Forex-novosti i prognoze od 10-05-2022

• AUD/NZD is teeing up for a bullish continuation on the daily chart.
• H1 is currently bearish, but bulls await a break of the lower highs. 

AUD/NZD bulls are in anticipation of an onward bullish continuation on the daily chart and the following illustrates the current market structure and challenges for the bulls for the meantime. 

AUD/NZD daily chart

The price has corrected a significant portion of the prior daily bullish impose. There are now prospects, so long as the bulls stay committed, for bullish continuation to play out over the foreseeable future on the daily chart. 

AUD/NZD H1 chart

The bearish divergence is a potential meanwhile hindrance for the bulls. However, a break of the lower highs within the bear trend could be the green light needed to encourage buyers, ultimately leading to the start of a fresh daily sure to the upside. 

• Silver remains on the back foot after breaking seven-month-old horizontal support.
• Bearish MACD signals, downbeat RSI keep sellers hopeful.
• September 2019 peak appears a tough nut to crack for sellers, corrective pullback needs validation from $22.00.

Silver (XAG/USD) licks its wounds around a recently flashed two-year low, sidelined near $21.30 during Wednesday’s initial Asian session.

The bright metal slumped to the lowest levels since June 2020 the previous day on breaking horizontal support stretched from October 2021.

With the RSI and MACD conditions joining the latest support break, silver prices are likely to witness further downside.

That said, the 200-week SMA level surrounding $20.20 appears immediate level on the bear’s radar.

Following that, the $20.00 psychological magnet and September 2019 peak of $19.65 will challenge the further downside.

Alternatively, recovery moves beyond the support-turned-resistance around $21.45 need validation from a 17-month-long horizontal area near $22.00 to convince buyers.

Silver: Weekly chart

Trend: Bearish

• EUR/JPY oscillates in a 48-pips range as investors see Germany's HICP stable at 7.8%.
• The ECB may accelerate its interest rates after concluding the APP.
• The BOJ will keep on deploying liquidity to spurt aggregate demand.

The EUR/JPY pair is displaying back and forth moves in a narrow range of 137.03-137.51 in the Asian session. On a broader note, the cross is oscillating in a tad wide range of 136.59-138.32 over the last two weeks. It looks like the market participants are waiting for a potential trigger that could bring a meaningful move in the asset.

The euro bulls are awaiting the speech from European Central Bank (ECB)’s President Christine Lagarde, which will provide some clues over the interest rate decision by the ECB next month. It seems that ECB Lagarde will dictate over concluding the Asset Purchase Program (APP) this year. The ECB could elevate its interest rate only after concluding its APP program. The central bank needs to deploy all quantitative measures to address galloping inflation. Also, the comments from ECB’s Lagarde over the chances of stagflation due to the Ukraine crisis will be important to look after.

Apart from ECB’s Lagarde speech, Germany’s Harmonized Index of Consumer Prices (HICP) will remain in focus. The yearly HICP is expected to land at 7.8%, in line with the prior figure. A higher-than-expected figure could weaken the shared currency bulls.

On the Japanese front, commitment to an ultra-loose monetary policy is still haunting the yen bulls. Japan’s economy has yet not reached its pre-pandemic levels. Therefore, the Bank of Japan (BOJ) will keep on deploying stimulus to spurt the aggregate demand.

Early Wednesday morning in Asia, the UK’s think tank National Institute of Economic and Social Research (NIESR) crossed wires via the Financial Times (FT) by saying, “The Bank of England will need to raise interest rates to 2.5% and keep them there until the middle of the decade in order to bring soaring inflation under control.”

The news also quotes NIESR Deputy Director Stephen Millard saying that the BoE could be overestimating how far demand headwinds will curb inflation.

Additional quotes

GBP/USD remains pressured

GBP/USD stays directed towards the yearly low surrounding 1.2260 following the news, on the back foot around 1.2315 by the press time.

Read: GBP/USD steadies around 1.2300 as investors await US CPI, Brexit NIP jitters

“The US GDP will increase by 2.6% this year,” said Atlanta Fed President Raphael Bostic. The policymaker also mentioned that the economy is strong, and demand is high.

Watch here: Atlanta Fed President Bostic speaking at The Financial Markets Conference

Additional comments

Fed policy must be robust, vigilant, and adaptive.

Market implications

Following the comments, EUR/USD remains defensive around 1.0530, keeping the two-week-old trading range intact, as market players await the key US inflation data.

Also read: US April CPI Preview: Has inflation peaked?

• On Tuesday, the GBP/JPY recorded minimal gains of 0.01%.
• As the Asian session begins, the market mood remains mixed, so beware of sudden JPY strength, despite the Bank of Japan’s commitment to ultra-loose monetary policy.
• GBP/JPY Price Forecast: The confirmation of a head-and-shoulders chart pattern would send the pair tumbling toward 152.00.

The GBP/JPY pares some of Monday’s losses though formed a doji in the daily chart, as traders remain undecided to push prices below the 160.00 mark or upwards to the 20-day moving average (DMA) at 163.16 in the Asian session. At the time of writing, the GBP/JPY is trading at 160.51.

Sentiment remains mixed as Asian equity futures fluctuate before the Sydney open. Fed speakers favored 50-bps rate hikes in the Federal Funds Rate (FFR) in the US session as inflation figures to be released on Wednesday loom. Also, higher US Treasury yields and China’s coronavirus crisis restrictions threaten to disrupt the global economic recovery.

That said, in the overnight session, the GBP/JPY opened near the 160.59 area and dipped near the daily lows around 160.00. nevertheless, during the European session, the cross-currency pair reached a daily high at 161.51, depicting a 150-pip range in the day. However, at the end of the trading session, a doji in the daily chart depicts that buying and selling pressure is at equilibrium.

GBP/JPY Price Forecast: Technical outlook

Despite the aforementioned in the paragraph above, a head-and-shoulders chart pattern looms. The Relative Strength Index (RSI), around 43.77, is in bearish territory, but the GBP/JPY remains range-bound.

If that scenario plays out, and the GBP/JPY breaks below the neckline, around 160.20-30, the first support would be the 100-day moving average (DMA) at 157.83. Breach of the latter would expose the 200-DMA at 155.09, followed by the head-and-shoulders chart pattern target around 152.00.

Key Technical Levels

• GBP/USD is stuck around 1.2300 as upcoming US CPI data has soaked volatility from the FX domain.
• The yearly US core CPI could slip to 6% while inflation may edge lower to 8.1%.
• Next week, UK’s Employment data and CPI numbers will remain in focus.

The GBP/USD pair is continued to oscillate in a range of 1.2292-1.2377 ahead of the release of the US Consumer Price Index (CPI). The whole FX domain has stuck in a limited range but it looks like the cable tops the list.

The spree of major economic events from the past week starting with the interest rate announcement by the Federal Reserve (Fed) to the disclosure of the US Nonfarm Payrolls (NFP) and now the US inflation numbers have resulted in an extremely volatile trading environment. Investors are seeing the yearly US inflation at 8.1%, lower than the prior print of 8.5%, and core CPI excluding food and energy prices at 6%, significantly down from the former figure of 6.5%. However, the odds of a jumbo rate hike by the Fed in June’s monetary policy are still rock solid.

On the UK front, no decision-making over the Northern Ireland Protocol (NIP) has worsened the situation further. The spokesperson from the UK administration said Johnson urged them to deliver for the people of Northern Ireland. "We want to fix some of the underlying challenges" regarding the NIP, the spokesperson added.

Meanwhile, signs of recession in the sterling area are also denting the demand for pound against the greenback. Higher energy bills and the inability of the UK corporate to generate more jobs are pushing the economy towards recession. This week UK calendar will remain light while the next week investors will focus on the Employment data and the UK inflation.

• WTI crude oil stays defensive after declining to two-week low on API stockpile data.
• Private oil inventories rose 1.618M versus -3.479M prior, Weekly EIA Crude Oil Stocks Change expected to print a draw.
• Trouble for European gas, Russia-Ukraine crisis fail to recall energy bulls as inflation woes join China’s “zero covid tolerance” policy.

WTI crude oil prices drop to a two-week low following weekly private oil inventory data, before bouncing off $98.00 during the initial Asian session on Wednesday. The energy benchmark’s latest rebound to $98.40, however, remains doubtful amid sour sentiment and anxiety ahead of the key data releases.

That said, the weekly prints of the American Petroleum Institute’s (API) Crude Oil Stock data for the period ended on May 6 flashed an addition of 1.618M barrels versus the previous contraction of 3.479M.

Among the key challenges to the oil buyers are ongoing covid-led lockdowns in China and the growth fears due to a jump in the inflation, as well as the global oil producers’ resistance to inflate output. On the contrary, the hardships for European energy supplies due to the ongoing Russia-Ukraine war should have favored the black gold, but could not of late.

China sticks to its “Zero Covid Tolerance” policy despite the World Health Organization’s (WHO) push to ease the rigid activity restrictions in Shanghai and Beijing. The lockdowns in the world’s largest industrial players pose a serious threat to the global supply chain and the oil prices.

Elsewhere, fears of global economic slowdown gradually spread as the major central bankers dial back easy money. On Tuesday, multiple Fed policymakers crossed wires to convey their take on the US central bank’s next moves. Most of them, including Federal Reserve Bank of Richmond President Thomas Barkin and NY Fed President John Williams, backed a 50 bps rate hike. However, comments from Cleveland Fed President and FOMC member Loretta Mester recalled the bears as she said, “They don't rule out a 75 basis points rate hike forever”.

Alternatively, a need for diversion into the European gas supplies, previous through Ukraine, joins the bloc’s oil embargo on Russian imports to keep the buyers hopeful. However, the risk-off mood underpins the US dollar and fails to entertain buyers.

Moving on, April month Consumer Price Index (CPI) and Producer Price Index (PPI) for China, expected 1.8% and 7.7% YoY respectively versus 1.5% and 8.3% previous readouts in that order, will offer immediate direction to the black gold. Following that, the US CPI data will be crucial amid hopes of the first softer inflation reading, 8.1% YoY versus 8.5% prior, in many years.

Read: US April CPI Preview: Has inflation peaked?

It should be noted that the weekly official oil inventory data, released from the Energy Information Administration (EIA), expected -1.2M versus 1.302M prior, will also direct short-term WTI moves.

Technical analysis

Although the monthly support line restricts WTI crude oil’s immediate downside around $98.00, the 21-DMA around $103.10 joins bearish MACD signals and downbeat RSI (14) to challenge corrective pullback.

• AUD/USD fades bounce off yearly low, remains depressed after four-day downtrend.
• Fed’s Mester, mixed headlines from China and Russia kept traders recalled the bears.
• US/China scheduled for April inflation release, Aussie Westpac Consumer Confidence up for publishing too.
• Pre-Inflation anxiety could restrict market moves, risk catalysts are important for fresh impulses.

AUD/USD prices hold onto the four-day-old downward trajectory, taking rounds to the yearly low of 0.6910 flashed before a few hours during Wednesday’s initial Asian session. In doing so, the risk-barometer pair portrays the market’s cautious mood ahead of the key inflation data from China and the US, as well as Australia’s Westpac Consumer Confidence.

The Aussie pair’s latest south-run could be linked to the increasing chatters surrounding the Fed’s 75 basis points (bps) rate hike, as well as China’s covid-linked lockdowns and “Zero Covid Tolerance” policy. Also weighing on the quote are the tales of the Russia-Ukraine war and likely negative implications of the same.

On Tuesday, multiple Fed policymakers crossed wires to convey their take on the US central bank’s next moves. Most of them, including Federal Reserve Bank of Richmond President Thomas Barkin and NY Fed President John Williams, backed a 50 bps rate hike. However, comments from Cleveland Fed President and FOMC member Loretta Mester recalled the bears as she said, “They don't rule out a 75 basis points rate hike forever”.

Elsewhere, China’s resistance to ease activity restrictions due to the covid outbreak and little leeway over the zero-tolerance policy challenged the global supply chain matrix, which in turn negatively affects the risk appetite and the AUD/USD prices. Also weighing on the market’s mood, as well as the pair prices, are headlines concerning Russia and Ukraine where the war becomes a stalemate, per the US Defense Agency.

Amid these plays, the US 10-year Treasury yields stretched the week-start pullback from a two-year high whereas the Wall Street benchmarks closed mixed, began the day on a positive side before losing the charm and then regained some.

Looking forward, Australia’s Westpac Consumer Confidence for May, prior -0.9%, appears as the first key data of the day, followed by April month Consumer Price Index (CPI) and Producer Price Index (PPI) for China, expected 1.8% and 7.7% YoY respectively versus 1.5% and 8.3% previous readouts in that order. However, major attention will be given to the US CPI data as markets expect the first softer inflation reading, 8.1% YoY versus 8.5% prior, in many years to push back the reflation and growth fears. Hence, any disappointment from the key inflation numbers will be another boost to the market’s risk-off mood, which could open the door for the AUD/USD pair’s further downside, mainly due to the pair’s risk-barometer status and the USD’s safe-haven appeal.

Also read: US CPI Preview: Hard core inflation to propel dollar to new highs, and two other scenarios

Technical analysis

January 2022 low surrounding 0.6965-70 restricts any corrective pullback of AUD/USD prices, which in turn join bearish MACD signals to suggest further downside of the quote towards mid-June 2020 low surrounding 0.6775.

• A time correction in the asset price will resume its upside rally after a potential trigger.
• The formation of Rising Wedge is advocating an upside break considering the broader context.
• The RSI (14) is oscillating in a bullish range of 60.00-80.00

The USD/CHF pair is hovering around Tuesday’s closing price at 0.9954 and is expected to continue its four-day winning streak led by a strong broader context. The asset has delivered a vertical upside move since the first trading session of April.

Despite the formation of a Rising Wedge chart pattern on a four-hour scale, the price action is not displaying any sign of exhaustion. Usually, a Rising Wedge depicts a bearish reversal on a downside break. However, the juggernaut move is betting over a resumption of the bullish momentum after a mild time correction.

The 20- and 50-period Exponential Moving Averages (EMAs) at 0.9906 and 0.9828 respectively are scaling sharply higher, which adds to the upside filters.

The Relative Strength Index (RSI) (14) is oscillating in a bullish range of 60.00-80.00, which signals more upside ahead.

Should the asset oversteps Tuesday’s high at 0.9975, the greenback bulls will send the asset towards the psychological resistance of 1.0000. A breach of the latter will drive the asset towards the 3 October 2019 at 1.0028.

On the flip side, a slippage below Monday’s low at 0.9890 will drag the asset towards the 4 May high at 0.9853, followed by the 50-EMA at 0.9828.

USD/CHF four-hour chart

• The AUD/JPY recovered some ground vs. the Japanese yen, though it remains below the 50-DMA.
• A mixed market mood in the Asian session could increase appetite for safe-haven peers, in this case, the JPY.
• AUD/JPY Price Forecast: Threatening to push beyond the 90.00 mark, though Tuesday’s price action shows indecision, as a doji formed.

The Australian dollar stops the bleeding vs. the Japanese yen and clings to minimal gains of 0.01% amidst a mixed market mood as portrayed by US equities trading in the green, except for the Russell 2000, down some 0.19%. At the time of writing, the AUD/JPY is trading at 90.47, just shy of the 50-day moving average (DMA) at 90.66.

Asian stock futures point to a mixed open, portraying a mixed market mood. Sentiment drivers like China’s coronavirus restrictions and Russia’s invasion of Ukraine loom the global economic growth.

Late in the Asian session, AUD/JPY traders would take cues from the Australian Consumer Confidence and the Japanese Foreign Exchange Reserves. Alongside the events mentioned above in the calendar, the Chinese inflation rate and the Producer Price Index could shed some light and shift the market mood, as the second-largest economy and Australia’s biggest trading partner is about to hit an uptick in inflation.

AUD/JPY Price Forecast: Technical outlook

The AUD/JPY is consolidating around the 90.00 mark; psychological support briefly pierced during the Asian session on Tuesday. However, AUD/JPY bulls reclaimed the level and achieved a daily close above it. From a daily chart perspective, the AUD/JPY remains upward biased, though a break below the 50-DMA might send the pair towards the confluence of the October 21 cycle high and the 100-DMA around the 86.25-63 area.

If that scenario plays out, the AUD/JPY first support would be the 90.00 mark. Break below would expose the March 22 at 88.29, followed by March 18 daily low at 87.33 and then the aforementioned confluence around 86.25-63.

If the cross-currency holds above the 50-DMA, the AUD/JPY’s first resistance would be May 10 daily high at 91.15. A breach of the latter would expose May 9 daily high at 92.31, followed by a fifteen-day-old downslope trendline around 93.25-50.

Key Technical Levels

• EUR/USD bears remain in charge according to the weekly outlook.
• The daily chart's consolidation could be a phase of redistribution.

As per the prior analysis, EUR/USD Price Analysis: Accumulation kicking in, or just a respite on the way to test 1.0340, EUR/USD remains in a consolidation phase and it is yet to be seen if this is just a respite or accumulation. 

EUR/USD daily chart

From a daily perspective, the price continues to be drawn to the midpoint of the consolidation range. With a break, either way, traders are left with the range to trade and nothing more conclusive. A strong bearish close will be needed in order to paint a bearish head and shoulders on the chart. 

EUR/USD weekly chart

From a weekly perspective, the price is still very much in a bear trend and leaves the bias bearish for the foreseeable future. The bears can target the 2017 lows initially, 1.0340. A break there will open the risk of a move below parity.

• USD/CAD is stating above 1.3000 amid uncertainty over the release of the US CPI and core CPI.
• The yearly US inflation is seen at 8.1% while the core CPI may edge lower to 6%.
• Falling oil prices are hurting the cash inflows for Canada and henceforth the demand of loonie.

The USD/CAD pair has renewed its fresh yearly high at 1.3052 and is balancing above the psychological resistance of 1.3000. The asset managed to continue its winning streak by turning positive on Tuesday and is likely to advance further amid uncertainty over the release of the US Consumer Price Index (CPI) in the New York session.

The greenback has been performing strongly against loonie as investors are expecting that a figure of US inflation above 8% would bolster the odds of a 75 basis point (bps) interest rate hike by the Federal Reserve (Fed) in June. The yearly US CPI is likely to edge lower to 8.1% against the multi-decade high figure of 8.5%. While the Core CPI, which doesn’t include food and energy prices, is expected to shift lower to 6% from the prior print of 6.5%. This may ease out the aggressive stance from the Fed a little but a jumbo rate hike announcement will remain on the cards. The US dollar index (DXY) is likely to recapture its 19-year high at 104.19 ahead of the US inflation.

On the oil front, lower fossil fuel prices are also underpinning the greenback against the Canadian dollar. Oil prices settled below the psychological support of $100.00 on Tuesday as higher interest rates will absorb liquidity from the economy, which may result in lower aggregate demand. It is worth noting that Canada is the biggest exporter of oil to the US and lower oil prices result in lower cash inflows for Canada. Also, the Covid-19 restrictions in China are hurting the oil demand due to restrictions on the movement of men, materials, and machines.

President Biden declared that fighting inflation is his top domestic priority and said he understands Americans' frustration over high prices.

The Washington Post reported that ''Biden used a speech from the White House to address an issue that has become a major political liability for him. At the same time, he sought to draw contrasts with his Republican critics, noting the economic policies he is pushing while arguing that Republicans have no viable plan on inflation.''

Biden said he was looking at the possibility to drop some of the tariffs imposed against Chinese imports in order to lower US consumer price inflation.

On Wednesday, the US will report the CPI data. It is expected to rise by 0.5% MoM in April and headline to rise by 0.3%, as food and energy prices eased,  analysts at ANZ Bank said.

 ''Inflation has probably peaked on a YoY basis, but monthly inflation trends remain stubbornly high and above rates consistent with 2%. Fed Chair Powell wants to reduce the excessive demand in the labour market by achieving a reduction in job openings without unemployment rising. Navigating that path will be challenging.''

The dollar has been choppy on Tuesday, fluctuating between modest gains as traders get set for Wednesday's big event in the US Consumer Price Index which could give clues on the likely path of the Federal Reserve's monetary policy.

• Gold spot drops in the day and is losing 0.89%.
• An upbeat market mood weighed on the non-yielding metal, despite that US Treasury yields finished the session with losses.
• Gold Price Forecast (XAU/USD): A daily close below the 200-DMA would send Gold Price tumbling towards $1800.

Gold spot (XAU/USD) continues tumbling in the day and briefly pierced the 200-day moving average (DMA) at $1835.31 a troy ounce, amidst an upbeat market mood as illustrated by US equities recording gains between 0.20% and 1.30%. At the time of writing, XAU/USD is trading at $1837.94.

The Fed tightening risks that could spur a recession, China’s Covid-19 zero-tolerance restrictions, which halted factory production, triggered a slowing in exports, and the Ukraine-Russia conflict, are sentiment factors that, even though traders ignored in the session, they need to be aware of them.

In the meantime, the US Dollar Index, a gauge of the greenback’s value against a basket of its rivals, is rallying 0.68%, up at 103.911 as the New York session winds down. The US 10-year Treasury yield approaches the 3% threshold, recovering some ground after reaching a daily low at 2.942%.

Gold Price Forecast (XAU/USD): Technical outlook

In what appears to be a technical move, XAU/USD moved from around $1850 a troy ounce, below the S1 daily pivot point at $1841.73, and pierced the 200-DMA briefly as the New York session finished. It is worth noting that a daily close below the previously mentioned 200-DMA would exacerbate a fall toward $1800.

If that scenario plays out, the XAU/USD first support would be a four-year-old upslope trendline near the $1815-25 region. Once cleared, the XAU/USD’s bears’ next target would be $1800, followed by the YTD low at $1780.18.

Key Technical Levels

• NZD/USD bears remain in town despite a consolidating US dollar. 
• All eyes will turn to the US inflation data on Wednesday. 

NZD/USD is under pressure by some 0.5% into the closing hours of the North American sessions. The kiwi has fallen from a high of 0.6347 to a low of 0.6276 so far. The US dollar is in a sideways consolidation which is giving the bird some relief ahead of key US inflation data on Wednesday. 

''NZ considerations are being all but ignored by markets and this is the USD show, and it’s benefiting from a flight-to-safety bid amid softness in commodities and risk assets,'' analysts at ANZ Bank said, adding that the US Consumer Price Index data tonight poses binary risks. ''As we noted on Monday, while a softer result (as the street is expecting) will be mildly relieving, a rise in inflation has the potential to trigger another wave of risk aversion (likely at the expense of the Kiwi).''

Meanwhile,m a number of Fed officials on Tuesday advocated the need for 50 basis point hikes at the next meetings. Cleveland Federal Reserve Bank President Loretta Mester argued that raising interest rates in half-point increments "makes perfect sense" for the next couple of Fed meetings. New York Fed President John Williams said that Chair Jerome Powell's indication the central bank will hike by half a percentage point at the next two polict meetings is sensible.

Eyes on US CPI

Tomorrow's CPI is expected to rise by 0.5% MoM in April and headline to rise by 0.3%, as food and energy prices eased,  analysts at ANZ Bank said.

 ''Inflation has probably peaked on a YoY basis, but monthly inflation trends remain stubbornly high and above rates consistent with 2%. Fed Chair Powell wants to reduce the excessive demand in the labour market by achieving a reduction in job openings without unemployment rising. Navigating that path will be challenging.''

• It is make or break time for USD/JPY at this juncture.
• The price is meeting resistance despite the bullish flag. 

USD/JPY is meeting an area of resistance on the hourly chart and has struggled to make a clean break out from the daily bull flag. Instead, the bears are targeting the W-formation's neckline and a break thereof will open the risk of a significant correction for the foreseeable future. The following illustrates this on a daily and weekly chart.

USD/JPY weekly chart

The price has made nine consecutive bullish weekly closes and a doji left on this week's candle could be the signal to the bears to keep the pressure on. A correction to the 38.2% Fibonacci level requires a break of the psychological 125 figure. 

USD/JPY daily chart

The series of bullish flag patterns is a compelling feature on the chart but the price's breakout is not convincing at this juncture. Instead, the bears are putting up resistance and on closer inspection, the W-formation may be playing a role in the inability to breakout:

What you need to take care of on Wednesday, May 11:

Financial markets suffered once again from inflation and growth-related concerns. The American dollar shed some ground throughout the first half of the day but recovered its poise after Wall Street’s open amid a souring market mood. The catalyst for the latest round of risk aversion came from US Federal Reserve Cleveland President Loretta Mester, who said that a 75 bps rate hike is not out of the table “forever,” although adding that the current pace of hikes seems “about right.”

The EUR/USD pair is down within range, trading at around 1.0530 and weighed by the continued tensions between the continent and Russia. Another factor affecting the shared currency negatively was the German ZEW survey, which anticipated a further deterioration in the economic situation. 

GBP/USD trades a handful of pips above the 1.2300 threshold. Demand for the British Pound was undermined by headlines, later denied, suggesting the UK would announce its intention to break the Northern Ireland treaty.

Commodity-linked currencies edged lower, following the lead of Wall Street, but were also affected by falling gold and oil prices. The bright metal settled just below $1,840 a troy ounce, while WTI fell below $100 a barrel.

The greenback kept advancing against the Swiss Franc but held unchanged against the Japanese yen.

US Treasury yields edged sharply lower, with that on the 10-year Treasury note settling at 2.95%.

Germany and the US will publish their latest inflation figures on Wednesday. German CPI is expected to be confirmed at 7.4% YoY, while the US reading is foreseen at 8.1%. An in-line or lower than anticipated reading may boost optimism, to the benefit of equities and to the detriment of the greenback.

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• The EUR/GBP gained almost 2% in the last week.
• The market mood shifted from mixed to upbeat as US equities regained composture and traded in the green.
• EUR/GBP Price Forecast: Shifted to upward biased once it broke a descending channel to the upside, opening the door for further gains.

The EUR/GBP retreats from weekly highs at around 0.8600 reached last week, though remains around the mid 0.85-0.86 range late in the New York session, amidst a mixed market mood. At 0.8550, the EUR/GBP shifted to an upward bias, following last week’s gains of 1.90%.

Sentiment has improved as the New York session progressed. US equities pared some earlier losses and record gains between 0.18% and 1.95%, despite factors like China’s Covid-19 zero-tolerance restrictions and the Ukraine-Russia war.

On Tuesday, during Asian and European sessions, the EUR/GBP opened around 0.8560s and fluctuated around the 0.8530-80 range throughout the day. Late in the North American session, the EUR/GBP settled around the daily pivot around 0.8550, shy of the 50-hour simple moving average (HSMA) at 0.8554, opening the door for a retest of the 100-HSMA around 0.8523.

EUR/GBP Price Forecast: Technical outlook

The EUR/GBP is upward biased and reached a fresh YTD high at around 0.8591. It is worth noting that a descending channel was broken to the upside, opening the door for further gains. That, alongside the 50-day moving average (DMA) at 0.8375, crossing over the 100-DMA, further cement the upward bias.

With that said, the EUR/GBP’s first resistance would be the YTD high at 0.8591. A breach of the latter would expose the September 29 daily high at 0.8658. Once cleared, the next resistance would be April 26 at 0.8719.

Cleveland Federal Reserve President Loretta Mester said on Tuesday that inflation will need to show a "compelling" slowdown before the Federal Reserve can consider pausing its interest rate increases, with the risks currently pointed towards a tougher fight to bring the pace of price increases under control.

"I would need to see monthly numbers coming down in a compelling way before I would want to conclude we could now rest," Mester said in an interview with Reuters on the sidelines of an Atlanta Federal Reserve bank conference.

Key notes

Will need to see a "compelling" slowdown of inflation before slowing fed rate increases.

Inflation risks skewed to the upside, an argument for doing more "upfront".

After half-point increases in June and July Fed will "have to see" what more is needed based on data in the meantime.

Expects PCE inflation might be back to around 2.5% in 2023.

Fed MBS sales could mean market losses for the central bank.

Losses would mean lower fed remittances to the treasury, though pose no "operational" problems for the fed itself.

Sales would help return the balance sheet to primary treasuries but could mean realizing losses depending on interest rates at the time.

Losses would also be a communications challenge for the Fed to explain why the benefits of the smaller balance sheet are Final size of the balance sheet will be determined by monitoring market developments as fed holdings decline.

Market implications

The US dollar was choppy on Tuesday, stuck below the 20-year highs made at the start of the week as yields start to consolidate while investors await tomorrow's April Consumer Price Index.

The data could give further signs of inflation that may be starting to cool, following last Friday's wage inflation data. Expectations are calling for a 8.1% annual increase compared to the 8.5% rise recorded in March. 

• XAU/USD bears are moving in and taking on the daily support structure. 
• US CPI will be a key driver for markets that are in wait and see mode. 
• The US dollar is consolidating as US yields pull back giving relief to stocks. 

The gold price continues to deteriorate despite some relief in the US dollar's advance. At the time of writing, XAU/USD is down some 0.46% at $1,845 while the DXY is trading at 103.85 and up just 0.1%. 

The dollar has been choppy on Tuesday, fluctuating between modest gains as traders get set for Wednesday's big event in the US Consumer Price Index which could give clues on the likely path of the Federal Reserve's monetary policy.

Investors have been in a risk-on mood, as the yield on the benchmark US 10-year note eased back below the 3% psychological level and from the highest levels since 2018 at 3.20% scored on Monday. This has given some relief to US equity benchmarks that have been mixed in choppy trade. The Dow Jones Industrial Average has recovered to flat, with the S&P 500 up come 0.55%. The Nasdaq Composite is higher by some 1.9%. 

However, the outlook is not so bullish for gold, according to analysts at TD Securities.

''Systematic trend followers are joining into the liquidation vacuum in gold. Finally, trend signals have sufficiently deteriorated to catalyze a substantial selling program in gold. With gold prices challenging the psychologically important $1850/oz range, the additional CTA flow could be sufficient to spark a breakdown in this technical level.''

Eyes on US CPI

Tomorrow's CPI is expected to rise by 0.5% MoM in April and headline to rise by 0.3%, as food and energy prices eased, according to analysts at ANZ bank.  ''Inflation has probably peaked on a YoY basis, but monthly inflation trends remain stubbornly high and above rates consistent with 2%. Fed Chair Powell wants to reduce the excessive demand in the labour market by achieving a reduction in job openings without unemployment rising. Navigating that path will be challenging.''

Gold technical analysis

The price has fallen through the bottom of 4-hour support and is now testing daily support as follows with the focus now on $1,820 to the downside:

The M-formation is a reversion pattern so there could be a meanwhile bid at this juncture on failures to crack the daily support initially.  

• The AUD/USD is dropping 0.30% in the day and 2.03% in the week.
• Sentiment remains negative, though the Australian dollar lifts from daily lows.
• AUD/USD Price Forecast: The major is in a downtrend, and a move towards 0.7000-50 might be an opportunity for bears, as they target 0.6500.

The Australian dollar is snapping three consecutive days of losses against the greenback despite being weighed by negative China’s economic data, which showed that exports slowed to their weakest in almost two years as the zero-tolerance policy halted factory production. At 0.6952, the AUD/USD is recovering some ground on Tuesday.

Late in the North American session, market sentiment shifted negative, except for the Nasdaq 100. The Federal Reserve tightening as it is struggling at inflation four times its target, China’s Covid-19 crisis, and the Ukraine-Russia war weigh on market mood, consequently affecting risk-sensitive currencies like the Australian dollar.

Fed speakers dominate Tuesday’s headlines

The Fed parade continued with New York Fed John Williams, Richmond’s Thomas Barkin and Cleveland’s Loretta Mester on Tuesday. They all agreed on 50-bps increases in the June and July meetings, while Mester added that the Fed would not rule out 75-bps hikes if needed.

As of writing, Fed Governor Christopher Waller was crossing the wires and said that inflation is too high and it’s the Fed’s job to get it down. He favors front loading rates and emphasized that this is the time to hit it with rate increases because the economy can take it.

On Monday, reports from China showed that its exports decelerated to their weakest level in nearly two years, as Covid-19 related restrictions halted factory production and hurt domestic demand. Late in the week, the Chinese Inflation Rate and prices paid by producers will shed some light on a possible “stagflation” scenario in the second-largest economy in the world.

In the meantime, the Australian docket, featured in the Asian session, Retail Sales and Business Confidence, thought did not lift the AUD/USD above the 0.7000 figure. The former came in line with the 1.6% foreseen, while Business Confidence down ticked from 12 to 10. Later in the session, at around 12:30 GMT, the Westpac Consumer Confidence is estimated to fall from the previous month 95.7 to 94.7.

Meanwhile, the US economic docket would feature additional Fed speakers; Neil Kashkari, the next one crossing the wires. Data-wise, US inflation figures will be unveiled on Wednesday, followed by prices paid by producers on Thursday and Consumer Sentiment on Friday.

AUD/USD Price Forecast: Technical outlook

From a daily chart perspective, the AUD/USD remains downward pressured. The MACD is aiming downwards, further confirming the aforementioned, as AUD/USD bears target the 0.6500 price level.

The AUD/USD first support would be 0.6900. A breach of the latter would expose June 2020  swing low at around 0.6776. Once cleared, it would expose the May 2020 swing highs around 0.6616, followed by the 0.6500 mark.

Governor Christopher J. Waller is making comments and traders are looking for anything additional to his 'Reflections on Monetary Policy 2021' speech from last week that can give more clarity on the path ahead for 2022. 

Waller has been an advocate of rate hikes, but famously said, ''we are not in a Volcker kind of moment," as he highlighted the difference between inflation that had been building for six of seven years compared to a surge in recent inflation that only began last year. 

Key comments

Inflation is too high, my job is to get it down.

If we get some help from supply chain resolution, that's fantastic, but won't count on it.

Could put some downward pressure on labor markets.

Could pull back demand for labor and that would be a good thing.

 We are trying to get job market back to equilibrium; right now it's out of whack.

We think we can raise interest rates and not have a big impact on unemployment.

Don't need to tank economy to bring down inflation.

This is the time to hit it with rate increases, because the economy can take it.

Do it now, front load it.

Market implications

The US dollar was choppy on Tuesday, stuck below the 20-year highs made at the start of the week as yields start to consolidate while investors await tomorrow's April Consumer Price Index. The data could give further signs of inflation that may be starting to cool, following last Friday's wage inflation data. Expectations are calling for a 8.1% annual increase compared to the 8.5% rise recorded in March. 

• On Tuesday, the EUR/USD loses some 0.18% in the North American session.
• ECB’s Nagel: The ECB needs to hike rates in July if data shows it's needed.
• Fed rate-setters lay the ground for 50-bps increases as the Fed eyes CPI on Wednesday.
• EUR/USD Price Forecast: The major is neutral-downward biased, though it remains range-bound.

The shared currency continues to be unable to recover above the 1.0600 thresholds and remains trapped in the 1.0500s area for the third consecutive trading session. At 1.0538, the EUR/USD reflects the aforementioned amidst a mixed sentiment in the financial markets, portrayed by European equities rising while US stocks fluctuate.

Factors like the Fed tightening monetary policy, which threatens to “miss” a soft landing and spur a recession, alongside China’s zero-tolerance coronavirus restrictions, and the Ukraine-Russia war, loom the economic outlook.

Early in the week, reports from China showed that export growth slowed to its weakest in almost two years as Beijing’s Covid-19 restrictions halted factory production and crimped domestic demand. Also, the conflict between Ukraine – Russia seems to be at a dead end, with no advancement in hostilities and peace talks, as Russian President Vladimir Putin is preparing for a prolonged conflict, according to the Financial Times.

ECB’s Nagel insists on rate hikes as Fed rate-setters lay the ground for 50-bps increases

Aside from this, central bank speaking dominates the headlines on both sides of the Atlantic. In the European session, following a better than expected German ZEW, Economic sentiment in May, ECB member Joachim Nagel said that the bank should hike rates in July if incoming data suggests that inflation is too high. Meanwhile, ECB Francois Villeroy stated that the ECB would act to ensure price stability and reiterated that governments must tackle debt as rates rise.

Across the pond, Fed policymakers lay the ground for a series of three 50-bps increases, counting the May meeting, as expressed by New York Fed President John Williams, Richmond’s Fed Barkin, and Cleveland’s Fed Loretta Mester. The latter added that if inflation does not get under control, the Fed would need to go beyond neutral, and added that the board would not rule out 75-bps hikes, forever.

Elsewhere, the US economic docket would feature additional Fed speakers, with Neil Kashkari and Christopher Waller crossing the wires. Data-wise, US inflation figures will be unveiled on Wednesday, followed by prices paid by producers on Thursday and Consumer Sentiment on Friday.

EUR/USD Price Forecast: Technical outlook

The EUR/USD remains neutral-downward biased, unable to break beyond the 1.0500-1.0640 area boundaries. Even though the MACD-line is about to cross over the signal line, a leg-up would be capped by a confluence of resistance levels lying around 1.0600-40 area.

Upwards, the EUR/USD first resistance would be the 1.0600 figure. Break above would expose the 1.0640, top of the range above-mentioned, followed by a downslope trendline that passes near 1.0660-70. On the downside, the EUR/USD first support would be 1.0500. Latter’s breach would expose April’s 28 daily low at 1.0471, followed by January’s 2017 cycle lows at around 1.0340.

Analysts from Rabobank revised lower their one and three months forecast for the EUR/USD pair to 1.03, looking at a recovery later, with the possibility of climbing back to 1.10 on a twelve months perspective. They warn the benefit to the euro from the hawkish European Central Bank (ECB) may be short-lived. 

Key Quotes: 

“USD strength has already been a major factor in pushing EUR/USD back to levels last traded in 2017. Whether or not USD strength means that EUR/USD will move to parity in the coming months, remains to some extent dependent on the fundamental backdrop in the Eurozone and on EU policy.”

“The appearance of hawkish ECB rhetoric in the middle of last month raised the possibility of a rate hike as soon as July.  That said, the benefit to the EUR from a hawkish ECB may be short-lived if investors are simultaneously concerned about recession risks in the Eurozone.”

“Although EUR/USD has pulled away from its recent lows today, the uncertainties about energy security and recession in the Eurozone suggest that the EUR is far from being out of the woods.  Simultaneously, we expect safe haven flow to keep the USD well under-pinned.  The aggressive pace of Fed policy tightening has underpinned the risks of a 2023 US recession.  Previously we has anticipated that that would be sufficient to weaken the greenback significantly into the end of this year across the board.  However, with the outlook for global growth also undermined by risks from slower growth in China and the Eurozone we anticipate that riskier currencies may remain on the back foot unless the Fed tightening cycle draws to a close.  This suggests scope for the USD to remain on the front foot for some months to come.”

“We are revising lower our 1 and 3 month EUR/USD forecasts to 1.03 and see some scope for a move to 1.05 on a 6 month view with the USD only retreating back to 1.10 on a 12 month view.”

• US dollar strengthens again as Wall Street turns red again.
• GBP/USD heads for lowest daily close since June 2020.
• Data ahead: US inflation on Wednesday, UK Q1 GDP on Thursday.

The GBP/USD dropped to 1.2291 and printed a fresh daily low as the US dollar turned positive amid risk aversion. Stocks in Wall Street eared important gains as risk aversion prevails.

The Dow Jones is falling 0.74%, falling more than 500 points from the initial level and is headed toward the fourth decline in a row. The losing streak remains firm and supports the greenback even as US yields drop. The demand for safety continues to send yields lower. The US 10-year yield bottomed at 2.94% after hitting on Monday 3.20%. The DXY is up 0.10%, at 103.85.

 Cable remains near multi-year lows, under pressure. The outlook about the global economy continues to weigh on market sentiment across financial markets.

Fed speakers on Tuesday continue to be on the hawkish side. US inflation data is due on Wednesday. In the UK the key report of the week will be on Thursday with Q1 GDP.

Analysts at Brown Brother Harriman point out that Bank of England tightening expectations have stalled. “WIRP (World Interest Rate Probability) suggests another 25 bp hike is fully priced in for the next meeting June 16, while the odds of a 50 bp move then are minimal.  Looking ahead, the swaps market is pricing in 125-150 bp of total tightening over the next 12 months that would see the policy rate peak between 2.25-2.50%.  There are no other BOE speakers scheduled this week and given last week’s communications disaster, that might not be a bad thing”.

The GBP/USD is about to post the lowest close since June 2020 although it remains near the intraday cycle low. The outlook keeps pointing to the downside with the 1.2300 area offering support at the moment. A close above 1.2400 could alleviate the bearish pressure.

Technical levels

• Mexican peso turns negative amid risk aversion.
• USD/MXN rebound and looks for a test of 20.45 and then 20.50.
• Key events ahead: US inflation on Wednesday and Banxico on Thursday.

The USD/MXN turned positive on Tuesday during the last hours as US stocks failed to hold into positive ground. The risk aversion environment weighs on Emerging market currencies, including the Mexican peso. Banxico will likely announce a 50bps rate hike on Thursday.

From a technical perspective, short-term bias points to the upside, particularly while above 20.25. The next resistance stands at 20.45. A daily close above 20.50 should clear the day to more gains in the short-term. The next strong barrier is seen at 20.70.

A slide under 20.25 would alleviate the bullish momentum. Then emerges the 20-day moving average at 20.17, and a close below should expose the May low at 19.99.

Risks still appear to be tilted to the upside in the short-term but USD/MXN needs to break above 20.50 to open the doors to more strength, while below gains seem limited.

USD/MXN daily chart

• Gold extends its losses to two-consecutive days, down some 0.39%.
• Fed speakers are “comfortable” with 50-bps rate hikes in the next couple of meetings.
• XAU/USD is accelerating towards the 200-DMA, which, once broken, might send gold prices towards $1800.
• Gold Price Forecast (XAU/USD): It is neutral-downward biased, and a break below the 200-DMA might push prices towards $1800.

Gold spot (XAU/USD) slides for the second straight, despite a shift to a favorable market mood, amidst increasing bets that Fed tightening could spur a recession. At the time of writing, the yellow metal is trading at $1847.05 a troy ounce in the North American session.

Global equities record gains, illustrating investors’ sentiment. The greenback is gaining, though it has not been able to weigh on the non-yielding metal, which is benefitting from falling US Treasury yields, led by the 10-year down eight basis points, back below the 3% threshold, sitting at 2.965%.

Nevertheless, even though stocks are trading in the green, investors must be careful about China’s zero-tolerance Covid-19 restrictions, alongside Ukraine-Russia tussles, which would likely shift sentiment to negative, putting a lid on recent gains.

Fed members expect two 50-bps increases in back-to-back meetings

Meanwhile, after the Fed announced its monetary policy on Wednesday, the Fed parade of speakers continued. On Tuesday, the New York Fed President John Williams said that the Fed needs to be data-dependent and adjust policy according to those circumstances. He added that 50-bps rate hikes at the next two meetings “makes sense” as a base case. Late in the day, Richmond Fed President Thomas Barkin stated that 50-bps hikes are on the table and added that inflation is high, persistent, and broad-based. However, it emphasized that demand is strong and looks to remain robust, driven by healthy business and personal balance sheets.

Later, Cleveland’s Fed President Loretta Mester, a voter in 2022, said that the Fed needs to move rates up to at a pace to get inflation down while adding that she is comfortable with 50-bps increases in “a couple of meetings.” Mester said that if inflation does not get under control, the Fed would need to go beyond neutral, and added that the board would not rule out 75-bps hikes, forever.

On Tuesday, the US economic docket would feature additional Fed speakers, with Neil Kashkari and Christopher Waller crossing the wires. Data-wise, US inflation figures would be unveiled on Wednesday, followed by prices paid by producers on Thursday and Consumer Sentiment on Friday.

Gold Price Forecast (XAU/USD): Technical outlook

XAU/USD’s still neutral biased, though the closer it gets to the 200-day moving average (DMA) at $1836.19, the possibilities to turn neutral-bearish increases. As of writing, the 50 and the 100-DMAs lie above the spot price, and once XAU/USD bears clear the $1890 support level, a move towards the 200-DMA and beyond is on the cards.

With that said, the XAU/USD’s first support would be May 3, a daily low at around $1850.34. Break below would expose the abovementioned 200-DMA at $1836.19, closely followed by a four-year-old upslope trendline near the $1815-25 region. Once cleared, XAU/USD’s bears’ next target would be $1800.

Cleveland Fed President Loretta Mester said on Tuesday that they don't rule out a 75 basis points rate hike forever, as reported by Reuters.

Additional takeaways

"Pace we are going right now seems about right."

"Aim is to use tools to get demand in better alignment with supply."

"But I don't want to rule anything out on hikes for the second half of the year."

"It all depends on inflation's path."

"We do need to be committed and resolute on curbing inflation."

"Fed's task is not going to be smooth, unemployment may have to rise in order to bring inflation down."

"I am very focused on inflation side of the equation."

"Given inflation, I think we'll have to move above neutral, not clear how far."

"We've got to see how the economy plays out in the second half of the year."

"We have to do what we can with our tools."

"Inflation is just way too high, longer it stays at that level, bigger risk inflation expectations will move up."

Market reaction

The US Dollar Index posts modet daily gains above 103.90 after these comments. 

Chief of European Union Foreign Policy Enrique Mora is trading once again to Tehran to hold meetings on nuclear talks between the US, other Western powers, Russia and Iran, reported Reuters. Mora said he is to work on closing the remaining gaps as negotiations continue. 

Talks, which are aimed at returning both the US and Iran to compliance with the 2015 JCPOA nuclear deal and removing sanctions on the Iranian economy (including on its oil exports), have been stagnant now for months.

Russia is not winning, Ukraine is not winning and the war in Ukraine is at a stalemate, Defense Intelligence Agency Chief Scott Berrier said on Tuesday. Berrier added that between eight and ten Russian generals have been killed in the war and that Russia has resorted to the use of indiscriminate and brutal methods in response to Ukraine's resistance. Berrier said that the US does not see Russia using tactical nuclear weapons at this time. 

His comments come after Avril Haines, the Director of US National Intelligence, said that the next few months in Ukraine could see a "more unpredictable and potentially escalatory trajectory". 

• Oil prices have stabilised on Tuesday after a sharp deterioration in global risk appetite on Monday triggered a steep sell-off.
• After dropping $8.0 on Monday, WTI has stabilised in the low $103.00s.
• Analysts suspect the scope for further downside is limited as the EU approaches a deal on a Russian oil embargo.

Oil prices have stabilised on Tuesday after a sharp deterioration in global risk appetite on Monday triggered a steep sell-off. After falling nearly $8.0 on Monday from above $110 per barrel, front-month WTI futures have on Tuesday found support above the psychologically important $100 mark and are currently trading roughly flat on the day in the mid-$102.00s.

Risk-off conditions on Monday that weighed on oil were a result of investors fretting about a combination of bearish factors, including; 1) worries about central bank tightening amid still sky-high inflation in the US, Europe and elsewhere, 2) worries about slowing global growth and continued inflationary risks emanating from the Russo-Ukraine war and lockdowns in China.

But “oil markets do look like they have more room to fall in the shorter term,” said a senior market analyst at OANDA on Tuesday, a sentiment shared by many other analysts. They cite the ongoing risks to Russian oil output posed by Western sanctions in response to the invasion of Ukraine.

EU 27 nations have not yet been able to agree on a plan for ending Russian oil purchases, with Hungary particularly reluctant to sign up to the embargo and some said this might also have weighed on crude prices this week. But various high-level EU officials/leaders, including European Commission President Ursula von der Leyen and French President Emmanuel Macron, have been in contact with Hungarian President Viktor Orban in recent days to try and get him on board.

French European Affairs Minister Clement Beaune said earlier on Tuesday that EU nations could reach a deal on the next round of Russian oil sanctions this week. Meanwhile, Japan has also said it will phase out Russian oil purchases.

Looking ahead, US crude oil inventory data will be in focus later in the day with the release of the weekly private API report at 2130BST, which are likely to show a fall in crude oil stocks according to a Reuters poll of analysts released on Monday. This might lend further support to WTI.

On Wednesday, focus will return to the global macro mood and how it reacts to the release of the April US Consumer Price Inflation report, which is expected to show a slight moderation in the pace of headline YoY price inflation. If confirmed, this could support sentiment by easing fears about Fed tightening, supporting a higher oil price.

Many traders will probably be eyeing a retest of earlier weekly highs above $110.00 later in the week should risk appetite hold up and the EU reach a deal on its proposed Russian oil embargo. But China lockdowns remain a key downside for traders to keep an eye on.

The US Bureau of Labor Statistics will release the April Consumer Price Index (CPI) data on Wednesday, May 11 at 12:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of 12 major banks regarding the upcoming US inflation print.

On a yearly basis, CPI is expected to edge lower to 8.1% from 8.5% in March. The Core CPI, which excludes volatile food and energy prices, is forecast to fall sharply to 6% from 6.5%. 

Commerzbank

“The US inflation rate is likely to have peaked at 8.5% in March. Although consumer prices probably rose quite strongly again in April, by 0.3% from March (consensus 0.2%). However, they had risen much more strongly in April 2021. As this increase now drops out of the year-on-year rate, the latter is likely to fall to 8.2%. A similar effect applies to the core rate, which excludes energy and food. Here we expect a decline from 6.5% to 6.1%.”

Nordea

“We expect the April CPI headline figure to show that inflation fell to c. 8.2 YoY and core inflation to fall to c. 6.2 YoY as we compare prices to last spring’s hefty price increases.”

ING

“Consumer price inflation should hopefully show inflation has passed the peak with the YoY rate slowing from 8.5% to 8.3%, and core inflation edging down to 6.1% from 6.5%. Lower gasoline prices will be a big help, as will a drop in second-hand car prices as heralded by data from the Mannheim car auctions. However, it will be a long slow descent to get to the 2% target. As such, the Fed will continue to hike rates swiftly with 50bp rate hikes expected in June, July and September.”

RBC Economics

“Torrid growth in the US inflation rate likely slowed in April to 8% YoY. This would mark the first decline in almost a year and come on the heels of price growth that soared to 8.5% YoY in March. Further risks to global supply chains from the Russian invasion and China’s lockdowns will continue to add tailwinds to global inflation pressures. With labour markets still exceptionally tight and inflation pressures exceptionally strong, the Fed is expected to continue to act quickly to move interest rates higher. We expect another 50bp hike in June to build on the 50 bps hike (and start of QT tightening) announced last week.”

TDS

“Core prices likely stayed strong in April, regaining momentum to 0.5% MoM after recording 0.3% in March. While used vehicles prices likely declined again, they probably fell less sharply than in the last report. We also look for renewed strength in shelter inflation. Our MoM forecasts imply 8.1%/6.1% YoY for total/core prices, likely confirming March was the peak of the cycle.”

NBF

“The food component likely remained very strong given severe supply constraints globally, but the increase in this segment may have been partially offset by lower gasoline prices. As a result, headline prices may have increased’“only’ 0.2% MoM, allowing the YoY rate to drop four ticks to 8.1%. Core prices, meanwhile, should have continued to be supported by rising rent prices and advanced 0.4%. Thanks to a strongly negative base effect, this healthy gain should still translate into a four-tick drop of the 12-month rate to 6.1%.”

SocGen

“Seasonally-adjusted gasoline prices are expected to have dropped roughly 5% in April. Home heating and electrical costs should dampen the overall energy price boost to the CPI, but the energy component is key to the 0.2% MoM forecast increase. If this is the case, the YoY measure would fall to 8% from 8.5% in March and raise hopes that the CPI peak pace was set last month. The unknowns regarding energy price pressures linger, however, so we are calling the peak at 8.5%, noting that conviction rests on oil and gas price developments. Core CPI is still expected up 0.4% MoM (5.9% YoY), as rent and shelter components contribute a large share of the index, and they are set for a 0.4% increase.”

CIBC

“With gasoline prices easing off in April, and strong year-ago prints from last year’s reopening being lapped, inflation is set to decelerate in April, while still remaining sky high. The 0.2% monthly advance expected for total CPI (8.1% YoY) would mask a strong gain in food prices, reflecting fresh supply chain issues linked to the war in Ukraine. That would also include an acceleration in monthly ex. food and energy prices to 0.4% (6.0% YoY), attributable to renewed supply chain disruptions for goods tied to widespread lockdowns in China, and continued upwards pressure from the cost of shelter and the tightening in the labor market. We are in line with the consensus which should limit any market reaction.”

Deutsche Bank

“We are expecting a 7.9% reading, down from the four-decade-high 8.5% print in March, not least due to base effects. From here it should all be about the pace of the declines as things like the extreme YoY prices in used cars roll out of the data. However, on the other side, it is important to see how prolonged the rise in rents is. Remember that rents make up a third of the CPI basket and 40% of core. Used cars only make up a few percentage points. A reminder that the day-by-day calendar of events is at the end as usual.”

Citibank

“US April CPI MoM – Citi: 0.1%, prior: 1.2%, CPI YoY – Citi: 8.0%, prior: 8.5%; CPI ex Food, Energy MoM – Citi: 0.4%, prior: 0.3%, CPI ex Food, Energy YoY – Citi: 6.0%, prior: 6.5%. After the softer 0.3% MoM rise in core CPI in March, there is discussion around whether US inflation has peaked. The next three months of data points – for April, May, and June – will likely show unfavorable base effects that may see the YoY reading decline from recent highs. However, underlying inflation is likely to remain strong and YoY prints could move higher again by July data.”

Wells Fargo

“In April, we expect CPI rose 0.4% MoM, which would lead the YoY rate to drop to 8.3%, the first decline since July 2021. We expect core CPI to advance 0.5% over the month in April and fall to 6.1% over the year (previously 6.5%).”

ANZ

“We expect US core CPI to have risen 0.5% MoM in April and headline CPI by 0.3%, as food and energy price rises eased. On a YoY basis, core and headline inflation should have eased to 6.1% and 8.2% respectively, suggesting annual inflation may have peaked. Has inflation peaked? It probably has on a YoY basis, but monthly inflation trends remain stubbornly high and above rates consistent with 2% saar.”

Bundesbank head and ECB governing council member Joachim Nagel said on Tuesday that the ECB should raise interest rates in July if incoming data confirms that inflation is too high, reported Reuters. The ECB should end its asset purchase programme at the end of June, Nagel continued, noting that the risk of acting too late is "increasing notably". 

There is "disturbing evidence" that the increase in inflation is gaining momentum, he continued, noting that higher inflation is likely to prevail, meaning price growth expectations could become less anchored. 

AUD/USD witnessed an intraday short-covering move from the fresh YTD low set earlier this Tuesday.
Retreating US bond yields, the risk-on impulse undermined the safe-haven USD and extended support.
The lack of any follow-through buying and acceptance below the 0.7000 mark favours bearish traders.

The AUD/USD pair staged a goodish recovery from its lowest level since June 2020 touched earlier this Tuesday and held on to its modest intraday gains through the early North American session. The pair was last seen trading around the 0.6970 region, up nearly 0.25% for the day.

The ongoing retracement slide in the US Treasury bond yields, along with the risk-on impulse, weighed on the safe-haven US dollar and benefitted the perceived riskier aussie. That said, any meaningful move up still seems elusive amid the prospects for a more aggressive policy tightening by the Fed, which should continue to act as a tailwind for the buck.

From a technical perspective, the overnight breakthrough the 0.7000 psychological mark and a subsequent slide below the previous YTD low, around the 0.6965 area, marked a fresh bearish breakpoint. Moreover, the AUD/USD pair's inability to capitalize on the intraday bounce suggests that a one-month-old bearish trend might still be far from being over.

The negative outlook is reinforced by the fact that technical indicators on the daily chart are holding deep in the bearish territory and are still far from being in the oversold zone. Hence, any further recovery might still be seen as a selling opportunity. That said, traders might refrain from placing fresh bets ahead of the US CPI report on Wednesday.

In the meantime, the 0.7000 mark now seems to act as an immediate resistance, above which a bout of short-covering could lift spot prices to the 0.7055-0.7060 horizontal zone. The latter should act as a strong barrier and cap the upside for the AUD/USD pair, at least for the time being.

On the flip side, immediate support is now pegged near the daily swing low, around the 0.6910 area. Some follow-through selling below the 0.6900 mark will reaffirm the near-term bearish bias and pave the way for additional losses. The AUD/USD pair might then accelerate the downward trajectory to the 0.6840-0.6835 intermediate support en-route the 0.6800 mark.

AUD/USD daily chart

Key levels to watch

The next few months in Ukraine could see a "more unpredictable and potentially escalatory trajectory", said Avril Haines, the Director of US National Intelligence according to Reuters. 

Cleveland Fed President and FOMC member Loretta Mester said in an interview on Tuesday with Yahoo Finance that she doesn't think the Fed is going to put the US economy into a sustained downturn, according to Reuters. Nonetheless, she added, the challenge for the Fed is a large one. 

Unemployment may need to rise and there may be another negative GDP print, she continued. However, Mester said that there is a lot of positive momentum underneath the recent negative Q1 GDP print. It is important for the Fed to be raising interest rates to bring demand into balance with constrained supply, she said. 

Ukraine and China both pose upside risks to inflation, she continued, adding that the US economy might see a couple of months where the unemployment rate rises, though this won't be sustained. Regarding recent stock market volatility, Mester called it "very uncomfortable" but necessary to get inflation down, and reiterated that the Fed needs to consider selling mortgage-backed securities. "We'll know more about the right size of the balance sheet as it shrinks," she added.  

Cleveland Fed President Loretta Mester on Tuesday said that the Fed needs to move up rates as a pace to get inflation turning lower, according to an interview with Yahoo Finance cited by Reuters. Mester said she is comfortable with moving rates up in 50 bps intervals at another couple of meetings.

Additional Remarks:

"We will need evaluate if there is a need to speed rate hikes up, or go slower."

"I will need compelling evidence that inflation is moving down."

"So far, I have not seen compelling evidence."

The Fed needs to get its monetary policy to a more neutral stance, then evaluate how much further tightening is needed. 

The neutral nominal rate of interest is about 2.5%. 

"We may need to go above neutral to get inflation down."

"I think we will need to go beyond neutral."

"I am open to seeing how things evolve in second half of year and next."

• EUR/USD looks to extend the bounce to 1.0600 and beyond.
• The weekly high at 1.0641 emerges as the next target of note.

EUR/USD adds to the weekly recovery, although another test/surpass of the 1.0600 barrier remains elusive for the time being.

If the rebound picks up extra pace, then the pair should initially target the round level at 1.0600 prior to the more relevant weekly high at 1.0641 (May 5).

Above the 3-month line near 1.0930, the selling pressure is expected to alleviate somewhat. This area coincides, with the weekly high recorded on April 21.

EUR/USD daily chart

• USD/CHF witnessed modest intraday pullback from the fresh YTD high touched earlier this Tuesday.
• Retreating US bond yields kept the USD bulls on the defensive and prompted some profit-taking.
• The risk-on impulse to undermine the safe-haven CHF and limit losses amid hawkish Fed expectations.

The USD/CHF pair extended its intraday retracement slide from a three-year high and dropped to the 0.9900 neighbourhood during the early North American session.

The pair witnessed a turnaround from the 0.9975 region, or its highest level since May 2019 touched earlier this Tuesday and for now, seems to have snapped a three-day winning streak. The ongoing corrective slide in the US Treasury bond yields undermined the US dollar and prompted traders to lighten their bullish bets around the USD/CHF pair. Apart from this, the downtick lacked any obvious fundamental catalyst and is more likely to remain limited amid the prospects for a more aggressive policy tightening by the Fed.

Investors seem convinced that the Fed would need to take more drastic action to bring inflation under control. In fact, the markets are still pricing in a further 200 bps rate hike for the rest of 2022. Adding to this, concerns about rapidly rising consumer prices should act as a tailwind for the US bond yields. Hence, the focus remains glued to the release of the US CPI report on Wednesday. Nevertheless, the fundamental backdrop favours the USD bulls and supports prospects for the emergence of some dip-buying around the USD/CHF pair.

Furthermore, a generally positive tone around the equity markets, which tends to drive flows away from the safe-haven Swiss franc, validates the positive outlook for the USD/CHF pair. Hence, it will be prudent to wait for strong follow-through selling before traders start positioning for any meaningful corrective slide. In the absence of any major market-moving economic releases, the US bond yields will influence the USD demand. This, along with the broader market risk sentiment, should provide some trading impetus to the USD/CHF pair.

Technical levels to watch

50 bps rate hikes at the next two Fed meetings "makes sense" as a base case scenario, said NY Fed President and influential FOMC member John Williams on Tuesday, report Reuters. Williams said his view on the neutral rate in the US is for real interest rates to be about 0-0.5% with inflation running between 2-2.5% (suggesting a nominal neutral rate of 2.0-3.0%). 

Additional Remarks:

Federal Reserve Bank of Richmond President Thomas Barkin said on Tuesday that once the Fed has gotten interest rates back to neutral, it can then decide whether it needs to put brakes on the economy (i.e. by further lifting interest rates into restrictive territory), depending on the level of inflation, reported Reuters. The Fed's policy path will not necessarily cause a recession, Barkin noted. 

Barkin noted Fed Chair Jerome Powell's comments that 50 bps rate hikes are on the table for upcoming meetings and said that the Fed needs to get inflation under control, calling it high, persistent and broad-based. Getting inflation closer to the Fed's goal creates certainty that enables growth and supports maximum employment, he commented. 

Demand in the US economy is strong and looks set to remain robust, he continued, driven by healthy business and personal balance sheets. Moreover, a number of pandemic-era inflation pressures will eventually settle, Barkin notes, adding that rising borrowing rates will dampen investment levels and spending on interest rate-sensitive items like houses and cars. 

GBP/USD bounces off a test of 1.23 but the outlook remains negative. Economists at Scotiabank expect cable losses below 1.23 to extend as low as the May 2020 low of 1.2076.

1.2376 stands as resistance ahead of the figure area

“The 1.23 area provided support while gains peaked at 1.2376 that stands as resistance ahead of the figure area.”

“Losses below 1.23, which look to be in store given the GBP’s bearish trajectory, may find support at yesterday’s low of 1.2261.”

“The mid-figure area is the only noteworthy support point on the charts until 1.2076 (May 2020 low).”

EUR/USD is back to the mid-1.05s. Still, economists at Scotiabank expect the pair to finally see a break below 1.05 to open up the 2017 low of 1.0341.

The intraday high of 1.0585 is resistance

“Multiple breaks of 1.05 point to the area (with the high 1.04s) eventually giving way and opening EUR losses to the 2017 low of 1.0341. However, tests of the figure zone have been followed by relatively solid buying that then sees the EUR cap out at the next figure or in the high 1.05s.”

“The intraday high of 1.0585 is resistance followed by 1.0595/00 and 1.0640.”

“At 1.0536, the intraday low stands as support and then 1.0520 and the 1.05 area.”

Economists at TD Securities believe the Mexican peso may find space for some appreciation. They expect USD/MXN to tick down towards the 19.75/80 region over the coming months.

USD/MXN to return stably above the 20 mark in 2023

“We expect the MXN to experience some moderate strengthening against the dollar towards the 19.75/80 area in Q3/Q4.”

“In 2023, we expect USD/MXN to return stably above the 20 mark (H1 2023) and then the 21 mark (H2 2023), paring back the modest strength we anticipate for this year.”

Gold Price consolidates in the $1,860 area. But strategists at TD Securities expect the yellow metal to dip below the $1,850 mark.

Silver to see some relief

“Systematic trend followers are joining into the liquidation vacuum in gold. Finally, trend signals have sufficiently deteriorated to catalyze a substantial selling program in gold.” 

“With gold prices challenging the psychologically important $1,850/oz range, the additional CTA flow could be sufficient to spark a breakdown in this technical level.” 

“CTA short acquisitions in silver are now running out of steam, which should provide some relief from the metal's dramatic underperformance relative to the yellow metal, just as our base metals indicators also point to a potential near-term floor.”

GBP/USD is trading above 1.23 after hitting a new cycle low at 1.2260 on Monday. Economists at BBH expect cable to test the May 2020 low near 1.2075 on a dip below 1.2250.

Bank of England tightening expectations have stalled

“We look for a break below the June 2020 low near 1.2250, which would set up a test of the May 2020 low near 1.2075.”

“WIRP suggests another 25 bp hike is fully priced in for the next meeting June 16, while the odds of a 50 bp move then are minimal. Looking ahead, the swaps market is pricing in 125-150 bp of total tightening over the next 12 months that would see the policy rate peak between 2.25-2.50%.”

• DXY appears side-lined in the upper end of the recent range.
• Immediately to the upside comes the YTD high near 104.20.

DXY trades without a clear direction below Monday’s 19-year highs around 104.20.

According to the recent price action, the index could face some consolidation in the very near term. The break above it could expose a test of the 2022 high at 104.18 (May 9) ahead of the round level at 105 and prior to 105.63 (December 11 2002 high).

The current bullish stance in the index remains supported by the 8-month line in the boundaries of 97.00, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 96.09.

DXY daily chart

• USD/CAD witnessed an intraday pullback from the fresh YTD high touched earlier this Tuesday.
• The risk-on impulse, retreating US bond yields prompted some profit-taking around the major.
• Sliding oil prices could undermine the loonie and limit losses amid aggressive Fed rate hike bets.

The USD/CAD pair edged lower through the early North American session and dropped to a fresh daily low, around the 1.2980-1.2975 region in the last hour.

Spot prices struggled to capitalize on the modest intraday gains and started retreating from the 1.3035 region, or the highest level since November 2020 touched earlier this Tuesday. The downtick lacked any obvious fundamental catalyst and could be solely attributed to some profit-taking following the recent strong gains of over 300 pips recorded over the past three days or so.

The corrective slide, however, remains cushioned amid a weaker tone around crude oil prices, which tend to undermine the commodity-linked loonie. Oil prices added to the previous day's steep declines amid the bleak outlook for global fuel demand - led by growing recession risks and strict coronavirus-induced lockdowns in top oil importer - China.

Furthermore, a delay in the approval of the European Union's proposed phased embargo on Russian oil - amid requests from Eastern European members for exemptions and concessions - also undermined the commodity. Reports indicate that a new version is currently being drafted and could drop a ban on EU tankers carrying Russian oil after pressure from Greece, Cyprus and Malta.

On the other hand, retreating US Treasury bond yields and the risk-on impulse in the markets held traders from placing fresh bullish bets around the safe-haven US dollar. That said, the prospects for a faster policy tightening by the Fed should continue to act as a tailwind for the buck, warranting some caution before positioning for any deeper losses.

In fact, the markets seem convinced that the Fed would need to take more drastic action to combat stubbornly high inflation and have been pricing in a further 200 bps rate hike for the rest of 2022. Hence, the focus remains glued to the release of the latest US consumer inflation figures on Wednesday, which will play a key role in driving the USD demand.

In the meantime, the USD remains at the mercy of the US bond yields and the broader market risk sentiment amid absent relevant market moving economic releases. Apart from this, oil price dynamics should provide some impetus to the USD/CAD pair and allow traders to grab some short-term opportunities.

Technical levels to watch

No decision has yet been taken on the Northern Ireland Protocol (NIP) but the situation is extremely serious, a spokesperson for UK PM Boris Johnson said on Tuesday, reported Reuters. The PM spoke to leaders from Sinn Fein (who seek union with Ireland and are now the largest party in Northern Ireland's regional parliament following weekend elections there) and the DUP (who seek to maintain union with the UK, and were formally the largest party in the regional parliament).

The spokesperson said Johnson urged them to deliver for the people of Northern Ireland. "We want to fix some of the underlying challenges" regarding the NIP, the spokesperson added. Earlier, the PM of Ireland warned the UK against any unilateral moves to overrule parts of the NIP and the PM of Belgium recently warned that if the UK didn't abide by the protocol, that would be a big problem within the EU's internal market.  

• GBP/USD is currently going sideways in the low-1.2300s as traders monitor Fed speak and Brexit news.
• For now, dollar consolidation is keeping the pair above 1.2300, but fears the UK might scrap the NIP are weighing.

Amid a broadly mixed and indecisive feel to risk appetite, GBP/USD is moving sideways in the low 1.2300s having, for now, found decent support above the 1.2300 and recent lows in the mid-1.2200s. But the pair has also been unable to mount a test of resistance in the 1.2400 area, as negative themes such as worries about the economy and now also growing fears about new Brexit-related tensions keep sterling suppressed.

Regarding the former, concerns about the outlook for the UK economy and BoE monetary tightening with the UK enduring its worst cost-of-living crisis in decades sent GBP/USD tumbling below 1.3000 back in late/mid-May. Last week’s dovish BoE meeting, which signaled a high risk of a recession in 2023 and inflation falling back under the bank’s target range towards the end of its forecast, exacerbated the losses and saw GBP/USD falling into the 1.2200s at the end of last week.

Whilst a pullback in US yields from recent highs as Fed policymakers push back against the idea of 75 bps rate hikes is helping the US dollar stabilise in the run-up to Wednesday’s US Consumer Price Inflation data release, GBP/USD upside is limited for now. Brexit risk premia is growing amid reports that the UK is on the verge of scrapping the Northern Ireland Protocol (NIP) given post-regional election political impasse in Northern Ireland.

If the UK did this, it would raise tensions with the EU and likely lead to some sort of response. Uncertainty about the whole issue is likely to, for now, cap GBP upside. Ahead, a barrage of Fed speak and any Brexit news will be the main market drivers of the day, with influential FOMC member John Williams already having spoken (and stuck to Chairman Jerome Powell’s script).

Economist at UOB Group Enrico Tanuwidjaja comments on the latest inflation figures in Indonesia.

Key Takeaways

“Significant increases in cooking oil, eggs, fresh fish and meat prices, as well as overall transportation prices drove inflation past the 3% mid-point in Apr.”

“Apr’s headline inflation jumped to 3.5% y/y vs 2.3% average in 1Q22 while core inflation rose from 2.1% y/y average in 1Q22 to 2.6% in Apr, a sign of continued recovery in domestic demand.”

“Going forward, we expect the headline inflation to soon break the 4% upper-limit of BI’s inflation target range, though this has been embedded into our inflation forecast average of 3.3% in 2022.”

UK Foreign Minister Liz Truss could move to scrap parts of the post-Brexit Northern Ireland Protocol (NIP) as soon as next week, Whitehall sources told the BBC, adding that the Foreign Minister's position on the matter is relatively "hard-line". 

The latest reports are in fitting with a recent article published by the times that alleged that Truss is reportedly soon set to ditch the NIP in its entirety after "giving up" on talks with the EU, and after EU officials on Monday said they are open to restarting talks. 

NY Fed President and influential FOMC member John Williams on Tuesday said that the Fed needs to be data-dependent and adjust its policy actions as the circumstances warrant, report Reuters. The Fed will move expeditiously to bring the Federal Funds target range back to more normal levels this year, he said, echoing Fed Chair Jerome Powell's message in the post-FOMC meeting press conference last week. 

Additional Remarks:

War and the pandemic have brought a tremendous amount of uncertainty and complexity. 

The ongoing pandemic and war in Ukraine are exacerbating near-term inflation pressures and global economic uncertainty. 

"Our actions will cool demand and factors contributing to supply shortages will be resolved."

The Fed's task to return balance and price stability to the US economy is difficult, but not insurmountable. 

"We have a sizzling hot labor market."

Some of the Fed's rebalancing will be accomplished through increases in supply.

"I am resolutely focused on restoring price stability."

"I am confident the Fed has the right tools to achieve our dual mandate goals."

"For 2022, I expect Core PCE inflation to be nearly 4%, then to fall to around 2.5% next year."

"For 2022, I expect GDP growth of around 2% and the unemployment rate to remain around its current low level."

• Gold is consolidating in the $1860 area amid a mixed, indecisive feel to trade after Monday’s risk-off session.
• Focus is on an upcoming barrage of Fed speak ahead of Wednesday’s release of key April US CPI.

Broader market risk appetite remains mixed and indecisive in the hours prior to the start of the US session, after a resoundingly risk-off Monday. For now, US equity index futures are trading higher in pre-market trade amid a rebound in their European peers, while bond yields on both sides of the Atlantic continue to pull back from multi-month/year highs hit on Monday. Energy and industrial metal prices are a tad lower, while conditions in currency markets are fairly mixed and subdued, with the DXY flat but remaining well supported close to recent highs in the upper 103.00s.

Against this backdrop, it perhaps isn't too surprising to see spot gold (XAU/USD) prices consolidating not far above last week’s multi-week lows at $1850. At present, XAU/USD is trading just above the $1860 level with gains of about half a percent on the day, with trader focus turning to a barrage of upcoming commentary from Fed policymakers throughout the rest of Tuesday’s session. NY Fed President John Williams is slated to speak at 1240BST, Raphael Bostic at 1330BST, Christopher Waller and Neel Kashkari at 1800BST and Loretta Mester at 2000BST.

Fed policymakers have thus far seemed very much on board with the policy signal sent by Fed Chair Jerome Powell in wake of last week’s policy meeting and Tuesday’s speakers are expected to stick to the script. Essentially, the Fed wants to get interest rates back to neutral (around 2.5%) by the end of the year and then assess the degree to which it needs to continue lifting interest rates, which will depend on how bad the inflation problem still is.

A big reason for the recent pullback in risk assets (like stocks, crypto, and some economically sensitive commodities like copper), as well as in precious metals, has been fears that they will be taking interest rates into outright “restrictive” territory (i.e. well above the 2.5% neutral level). Demand for gold tends to fade as the “opportunity cost” of holding non-yielding assets rises (i.e. interest rates rise). Longer-term US bond yields are a proxy for this “opportunity cost”, hence gold’s negative correlation to them.

Beyond the upcoming onslaught of Fed speak, trader focus is already turning to Wednesday’s release of the April US Consumer Price Inflation report. Headline price pressures are expected to ease and if this is the case, it could come as a relief to markets. That could give gold a short-term boost. But it remains premature to bet against the Fed taking rates into restrictive territory in 2023 and thus premature to bet on a sustained rebound back to earlier annual highs in the $2000s.

• EUR/JPY remains on the defensive so far this week.
• Bullish attempts target the 2022 highs around 140.00.

EUR/JPY adds to Monday’s decline and retests the 137.00 region on Tuesday.

The cross seems to have returned to the previous consolidative theme for the time being. The breakout of this phase is expected to shift the attention to a potential visit to the round level at 139.00 ahead of the 2022 high around 140.00 (April 21). Further up is seen the June 2015 peak at 141.05.

In the meantime, while above the 200-day SMA at 130.94, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

• Silver surrendered its modest intraday recovery gains and dropped back closer to the YTD low.
• The overnight break below the $22.00 mark might have already set the stage for further losses.
• Oversold RSU (14) on the daily chart warrants some caution before placing fresh bearish bets.

Silver struggled to capitalize on its modest intraday recovery move and retreated to the lower end of its daily trading range during the first half of the European session. The white metal was last seen hovering around the $21.80 region, just above the YTD low set the previous day.

Given that last week's post-FOMC bounce faltered near an ascending trend-line support breakpoint, the overnight sustained weakness below the $22.00 round figure favours bearish traders. That said, RSI (14) on the daily chart is already flashing oversold conditions and warrants caution.

Hence, it will be prudent to wait for some near-term consolidation or modest rebound before traders start positioning for an extension of a four-week-old bearish trajectory. The XAG/USD seem vulnerable to weakening further and retesting the December 2021 low, around the $21.40 region.

Some follow-through selling will be seen as a fresh trigger for bearish traders and set the stage for additional losses. The XAG/USD could then fall further towards the next relevant support near the $21.00 round figure before eventually dropping to the $20.00 psychological mark.

On the flip side, attempted recovery now seems to confront stiff resistance near the $22.00 support breakpoint. Any subsequent move up could be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the $22.40-50 horizontal resistance.

That said, sustained strength beyond might trigger a short-covering move and push spot prices to the $23.00 mark en-route last week's high, around the $23.25-$23.30 region. The latter should act as a pivotal point, which if cleared would suggest that the XAG/USD has bottomed out.

Silver daily chart

Key levels to watch

Economist at UOB Group Ho Woei Chen, CFA, assesses the latest trade balance figures in China and the growth prospects for the next months.

Key Takeaways

“China’s export and import growth slowed sharply in Apr as lockdowns intensified in Shanghai during the month, though the data was slightly better than consensus forecasts.”

“Export moderated to 3.9% y/y (Bloomberg: 2.7% y/y, Mar: 14.7% y/y), the slowest pace since Jul 2020. Import was flat at 0.0% y/y (Bloomberg: -3.0% y/y, Mar: -0.1% y/y) for the second consecutive month.”

“The outlook for China’s growth has continued to deteriorate due to the prolonged COVID-19 outbreak in Shanghai and other cities adopting a more stringent containment approach to avoid a potential surge in infections. Thus, there is increasing downside risk to our full-year GDP growth forecast for China of 4.9% as GDP is likely to suffer a larger downturn in 2Q22 than in 1Q22.”

“The People’s Bank of China (PBoC) is expected to step up its monetary policy easing to cushion the downside risks to the economy. The 1-year medium-term lending facility (MLF) rate is likely to be cut by 5-10 bps this month from 2.85%.”

• USD/TRY sees its upside renewed and climbs above 15.00.
• Turkey Unemployment Rate rose to 11.5% in March.
• Turkey 10y bond yields rose to multi-week highs past 23.00%.

Finally, some action around the pair. The Turkish lira remains on the back footing and motivates USD/TRY to clinch fresh 2022 highs past the 15.00 mark on Tuesday.

USD/TRY in 5-month highs

USD/TRY posts gains for the fourth consecutive session, this time surpassing the key barrier at the 15.00 yardstick for the first time since mid-December 2021.

Indeed, the lira loses further ground despite the broad-based improvement in the risk complex and the offered stance in the US dollar, while Turkey 10y bond yields rose to multi-week highs north of the 23.00% mark.

In what was the sole release in the domestic calendar, Turkey’s jobless rate edged higher to 11.5% in March.

Later in the session, and absent relevant releases in the US docket, the dollar is expected to take centre stage in light of speeches by FOMC’s Williams, Bostic, Waller, Kashkari and Mester.

What to look for around TRY

The lira broke below the multi-week range bound theme vs. the greenback and lifted USD/TRY to the area beyond the 15.00 neighbourhoo. So far, price action in the Turkish currency is expected to gyrate around the performance of energy prices, the broad risk appetite trends, the Fed’s rate path and the developments from the war in Ukraine. Extra risks facing TRY also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent.

Key events in Turkey this week: Unemployment Rate (Tuesday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Upcoming Presidential/Parliamentary elections.

USD/TRY key levels

So far, the pair is gaining 1.14% at 15.2430 and faces the next hurdle at 15.2445 (2022 high May 10) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a drop below 14.6836 (monthly low May 4) would expose 14.5458 (monthly low April 12) and finally 14.5136 (weekly low March 29).

• USD/JPY oscillated in a range through the first half of the European session on Tuesday.
• The mixed technical picture held back traders from placing aggressive directional bets.
• Investors also seem to wait for the latest US consumer inflation figures on Wednesday.

The USD/JPY pair lacked any firm direction on Tuesday and seesawed between tepid gains/minor losses through the first half of the European session. The pair was last seen trading around the 130.15 region, nearly unchanged for the day.

The ongoing retracement slide in the US Treasury bond yields kept the US dollar bulls on the defensive and acted as a headwind for spot prices. That said, the risk-on impulse undermined the safe-haven Japanese yen and extended some support to the USD/JPY pair.

Looking at the broader picture, the overnight pullback from a fresh two-decade high, around the 131.35 region, constitutes the formation of a bearish double-top pattern on short-term charts. The corrective slide, however, stalled near a two-week-old ascending trend line.

The said support, currently around the 129.75-129.70 region, coincides with the daily low and should act as a pivotal point for intraday traders. A convincing break below would suggest that the USD/JPY pair has formed a near-term top and pave the way for further losses.

Spot prices could then accelerate the fall towards testing the 100-period SMA on the four-hour chart, around the 129.00 round figure. The downward trajectory could further get extended towards the 128.25-128.20 region en-route the 128.00 mark and the 127.70-127.65 support.

On the flip side, the 130.70-130.75 region now seems to act as an immediate resistance ahead of the 131.00 mark. Some follow-through buying should allow the USD/JPY pair to climb back to over a two-decade high, around the 131.35 region touched on Monday. 

USD/JPY 1-hour chart

Key levels to watch

• EUR/GBP gained some positive traction on Tuesday and inched back closer to the YTD peak.
• The BoE’s gloomy economic outlook continued weighing on sterling and acted as a tailwind.
• Concerns about looming recession undermined the euro and capped any meaningful upside.

The EUR/GBP cross held on to its modest intraday gains, around the 0.8570 region through the first half of the European session and had a rather muted reaction to the German data.

The cross attracted some dip-buying near the 0.8545 zone on Tuesday and has now moved well within the striking distance of the YTD peak touched last week. The Bank of England's warning last week, saying that the economy was at the risk of a recession, suggested that the current rate hike cycle could be nearing a pause. This was seen as a key factor behind the British pound's relative outperformance and acted as a tailwind for the EUR/GBP cross.

That said, concerns that the European economy will suffer the most from the Ukraine crisis held back bullish traders from placing aggressive bets around the shared currency. On the economic data front, the German ZEW Economic Sentiment Index improved from -41.0 in April to -34.3 for the current month, beating estimates of -42.0 by a wide margin. This, however, did little to offset worries about the looming recession or provide any impetus to the EUR/GBP cross.

From a technical perspective, the post-BoE strong move up beyond the very important 200-day SMA and a descending trend-line extending from April 2021 support prospects for additional gains. Hence, some follow-through strength, towards reclaiming the 0.8600 mark for the first time since October 2021, still looks like a distinct possibility. That said, absent relevant market-moving economic releases warrant some caution before positioning for any further gains.

Technical levels to watch

• German ZEW Economic Sentiment arrived at -34.3 in May vs. -41.0 previous.
• The ZEW Current Situation for Germany came in at -36.5 in May vs. -30.8 prior.
• EUR/USD keeps its range around 1.0575 on mixed German and Eurozone data.

The German ZEW headline numbers for May showed that the Economic Sentiment Index improved despite looming recession risks, coming in at -34.3 from -41.0 previous while beating estimates of -42.0 by a wide margin.

Meanwhile, the Current Situation sub-index slumped to -36.5 in May as against -30.8 recorded in the previous month and -35.0 expectations.  

The Eurozone ZEW Economic Sentiment Index stood at -29.5 in the current month as compared to the -43.0 previous reading and -41.0 expected.  

Key takeaways

FX market reaction

The euro remains unfazed by the mixed ZEW Surveys and Eurozone data. EUR/USD was last seen trading at 1.0575, up 0.17% on the day.

• AUD/USD staged a goodish bounce from its lowest level since July 2020 touched earlier this Tuesday.
• The risk-on impulse, softer US Treasury bond yields undermined the USD and extended some support.
• Aggressive Fed rate hike bets and recession fears acted as a tailwind for the USD and capped the pair.

The AUD/USD pair witnessed good two-way price moves through the first half of the European session and was last seen trading in neutral territory, just above the mid-0.6900s.

Having dropped to its lowest level since July 2020, the AUD/USD pair staged an intraday recovery from the vicinity of the 0.6900 mark, though lacked any follow-through. The US dollar now seems to have entered a bullish consolidation phase amid a softer tone surrounding the US Treasury bond yields. Apart from this, strong recovery in the equity markets further undermined the safe-haven buck and extended some support to the perceived riskier aussie.

That said, the prospects for a more aggressive policy tightening by the Fed helped limit any deeper losses for the greenback. The markets seem convinced that the Fed would need to take more drastic action to combat stubbornly high inflation and have been pricing in a further 200 bps rate hike for the rest of 2022. Apart from this, growing market worries about softening global growth kept a lid on any further gains for the AUD/USD pair.

Tight supply chains resulting from China's zero COVID-19 policy, and rising oil and food prices due to the war in Ukraine, are causing inflationary fears. This, along with expectations for rapid rate hikes in the US, raised concerns about a possible recession. Hence, the market focus will remain on the US consumer inflation figures on Wednesday, which might influence the Fed's policy outlook and provide a fresh directional impetus to the AUD/USD pair.

In the meantime, the US bond yields will continue to play a key role in driving the USD demand amid absent relevant market moving economic releases. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the AUD/USD pair. Nevertheless, the bias remains tilted in favour of bearish traders and supports prospects for an extension of the recent bearish trend witnessed over the past one month or so.

Technical levels to watch

Despite the intense flight to safety on Monday, EUR/USD managed to stay resilient. As FXStreet’s Eren Sengezer notes, bulls could show interest on a move above 1.06.

EUR/USD could extend its recovery with a four-hour close above 1.06

“In case safe-haven flows dominate the markets during the American session, EUR/USD could find it difficult to gather bullish momentum.”

“On the upside, 1.06 (psychological level, Fibonacci 23.6% retracement of the latest downtrend) forms the first resistance. With a four-hour close above that level, the pair could extend its rebound toward 1.0640 (100-period SMA) and 1.0660 (Fibonacci 38.2% retracement).”

“A four-hour close below 1.0540 (20-period SMA, 50-period SMA) could be seen as a bearish development and open the door for additional losses toward 1.05 (psychological level) and 1.0470 (multi-year low set on April April 26).”

Senior Economist at UOB Group Alvin Liew reviews the latest Nonfarm Payrolls figures for the month of April (May 6).

Key Takeaways

“The Apr US employment report showed a gain of 428,000 jobs (above 400,000 for the 12th month in a row) while the unemployment rate stayed at 3.6%, unchanged from Mar and a hair’s length from pre-pandemic level of 3.5%.”

“Wage growth continued to rise amidst growing demand and persistent worker shortages but markets were somewhat relieved that the rise was at a slower pace of 0.3% m/m, 5.5% y/y in Apr (easing from 0.5% m/m, 5.6% y/y in Mar) despite hiring challenges.”

“US employment gains in 2022 to date continues to fuel labor market optimism, while persistent wage increases will still put the threat of wage-price spiral in focus amidst on-going inflation worries due to commodity price surges and supply chain disruptions.”

• EUR/USD extends the advance to the vicinity of 1.0600.
• Germany, EMU Economic Sentiment comes next in the docket.
• A slew of Fed-speakers should keep the attention on the dollar.

The single currency extends its gradual march north and motivates EUR/USD to test the proximity of the 1.0600 mark on turnaround Tuesday.

EUR/USD looks to data, USD

EUR/USD so far advances for the third session in a row on Tuesday and approaches the key 1.0600 neighbourhood amidst some loss of upside momentum in the greenback.

The uptick in the pair comes amidst some weakness in German 10y bund yields, which retest the 1.08% area following Monday’s peaks around 1.20%, an area last visited back in July 2014. In the US money markets, yields seem be attempt a mild recovery after Monday’s knee-jerk.

In the domestic calendar, the main publication will be the Economic Sentiment tracked by the ZEW Institute in both Germany and the broader Euroland. Across the pond, the dollar will be under scrutiny following the speeches by Fed’s rate-setters Williams, Bostic, Waller, Kashkari and Mester.

What to look for around EUR

EUR/USD manages to put further distance from recent lows in the sub-1.0500 region. The outlook for the pair still points to the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany, EMU Economic Sentiment (Tuesday) – Final Germany Inflation Rate, ECB Lagarde (Wednesday) – EMU Industrial Production (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is gaining 0.10% at 1.0568 and faces the next up barrier at 1.0641 (weekly high May 5) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level). On the other hand, a break below 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017).

• A combination of factors failed to assist GBP/USD to capitalize on its modest intraday move up.
• The BoE’s gloomy economic outlook continued weighing on the British pound and capped gains.
• Aggressive Fed rate hike bets, recession fears underpinned the USD and attracted fresh selling.

The GBP/USD pair surrendered its modest intraday gains and dropped to a fresh daily low, around the 1.2320-1.2315 region during the early European session.

The pair continued with its struggle to register any meaningful recovery and remained well within the striking distance of its lowest level since June 2020, around the 1.22060 region touched on Monday. The Bank of England's bleak economic outlook suggested that the current rate hike cycle could be nearing a pause. It is worth recalling that the UK central bank raised interest rates to their highest level since 2009 but warned that the economy was at the risk of a recession. This was seen as a key factor that acted as a headwind for the British pound and capped the GBP/USD pair amid the underlying strong bullish sentiment surrounding the US dollar.

The greenback continued drawing support from the prospects for a more aggressive policy tightening by the Fed. In fact, the markets seem convinced that the US central bank needs to take more drastic action to curb soaring inflation and are still pricing in a further 200 bps rate hike for the rest of 2022. The expectations for rapid rate hikes in the US, along with strict COVID-19 lockdowns in China have been fueling fears about softening global growth and a possible recession. This offered benefitted the safe-haven buck and attracted fresh selling around the GBP/USD pair. That said, a softer tone around the US Treasury bond yields could cap the USD.

Apart from this, a goodish recovery in the equity markets could hold back the USD bulls from placing fresh bets and help limit losses for the GBP/USD pair. Investors might also prefer to wait on the sidelines ahead of the latest US consumer inflation figures on Wednesday and the UK GDP report on Thursday. Nevertheless, the fundamental backdrop supports prospects for an extension of the pair's downward trajectory. In the absence of any major market-moving economic releases, either from the UK or the US, the USD price dynamics would continue to play a key role in influencing the pair and producing short-term trading opportunities.

Technical levels to watch

USD/CNH could now attempt a visit to the 6.8000 level in the next weeks, commented FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that ‘further USD strength is likely’ and ‘a break of 6.7400 could lead to an advance to 6.7600’. The anticipated advance exceeded our expectations as USD soared to a high of 6.7760. Conditions are deeply overbought and USD is unlikely to strengthen much further. For today, USD is more likely to trade between 6.7350 and 6.7800.”

Next 1-3 weeks: “We have held a positive view in USD for more than 3 weeks. In our narrative from yesterday (09 May, spot at 6.7050), we indicated that strong upward momentum is likely to lead to an advance to 6.7400, as high as 6.7600. We added, ‘looking ahead, a clear break of 6.7600 would shift the focus to 6.8000’. USD subsequently soared to 6.7760. Solid upward momentum is likely to lead to further USD strength to 6.8000. On the downside, a breach of 6.7100 (‘strong support’ level was at 6.6700 yesterday) would indicate that the rally is ready to take breather.”

• Sliding US bond yields undermined the USD and assisted gold to regain positive traction on Tuesday.
• Aggressive Fed rate hike bets and the risk-on impulse kept a lid on any further gains for the metal.
• The market focus will remain glued to the release of the US consumer inflation figures on Wednesday.

Gold regained some positive traction on Tuesday and recovered a part of the overnight slide back closer to the $1,850 level, or a near three-month low touched last week. The XAUUSD maintained its bid tone through the early European session and was last seen trading just below the daily high, around the $1,861-$1,862 region.

A softer tone around the US Treasury bond yields kept the US dollar bulls on the defensive, which, in turn, was seen as a key factor that offered some support to the dollar-denominated commodity. Apart from this, concerns about softening global growth and a possible recession further underpinned the safe-haven gold.

That said, a combination of factors held back bulls from placing aggressive bets and kept a lid on any further gains for gold prices. A goodish recovery in the US equity futures, along with the prospects for a more aggressive policy tightening by the Fed, held back traders from placing bulls bets around the non-yielding gold.

In fact, the markets seem convinced that the Fed would need to take more drastic action to combat stubbornly high inflation and have been pricing in a further 200 bps rate hike for the rest of 2022. Hence, the focus will remain glued to the latest US consumer inflation figures for April, due for release on Wednesday.

In the meantime, expectations for rapid interest rate hikes in the US should act as a tailwind for the USD and further contributed to capping gold prices. In the absence of any major market-moving economic releases, the USD price dynamics and the broader market risk sentiment will be looked upon for short-term trading opportunities.

Technical levels to watch

Here is what you need to know on Tuesday, May 10:

Wall Street's main indexes suffered heavy losses on Monday and the S&P 500 touched its lowest level in a year below 4,000. Although markets stay relatively quiet early Tuesday, US stock index futures are down between 1.3% and 1.7% while the US Dollar Index consolidates its gains below 104.00. ZEW Survey from Germany and the NFIB Business Optimism Index from the US will be looked upon for fresh impetus. Market participants will pay close attention to comments from central bankers as well. 

Investors grow increasingly concerned over a global economic slowdown as coronavirus-related restrictions in China continue to weigh on the international trade activity. Despite the falling number of cases in Shanghai, authorities have reportedly tightened measures as the government doubles down on the "zero-COVID policy." Additionally, lingering supply-chain issues are expected to cause global inflation to continue to rise for longer than expected. In the meantime, there are no signs of a de-escalation of the Russia-Ukraine crisis.

Following a 3% decline on Monday, the benchmark 10-year US Treasury bond yield is holding in positive territory above 3.05% early Tuesday. Atlanta Federal Reserve President Raphael Bostic said on Monday that a 75 basis points rate hike was not his baseline scenario but added that the wasn't taking anything off the table. On an optimistic note, Minneapolis Fed President Niel Kashkari said that he was confident that inflation will return to the Fed's 2% target.

EUR/USD lost its traction after rising toward 1.0600 but ended up closing modestly higher on Monday. In the early European session, the pair is moving sideways above 1.0550. 10-year German government bond yield climbed to its highest level in more than seven years at 1.19% on Monday, helping the shared currency stay resilient against the greenback.

GBP/USD staged a rebound after having slumped to its lowest level in nearly two years at 1.2261 on Monday. The pair trades with small gains at around 1.2350 in the European morning.  Commenting on his decision to vote for a 50 bps rate hike last week, "I put considerable weight on risks that, unless checked by monetary policy, domestic capacity and inflation pressures would probably be greater and more persistent than the central forecast," Bank of England Monetary Policy Committee member Michael Saunders said. "As a result, my preference has been to move relatively quickly to a more neutral monetary policy stance," he further explained.

USD/JPY fluctuates in a relatively tight range above 130.00 on Tuesday. Bank of Japan Executive Director of Monetary Policy, Shinichi Uchida, said earlier in the day that they must continue to support the economy with powerful monetary easing.

Gold fell sharply on Monday but seems to have shaken off the bearish pressure before testing $1,850. XAU/USD consolidates its losses at around $1,860 and remains at the mercy of global bond yields.

Bitcoin slumped to its lowest level since July 2021 at $29,735 on Monday before staging a rebound. BTC/USD was last seen rising more than 6% at $31,900. Ethereum lost 11.5% on Monday and registered one of its biggest daily declines of the year. ETH/USD is rising more than 7% at around $2,400 early Tuesday.

The AUD outlook remains a story of conflicting factors. Economists at ING expect the aussie to tick down towards 0.68, however, AUD/USD could see a gradual upward-sloping path in the medium run.

Bowled over by the China slow-down

“On the external side, the effect of still elevated commodity prices is being offset by wobbly risk sentiment and concerns about China’s demand outlook.”

“Domestically, the Reserve Bank of Australia has started hiking more aggressively than expected, but market pricing is replicating that of the Fed (rates at 3.0% by year-end) which appears overly hawkish.”

“We continue to see some moderate downside risks for the AUD (possibly to 0.68) although a gradual upward-sloping path in the medium run remains our base case.”

EUR/HUF has seen major headwinds since the mid-April bottoming at around 370. Economists at ING expect the pair to hover around the 378 mark for the next three months. 

Sliding external balance puts systemic pressure on HUF

“The key structural factor behind HUF weakness remains the continuous deterioration in the external balance due to the country’s rising energy bill. This puts systemic pressure on forint, making a structural bet against HUF easier for investors.”

“The National Bank of Hungary’s ongoing hawkishness could provide some support, but we see 378 remaining the gravity line for the next three months.” 

“As the hoped-for de-escalation ripples through markets, we envision EUR/HUF easing back in the 355-360 range in the longer run.”

Some stabilisation in risk sentiment after Monday's equity sell-off could help high-beta currencies recover some ground. The dollar might feel some pressure, although buy-the-dip interest may emerge given the backdrop of Fed tightening, growth concerns and an unstable risk environment, economists at ING report.

Beware of short-lived rallies

“Global equity futures are pointing to a tentative rebound in global risk assets today after a major sell-off yesterday triggered by fears of an economic slowdown at a time when central banks are tightening policy. It is not surprising to see the dollar remain strong in such an environment, retaining its safe-haven attractiveness whilst still benefiting to a certain degree from the Fed’s front-loaded tightening story.”

“A risk-on rebound may be on the cards after yesterday’s slump, and commodity currencies may recover some ground, to the detriment of the dollar.”

“Given the general instability in the global risk environment, some interest in buying the dip in the dollar should remain high and we do not expect any sustained USD underperformance in the near term.”

The Norwegian krone is finding some modest support this morning, following a general rebound in high-beta currencies. In the view of economists at ING, the illiquid NOK may struggle to recover just yet, but the EUR/NOK is set to return to the 9.50/70 zone in the second half of 2022.

Liquidity is an issue

“We think Norges Bank will bring interest rates to 1.50% by year-end, with risks skewed towards an even faster pace of tightening. The domestic backdrop is therefore set to remain quite supportive for NOK, and so should the commodity picture – especially if the EU implements the Russian oil ban.”

“NOK is the least liquid currency in the G10, which makes it exceptionally vulnerable and volatile during periods of risk sentiment turbulence. Until risk assets find some peace, despite monetary tightening and global slowdown concerns, NOK will struggle to recover.”

“Once the dust settles, NOK’s set of attractive fundamentals should fuel a gradual return to the 9.50-9.70 area – which we expect to materialise in the second half of the year.”

USD/JPY’s bullish momentum has been enhanced with the break of key neckline resistance at 127.30. The break of a Fibonacci extension resistance at 130.23 underpins further upside momentum, placing on the radar potential targets at 133.26 and 134.95, Benjamin Wong, Strategist at DBS Bank reports.

The bull remains at the wheel 

“The break of the key neckline level at 127.30 has unleashed the 61.8% Fibonacci projection of the distance between 75.35 (2011 lows) and 125.86 (2015 highs) transposed over 99.02 (2016 lows) at 130.23. Despite a lofty standard deviation reading, USD has not stopped on its bullish momentum.”

“USD has reached a high of 131.35, with the next target standing at 132.20, a Fibonacci marker before another milestone at 132.75.” 

“Crossing over 133.26 will embolden the USD bulls to push even further and unravel the calibration of the neckline zone towards 134.95. The sub-135 handle at this stage looks an interesting level to reverse course, mulling price leg.” 

The pound is finally finding some stability after a rough couple of weeks. Economists at ING expect the GBP/USD pair to climb back above the 1.25 level.

Seeking more stability

“Some stabilisation in sentiment should offer additional support today, and possibly help a return to the 1.2500 mark in GBP/USD.”

“The market’s overly hawkish expectations on Bank of England tightening and uncertainty around the British economic outlook are set to keep GBP/USD capped in our view.”

“We have a 1.2400 target for cable for the summer months, followed by a very gradual recovery in 2H22.” 

EUR/USD is once again attempting to find some support in the upper half of the 1.05-1.06 range. Economists at ING believe that the world’s most popular currency pair could move higher today, but the rally is set to stall around the 1.0650 zone.

Eyes on ZEW and ECB speakers

“Some resilience amid yesterday’s turbulent market conditions and a potential stabilisation in risk sentiment today could combine to fuel a break above 1.06 today. Still, the upside remains limited given some USD buying and lingering concern about the ban on Russian oil currently under discussion in the EU.”

“Markets will focus on ZEW figures out of Germany today. Both the “expectations” and “current situation” surveys are set to show another drop in May given high energy prices and the prolonged geopolitical risk. However, the impact on EUR/USD of the latest ZEW releases has been quite negligible.

“Markets now appear to cement their expectations around a July hike (which is also our base case) but remain torn around the size of rate increases in 2022. One of the most hawkish members of the Governing Council, Germany’s Joachim Nagel, will speak first this afternoon, followed by the more moderate François Villeroy and Luis De Guindos.”

“We see some modest upside risk for EUR/USD today, with any rally possibly stalling already around the 1.0650 level.”

The Indian rupee fell to a new record low against the US dollar on Monday to just under the 77.50 level. Economists at Commerzbank expect the USD/INR pair to see another leg higher.

RBI to mitigate weakness

“The record low for INR highlights its weaknesses amid the increase in market volatility. These include 1) India’s twin deficit situation by way of the fiscal and current account deficits. 2) high dependence on oil imports, which is also a problem for most of Asia; and 3) rising inflation risks, particularly food prices.”

“The bias is still tilted to the upside for USD/INR. We expect further RBI intervention to mitigate INR’s drop but not to offset it altogether.”

• Platinum portrays the first daily gains in four despite recent pullback from intraday high.
• MACD, RSI favor upside break of 200-SMA to keep buyers hopeful.
• Two-week-old rising trend line limits short-term downside, bulls approach 61.8% Fibo.

Platinum (XPT/USD) prices remain firmer around $975.00 while snapping the three-day downtrend heading into Tuesday’s European session.

In doing so, the precious metal pierces the 200-SMA, as it did on Friday before refreshing a one-week low.

However, the MACD conditions are more supportive of the latest XPT/USD rebound. On the same line is the firmer RSI (14).

Hence, the latest run-up stays ready to poke the 61.8% Fibonacci retracement (Fibo.) of April 19-27 downside, around $980.00.

Following that, a three-week-old resistance line, around the $1,000 psychological magnet, appears a tough nut to crack for the platinum buyers.

Meanwhile, the 200-SMA and 50% Fibo, respectively around $970.00 and $967, test the pullback moves of XPT/USD.

In a case where platinum sellers manage to conquer $967 support, a horizontal line from April 29, near $950, will precede an upward sloping support line from April 27, close to $935, to restrict the metal’s further downside.

Platinum: Four-hour chart

Trend: Further recovery expected

• DXY retreats from recent 19-year highs past 104.00.
• US yields regain some upside traction on Tuesday.
• NFIB Index, IBD/TIPP Index, Fedspeak next on tap.

The greenback, in terms of the US Dollar Index (DXY), meets some selling pressure around the 103.60 region on turnaround Tuesday.

US Dollar Index looks to Fed-speakers

The index suffers some selling pressure after three consecutive daily advances, including new 19-year highs near 104.20 recorded at the beginning of the week.

The renewed weakness in the buck comes amidst the tepid rebound in US yields along the curve, as the downtrend in the bonds market seems to have resumed.

In the meantime, investors continue to adjust their expectations following last week’s FOMC event and the release of the April’s Nonfarm Payrolls. It is worth recalling that the Fed left the door open to extra 50 bps rate hikes in the upcoming meetings, while a 75 bps raise seems to be out of favour for the time being.

On this, the probability of a 50 bps rate hike at the June 15 meeting surpasses the 90% according to CME Group’s FedWatch Tool.

Later in the NA session, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism Index are due seconded by speeches by NY Fed J.Williams (permanent voter, centrist), Atlanta Fed R.Bostic (2024 voter, centrist), Minneapolis Fed N.Kashkari (2023 voter, dove) , FOMC C.Waller (permanent voter, hawk) and Cleveland Fed L.Mester (voter, hawk).

What to look for around USD

The dollar regained its solid appeal and managed to record new highs beyond the 104.00 mark on Monday, as investors’ expectations for a tighter rate path by the Federal Reserve have been nothing but reinforced by the FOMC event last week. The constructive stance in the dollar is also underpinned by the current elevated inflation narrative and the solid health of the labour market as well as bouts of geopolitical tensions and higher US yields.

Key events in the US this week: MBA Mortgage Applications, Inflation/Core Inflation Rate (Wednesday) – Producer Prices, Initial Claims (Thursday) – Flash Consumer Sentiment (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is losing 0.07% at 103.6 and faces the next support at 102.35 (low May 5) seconded by 99.81 (weekly low April 21) and then 99.57 (weekly low April 14). On the other hand, the breakout of 104.18 (2022 high May 9) would open the door to 105.00 (round level) and finally 105.63 (high December 11 2002).

The Mexican peso has withstood the tougher risk environment well. Economists at ING expect the USD/MXN to trade within a 20.00-20.50 range if Banxico follows the Federal Reserve with a 50bp hike.

AMLO starts to take an interest in Banxico policy

“One emerging risk for MXN is that President AMLO has just agreed a deal to hold a basket of 24 goods stable over the next six months. Might he expect Banxico to keep rates stable too?”

“Assuming Banxico follows the Fed with 50bp, we think USD/MXN can continue trading in a 20.00-20.50 range for the near term.”

• NZD/USD staged modest intraday bounce from its lowest level since June 2020 touched on Tuesday.
• Softer US bond yields, a positive risk tone undermined the safe-haven USD and extended support.
• Aggressive Fed rate hike bets, fears of a recession should limit the USD downside and cap the major.

The NZD/USD pair held on to its modest intraday recovery gains through the early European session and was last seen hovering near the daily high, just below mid-0.6300s.

The pair showed some resilience below the 0.6300 mark and stage modest recovery from its lowest level since June 2020 touched earlier this Tuesday. The US dollar remained on the defensive amid a softer tone around the US Treasury bond yields. Apart from this, signs of stability in the equity markets further undermined the safe-haven buck and extended some support to the perceived riskier kiwi. That said, the prospects for a more aggressive policy tightening by the Fed helped limit any deeper losses for the buck and kept a lid on any meaningful upside for the NZD/USD pair.

The markets seem convinced that the Fed would need to take more drastic action to combat stubbornly high inflation and have been pricing in a further 200 bps rate hike for the rest of 2022. Apart from this, strict COVID-19 lockdowns in China have been fueling fears about softening global growth and a possible recession. This should help revive demand for the safe-haven greenback and further contribute to capping gains for the resources-linked New Zealand dollar, warranting caution for bulls.

Moreover, investors might also refrain from placing aggressive bets and wait for a fresh catalyst from the latest US consumer inflation figures, due for release on Wednesday. Hence, it will be prudent to wait for strong follow-through buying before confirming that the NZD/USD pair has formed a near-term base and positioning for any meaningful recovery. In the absence of any major market-moving economic data from the US, the US bond yields will influence the USD price dynamics. This, along with the broader market sentiment, should allow traders to grab some short-term opportunities.

Technical levels to watch

UAE Energy Minister Suhail Mohamed Al Mazrouei said on Tuesday that the oil market is balanced.

There is “no need to pump more,” he added.

The OPEC and its allies (OPEC+) last Thursday agreed to extend the small production increase for June amid persistent concerns over weaker Chinese demand.

The alliance agreed to raise production targets by 432,000 barrels per day for next month.

Market reaction

WTI was last seen trading at 101.57, up 0.18% on the day.

• WTI Price Analysis: Bears stretch 61.8% Fibo break towards $100.00

AUD/USD has eased below the 0.70 mark. Economists at Commerzbank believe that the pair is unlikely to see a substantial rise.

AUD is struggling in two respects

“On the one hand, concerns about the effects of China’s strict corona policy on the Chinese economy and thus on the Australian economy are likely to be reflected in the AUD exchange rates. On the other hand, it is likely to be the USD strength that has sent AUD/USD plummeting as well.”

“As long as the Fed is ahead of the game as far as monetary policy tightening is concerned AUD is likely to struggle to make significant gains against USD.”

The Korean won briefly crossed the 1,270 level in late-April. Economists at ING expect the USD/KRW to stay at elevated levels above 1,260.

KRW to remain under pressure

“Korea’s trade balance has been in the red for two consecutive months and it is expected to remain so for a few more months due to higher energy prices.”

“Despite the BoK’s relatively rapid normalisation, the Fed’s faster rate hikes should keep weighing on the KRW for a while.” 

“We expect the KRW to remain at an elevated level above 1,260.”

The kiwi continues to soften as commodity currencies/risk assets get whacked on global growth concerns. Economists at ANZ Bank note that NZD/USD is at risk of suffering a fall to the 0.6230 mark.

Market fears of a deeper correction lower continue to percolate

“Weaker growth and high inflation remain the primary concerns and their impact has been bluntly but savagely felt across asset markets and commodities, with oil prices sinking despite Russia not backing down on its invasion of Ukraine thanks to softening resolve on sanctions by the European Union, and Saudi Arabia cutting prices.”

“As time goes on, market fears of a deeper correction lower continue to percolate; that’s weighing on sentiment.”

“A move to 0.6230 (61.8% Fibo of the 2020/21 0.5470/0.7465 rally) would be a disaster.”

“Support 0.5940/0.6230 Resistance 0.6465/0.6545/0.6700”

USD/CAD is trading around the 1.30 level. In the view of economists at Commerzbank, market pricing for Bank of Canada’s (BoC) rate hikes is too aggressive, therefore, the loonie is unlikely to benefit from this front.

Markets remain convinced that the BoC will stick to its accelerated rate hikes in June and July

“As regards the BoC’s imminent rate decision the market clearly remains convinced that the BoC will stick to its accelerated rate hikes in June and July at least. According to OIS-based rate expectations, 100bp are almost completely priced in for the 3-month horizon.”

“It seems exaggerated to us that the BoC might even hike its key rate by 75bp in June, which some clearly seem to be expecting. That means that the loonie will be unlikely to gain an advantage on that front as a downside correction of the rate hike expectations would put pressure on CAD if regarded in isolation.”

The Brazilian real remains the best performing EMFX currency YTD for now. But economists at Rabobank think the USD/BRL will still trade at 5.25 by end-2022 as Fed’s hawkishness and the traditional electoral cycle will end up weighing on the BRL going forward.

After the rally, the BRL unwinds

“We see the USD/BRL trading at 5.25 by end-2022 and the real appreciating to 5.20 in 2023.” 

“The domestic outlook remains challenging due to economic policy uncertainty with the electoral cycle in a global environment of monetary policy tightening with higher risk aversion stemming from a more hawkish Fed, COVID-19 lockdowns in China and the geopolitical landscape. Thus, we see further room for the BRL to depreciate and remain undervalued against its fair value over the coming months.”

The Swiss franc eased against the euro over the past few days. Economists at Commerzbank expect the EUR/CHF to extend its grind higher.

Switzerland’s status-quo in monetary policy to continue

“At present, there is little reason for the SNB to abandon its stance that its current monetary policy is appropriate. Amongst ECB members, on the other hand, there are an increasing number of voices favouring a first-rate hike in July.”

“Unless the news flow in connection with the war in Ukraine deteriorates significantly or other factors such as recession worries greatly unsettle the markets, the Swiss franc is likely to be less in demand as a safe haven and the domestic very expansionary monetary policy will continue to put pressure on the franc.”

“Unless the ECB sends out dovish signals again all of a sudden, which we do not expect, EUR/CHF might appreciate a little further.”

As markets are still uncertain whether the European Central Bank (ECB) will hike interest rates in July, economists at Commerzbank expect the EUR/USD pair to hover around the 1.05-1.06 area.

EUR/USD in its comfort zone?

“A certain degree of scepticism as to whether the ECB will dare implement a lift-off in July is no doubt still justified, in particular, if economic concerns rise.”

“As long as there is no new level of escalation as far as sanctions and counter-sanctions in connection with the Ukraine war are concerned and while, on the other hand, there is no sufficient certainty yet as to whether the ECB really will hike interest rates EUR/USD is likely to be in its comfort zone at current levels around 1.05-1.06 for the time being.”

• USD/RUB snaps two-day rebound from the lowest levels since February 2020.
• EBRD expects reversal of the region’s post-coronavirus economic recovery due to Russian sanctions.
• Pullback in Treasury yields, cautious optimism also underpins the latest weakness.
• Risk catalysts may direct intraday moves but US inflation is the key.

USD/RUB drops half a percent as traders fail to extend the previous two-day uptrend heading into Tuesday’s European session. The ruble (RUB) pair dropped to the lowest since February 2020 before bouncing off 64.25 on Friday. The recovery moves, however, recently faded as the quote eases from 70.65 amid fears that the sanctions on Russia will reverse a post-covid economic recovery in the Europe and surrounding area.

European Bank for Reconstruction and Development (EBRD) came out with the latest report by trimming 2022 growth forecasts for its region to 1.1% from 1.7% forecast in March, per Reuters. The EBRD also expects Ukraine's economy to contract 30% in 2022 before growing 25% in 2023. The EBRD report also adds that Russia to erase nearly a decade of growth with a 10% contraction in 2022.

The report cites the bloc’s sanctions on Russian gas as the key catalyst to triggering the reversal of the economic transition from COVID-19.

Elsewhere, a recovery in the market sentiment and a pullback in the US Treasury yields also weighed on the USD/RUB prices. That said, the US 10-year Treasury bond coupons renewed a multi-day high the previous day before retreating from 3.20%, down three basis points to 3.05% by the press time. The pullback in yields could be linked to the mixed comments from the Fed policymakers as Atlanta Fed’s Raphael Bostic promoted a series of 50bps rate lifts but Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table during their recent speeches.

Additionally favoring market sentiment are comments from China’s Vice Premier Liu He who reiterated the country’s dynamic covid zero policy and offers the much-needed relief to the US stock futures around the yearly low.

Looking forward, USD/RUB traders will pay attention to the geopolitical headlines as Russia remains intact on its Ukraine invasion goals despite Western pressure and sanctions. Also important will be the US inflation data for April, mainly due to the Fed’s monetary policy tightening which previously propelled the USD. Further, speeches from US President Joe Biden and Treasury Secretary Janet Yellen will join the Fedspeak to direct intraday moves as well.

Technical analysis

A downward sloping trend line from late March, around 70.30 by the press time, guards the USD/RUB rebound ahead of the 200-DMA level of 78.70. Meanwhile, the mid-2020 lows near 68.00 can restrict immediate downside before directing bears towards the latest multi-month bottom at 64.25.

USD/JPY is now seen within the 128.40-131.00 range in the next weeks, noted FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we highlighted that USD ‘could edge above 131.25’.  We added, ‘the next resistance at 131.60 is not expected to come into the picture’. While our view was not wrong as USD rose to 131.34, we did not expect the subsequent sharp pullback from the high (low of 130.10 in NY). The pullback has scope to extend to 129.60. The next support at 129.10 is unlikely to come under threat. Resistance is at 130.35 followed by 130.70.”

Next 1-3 weeks: “Last Friday (06 May, spot at 130.40), we highlighted that there is room for USD to retest the 131.25. Yesterday (09 May, spot at 130.85), we highlighted that a clear break of 131.25 would open up the way for USD to advance to 131.65. USD subsequently rose to 131.34 before dropping sharply. The build-up in momentum has fizzled out. USD appears to have moved into consolidation phase and is likely to trade between 128.40 and 131.00.”

• GBP/USD is marching towards 1.2400 as the risk-on mood has underpinned risk-sensitive assets.
• The underperformance of BRC Like-for-Like Retail Sales did a negligible impact on pound.
• A higher US inflation print may bring more uncertainty in the FX domain.

The GBP/USD pair is oscillating in a broad range of 1.2260-1.2406 since Thursday. A tad longer consolidation after an intense sell-off is advocating inventory distribution in which the institutional investors shift their inventory to the retail participants. The signs of exhaustion are clearly visible and eventually, a bullish reversal could take place going forward.

Earlier, the market participants were expecting that the last week’s interest rate announcement by the Federal Reserve (Fed) will mark a reversal in the FX domain. Risk-perceived assets will regain glory and the US dollar index (DXY) will start easing after a juggernaut rally. However, the consecutive schedule of major events such as Friday’s US Nonfarm Payrolls (NFP) and upcoming US inflation has postponed the reversal in the FX domain.

Investors should be aware of the fact that the DXY could continue its power-packed performance in case the US inflation numbers deviate on the negative side. The US inflation is seen at 8.1% lower than the prior print of 8.5%. In case it releases higher than the estimates and prior figures, then the odds of a 75 basis point (bps) interest rate hike will get strengthened further.

On the sterling front, the British Retail Consortium (BRC) has reported the Like-For-Like Retail Sales in the Asian session. The Like-For-Like Retail Sales landed at -1.7% lower than the estimates of -1.6% and the prior print of -0.4%. A lower reading is generally considered negative for the pound bulls.

Gold Price rebounds from near $1,850. As FXStreet’s Dhwanie Mehta notes, XAU/USD could run into offers near $1,880 on road to recovery.

Falling trendline breakout could offer legs to XAU/USD rebound

“It remains to be seen if the recovery in Gold Price has legs, as the dollar could regain its safe-haven status if risk-aversion returns on the disappointing German ZEW survey. A sharp dip in the ZEW gauge could likely hint at an incoming recession in the old continent.” 

“A slew of speeches from the Fed policymakers and US President Joe Biden will be closely followed for fresh USD valuations, eventually impacting Gold Price. US Treasury Secretary is also due to testify on the FSR later this Tuesday.”

“Gold has yielded an upside break from the falling trendline resistance at $1,861 on a four-hourly candlestick closing basis. This suggests that the renewed upside could have legs, with the next bullish target seen at around $1,872. A firm break above the latter will call for a test of the downward-pointing 21-Simple Moving Average (SMA) at $1,876. The 50-SMA at $1,880 will be the level to beat for gold bulls should the recovery momentum continue.”

“If sellers return, then the immediate downside target is seen at the previous day’s low of $1,852, below which the psychological $1,850 level. A fresh downswing will be initiated on a sustained move below the latter, opening floors towards the critical $1,835 demand area.”

• AUD/USD picks up bids to refresh intraday high, extends corrective pullback from two-year low.
• Softer yields, mildly positive stock futures portray risk-on impulse.
• China, Fedspeak favor buyer despite downbeat NAB numbers from Australia.
• US/China inflation, Fedspeak and Aussie Westpac Consumer Confidence will be crucial to watch for clear directions.

AUD/USD takes clues from a slightly positive market mood while consolidating recent losses with a bounce off a two-year low, flashed earlier in Asia. That said, the Aussie pair renews intraday high around 0.6985 heading into Tuesday’s European session.

Market sentiment improves amid a lack of further negatives from Russia and China, even as Shanghai suspends its last two available subway lines due to a covid outbreak. Also favoring the risk-on mood could be the extended pullback in the US Treasury yields from the highest levels since late 2018, flashed the previous day.

It’s worth noting that comments from China’s Vice Premier Liu He who reiterated the country’s dynamic covid zero policy and offers the much-needed relief to the US stock futures around the yearly low.

On the other hand, the US 10-year Treasury bond coupons renewed multi-day high the previous day before retreating from 3.20%, down three basis points to 3.05% by the press time.

The pullback in yields could be linked to the mixed comments from the Fed policymakers as Atlanta Fed’s Raphael Bostic promoted a series of 50bps rate lifts but Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table during their recent speeches.

Also underpinning the AUD/USD rebound is the latest fall in the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. The inflation gauge dropped the most in 10 months to retest early March levels on Monday.

Looking forward, speeches from US President Joe Biden and Treasury Secretary Janet Yellen will join the Fedspeak to direct intraday moves of the AUD/USD pair. However, major attention will be paid to Wednesday’s US CPI ex Food & Energy for April, expected 6.0% YoY versus 6.5% prior, as well as China’s inflation numbers for April and Australia’s Westpac Consumer Confidence figures for May.

Technical analysis

Oversold RSI conditions join a downward sloping trend line from December 2021, around 0.6905, to activate the AUD/USD pair’s latest rebound. The upside momentum, however, remains doubtful unless crossing the monthly resistance line, close to 0.7215 by the press time.

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

- EUR/USD: EUR amounts        

• 1.0500 335m
• 1.0540-50 467m
• 1.0570-75 500m
• 1.0600 454m
• 1.0625 519m
• 1.0665-75 715m

- USD/JPY: USD amounts                     

• 129.00 262m
• 129.80-83 330m

- AUD/USD: AUD amounts  

• 0.7050 429m
• 0.7200 506m

- USD/CAD: USD amounts       

• 1.2900-10 480m
• 1.2935 3.34b

Considering preliminary figures from CME Group for natural gas futures markets, open interest shrank for the third consecutive session on Monday, now by around 3.2K contracts. On the other hand, volume went up for the third straight session, this time by around 110.5K contracts.

Natural Gas: Next on the downside comes $6.35

Prices of natural gas printed strong losses at the beginning of the week. The move, however, was on the back of shrinking open interest, which is supportive that further retracements could be losing momentum. Against that, the commodity should meet decent contention around the April 25 low at $6.35 per MMBtu.

• Gold price has surpassed $1,860.00 decisively as DXY jitters ahead of the US inflation.
• The precious metal has bounced sharply after hitting the previous week’s lows.
• A lower inflation forecast still favors a bumper interest rate hike by the Fed.

Gold Price bounced back sharply after hitting a low of $1,851.80 on Monday. The precious metal has become more precious as a rebound in the positive market sentiment has trimmed the US dollar index (DXY)’s safe-haven appeal.

Investors are eyeing the release of the US Consumer Price Index (CPI), which is due on Wednesday and it won’t be wrong to state that lower inflation forecasts have brought exhaustion in the DXY rally. Gold has been underpinned as the investors see US CPI at 8.1% lower than the former figure of 8.5%. A lower preliminary estimate is signaling that quantitative measures adopted by the Federal Reserve (Fed) to contain the soaring inflation are justifying the decision taken by Fed policymakers. Although the lower inflation print may not trim the chances of a bumper rate hike as the figure will remain mount higher than the targeted figure of 2%. However, gold prices may find a relief rally on expectations of an optimal inflation environment.

Gold technical analysis

On a four-hour scale, gold prices have bounced sharply after the successful re-test of their previous lows printed last week at $1,850.44. The precious metal is expected to find barricades at the 21-period Exponential Moving Average (EMA) at $1,871.17. The Relative Strength Index (RSI) (14) has moved above 40.00 after failing to sustain in a bearish range of 20.00-40.00.

Gold four-hour chart

Further downside pressure could drag NZD/USD to the 0.6245 region in the next weeks, suggested FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected NZD to weaken yesterday but we were of the view that ‘a clear break of 0.6360 is unlikely’. The sharp sell-off came as a surprise as NZD plunged to 0.6320 before extending its decline during early Asian hours. The risk is still on the downside and NZD could weaken to 0.6275. The next support at 0.6240 could be out of reach for now. Resistance is at 0.6330 followed by 0.6360.”

Next 1-3 weeks: “Last Friday (06 May, spot at 0.6430), we highlighted NZD is likely to weaken but any decline is expected to face solid support at 0.6360. While our view for a weaker NZD was correct, the anticipated support did not materialize as NZD plunged to a low of 0.6320 yesterday. In view of the strong downward momentum, NZD could weaken further to 0.6245. The downside risk is intact as long as the ‘strong resistance’ at 0.6400 is not breached (level was at 0.6480 yesterday).”

• GBP/JPY picks up bids to refresh intraday high inside a bullish chart pattern.
• Firmer RSI adds strength to the recovery moves, 200-HMA adds to the upside filters.

GBP/JPY renews daily top around 161.45 as it extends the corrective pullback from a two-week low heading into Tuesday’s London open.

In doing so, the cross-currency pair pares recent losses inside a weekly falling wedge bullish chart pattern, backed by the firmer RSI conditions.

Given the recent recovery in the RSI, not overbought, the GBP/JPY prices are likely to extend the rebound towards the wedge’s upper line, near 161.85.

However, a break of 161.85 hurdle will need validation from the 200-HMA, surrounding 162.30, to confirm the firmer upside towards the previous week’s top surrounding 163.90.

Meanwhile, pullback moves may aim for the 161.00 round figure before the wedge’s support line, around 160.00, could test the GBP/JPY bears.

Even if the GBP/JPY prices drop below 160.00, April’s bottom near 159.60, as well as March’s low of 159.00, will act as the last defenses for the pair buyers.

GBP/JPY: Hourly chart

Trend: Further recovery expected

CME Group’s flash data for crude oil futures markets showed investors trimmed their open interest positions by around 3.4K contracts at the beginning of the week, adding to the previous daily drop. Volume, instead, increased for the fourth session in a row, now by around 160.2K contracts.

WTI: Next support comes at $100.30

Prices of the barrel of WTI dropped sharply on Monday against the backdrop of shrinking open interest. That said, extra losses appear out of favour in the very near term, while prices of the commodity remain well supported by the so far May low near the $100.00 mark per barrel.

In opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, cable still risks a deeper pullback to the 1.2200 neighbourhood.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘the weakness in GBP appears to have stabilized somewhat’ and ‘GBP is unlikely to weaken much further’. We expected GBP to ‘trade between 1.2270 and 1.2370’. GBP subsequently traded within a wider range than expected (1.2262//1.2405) before closing little changed at 1.2330 (-0.07%). The movement is likely part of a consolidation and we expect GBP to trade between 1.2280 and 1.2410 for today.”

Next 1-3 weeks: “We highlighted last Friday (06 May, spot at 1.2370) that GBP could weaken further and support is at 1.2250. GBP dropped to a low of 1.2262 yesterday (09 May) before rebounding. We continue to see risk for a lower GBP even though shorter-term downward momentum has waned somewhat. Overall, GBP has to break clearly below 1.2250 before a move to 1.2200 is likely. On the upside, a breach of 1.2450 (no change in ‘strong resistance’ level from yesterday) would indicate that GBP is not ready to break 1.2250.”

• USD/CAD sees more downside below the psychological support of 1.3000.
• Falling oil prices have dented the demand for the loonie too.
• The US inflation is seen at 8.1% against the prior print of 8.5%.

The USD/CAD pair has witnessed a minor fall in the Asian session after printing fresh yearly highs at 1.3037. The asset may lose its three-day winning streak and will find a cushion near its crucial support at 1.2958.

Lonnie bulls have found modest strength on exhaustion in the US dollar index (DXY).  The DXY has tumbled below 103.60 after failing to sustain its 19-year high of 104.20. It is worth noting that the extent of weakness in the DXY is higher than the USD/CAD pair. This indicates significant weakness in the Canadian dollar led by a potential slippage in oil prices. The oil prices have tumbled to near $100 as higher interest rates by the Federal Reserve (Fed) are denting the demand forecasts. A tight policy environment will absorb the easy money from the economy and investments from the corporate will get trimmed. This will lower the job opportunities, aggregate demand, and henceforth the demand for oil.

The odds of a 75 basis point (bps) interest rate hike by the Fed are rising sharply despite the lower inflation forecasts. The US inflation, to be released on Wednesday, is seen at 8.1% against the prior print of 8.5%.  No doubt, the lower inflation print should trim the odds of a bumper rate hike, a figure of above 8% US inflation is still higher than the targeted inflation of 2%.

Open interest in gold futures markets resumed the uptrend and rose by around 2.6K contracts on Monday according to advanced prints from CME Group. In the same line, volume went up for the third session in a row, this time by around 41.5K contracts.

Gold: Decent support emerges around $1850

Gold started the week on the defensive and challenged the $1850 region once again. The moderate pullback was amidst rising open interest and volume, which is indicative that further downside could be in store for the precious metal in the very near term.

USD/CHF prices remain pressured around the intraday low, down 0.22% on a day heading into Tuesday’s European session.

In doing so, the Swiss currency (CHF) pair prints the first daily loss in four by stepping back from the highest levels since December 2019, tested the previous day.

While cautious optimism in the market could be best described as the force behind the latest USD/CHF pullback, the pair’s retreat pays a little heed to the options market catalyst, namely the ratio of call and put spread known as the risk reversal (RR).

That said, the daily RR printed the 0.025 level at the latest after the weekly figures jumped the most since early March, with the 0.225 mark for the latest week.

Also read: USD/CHF breathes around 0.9930 as DXY pauses, Fed’s mega rate hike odds trims

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang see EUR/USD facing extra downside on a close below 1.0470.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the current movement appears to be part of a consolidation’ and we expected EUR to ‘trade sideways within a range of 1.0490/1.0585’. EUR subsequently traded between 1.0493 and 1.0592 before closing little changed at 1.0555 (+0.04%). We continue to view the price actions as part of a consolidation and expect EUR to trade sideways, albeit within a higher range of 1.0510/1.0610.”

Next 1-3 weeks: “Our latest narrative was from last Friday (06 May, spot at 1.0540) where EUR has to close below the solid support at 1.0470 before a sustained decline is likely. Since then, EUR has not been able to make any headway on the downside as it traded sideways the past few days. As long as 1.0640 is not breached, there is still chance, albeit not a high one for EUR to close below 1.0470.”

• EUR/GBP snaps three-day uptrend around the highest levels in five months.
• Clear break of the previously key hurdles keeps buyers hopeful amid bullish MACD signals.
• Tops marked during late 2021 act as additional upside filters.

EUR/GBP retreats towards 0.8550 while posting the first daily loss in four heading into Tuesday‘s European session.

In doing so, the EUR/GBP justifies overbought RSI conditions by taking rounds to the 78.6% Fibonacci retracement (Fibo.) of September 2021 to March 2022 downside, around 0.8560.

It should, however, be noted that the bullish MACD signals and the pair’s successful trading beyond the previous resistance line from February, near 0.8538, keep buyers hopeful.

Even if the quote drops below 0.8538, the 61.8% Fibo and another resistance-turned-support line, this time from September 2021, will challenge the EUR/GBP sellers around 0.8485 and 0.8470 in that order.

Meanwhile, the pair’s further advances will aim for the 0.8595-8600 resistance zone comprising the double-tops marked during late 2021.

In a case where EUR/GBP prices rally beyond 0.8600, the bulls may not hesitate to challenge the September 2021 peak of 0.8658.

EUR/GBP: Daily chart

Trend: Pullback expected

• Copper prices rebound from five-month low on LME, and stay mildly offered on Shanghai.
• China’s He reiterates “zero covid” policy, Fedspeak turns out mixed amid softer US inflation expectations.
• Risk catalysts can entertain traders ahead of China/US inflation data on Wednesday.

Copper prices remain sidelined after witnessing a heavy selling on Monday, as market sentiment improves during early Tuesday morning in Europe. The underlying catalysts could be linked to no major negatives from macro, neither concerning China nor Russia, as well as the market’s cautious optimism ahead of Wednesday’s key inflation data from the US and China.

That said, the most-active June copper contract on the Shanghai Futures Exchange was down 0.11% at 71,400 yuan ($10,623.93) as of 04:20 GMT. It’s worth noting that copper prices on the London Metal Exchange (LME) rebounds from a five-month high, as far as the three-month contract is concerned. With this, the LME copper rises around 0.50% with the latest price being $9,265.

On a different page, comments from China’s Vice Premier Liu He who reiterates the country’s dynamic covid zero policy and offers the much-needed relief to the commodity and Antipodean traders.

Also helping the markets to improve is the pullback of the US Treasury yields. That said, the US 10-year Treasury yields extend the week-start pullback from a 20-year high, down five basis points (bps) near 3.0% at the latest, amid anxiety over the Fed’s next move as Atlanta Fed’s Robert Bostic promoted a series of 50bps rate lifts. On the other hand, Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table. That said, the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped the most in 10 months to retest early March levels on Monday.

Moving on, copper traders may remain sidelined around the multi-day low amid mixed concerns ahead of the key inflation from China and the US, up for publishing on Wednesday. Should the numbers suggest the need for tightening policies, copper prices may renew downside.

• Asian equities have sensed a responsive buying activity after an intense sell-off.
• The DXY has tumbled below 103.60 amid an improvement in risk appetite.
• Falling oil prices have also supported the Asian equity markets.

Markets in the Asian domain have found responsive buyers in the Asian session after the market participants shrugged off the US inflation fears. The uncertainty ahead of the US Consumer Price Index (CPI) was underpinning the negative market sentiment from the past few trading sessions. Global equities and risk-sensitive currencies were facing an intense sell-off as any unexpected surge in the inflation numbers on Wednesday would compel the Federal Reserve (Fed) to dictate an extremely aggressive hawkish stance on the policy rates in June.

The odds of a 75 basis point (bps) are also strengthened as upbeat US Nonfarm Payroll (NFP) with heating inflationary pressures will leave no other choice for the Fed than to feature a bumper rate hike.

At the press time, Japan’s Nikkie225 tumbled 0.90%, China's SZEZ Component added 0.4%, and Hang Seng plunged almost 3% while India’s Nifty50 remained flat.

The funds from profit-booking in the US dollar index (DXY) have been channelized to the risk-perceived assets. The DXY has witnessed exhaustion in its uptrend after the asset renewed its 19-year high at 104.20. Meanwhile, the 10-year US Treasury yields have slipped to near 3.04%.

Apart from that, a significant slippage in oil prices has also supported the Asian equities. Oil prices have tumbled to near the psychological support of $100.00 as tightening curbs to contain Covid-19 in China have renewed demand worries. Also, the promise of pumping more oil by the OPEC cartel has received a green flag from the oil bulls.

• USD/JPY extends the previous day’s pullback from 20-year high.
• US Treasury yields drop further amid mixed Fedspeak, softer inflation expectations.
• Headlines from China, Japan also underpins corrective pullback of JPY.
• Risk catalysts may entertain traders ahead of Wednesday’s US inflation data.

USD/JPY remains mostly steady on a day around 130.30 as it keeps the pullback from the multi-year high, flashed on Monday. The yen pair also stays beyond the intraday low during early Tuesday morning in Europe as traders take a breather following the previous day’s heavy volatility.

Also keeping the USD/JPY tight-lipped is the pullback in US Treasury yields and mildly positive market sentiment, not to forget the comments from Bank of Japan (BOJ) Executive Director Shinichi Uchida.

The policymaker said, “(BOJ) must continue to support the economy with current powerful monetary easing.” On the same line were comments from Japanese Finance Minister Shunichi Suzuki who praised the divergence of monetary policy between Japan and the US.

That said, the US 10-year Treasury yields extend the week-start pullback from a 20-year high, down five basis points (bps) near 3.0% at the latest, amid anxiety over the Fed’s next move as Atlanta Fed’s Robert Bostic promoted a series of 50bps rate lifts. On the other hand, Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table. That said, the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped the most in 10 months to retest early March levels on Monday.

Elsewhere, comments from China’s Vice Premier Liu He who reiterates the country’s dynamic covid zero policy and offers the much-needed relief to the US stock futures around the yearly low.

It should, however, be noted that the fears of inflation weighing on the economic outlook, as well as China’s covid woes, stay on the table to keep USD/JPY on the front foot. Also likely to underpin the USD’s safe-haven demand is Russia’s rejection to step back from invading Ukraine. Above all, Wednesday’s US CPI ex Food & Energy for April, expected 6.0% YoY versus 6.5% prior, becomes crucial as the Fed’s 75 bps rate hike looms.

Technical analysis

A three-week-old ascending trend channel restricts short-term USD/JPY moves between 129.60 and 133.00.

• EUR/USD is advancing towards 1.0600 on a rebound in positive market sentiment.
• Investors are seeing a mild underperformance from the Germany ZEW Survey.
• This week, the mega event will be the release of the US inflation.

The EUR/USD pair is oscillating in a narrow range of 1.0570-1.0580 after a marginal upside move from 1.0553 in the Asian session. The pair is expected to advance further as improvement in the risk appetite of investors has underpinned the risk-sensitive currencies.

The US dollar index (DXY) is struggling to sustain above 103.60 as investors have shrugged off the fears of the US inflation release on Wednesday. Investors are seeing rising odds of a 75 basis point (bps) rate hike by the Federal Reserve (Fed) despite the denial by Fed chair Jerome Powell in the last week’s monetary policy meeting. The expectations of a 75 bps rate hike have been strengthened by the upbeat Nonfarm Payrolls (NFP). Better-than-expected NFPs have signaled a tight labor market, which may demand an elevation in the Wage Price Index ahead. The inflation figure is seen at 8.1% lower than the prior print of 8.5%, which indicates that quantitative curbs by the Fed have started justifying their job.

On the euro front, investors are eyeing the release of the Germany ZEW Survey-Economic Sentiment that finds deviation between the optimistic and pessimistic institutional investors. A negative release is considered negative for the shared currency. The ZEW survey is seen at -42.5 against the prior print of -41.

• USD/INR retreats from all-time high as bulls take a breather.
• RBI intervention saved rupee after refreshing record low, easy oil prices and a pullback in yields add strength to corrective move.
• Mixed comments from Fed policymakers, China’s He join anxiety ahead of US inflation to favor sellers of late.

USD/INR renews intraday low around 77.30 as bulls step back from a record high amid easy oil prices and chatters surrounding the Reserve Bank of India’s (RBI) intervention on Tuesday.

The Indian rupee (INR) pair rallied to the record top of around 77.50 during the three-day uptrend as a broad risk-aversion wave bolstered the US dollar’s safe-haven demand. Also likely to have favored the USD/INR bulls were headlines concerning pessimism in Asia-Pacific markets due to China’s covid woes, as well as indecision over the RBI’s next move.

The quote’s latest pullback could be linked to the comments from a person familiar with the RBI’s market intervention, as quoted by Bloomberg. “India’s central bank is intervening in all foreign-exchange markets and will continue to do so to protect the rupee that slid to a record low Monday, said a person familiar with the matter,” said the news.

WTI crude oil prices also extend the previous day’s pullback while printing the two-day downtrend targeting the sub-$100.00 area, down 1.40% around $100.00 at the latest. Considering India’s heavy reliance on oil imports, the recent weakness in the WTI helps INR pare some of the latest losses.

Elsewhere, comments from China’s Vice Premier Liu He who reiterates the country’s dynamic covid zero policy also weighed on the USD/INR prices. Furthermore, a mismatch between the latest Fedspeak also helps the pair to ease from the all-time high. Atlanta Fed’s Robert Bostic promoted a series of 50bps rate lifts. On the other hand, Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table.

Looking forward, inflation numbers from the US and India, up for publishing on Wednesday and Thursday respectively, are important for clear directions. While the US inflation is expected to ease in April, a Reuters poll suggests that India’s retail inflation is likely to have jumped to an 18-month high during the last month.

Other than the inflation data, central bankers’ comments and headlines from China, as well as from Russia, may entertain USD/INR traders.

Technical analysis

USD/INR pullback remains elusive until staying beyond the previous peak of 77.17, flashed in March, which in turn keeps the buyers hopeful to cross an upward sloping resistance line from December 2021, around 77.51 by the press time.

• Gold Price attempts a bounce on Tuesday but not out of the woods yet.
• The pullback in the US Treasury yields, dollar offer reprieve to gold bulls.
• Focus shifts towards the US inflation data, as growth and inflation fears loom.

Gold Price is attempting a minor bounce in Tuesday’s trading so far, although bulls appear less convinced as global economic growth and inflation concerns continue to haunt markets. The cautious market tone will keep the safe-haven dollar underpinned even as the Treasury yields embark upon a corrective decline. Gold Price tumbled to multi-day lows of $1,852 on Monday, as ‘sell everything’ mode engulfed markets on growth fears, triggered by the Fed’s interest rates hike, China’s covid curbs and the Ukraine crisis-led surging inflation.

Also read: Gold Price Forecast: Unbeatable dollar set to keep appreciating

Gold Price: Key levels to watch

The Technical Confluences Detector shows that the Gold Price rebound is on its way to challenging a bunch of healthy resistance levels around $1,865, which is the convergence of the Fibonacci 38.2% one-day and Fibonacci 23.6% one-week.

Up next, gold bulls will have to find a strong foothold above the $1,974 powerful resistance to extend the recovery momentum. That level is the confluence of the SMA5 one-day, Fibonacci 61.8% one-day and Fibonacci 38.2% one-week.

The next relevant upside barrier is seen at the pivot point one-day R1 at $1,877, above which the SMA10 one-day at $1,882 will be the level to beat for XAUUSD buyers.

Alternatively, strong support awaits around the $1,855 region, the pivot point one-week S1.

If the selling pressure intensifies, then the confluence of the previous week’s low and the previous day’s low of $1,852 will come into play.

Further down, the psychological $1,850 level will get tested, below which gold bulls will look out for the immediate support at the pivot point one-month S1 of $1,847.

The last line of defense for gold buyers is pegged at $1,842, the pivot point one-day S1.

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.

• AUD/USD has rebounded strongly to test the psychological resistance of 0.7000.
• A rebound in the risk-on impulse has diminished the DXY’s safe-haven appeal.
• The US CPI will remain in focus, which is seen lower at 8.1%.

The AUD/USD pair has recuperated its entire intraday losses and has printed a fresh intraday high at 0.6966. It seems that the asset has got a fresh blood infusion as a risk-on impulse has rebounded and the US dollar index (DXY)’s safe-haven appeal has eased. The asset has formed an open rejection-reverse now and is likely to add gains after establishing above the opening price at 0.6963.

The DXY has tumbled to near 103.60 as bulls have exhausted after printing a fresh 19-year high at 104.20. After the upbeat Nonfarm Payrolls (NFP), investors are now focusing on the US inflation. The mathematics of a rate hike by the Federal Reserve (Fed) will be derived after solving the duo.  Investors are seeing US inflation lower at 8.1% against the prior print of 8.5%.

As higher US NFP bolstered the odds of an aggressive rate hike stance in June, lower inflation print is advocating for not so aggressive hawkish tone by Fed policymakers. Therefore, the dilemma between underpinning stronger NFP and lower CPI has resulted in some potential profit-booking in the DXY.

On the aussie front, mixed economic data from Australian agencies are driving the antipodean. Australian quarterly sales data for the first quarter of CY 2022 has landed at 1.2%, higher than the expectation of 1%. While the monthly and yearly figures of National Australia Bank’s Business Confidence printed at 10 and 20 have underperformed the market consensus of 14 and 23 respectively.

• NZD/USD sees more downside to near 0.6234.
• The 10- and 20-EMAs are scaling lower, which signals more weakness ahead.
• The RSI (14) has tumbled below 30.00 for the very first time in the last two years.

The NZD/USD pair has witnessed a minor rebound around 0.6284 after displaying a firmer south-side move. The kiwi bulls may get stronger on violating the opening price at 0.6322 for today’s session but will remain weaker on a broader note. This week, the asset extended its losses after slipping below the previous week’s low at 0.6394.

On a weekly scale, the asset has witnessed a sheer downside move after tumbling below the cushion of January’s low at 0.6529. The major is marching towards the 61.8% Fibonacci retracement (plotted from 20 March 2020 low at 0.5470 to 26 February 2021 high at 0.7466) at 0.6234.

The declining 10- and 20-period Exponential Moving Averages (EMAs) at 0.6619 and 0.6707 respectively add to the downside filters.

It is worth noting that the Relative Strength Index (RSI) (14) has tumbled below 30.00 for the very first time in the last two years on a weekly scale, which signals an oversold situation on the counter.

Kiwi bulls may find a pullback after the asset touches the 61.8% Fibo retracement at 0.6234. This will drive the asset higher towards the round level resistance at 0.6400, followed by February 18 low at 0.6593.

On the flip side, the greenback bulls will extend their losses if the asset plunges below the round level support of 0.6200. This will drag the major towards a 29 May 2020 low and psychological support at 0.6083 and 0.6000 respectively.

NZD/USD weekly chart

Japanese Finance Minister Shunichi Suzuki reiterated on Tuesday that FX stability is important and that rapid moves are undesirable.

Additional quotes

Market reaction

USD/JPY is gaining ground alongside risk appetite, as Bitcoin recaptures $30,000 level and offers some reprieve to the financial market.

The pair is currently trading at 130.35, up 0.08% on the day.

• GBP/USD snaps three-day downtrend around two-year low.
• Bears take a breather inside trend continuation pattern, bullish RSI hints at corrective pullback.
• 50-SMA, 13-day-old resistance line challenge recovery moves, weekly support line adds to the downside filters.

GBP/USD licks its wounds as sellers pause after refreshing a two-year low, picking up bids to 1.2360 inside an immediate rectangle formation.

In doing so, the cable pair prints the first daily gains in four underpinned by the bullish MACD signals.

However, the 50-SMA and upper line of a two-week-old falling wedge bullish chart pattern, respectively near 1.2460 and 1.2485, challenges the GBP/USD pair’s short-term rebound.

It’s worth noting, however, that the quote’s rally beyond 1.2485 confirms the bullish chart pattern and directs, theoretically, the upside momentum towards the 1.3200 level. During the rise, 1.2640, 1.2780 and the 1.3000 threshold may offer intermediate halts.

On the contrary, the support line of the three-day-old rectangle, near 1.2260 restricts the immediate downside of the GBP/USD prices.

Also acting as the short-term key support is the mentioned wedge’s lower line, close to 1.2230 by the press time.

In a case where GBP/USD drops below 1.2230, a south-run towards May 2020 lows near 1.2075 can’t be ruled out.

GBP/USD: Four-hour chart

Trend: Limited recovery expected

• EUR/USD remains indecisive after testing the bears of late.
• Mixed concerns, pullback in US Treasury yields and the DXY keep traders on their toes.
• Germany’s ZEW Sentiment data for May, central bankers’ comments can offer immediate directions.
• Wednesday’s key US inflation, speech from ECB’s Lagarde could infuse volatility.

EUR/USD stays defensive around mid-1.0500s as global markets consolidate recent moves during Tuesday’s Asian session, following a stellar show of risk-aversion the previous day. The major currency pair’s latest indecision could be linked to anxiety ahead of the key data/events, as well as the recently mixed macro headlines and comments from central bank policymakers.

Growing concerns over the surging inflation’s negative impact on economic growth and the central bankers' struggle to maintain the inflation and growth system triggered the risk-off mood on Monday. Not only the grim growth outlook but downbeat prints of Eurozone Investor Confidence, -22.6 for May versus -20.8 expected and -18 prior, also weighed on the EUR/USD prices the previous day.

However, mixed comments from the Fedspeak and downbeat prints of the US inflation expectations seem to have probed the bears afterward. Despite witnessing extra pressure to support 75 basis points (bps) of a rate hike, Atlanta Fed’s Robert Bostic promoted a series of 50bps rate lifts. On the other hand, Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table. That said, the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped the most in 10 months to retest early March levels by the end of Monday’s North American trading session.

Also likely to have eased the pessimism are comments from China’s Vice Premier Liu He who reiterates the country’s dynamic covid zero policy.

Amid these plays, the US 10-year Treasury yields drop six basis points (bps) to flirt with the 3.0% level, extending the previous day’s pullback from a three-year high, whereas the S&P 500 Futures drop 0.20% while poking the yearly low around 3,965 by the press time.

Looking forward, Germany’s ZEW Survey data for Economic Sentiment and Current Situations for May will be eyed for immediate directions. Following that, comments from ECB Vice-president Luis De Guindos and some Fed speakers will be in focus. However, major attention will be given to risk catalysts and the US Consumer Price Index (CPI) data for April.

Technical analysis

A bear flag troubles EUR/USD traders between 1.0490 and 1.0650 as steady RSI and sustained trading below the key resistances, namely 100-SMA and a downward sloping trend line from March 31, keep sellers hopeful.

Also read: EUR/USD Price Analysis: Bear flag remains in play around 1.0550

The Bank of Japan (BOJ) “must continue to support the economy with current powerful monetary easing,” Shinichi Uchida, the central bank’s Executive Director of Monetary Policy said in his appearance on Tuesday.

Additional comments

Market reaction

USD/JPY is trading around 130.00, pressured by the risk-off market, as growth and inflation fears dominate so far this week.

The spot is down 0.17% on the day, as US Treasury yields also pullback from multi-year highs.

The forex markets risk barometer, AUD/JPY, has taken out two important levels at the start of this week, 90.50 and now 90 the figure. 

AUD/JPY H1 chart

The hourly chart above illustrates the the mood in financial markets. 

Asian equities are in a sea of red and have fallen to their lowest in nearly two years on Tuesday.  Investors have moved out of riskier assets due to the concerns over higher interest rates and their impact on economic growth, while the US dollar held near 20-year highs.

• US dollar sits firm below the freshly scored 20-year high

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.8%, falling for a seventh straight session and extending declines to 17% so far this year.

Eleswewhere, the Aussie and kiwi are also printinf fresh lows for the year. AUD/USD is on the brink of a break below 0.6900 and the kiwi is already below 0.63 the figure, the lowest level since June 2020.

• WTI remains on the back foot around weekly low, pressured after declining the most in six weeks.
• An absence of extreme RSI conditions joins recent break of previous key supports to keep bears hopeful.
• Bulls need a clear break of ascending trend line from March 30 to retake control.

WTI crude oil prices take offers to refresh weekly low around $100.20, down 1.20% intraday, while extending the previous day’s fall during Tuesday’s Asian session.

The black gold dropped the most on Monday while breaking 50-DMA, an upward sloping trend line from late April, as well as the 61.8% Fibonacci retracement (Fibo.) level of February-March upside.

Given the RSI line’s normal behavior, by staying around 50 levels, the latest breakdowns favor WTI sellers as they target a monthly upward sloping support line, near $97.85 by the press time. However, the $100.00 psychological magnet may test the oil bears.

In a case where the commodity prices break the aforementioned support line, a two-month-old horizontal area surrounding $92.50-30 will be in the spotlight.

Alternatively, the 61.8% Fibo level of $102.25 guards any recovery moves of the black gold. Following that, 50-DMA and the support-turned-resistance from April 25, respectively around 104.20 and $104.95, will lure the buyers.

It’s worth noting, however, that the oil buyers won’t be convinced until the quote stays below a six-week-old ascending resistance line, near $110.80 at the latest.

WTI: Daily chart

Trend: Further weakness expected

• AUD/USD bears sinkinging their teeth in a risk-off setting. 
• Bears eye a run to test 0.69 and 0.68 the figure. 

AUD/USD is under pressure and making fresh lows at 0.6914, on the verge of a break of 0.69 the figure. The risk-off sentiment is building this week and the techncial s are compelling for the days ahead. The following illustrates the bearish bias on the weekly and daily charts. 

AUD/USD weekly chart

There is little in the way until 0.68 the figure according to the weekly chart. 

AUD/USD daily chart

The price is already breaking the daily support.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.7134 vs the last close 6.7323 which is the weakest level since Oct. 30, 2020.

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 closing level and quotations taken from the inter-bank dealer.

• US Treasury yields extend the previous day’s pullback from two-year high.
• S&P 500 Futures track Wall Street’s losses to renew 2022 low.
• Mixed Fespeak, China’s stand on zero covid policy and absence of major negative from Russia test bears of late.

Global market sentiment dwindles during early Tuesday, having witnessed a stellar show of pessimism the previous day, as bears take a breather amid mixed clues and a light calendar. Also probing the latest moves could be a light calendar in Asia and anxiety ahead of Wednesday’s US Consumer Price Index (CPI) data for April.

While portraying the mood, the US 10-year Treasury yields drop nine basis points (bps) to 2.99% whereas the S&P 500 Futures drops half a percent to renew the yearly low around 3,965. It’s worth mentioning that the benchmark US Treasury yields rallied to the fresh high since November 2018 the previous day whereas Wall Street saw the red amid broad fears of inflation and growth, not to forget the downbeat headlines concerning covid and the Russia-Ukraine crisis.

That said, mixed comments from the Fed policymakers could be spotted as weighing on the Treasury yields of late. While Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table, Atlanta Fed’s Robert Bostic promoted a series of 50bps rate lifts.

Also likely to have eased the pessimism are comments from China’s Vice Premier Liu He who reiterates the country’s dynamic covid zero policy.

Additionally, a fall in the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, also helps bears to take a breather. That said, the inflation gauge the most in 10 months to retest early March levels by the end of Monday’s North American trading session.

Even so, the inflation fears keep pushing global central bankers towards tighter monetary policies, which seemed to have underpinned the risk-aversion wave on Monday. Adding to the sour sentiment were worsening covid conditions in China and Russia’s ignorance of global ire over the invasion of Ukraine.

Looking forward, a light calendar emphasizes qualitative catalysts for intraday moves. However, major attention will be given to Wednesday’s US CPI ex Food & Energy for April, expected 6.0% YoY versus 6.5% prior. It should be observed that comments from US President Joe Biden and Treasury Secretary Janet Yellen will be important to watch as well.

Read: EUR/USD Forecast: Sentiment dominates markets ahead of inflation data

• The DXY struggled above 104.00 and dropped lower modestly.
• The upbeat NFP vs. lower inflation forecasts have confused the market participants.
•  Fed’s Bostic sees interest rates between 2.00-2.50% by the end of 2023.

The US dollar index (DXY) is oscillating in a narrow range of 103.58-103.77 in the Asian session as investors are awaiting the release of the US Consumer Price Index (CPI), which will dictate the further direction of the asset. The US CPI will release on Wednesday and investors are expecting a slippage in the figures. A preliminary estimate for the US CPI is 8.1% against the multi-year high print of 8.5% recorded last month.

Upbeat NFP vs. Lower inflation forecasts

The US Nonfarm Payrolls (NFP) landed at 428k last week. The job additions remained higher than the forecast of 391k, which bolstered the odds of a 75 basis point (bps) by the Federal Reserve (Fed) for June’s monetary policy. On the other side, a lower inflation forecast indicates that recent quantitative measures are barricading the soaring inflation and an occurrence of the same may compel the Fed to adopt not so aggressive hawkish stance. Therefore, investors are in dilemma on betting with or against the DXY, which has turned the asset sideways.

Fed’s Bostic speech

Atlanta Fed President Raphael Bostic said on Monday that the Fed's most recent 50 bps rate hike was an "aggressive" move and that the Fed can stay at this pace, as per his interview at Bloomberg. Fed policymaker sees interest rates in a defined range of 2.0-2.5% by the end of 2023.

Key events this week: Consumer Price Index (CPI), Initial Jobless Claims, Producers Price Index (PPI) Michigan Consumer Sentiment Index (CSI).

Eminent issues on the back boiler: Russia-Ukraine Peace Talks, China’s CPI, and European Central Bank (ECB) President Christine Lagarde’s speech.

• Gold bears slow down around the key horizontal support after posting the biggest daily fall in a week.
• Pullback in yields probe commodity bears even as US stock futures remain pressured.
• Inflation, covid and geopolitics are crucial factors to watch for fresh impulse.
• Gold Price Forecast: Unbeatable dollar set to keep appreciating

Having dropped the most in a week, gold (XAU/USD) prices seesaw around the short-term key horizontal support area near $1,850 as market sentiment dwindles during early Tuesday. Even so, the yellow metal remains on the bear’s radar as fears surrounding inflation and growth remain on the table, as well as due to the quote’s first daily closing below 200-day EMA since late January.

Although the US stock futures track Wall Street’s losses by dropping half a percent by the press time, a pullback in the Treasury yields seemed to have probed the market pessimism of late. That said, the US 10-year Treasury yields drop back to sub-3.0% levels after rising to the fresh high since November 2018 the previous day.

Mixed comments from the Fed policymakers could be spotted as weighing on the Treasury yields of late. That said, Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table while Atlanta Fed’s Robert Bostic promoted a series of 50bps rate lifts.

Also likely to have probed the further downside of the metal are comments from China’s Vice Premier Liu He who reiterates the country’s dynamic covid zero policy.

It’s worth noting that growing concerns over the economic growth, as rallying inflation pushes central bankers towards tighter monetary policies, seemed to have portrayed a stellar show of risk-aversion on Monday. Adding to the sour sentiment were worsening covid conditions in China and Russia’s ignorance of global ire over the invasion of Ukraine.

Looking forward, gold traders should pay attention to the risk catalysts for fresh impulse ahead of the US Consumer Price Index (CPI) data for April, scheduled for release on Wednesday.

Technical analysis

Although a horizontal area comprising multiple levels marked since late January challenges gold sellers around $1,850, a daily closing below the 200-day EMA and an absence of oversold RSI, as well as bearish MACD signals, suggest further downside of the bright metal.

However, a convergence of an upward sloping trend line from August 2021 and 61.8% Fibonacci retracement of August 2021 to March 2022 upside, near $1,832-34, appears a tough nut to crack for the gold bears.

Alternatively, corrective pullback needs validation from the 200-day EMA level surrounding $1,860.

Even so, the 50-day EMA and a descending trend line from March, respectively around $1,908 and $1,960, could challenge gold buyers.

Gold: Daily chart

Trend: Further weakness expected

• GBP/JPY remains sidelined around fortnight low, despite refreshing intraday bottom.
• Pullback in Treasury yields, absence of major negatives allow bears to take a breather despite Brexit jitters.
• UK PM Johnson’s speech, risk catalysts are crucial for short-term directions.

GBP/JPY bears struggle to keep reins amid a sluggish Tokyo open on Tuesday. In doing so, the cross-currency pair takes rounds to the fortnight as the US Treasury yields retreat from a multi-month high.

After a stellar show of risk-aversion, global markets turn inactive during early Tuesday as the US bond yields search for fresh clues to extend the earlier flight to safety. Also likely to have triggered the corrective pullback are the mixed comments from the Fed policymakers and China’s sturdy plans to maintain a “zero covid” policy.

In doing so, the cross-currency pair pays a little heed to Brexit-negative headlines, as well as the latest fall in prices to refresh intraday low, mainly due to the market’s consolidation. That said, UK Foreign Secretary Liz Truss gave up on Brexit talks with the European Union (EU). The British diplomat is also cited by The Times to brace for dumping a major part of the NI protocol. “Officials working for Truss have drawn up draft legislation that would unilaterally remove the need for all checks on goods being sent from Britain for use in Northern Ireland, the report added,” said Reuters.

On a different page, Bank of England (BOE) external Monetary Policy Committee member Michael Saunders bolstered the rate-hike concerns by suggesting that a neutral rate might be in the 1.25%-2.5% range. The policymaker also added that the UK rates might need to go above neutral if inflation expectations go higher, which in turn seemed to have put a floor under the GBP/JPY prices of late.

Amid these plays, US Treasury yields drop seven basis points (bps) to 3.008%, after rising to the highest levels since November 2018, whereas S&P 500 Futures rise 0.10% by the press time.

Moving on, a light calendar and Brexit jitters may test the GBP/JPY traders. Though, the bearish impulsive is likely to remain present amid a broad risk-aversion wave. That said, UK PM Boris Johnson’s address to the House of Commons will be crucial to watch as well.

Technical analysis

Unless crossing a downward sloping trend line from late April, around 162.25, GBP/JPY bears keep reins. However, the 50-DMA and a six-week-old ascending support line, respectively near 160.00 and 159.85, appear strong supports to watch during the pair’s further declines.

It has been a rocky start to Tuesday in equity markets in ASPAC equities. This is on the heels of the S&P 500 that ended below 4,000 for the first time since late March 2021 while the Nasdaq dropped more than 4% on Monday in a selloff led by mega-cap growth shares.

Investors have grown more concerned about rising interest rates as well as China's stringent zero-Covid policy that has clouded the outlook for its US$9.6 trillion stock market. China’s Vice Premier Liu He has reaffirmed China's Covid Zero policy on Tuesday. 

The South China Morning post reported on May 9 that the Politburo Standing Committee, Beijing's highest decision-making body, at a ­meeting last Thursday struck a surprisingly harsh tone to defend the policy, pledging to fight any attempt to "distort, question and dismiss" it.

''The hawkish stance also marks a setback for stock investors who had bet that Beijing would relax the zero-Covid approach to strike a balance between stabilising growth and bringing the pandemic under control.The Shanghai Composite Index has slumped by 17 per cent this year, making it the worst ­performer in Asia, as the lockdowns in Shanghai and 40 other cities heighten jitters over a deepening slowdown.''

With investors juggling so many worries, one place they are looking for safety is in the dollar. The dollar index, which measures the greenback against a basket of currencies, rose to a 20-year high by as much as 0.6%.

• US dollar sits firm below the freshly scored 20-year high

• A formation of a Double Top chart pattern signals investors’ failure to renew highs.
• The 20- and 50-EMAs have turned flat that indicating a consolidation ahead.
• The RSI (14) has shifted into a 40.00-60.00 range, which signals exhaustion in the uptrend.

The USD/JPY pair witnessed a steep fall on Monday after the asset printed a new multi-year high of 131.35. There is a minute deviation between the fresh multi-year high and the previous high of 131.26, recorded in the last week of April. Therefore, the recent high could be tagged as a failed attempt to establish above the previous high.

The asset has displayed a Double Top chart formation on a four-hour scale, which signals a bearish reversal after the successful retest of the previous highs. The critical resistance is placed from April 28 high at 131.26.

It is worth noting that the 20- and 50-period Exponential Moving Averages (EMAs) at 130.42 and 129.94 respectively have turned flat, which signals exhaustion in the uptrend.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a consolidation range of 40.00-60.00 from a bullish range of 60.00-80.00, which indicates a volatility contraction.

The yen bulls could enjoy a quick ride if the asset drops below the 50-EMA at 129.94, which will send the asset towards Thursday’s low at 128.76. A breach of the latter will drag the asset towards the round level support at 128.00.

On the contrary, the greenback bulls could regain dominance if the asset oversteps the multi-year high at 131.35. This will send the pair towards the 15 April 2002 high at 132.38, followed by April’s high at 132.82.

USD/JPY four-hour chart