 106K.

An upbeat US ADP Employment data will bolster the case of a bigger rate hike by the Fed in its March monetary policy meeting. As per the CME FedWatch tool, the chances of 50 basis points (bps) rate hike have reached 72%.

Bank of Canada to keep monetary policy steady

The Canadian Dollar is expected to deliver power-pack volatility as the Bank of Canada (BoC) will announce the interest rate decision ahead. Bank of Canada Governor Tiff Macklem has already announced a pause in the policy tightening spell as the central bank believes that the current monetary policy is restrictive enough to tame Canada’s sticky inflation. An unchanged monetary policy by the Bank of Canada and rising chances of bigger rates from the Federal Reserve will lead to a divergence in the Fed-BoC policy.

USD/CAD technical outlook

USD/CAD has come out of the previous seven-day consolidation and has also delivered a breakout of the Descending Triangle chart pattern on the daily scale. The downward-sloping trendline of the chart pattern is plotted from October 13 high at 1.3978 while the horizontal support is placed from November 15 low at 1.3226.

Advancing 10-period Exponential Moving Average (EMA) at 1.3634 indicates that the upside momentum is extremely powerful.

The Relative Strength Index (RSI) (14) is oscillating in the bullish range of 60.00-80.00, indicating that the bullish momentum is already active.

• EUR/USD remains depressed for the second consecutive day amid strong yields, renews three-month low of late.
• ECB policymakers defend hawkish bias but lack economic support to bolster Euro.
• Fed Chair Jerome Powell renews calls for 50 bps rate hike and propel yields, US Dollar.
• Eurozone Retail Sales, US ADP Employment Change act as additional catalysts to watch clear directions.

EUR/USD renews a two-month low near 1.0525 as it extends the previous day’s south-run amid the widest yield curve inversion since 1981. It’s worth noting that the Euro pair slumped the most in more than a month the previous day on Federal Reserve (Fed) Jerome Powell’s hawkish rhetoric but a lack of major data/events seem to probe the bears of late, despite keeping them in the driver’s seat during early Wednesday.

On Tuesday, Fed Chair Powell surprised traders by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March during the Semi-Annual Testimony before the US Congress. The policymaker propelled the “higher for longer” Fed rate expectations and bolstered the US Treasury bond yields while weighing on the equities. His comments propelled the yields and the US Dollar.

It’s worth noting that the policymakers at the European Central Bank (ECB) tried to defend their hawkish stance during public appearances but could not save the EUR/USD from renewing a two-month low. That said, ECB policymaker and Spanish central bank head Pablo Hernandez de Cos said on Tuesday, “Spain’s GDP forecast is anticipated to be revised up, while CPI is expected to fall.” On a broader front, ECB policymaker Klaas Knot said on Tuesday that the ECB can be expected to keep raising interest rates for “quite some time” after March. 

Elsewhere, the US removal of the testing restrictions on travelers from China contrasts with the likely escalation of the Sino-American tensions surrounding Taiwan and Russia to weigh on the sentiment, as well as propel the US Dollar’s haven demand.

However, a light calendar in Asia and cautious mood ahead of the key EU and US data/events seem to probe the EUR/USD traders even as the sellers refreshed a multi-day low recently.

Amid these plays, the S&P 500 Futures remain indecisive around the 3,988 level after falling the most in two weeks the previous day. On the other hand, the difference between the 10-year and two-year US bond coupons marked the deepest yield curve inversion in more than 40 years the previous day, keeping it intact by the press time. It should be observed that the US 10-year Treasury bond yields rose 0.15% while closing around 3.97% on Tuesday but the two-year counterpart gained 2.60% on a day when poking the highest levels since 2007, to 5.02% at the latest.

Looking forward, Eurozone Retail Sales for January, the second readings of Gross Domestic Product (GDP) for the fourth quarter (Q4) and Employment Change for the said period will precede the US ADP Employment Change for February to decorate the calendar. Additionally important will be the speeches from ECB President Christine Lagarde and the second round of Fed Chair Jerome Powell’s Testimony.

Technical analysis

A daily closing below the two-month-old ascending support line, now immediate hurdle near 1.0540, becomes necessary for the EUR/USD bears to aim for January’s low surrounding 1.0480.

"The Bank of Japan (BoJ) will end its long-term yield control policy this year," per the latest Reuters poll published on early Wednesday. The the February 28 to March 6 survey of 26 respondents also anticipates that academic Kazuo Ueda's new leadership will dismantle the complex easing scheme and restore bond market functionality.

Additional findings

Also read: USD/JPY Price Analysis: 200-DMA prods bulls at three-month high amid overbought RSI

• USD/INR has climbed to near 82.30 amid a strengthening risk-off mood.
• The demand for US government bonds has dropped dramatically, which has pushed the 10-year US Treasury yields above 4.0%.
• Fed’s Powell believes that the terminal rate is likely to be higher than earlier expected.

The USD/INR pair has witnessed stellar buying interest at the opening as investors have started discounting the impact of the overnight jump in the US Dollar Index (DXY). The USD Index has printed a fresh three-month high above 105.80 as the Federal Reserve (Fed) chair Jerome Powell has endorsed a higher terminal rate to tame the persistent inflation.

S&P500 futures have surrendered their nominal gains generated in the Asian session, portraying an increase in the strength of the risk-aversion theme. The demand for US government bonds has dropped dramatically, which has pushed the 10-year US Treasury yields above 4.0%.

It seems that January’s above-targeted inflation figures, resilience in consumer spending, and surprising heavy addition of payrolls in the labor market forced Fed’s Powell to sound extremely hawkish for interest rate guidance.

Fed’s Powell cited “Ultimate level of interest rates is likely to be higher than previously anticipated,” after the “latest economic data have come in stronger than expected.”

The USD/INR is expected to remain volatile ahead of the release of the United States Automatic Data Processing (ADP) Employment Change data. As per the preliminary estimates, the economic data is seen at 200K, higher than the former release of 106K.

On the oil front, oil prices have dropped below $78.00 amid the mounting risk of recession in the US economy. From a longer-term perspective, Haitham Al Ghais, the Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC), said, “China is expected to account for 500k-600K bpd (barrels per day) of new oil demand this year.“ He further added, “We are cautiously optimistic about China, but Europe is a concern.”

It is worth noting that India is one of the leading importers of oil and higher oil prices will support the Indian Rupee.

• Gold price takes offers to refresh one-week low, prints three-day downtrend.
• Fed Chair Powell backs “higher for longer” rate concerns, bolsters US Treasury bond yields.
• Gap between 10-year and two-year US bond coupons turn the widest since 1981.
• US-China headlines, Powell’s Testimony 2.0 and US job numbers are the key for further XAU/USD directions.

Gold price (XAU/USD) drops for the third consecutive day as it drops to the lowest level in one week amid a broad US Dollar strength. It’s worth noting that the yellow metal dropped the most in a month the previous day after Federal Reserve (Fed) Chairman Jerome Powell surprised traders on Tuesday by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March. The policymaker propelled the “higher for longer” Fed rate expectations and bolstered the US Treasury bond yields while weighing on the XAU/USD.

That said, the US 10-year Treasury bond yields rose 0.15% while closing around 3.97% on Tuesday but the two-year counterpart gained 2.60% on a day when poking the highest levels since 2007, to 5.02% at the latest. With this, the yield curve inversion widened the most in 42 years and drowned the Gold price. Apart from the Fed and bond market plays, the Sino-American tension over Taiwan and the recent US upbeat data also exert downside pressure on the XAU/USD price.

Moving on, Fed Chair Powell’s second round of testimony and the US ADP Employment Change, the early signal for Friday’s US Nonfarm Payrolls (NFP), will be crucial for clear directions.

Also read: Gold Price Forecast: XAU/USD set for more pain if key $1,805-$1,800 support zone fails

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the Gold price slides towards the key $1,805 support confluence comprising the 100-DMA, the lows marked during the previous month and the last week, as well as the lower band of the Bollinger on the daily chart.

It should be noted that the Pivot Point one-day S1 highlights the $1,800 threshold as an extra filter towards the south before directing the XAU/USD bears toward the late 2022 bottom surrounding $1,775.

Meanwhile, the previous daily low and 10-HMA together portray the $1,815 level as the immediate upside hurdle for the Gold price.

Following that, the Pivot Point one week S1 and Fibonacci 23.6% on one-day, around $1,823, could probe the XAU/USD bulls.

It should be noted that the Fibonacci 61.8% in one-week and Fibonacci 38.2% on one-day, around $1,825 and $1,828, could act as the last defenses of the Gold bears.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

• GBP/USD has resumed its downside journey as the risk of Fed’s bigger rates has propelled US yields.
• Fed’s Powell sees a higher terminal rate than previously anticipated to bring down inflation.
• S&P500 futures have also resumed their downside journey, portraying that the risk-off mood is strengthening further.

The GBP/USD pair has delivered a downside break of the consolidation formed around 1.1820 in the Asian session. The Cable has resumed its downside journey and has refreshed its day’s low at 1.1812. Rising fears of a recession in the United States have propelled returns on US government bonds. The 10-year US Treasury yields have recaptured the 4.0% resistance.

The US Dollar Index (DXY) has refreshed its three-month high above 105.80 as the Federal Reserve (Fed) chair Jerome Powell has confirmed that bigger rates are in pipeline to tame the stubborn inflation. Fed’s Powell is expecting a higher terminal rate than previously anticipated. Meanwhile, S&P500 futures have also resumed their downside journey, portraying that the risk-off mood is strengthening further.

A breakdown from the range of 1.1914-1.2150 by the Cable is followed by a large consolidation breakdown formed in the past three months. The asset is expected to continue its downside move towards the horizontal support plotted from November 08 high around 1.1600.

The 20-period Exponential Moving Average (EMA) at 1.1960 is expected to act as a major barricade for the Pound Sterling.

Also, the Relative Strength Index (RSI) (14) has slipped into the bearish range of 20.00-40.00, which indicates that the downside momentum has been triggered.

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 four-hour chart

• AUD/USD is expected to deliver more losses below 0.6570 as RBA’s Lowe has considered a pause in the policy-tightening spell.
• Mounting fears of a recession in the United States have triggered the risk-aversion theme.
• RBA’s Lowe believes the reopening of the Chinese economy will positive for the Australian economy.

The AUD/USD pair is demonstrating volatility contraction after a perpendicular downside move inspired by extremely hawkish remarks from Federal Reserve (Fed) chair Jerome Powell. The Aussie asset is displaying back-and-forth action below 0.6600 and is expected to display more weakness amid less-hawkish commentary from Reserve Bank of Australia (RBA) Governor Philip Lowe despite a one-time slash in Australian inflation.

S&P500 futures have surrendered their nominal losses earned in the early Asian session as the risk profile is getting depressed further. Mounting fears of a recession in the United States have triggered the risk-aversion theme. The US Dollar Index (DXY) has resumed its upside journey and has scaled to a fresh three-month high above 105.70. The alpha generated on 10-year US Treasury bonds has recaptured the 4.0% resistance.

The remarks from RBA Governor Philip Lowe are impacting the Australian Dollar. RBA’s 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.” It seems that the slowdown in January’s monthly Consumer Price Index (CPI) has infused confidence in the sentiment of RBA’s Lowe.

Apart from that, RBA’s Lowe believes that the reopening of the Chinese economy will positive for the Australian economy. It is worth noting that Australia is a leading trading partner of China and a gloomy economic outlook of china will support the Australian Dollar.

Going forward, the US Dollar will be guided by the United States Automatic Data Processing (ADP) Employment Change (Feb) data. According to the estimates, the US economy has added fresh payrolls by 200K, higher than the former release of 106K.

Later this week, the US Nonfarm Payrolls (NFP) data will provide more clarity. Along with that, the release of the Unemployment Rate and Average Hourly Earnings data will be of utmost importance.

• USD/JPY clings to mild gains near the highest levels since mid-December 2022.
• Sustained break of 100-DMA favors bulls to keep the reins.
• One-month-old ascending resistance line adds to the upside filters.

USD/JPY buyers occupy the driver’s seat even as markets remain calm during early Wednesday, following a volatile end to Tuesday’s trading session. In doing so, the Yen pair makes rounds to the 137.40-50 area after rising to the highest levels since mid-December 2022.

It should be noted that the Yen pair’s latest run-up could be linked to a successful upside break of the 100-DMA hurdle. However, the 200-DMA level surrounding 137.45-50 restricts the quote’s immediate upside amid the overbought conditions of the RSI (14).

Even if the USD/JPY bulls manage to cross the stated key moving average, an upward-sloping resistance line from early February, near 138.35 by the press time, could challenge the pair’s further advances.

In a case where the Yen pair bulls ignore the RSI conditions and keep the controls past the aforementioned resistance line, the 50% Fibonacci retracement level of its downturn from October 2022 to January 2023, near 139.60, may act as an additional upside filter.

Meanwhile, the 38.2% Fibonacci retracement level and the 100-DMA, respectively near 136.70 and 136.25, restrict short-term USD/JPY downside.

Following that, a one-month-old ascending support line, near 135.45 at the latest, will be crucial for the bears to watch.

USD/JPY: Daily chart

Trend: Limited upside expected

The Bank of Japan (BoJ) announced that it conducted bond-buying in its routine daily operation on Wednesday.

Key details

“BoJ Offers To Buy JPY1.90Tln Worth Of JGBs

JPY425Bln 1-3 Year

JPY500Bln 3-5 Year

JPY675Bln 5-10 Year

JPY300Bln 10-25 Year.”

This comes a couple of days ahead of the BoJ’s monetary policy decision, the final one for Governor Haruhiko Kuroda, as his term expires in early April.

Market reaction

USD/JPY is consolidating near three-month highs of 137.50, adding 0.17% on the day. The pair benefits from higher US Treasury bonds yields, as hawkish Federal Reserve rate hike expectations storm through the roof on Chair Jerome Powell’s testimony.

• NZD/USD clings to mild losses near the lowest levels since late November 2022.
• China-linked news, lack of major data/events allow Kiwi bears to take a breather.
• US ADP Employment Change, Fed Chair Powell’s testimony 2.0 eyed for clear directions.

NZD/USD stays defensive around the 0.6100 round figure during early Wednesday, following a slump to the lowest levels in more than three months. In doing so, the Kiwi pair portrays the market’s habit of reassessing the previous catalysts amid a light calendar, as well as ahead of the key data/events.

Apart from the price positioning and pre-data anxiety, the Kiwi pair’s latest inaction could also be linked to the risk-positive headlines surrounding China as the US removes testing restrictions on travelers from the dragon nation. However, the hawkish Fed concerns and the fears of the Sino-American tension over the US-Taiwan meeting seem to keep the bears hopeful.

That said, the Kiwi pair marked the biggest daily slump in five weeks the previous day after Federal Reserve (Fed) Chairman Jerome Powell surprised traders on Tuesday by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March. The policymaker propelled the “higher for longer” Fed rate expectations and bolstered the US Treasury bond yields while weighing on the equities. His comments propelled the yields and the US Dollar while also drowning the commodities and equities and Antipodeans.

It should be noted that the S&P 500 Futures remain indecisive around the 3,992 level after falling the most in two weeks. On the other hand, the difference between the 10-year and two-year US bond coupons marked the deepest yield curve inversion in more than 40 years the previous day, keeping it intact by the press time. That said, the US 10-year Treasury bond yields rose 0.15% while closing around 3.97% on Tuesday but the two-year counterpart gained 2.60% on a day when poking the highest levels since 2007, to 5.02% at the latest.

Moving forward, risk catalysts may entertain NZD/USD traders but major attention will be given to Fed Chair Powell’s second round of testimony and the US ADP Employment Change, the early signal for Friday’s US Nonfarm Payrolls (NFP), for clear directions.

Technical analysis

The first daily closing below the 200-DMA in more three months directs NZD/USD towards late November 2022 bottom surrounding 0.6060.

Haitham Al Ghais, the Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC), said on Wednesday, “China is expected to account for 500-600 bpd (barrels per day) of new oil demand this year.“

“We are cautiously optimistic about China, but Europe is a concern.” He added.

Related reads

• WTI plunges as traders brace for higher US interest rates
• S&P 500 Futures struggle as yield curve inversion turns deepest since 1981 on hawkish Fed bets

• USD/CHF remains sidelined after posting the biggest daily gains in five weeks.
• Clear upside break of 100-DMA joins momentum-positive oscillators to favor bulls.
• Monthly support line adds to the downside filters, 0.9440 holds the key to pair’s run-up towards 200-DMA.

USD/CHF grinds with a choppy range between 0.9415 and 0.9425 during early Wednesday, after posting the heavy daily jump since early February. In doing so, the Swiss currency (CHF) pair seesaws around the weekly top in search of more clues to extend the previous day’s rally that crossed the key hurdle to the north.

The 100-DMA breakout appears the key bullish signal for the USD/CHF traders even if they flirt with the key moving average near 0.9415 as of late. That said, the firmer RSI (14), not overbought, joins the bullish MACD signals to back the upside bias.

However, the year 2023 peak marked in the last week around 0.9440 guards the USD/CHF pair’s immediate upside.

Following that, the 0.9500 threshold may test a run-up targeting the 200-DMA level surrounding 0.9565. Also acting as upside filters are the tops marked during late November 2022, around 0.9550 and the 0.9600 round figure.

On the contrary, a daily closing below the 100-DMA resistance-turned-support of 0.9415 will need validation from the 0.9400 round figure to convince the USD/CHF bears.

Even so, an upward-sloping support line from early February and the 50-DMA could challenge the pair sellers around 0.9295 and 0.9265 respectively.

Overall, USD/CHF remains on the bull’s radar but the 0.9440 hurdle should play its role as a trigger for the pair’s further upside.

USD/CHF: Daily chart

Trend: Further upside expected

• USD/CAD bulls are in the market following a hawkish Fed chair Powell. 
• Bulls eye the 1.3850s but a retest of prior resistance could be in order.

USD/CAD is riding dynamic support after Federal Reserve's chairman Jerome Powell 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," Fed's Powell said in his testimony. 

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 and USD/CAD remains better bid as the following illustrates:

USD/CAD daily charts

The daily charts show that the price is well and truly front side of the bullish move and there is room to go still. However, a correction could be on the cards as the following illustrates:

USD/CAD H1 chart

The prior resistance near 1.3680 is vulnerable to a restest as the above shows prior to the next move higher. From a lower time frame perspective, the bears have a lot of work to do first:

The hourly chart has a series of trendline support that the bears will need to crack and horizontal structures as well, but a break of 1.3720 opens the risk of a test below 1.3700 and a move through the Fibonacci scale with the 50% mean reversion level eyed in the 1.3650s.

• Market sentiment remains dicey after Fed Chair Powell-led volatility end to Tuesday’s North American session.
• S&P 500 Futures remain sidelined even as Wall Street closed in the red.
• US Treasury bond yields print the widest yield curve inversion in 40 years.
• Second-tier data, US-China headlines could entertain traders, bears can keep the reins unless Powell surprises markets in testimony 2.0.

Trading sentiment remains dicey during early Wednesday, after witnessing a volatile day, as market players seek more clues to extend the latest risk-off mood amid a light calendar in Asia.  It should be noted, however, that the bears keep the reins amid fears of higher interest rates and more US-China tensions even if the traders refrain from acting too vivid of late.

While portraying the mood, the S&P 500 Futures remain indecisive around the 3,992 level after falling the most in two weeks. On the other hand, the US 10-year Treasury bond yields rose 0.15% while closing around 3.97% on Tuesday but the two-year counterpart gained 2.60% on a day when poking the highest levels since 2007, to 5.02% at the latest. With this, the difference between the 10-year and two-year bond coupons marked the widest yield curve inversion in more than 40 years.

The yield curve inversion highlights the recession fears and supersedes the latest headlines suggesting the US removal of testing restrictions on travelers from China. The reason could be linked to the US-China tussles over Taiwan and Russia.

Above all, hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell play a key role in keeping the markets pessimistic. That said, Fed’s Powell surprised traders on Tuesday by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March. The policymaker propelled the “higher for longer” Fed rate expectations and bolstered the US Treasury bond yields while weighing on the equities.

Elsewhere, an uptick in the US Wholesale Trade in January and hawkish comments from the European Central Bank (ECB), as well as the Bank of England (BoE), officials also weigh on the market sentiment and underpins the US Dollar’s strength. The same weighs on commodity prices and exerts downside pressure on the Antipodeans.

Looking forward, the monetary policy meeting of the Bank of Canada (BoC) will join Fed Chair Powell’s second round of testimony and the US ADP Employment Change, the early signal for Friday’s US Nonfarm Payrolls (NFP), to entertain market players.

• EUR/JPY has sensed selling pressure around 145.00 amid rising bets for the expansion of JGBs’s yields cap.
• BoJ Ueda has already conveyed that Japanese inflation is coming from international forces and is not growing domestically.
• A recovery in German Retail Sales might propel inflationary pressures.

The EUR/JPY pair has faced barricades around 145.00 after a recovery move in the Tokyo session. It looks like the cross has retreated on expectations that Bank of Japan (BoJ) Governor Haruhiko Kuroda could tweak the Yields Curve Control (YCC) on Japanese Government Bonds (JGBs), in his last monetary policy announcement.

A power-pack action is expected from the Japanese Yen as investors will keenly watch BoJ Kuroda last time dictating the monetary policy. Harsh struggles in lifting the labor cost index and spurting growth rates by the Japanese economy might compel the BoJ to sound dovish on interest rates. A continuation of an ultra-loose monetary policy is expected as Tokyo inflation showed a steep decline in January.

BoJ Governor Nominee Kazuo Ueda has already conveyed that inflationary pressures in the Japanese economy are coming from international forces and are not growing domestically. Therefore, the maintenance of an expansionary monetary policy is highly expected.

Over yield cap, Reuters reported that “With rising inflation pushing up long-term interest rates, some investors bet the BOJ may tweak yield curve control (YCC), such as by raising the 10-year yield cap, as early as next week's policy meeting.”

On the Eurozone front, the Euro is likely to dance to the tunes of German Retail Sales data. The monthly data is expected to deliver an expansion by 2.0% vs. a contraction of 5.3% released earlier. The release of the same will clear that retail demand is recovering again and could spurt inflation ahead.

European Central Bank (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.” This could force ECB President Christine Lagarde to go strong for interest rates beyond March.

• Silver price takes offers to refresh multi-day low during three-day downtrend.
• Clear break of six-month-old support line, the key Fibonacci retracement level joins bearish MACD signals to favor XAG/USD sellers.
• 200-DMA, monthly resistance line add to the upside filters.

Silver price (XAG/USD) remains depressed at the lowest levels in four months as sellers poke the $20.00 psychological magnet to refresh the multi-day low during Wednesday’s Asian session.

In doing so, the bright metal extends the previous day’s downside break of a six-month-old ascending support line, as well as the 61.8% Fibonacci retracement level of the metal’s run-up from September 2022 to February 2023. Adding strength to the downside bias are the bearish MACD signals.

It’s worth noting, however, that the RSI (14) is in the oversold territory and hence multiple supports around $19.80 and $19.60 could restrict short-term XAG/USD declines.

Following that, the 78.6% Fibonacci retracement level surrounding the $19.00 round figure could lure the Silver bears before directing them to the lows marked during the last October and September, respectively near $18.10 and $17.55.

Meanwhile, the 61.8% Fibonacci retracement level, also known as the golden Fibonacci ratio, could restrict short-term XAG/USD recovery at around $20.25 before the support-turned-resistance line from September 2022, close to $20.60 by the press time.

In a case where the Silver price remains firmer past $20.60, the 200-DMA and a one-month-old resistance line, around $21.00 and $21.20, may act as the last defenses of the XAG/USD bears.

Silver price: Daily chart

Trend: Further downside expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.9525 vs. the previous fix of 6.9156 and the previous close of 6.9726.

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.

• Fed's Powell moves the markets and Gold price collapses.
• Gold price breaks out which leaves $1,800 vulnerable and the $1,770s thereafter.

Gold price is licking its wounds as being highly susceptible to the prospects of a firmer rate hike of 50 bps from the Federal Reserve. At the time of writing, Gold price is trading at $1,813.53 and has been testing lower in Asia to $1,1812.60, a fresh low made following the sell-off that ensued on the back of an uber-hawkish Federal Reserve chair Jerome Powell on Tuesday who testified to Congress. 

Gold price dropped hard on the back of Fed chair Powell's comments, dropping hard like the heavily weighted metal that it is from a high on the day of $1,851.70 to a low of $1,1812.36. This has come about due to the Federal Reserve's chair Jerome Powell saying that the US central bank will stay the course until the job is done. He added more fuel to the fire by saying that the ultimate level of interest rates is likely to be higher than previously anticipated.

The clincher is when 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," Fed's Powell said in his testimony. 

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, slammed through 105 the figure in a move that started out from 104.43 and kept going until 105.435, weighing heavily on the Gold price.

China increased its gold reserves for a fourth month

Meanwhile, data on Tuesday revealed that China increased its gold reserves for a fourth month in February. ''Reports that China's central bank added another 25t of gold to their reserves in February are keeping the spotlight on physical flows in precious metals, which are increasingly dominating financial flows,'' analysts at TD Securities said. 

''This fits with our observations of the microstructure in gold — elevated premiums in China, despite modest mainland wholesale demand implied by Shanghai Gold Exchange withdrawals and little activity in our tracking of Shanghai positioning, suggest that elevated Chinese demand is still overwhelmingly driven by official sector purchases,'' the analysts explained, adding, ''in turn, while the focus remains on Chair Powell's congressional testimony this session, financial flows are increasingly being dominated by physical demand.''

Gold technical analysis

In prior analysis, Gold Price Forecast: XAU/USD bears move in for the kill ahead of key event, Fed's Powell, it was explained that ''the 200dma was some way off but it was within striking distance depending on the outcome of this week's data and events.''

The analysis showed that 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:

Gold price update

It was also explained in the Chart of the Week article, Gold, the Chart of the Week: XAU/USD bulls ride H4 dynamic support on key week ahead that the Gold price was riding dynamic support that would be expected to hold initial tests ''but a break thereof opens the risk of a move to test the $1,825 all-important support structure. A break there will most probably see a flurry of orders triggered and a fast subsequent move lower.'' 

As illustrated above, we have seen that break happen which leaves $1,800 vulnerable and the $1,770s.

• GBP/USD seesaws around multi-day low after falling the most in 11 weeks.
• Fed Chairman Jerome Powell’s hawkish Testimony, Brexit woes join BoE rate hike concerns to entertain Cable bears.
• The deepest US Treasury bond yield curve inversion in 40 years weigh on GBP/USD.
• Risk catalysts, Powell’s testimony 2.0 and second-tier US data eyed for clear directions.

GBP/USD struggles to defend the 1.1800 threshold at the lowest levels since late November 2022 even as the market turns dicey during early Wednesday. That said, the mixed plays surrounding Brexit and the Bank of England (BoE) seem to push the Cable pair towards making rounds to 1.1830-20 of late.

“The Bank of England has admitted that Brexit is making the City easier to regulate despite issuing warnings against the Government’s plan to axe swathes of red tape,” said The Telegraph. On the other hand, The Guardian highlights the push the British business leaders use over the UK government to fasten the Brexit practice, which in turn highlights the hopes of an end to the multi-month-old policy deadlock. “Business leaders say frayed relations with the EU are costing the British economy, as suppliers in the bloc grow more cautious about doing business with post-Brexit Britain,” said The Guardian.

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

Above all, hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell, as well as the widest negative yield differentials between the 10-year and two-year US Treasury bonds, gain major attention the previous day and drowned the GBP/USD price.

It should be noted that Fed’s Powell surprised markets by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March. The policymaker propelled the “higher for longer” Fed rate expectations and bolstered the US Treasury bond yields while weighing on the equities.

Talking about the yields, the US 10-year Treasury bond yields rose 0.15% while closing around 3.97% on Tuesday but the two-year counterpart gained 2.60% on a day when poking the highest levels since 2007, to 5.02% at the latest. With this, the difference between the 10-year and two-year bond coupons marked the widest yield curve inversion in 40 years and portrays the recession, which in turn underpins the US Dollar’s safe-haven demand and weighs on the GBP/USD pair.

On a different page, the US removal of testing restrictions on travelers from China contrasts with the US-China tussles over Taiwan and Russia to probe the sentiment. Even so, the S&P 500 Futures remain indecisive while waiting for more signals to track Wall Street’s losses.

Looking ahead, a light calendar in the UK may restrict GBP/USD moves after a volatile day. However, Fed Chair Powell’s second round of testimony and the US ADP Employment Change, the early signal for Friday’s US Nonfarm Payrolls (NFP), will be observed more closely for clear directions.

Technical analysis

A daily closing below the 200-DMA, around 1.1905 by the press time, directs GBP/USD bears towards the September 2022 peak of 1.1738.

• EUR/USD is declining towards 1.0530 as Fed’s Powell has confirmed that current monetary policy is not restrictive enough.
• A dead cat bounce move by the S&P500 futures has faded as the risk-aversion theme is strengthening further.
• ECB Knot sees more interest rate hikes beyond March amid solid inflationary pressures.

The EUR/USD pair has delivered a downside break of the consolidation around 1.0550 in the Asian session. It seems that the major currency pair has resumed its downside journey and is expected to deliver more losses amid negative market sentiment. The shared currency pair is expected to find a cushion around 1.0530.

A dead cat bounce move by the S&P500 futures has faded as the risk-aversion theme is strengthening further. The US Dollar Index (DXY) has already pushed its upside to a three-month high above 105.60 and is expected to deliver gains amid a sheer improvement in safe-haven’s appeal. The 10-year US Treasury yields have scaled above 3.97%.

Mounting recession fears in the United States economy after an extremely hawkish commentary from Federal Reserve (Fed) chair Jerome Powell while testifying before Congress has strengthened the US Dollar. Fed’s Powell is considering more rates as ‘fit and proper’ to scale down the red-hot inflation. He has confirmed that the current monetary policy is not restrictive enough to bring down inflation to desired levels.

Consideration of a higher terminal rate than previously anticipated has stemmed from exceptionally higher payrolls reported in January. Earlier, Fed Governor Christopher Waller cited February’s economic data as a one-time blip and the price pressures will resume their downtrend from next month. Therefore, investors will get more clarity after the release of the US Automatic Data Processing (ADP) Employment Change (Feb) data, which is seen higher at 200K vs. the former release of 106K.

On the Eurozone front, investors are shifting their focus toward German Retail Sales (Jan) data. The monthly data is expected to deliver an expansion by 2.0% vs. a contraction of 5.3% released earlier. This could propel inflationary pressures as a recovery in retail demand could trigger the German Consumer Price Index (CPI) ahead.

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.

• AUD/USD remains depressed at the lowest levels in four months.
• Clear downside break of previous support line from February, bearish MACD signals favor Aussie pair sellers.
• 61.8% Fibonacci retracement level, five-month-old horizontal support zone join oversold RSI (14) to challenge bears.
• AUD/USD recovery remains elusive below 0.6780-85 resistance confluence.

AUD/USD bears keep the reins at a four-month low, making rounds to 0.6580-90 during early Wednesday, following the biggest daily slump in a month.

That said, a clear downside break of a one-month-old descending trend line joins the bearish MACD signals to keep the Aussie sellers in the driver’s seat even if the latest inaction probes the downside momentum. On the same line could be the oversold conditions of the RSI (14) line.

Even so, the AUD/USD prices remain on their way to hitting the next key support area, namely the 0.6540-20 region comprising the 61.8% Fibonacci retracement level of October 2022 to February 2023 upside and multiple levels marked in the last five months.

It’s worth noting that the Aussie pair’s weakness past 0.6520 could aim for the last September’s low surrounding 0.6360 and may witness multiple supports near 0.6350-40 before highlighting the late 2022 bottom of around 0.6170.

Alternatively, the support-turned-resistance line from early February, close to 0.6630 by the press time, precedes the 50% Fibonacci retracement level of 0.6665 to cap the short-term upside of the AUD/USD pair.

Following that, a one-month-old descending resistance line near 0.6720 could lure the pair buyers.

However, a convergence of the 200-DMA and 38.2% Fibonacci retracement, near 0.6780-85, appears a tough nut to crack for the AUD/USD bulls.

AUD/USD: Daily chart

Trend: Limited downside expected

• USD/JPY has touched a high of 137.40 as Fed has confirmed more rates to tame sticky inflation.
• The risk aversion theme has pushed the 10-year US Treasury yields above 3.98%.
• Maintenance of an ultra-loose monetary policy is highly expected in the last BoJ Kuroda’s policy.

The USD/JPY pair has scaled to near 137.40 in the early Asian session after an unusual upside move inspired by hawkish commentary from Federal Reserve (Fed) chair Jerome Powell in his testimony before Congress. Fed’s Powell has endorsed more rates citing inflation as extremely sticky considering the incoming data from the United States economy.

Nominal gains have been recorded in the S&P500 futures after an intense sell-off on Tuesday, which could be minor short coverings amid a downbeat market mood. The US Dollar Index (DXY) settled Tuesday’s session at a three-month high above 105.60 as the risk of recession in the United States economy has soared. The risk aversion theme has pushed the 10-year US Treasury yields above 3.98%.

Fed’s Powell in his testimony before Congress unveiled a further roadmap for bringing down the sticky inflation. More interest rates are in pipeline as the current monetary policy is not restrictive enough to achieve price stability. According to the Fed Powell’s testimony, investors should be prepared for more rate hikes than earlier expected as economic indicators are conveying that inflationary pressures are extremely hot.

Investors should be aware of the fact that this was the first commentary from Fed’s Powell on interest rates after observing resilience in consumer spending and an upbeat labor market through January’s economic data.

Going forward, the release of the US Automatic Data Processing (ADP) Employment Change (Feb) data will be of utmost importance. The economic data is seen higher at 200K vs. the former release of 106K.

On the Tokyo front, investors are keenly awaiting the last monetary policy dictation from Bank of Japan (BoJ) Governor Haruhiko Kuroda, scheduled for Friday. Maintenance of an ultra-loose monetary policy is highly expected as the economy is focused on uplifting the labor cost index. The street has mixed responses towards tweaking yields on Japanese Government Bonds (JGBs).

• US Dollar Index remains sidelined at three-month high after rising the most since early October 2022.
• Fed Chair Powell’s support to “higher for longer” rate concerns fuelled near-term yields more than 10-year bond coupons.
• The strongest yield curve inversion in 40 years propel US Dollar’s safe-haven demand.
• Powell’s Testimony 2.0, US ADP Employment Change eyed for fresh impulse.

US Dollar Index (DXY) seesaws around the December 2022 highs, making rounds to 105.60-65 during early Wednesday, as the greenback bulls take a breather after the biggest daily jump in five months.

The US Dollar’s gauge versus the six major currencies cheered hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell, as well as the widest negative yield differentials between the 10-year and two-year US Treasury bonds, to please the bulls. However, the market’s reassessments of hawkish Fed concerns and a lack of major data/events join a cautious mood ahead of Fed Chair Powell’s second round of testimony, this time in front of the US House of Representatives Financial Services Committee, to probe the DXY buyers of late.

Fed’s Powell surprised markets by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March. The policymaker propelled the “higher for longer” Fed rate expectations and bolstered the US Treasury bond yields while weighing on the equities.

That said, the US 10-year Treasury bond yields rose 0.15% while closing around 3.97% on Tuesday but the two-year counterpart gained 2.60% on a day when poking the highest levels since 2007, to 5.02% at the latest. With this, the difference between the 10-year and two-year bond coupons marked the widest yield curve inversion in 40 years and portrays the recession, which in turn underpins the US Dollar’s safe-haven demand.

Apart from the Fed chatters and yields, the US-China tension and an uptick in the US Wholesale Trade in January also allowed the DXY to remain firmer.

It should be noted that the S&P 500 Futures remain indecisive while waiting for more signals to track Wall Street’s losses.

Moving on, Fed Chair Powell’s second round of testimony may not be too interesting but won’t be ignored whereas the US ADP Employment Change, the early signal for Friday’s US Nonfarm Payrolls (NFP), will be observed more closely for clear directions of the US Dollar Index.

Technical analysis

The first daily closing beyond the 100-DMA since early November 2022 directs the US Dollar Index toward the 200-DMA hurdle of 106.70.

• NZD/USD is under pressure following the hawkishness from Fed's Powell. 
• NZD/USD bulls await an opportunity to correct into shorts. 

NZD is lower versus most key crosses on Wednesday as the high betas take a beating due to the Federal Reserve's chair Jerome Powell saying 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."

NZD/USD H4 charts

NZD/USD could see another burst to the downside given the momentum in the move with Asia and London yet to come online since the fed's chairman's announcements. However, a correction would be expected at some stage. Pulling the Fibonacci scale up against the current bearish impulse and measuring it from near 0.61 the figure, a retracement towards the 0.6140s, /50s and /70s aligns with the 38.2%, 50%, and 61.8% ratios. 

NZD/USD daily chart

On the other hand, the daily inverse head and shoulders pattern still points to a move higher while above 0.6050 with 0.6270 a resistance that guards 0.6390/0.6400.