Articles
GBP/USD: Risks skewed to the downside – Morgan Stanley
March 21, 2023 17:02 FXStreet Market News
GBP/USD has continued to trade in a very tight range for the past month, hovering around the 1.20 level. Economists at Morgan Stanley maintain a neutral stance with a bearish tilt.
BoE to pause this week
“We stay tactically neutral on GBP but continue to see risks skewed to the downside.”
“We see the BoE remaining on the back foot, as 1) the budget was largely supply side focused, 2) private sector pay cooled a touch more than we had expected, and 3) the global backdrop now includes elevated uncertainty and financial stability concerns.”
“We now expect the BoE to be the first among its G3 peers to pause at its upcoming meeting, in contrast with the Fed and the ECB where they see a string of 25 bps hikes in the upcoming meetings.”
Full ArticleIC Markets Europe Fundamental Forecast | 21 March 2023
March 21, 2023 16:40 ICMarkets Market News
IC Markets Europe Fundamental Forecast | 21 March 2023
What happened in the Asian session?
A dovish tone is noted in the RBA’s latest Monetary Policy Meeting Minutes release. It stated that rates could remain stable at some point due to recent stringent policies and an uncertain outlook. However, any decline in the AUD may be cushioned since the central bank holds positive views on inflation, the labour market, and business surveys.
What does it mean for the Europe & US Sessions?
The AUD has held steady throughout the volatility caused by the banking crisis in US and Europe, making it the choice currency to hold should the recovery rallies seen in risk assets continue. The commodity-linked Aussie may benefit from gold’s recent run towards its 2020/2022 high of approximately $2,070.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The number of existing home sales is expected to rise to 4.19M from the previous figure of 4.00M. If this forecast is met, it could signal an improvement in the US housing market, leading to increased demand for the USD.
Central Bank Notes:
- The Committee has raised the federal funds rate target range to 4.5-4.75% and plans to continue increasing it to return inflation to 2%
- The Committee will monitor incoming information and adjust the stance of monetary policy as appropriate to achieve its goals
- A majority vote from the Committee supported the decision to raise the target range
- Next meeting is on 23 March 2023
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The joint effort by the central banks to augment liquidity through USD liquidity swap line arrangements may temporarily suppress the demand for gold as it has been seen as a safe-haven asset during times of economic uncertainty and market volatility.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes
What can we expect from AUD today?
Volatility is anticipated as the RBA’s Monetary Policy Meeting Minutes release approaches. The previous meeting saw the Cash rate raised by 25 basis points to 3.60%, with the central committed to fighting inflation. A hawkish tone in the minutes may boost AUD, while a dovish tone could pressure it downward.
Central Bank Notes:
- Cash rate raised by 25 basis points to 3.60%.
- Board prioritises returning inflation to target, with a likely need for further monetary policy tightening.
- Board to closely monitor the global economy, household spending trends, inflation and labour market outlook when assessing interest rate increases.
- Next meeting on 4 April 2023
Next 24 Hours Bias
Mixed
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The most recent release for the New Zealand Trade Balance is -714M, better than the forecasted figure of -1450M. The better-than-expected figure may lead to a short-term appreciation of the NZD as it suggests that the country is importing less than anticipated.
Central Bank Notes:
- Monetary Policy Committee increased the OCR from 4.25% to 4.75%
- Higher interest rates are needed to reduce inflation and support employment sustainably
- Severe storms in North Island will increase inflation and disrupt production.
- Next meeting is on 5 April 2023
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Bank Holiday
What can we expect from JPY today?
Today is a bank holiday in Japan, so there are no scheduled data releases for the Japanese yen.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- Japan’s economy is expected to recover gradually
- The bank will not hesitate to take additional easing measures if necessary
- Next meeting is on 27 April 2023
Next 24 Hours Bias
Mixed
The Euro (EUR)
Key news events today
German ZEW Economic Sentiment
ECB President Lagarde Speaks
What can we expect from EUR today?
The German ZEW Economic Sentiment data is expected to decline from 28.1 to 14.9. This could negatively impact the EUR currency, leading to a decrease in foreign investment and a weaker euro.
Central Bank Notes:
- ECB raised interest rates by 50 basis points to ensure the 2% inflation target is met
- Inflation is projected to average 5.3% in 2023, with growth at 1%, and underlying price pressures remain strong
- The bank will continue to monitor market tensions closely and will be data-dependent in its policy rate decisions
- Next meeting on 4 May 2023
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Swiss Trade Balance data is expected to decrease from 5.08B to 3.45B. This could have a mixed impact on the currency, as a decrease in trade balance could signal a weakening economy, but it could also indicate increased imports and consumer spending.
Central Bank Notes:
- Current policy rate is at 1.00%
- Next meeting on 23 March 2023
Next 24 Hours Bias
Mixed
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
UK’s Public Sector Net Borrowing is forecasted at 10.1B (prev. -6.2B), indicating potential fiscal instability and inflation concerns that could negatively impact the GBP.
If the yield on the upcoming 30-year bond auction is lower and the ratio higher, it could increase the currency’s value. A higher yield and lower ratio could decrease its value.
Central Bank Notes:
- MPC voted to increase Bank Rate by 0.5 percentage points to 4%
- Near-term data developments are crucial in assessing how quickly external and domestic inflationary pressures will abate
- MPC’s updated projections show CPI inflation falling back sharply from its current level
- Next meeting on 23 March 2023
Next 24 Hours Bias
Mixed
The Canadian Dollar (CAD)
Key news events today
No major news events.
CPI m/m
Median CPI y/y
Trimmed CPI y/y
What can we expect from CAD today?
Canada’s CPI is forecasted to remain at 0.5% m/m. Median CPI y/y is expected to drop from 5.0% to 4.8% and Trimmed CPI y/y from 5.1% to 4.9%. If data matches the forecast, it could have a bearish impact on CAD.
Central Bank Notes:
- Bank of Canada maintains its target for the overnight rate at 4.5%
- Inflation eased in January, but price increases for food and shelter remain high
- BOC is prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 12 April 2023
Next 24 Hours Bias
Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The WTI’s recovery rally based on the central banks’ joint effort to stem the banking crisis can be expected to stall at a technical level of around $68.
Next 24 Hours Bias
Weak Bearish
Gold Price Forecast: Pullback from yearly highs continues as Credit Suisse rescue soothes markets
March 21, 2023 16:35 FXStreet Market News
- Gold price continues retreating from year-to-date highs.
- Markets settle as banking crisis fears fade following Credit Suisse rescue.
- US Dollar rebounds in run up to Federal Reserve meeting on Wednesday.
Gold price pulls back from its yearly high as global banking jitters pass (for now) and US Treasury yields find a floor, supporting a stronger US Dollar. The precious metal trades at $1,972 at the time of writing as it continues to consolidate within a technical uptrend.
Gold news: Safe-haven flows ease on banking rescue
The dust settles after the latest casualty of the current neo-financial crisis, Credit Suisse, was swallowed up by rival UBS on Monday, and Gold – the safe-haven par excellence – loses the upside momentum that propelled it to YTD highs above $2,000.
In the United States, treasury staff are looking at ways for regulators to insure more than the current Federal Deposit Insurance Cap (FDIC) of $250,000 for bank deposits, to increase confidence in the banking system, according to a report by Bloomberg News on Monday. This provides further evidence to reassure investors that authorities are willing to step in to save the day.
US Dollar rallies before FOMC
The US Dollar is on the rise, reflected in the 0.20% gain seen in the US Dollar Index on the day, which tracks the world’s reserve currency against a basket of counterparts. Since Gold is priced in US Dollars, it tends to have an inverse relationship – when the Dollar strengthens it takes less of them to buy the same quantity of Gold, all other things being equal.
The next big event for both Gold and the US Dollar is the FOMC meeting on Wednesday, March 22 at 18:00 GMT, at which the US Federal Reserve will make its next monetary policy decision. The odds currently favor a more-modest-than-was-previously-expected 0.25% increase in interest rates.
If the Fed decides to go big with a 0.50% rate hike, however, it will boost the Dollar and push down Gold price – no cut at all will have the opposite effect.
Making the decision a little more complicated this time, however, is the recent banking crisis which was triggered in part by rising interest rates. Whilst the Fed wants to battle inflation, it must now also take into consideration the impact of higher interest rates on financial stability.
Another factor to consider is what the board of governors expects the terminal rate to be, which is reflected in the dot plot, within its Summary of Economic Projections. As Eren Sengezer, European Session Lead Analyst at FXStreet, points out in his Fed meeting preview, a modest hike accompanied by signs rates might be peaking soon could still be interpreted as dovish.
“In case the Fed raises the policy rate by 25 basis points but the dot plot shows at least one rate cut before the end of the year, that could also be assessed as a dovish shift in the policy outlook,” says Sengezer.
Gold price technical analysis: Pullback within an uptrend
From a technical perspective Gold price remains in an uptrend both on the short and medium timeframe. It has been ascending in a steep channel but now appears to be pulling back down after peaking on Monday.
The Average Directional Indicator (ADX) on the 4-hour chart is at 55, which is a very high reading. ADX measures how strongly an asset’s price is trending and when it reaches above 50 it is often a sign the trend is close to exhaustion. Given the high reading was accompanied by a two bar reversal pattern from Monday’s highs and a steady decay since, it may be a sign Gold price could pull back further, probably to the base of the channel in the $1,960 region.
Overall the trend is bullish, however, suggesting that once it has finished its correction it will probably continue rising. It could require a decisive break and close below the lower channel line to indicate a deeper correction or reversal of the uptrend was taking place.
Gold price: 4-hour Chart
Full ArticleUSD/CAD trims a part of intraday gains, remains below 1.3700 ahead of Canadian CPI
March 21, 2023 16:33 FXStreet Market News
- USD/CAD regains positive traction on Tuesday and draws support from a combination of factors.
- Bearish Oil prices undermine the Loonie and lend some support amid a modest USD strength.
- Bets for a less hawkish Fed cap gains for the buck and the pair ahead of the Canadian CPI report.
The USD/CAD pair attracts some buying in the vicinity of the 1.3650 region on Tuesday and stick to its modest intraday gains through the early part of the European session. Spot prices, however, struggle to capitalize on the move and retreat a few pips from the 1.3700 neighbourhood, or a fresh daily high touched in the last hour.
Crude Oil prices come under some renewed selling pressure and languish just above a 15-month low touched the previous day amid worries that a deeper global economic downturn will dent fuel demand. This, in turn, is seen undermining the commodity-linked Loonie, which, along with a modest US Dollar recovery from its lowest level since February 14, acts as a tailwind for the USD/CAD pair. That said, a combination of factors keeps a lid on any meaningful upside for the buck and the major, at least for the time being.
The news that UBS will rescue Credit Suisse in a $3.24 billion deal helps ease fears of widespread contagion risk and boosts investors’ confidence, which is evident from a generally positive tone around the equity markets. Apart from this, expectations that the Federal Reserve (Fed) will soften its hawkish stance to prevent any further economic pressure from high borrowing costs further contribute to capping the safe-haven Greenback. In fact, the current market pricing indicates a greater chance of a 25 bps Fed rate hike in March.
Market participants also expect that the US central bank might even cut rates during the second half of the year. The speculations were fueled by the collapse of two mid-size US banks – Silicon Valley Bank and Signature Bank. This, in turn, should act as a headwind for the US bond yields and might hold back traders from placing aggressive bullish bets ahead of the key central bank event risk. The Fed is scheduled to announce its monetary policy decision at the end of a two-day meeting on Wednesday and drive the USD demand.
In the meantime, traders on Tuesday will take cues from the release of the latest Canadian consumer inflation figures, due later during the early North American session. The data, along with Oil price dynamics, will influence the Canadian Dollar and provide some impetus to the USD/CAD pair. Apart from this, the US economic docket – featuring Existing Home Sales data – will also be looked upon to grab short-term opportunities.
Technical levels to watch
Full ArticleEUR/USD: Restoring some calm to the AT1 bond market, a necessary condition to keep Euro supported – ING
March 21, 2023 16:33 FXStreet Market News
EUR/USD closed above 1.0700. The ability of European regulators to restore some calm to the AT1 bond market appears a necessary condition to keep the pair supported, according to economists at ING:
Impact on the Euro of ECB speakers is probably not very significant at the moment
“The impact on the Euro of ECB speakers is probably not very significant at the moment. First, unlike in other instances, it seems like there has been no communication gap between markets and Lagarde at last week’s press conference. Second, higher rate expectations on the back of hawkish rhetoric are not a short-term EUR driver in the short-term at the moment, as the common currency is trading strictly in line with risk sentiment and on news about the banking sector.”
“The ability of European regulators to restore some calm to the AT1 bond market appears a necessary condition to keep EUR/USD supported, even though we think some USD recovery is possible into the Fed meeting.”
Full ArticleUSD/JPY nudges back above 132.00 on higher bond yields
March 21, 2023 16:21 Forexlive Latest News Market News
As bond yields trace higher, we are seeing the yen fall back after a good run in the past week or so. The banking turmoil looks to be easing and that is helping to see broader market sentiment recover some poise since US trading yesterday. USD/JPY hit a low of 130.55 in European trading the day before but is pushing back above 132.00 currently:
As evident by the chart, the movement in the pair is largely driven by action in the bond market.
As such, the Fed policy decision tomorrow will be a key driver of trading sentiment for what comes next in USD/JPY.
For now, the near-term bias is still favouring sellers with price holding below the 100-hour moving average (red line). Buyers will have to push above that to invalidate the recent downside momentum.
Full ArticleGold Price Forecast: Improved risk appetite unlikely to deter further inflows into XAU/USD – ANZ
March 21, 2023 16:21 FXStreet Market News
Gold breached $2,000 as investors continued to increase their exposure to the precious metal. Improved risk appetite should not dissuade investors to place bets on the yellow metal, in the view of strategists at ANZ Bank.
Any dovish Fed commentary to support Gold
“Improved risk appetite should see gains across the sector. This isn’t expected to deter further inflows into Gold.”
“Despite banking regulators rushing to shore up market confidence, the uncertain macro backdrop continues to entice buying.”
“All eyes now shift to the Fed’s two-day meeting. Any dovish commentary should help support the precious metals sector.”
Full Article2-year German bond yields close the gap from yesterday’s lower open
March 21, 2023 16:17 Forexlive Latest News Market News
This exemplifies the more hopeful market mood since the turnaround ahead of US trading yesterday. The recovery in the risk mood is carrying over and it is also evident in Treasury yields. 2-year yields in the US are now up 10 bps to 4.02% with traders starting to pare back safety bets as the banking turmoil eases.
Full Article
USD/CNH: Downside alleviated above 6.8550 – UOB
March 21, 2023 16:12 FXStreet Market News
Further losses remain on the cards while USD/CNH trades below the 6.8550 level, comment UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.
Key Quotes
24-hour view: “Yesterday, we expected USD to trade sideways between 6.8550 and 6.9000. USD then traded between 6.8728 and 6.9054. The underlying tone has softened somewhat and USD is likely to edge lower today. However, a clear break of 6.8550 is unlikely. Resistance is at 6.8920, followed by 6.9020.”
Next 1-3 weeks: “We have expected USD to weaken since early last week. USD has not been able to make any headway on the downside. Downward momentum is waning rapidly and USD has to break and stay below 6.8550 in the next 1-2 days or it is unlikely to weaken further. Conversely, a breach of 6.9100 (‘strong resistance’ level) would suggest USD could trade sideways for a period of time.”
Full ArticleUSD Index regains the smile near 103.50, Fed’s meeting kicks in
March 21, 2023 16:09 FXStreet Market News
- The index bounces off recent lows near 103.30.
- The Fed’s 2-day meeting starts later in the session.
- Existing Home Sales will be the only release in the US docket.
The greenback, in terms of the USD Index (DXY), manages to regain some tepid upside traction and rebounds from Monday’s lows in the 103.30/25 band.
USD Index focuses on the FOMC event
The index so far reverses three consecutive daily pullbacks, including Monday’s drop to multi-week lows around 103.30, amidst some mild selling pressure in the risk complex and the flat performance in US yields across the curve.
In the meantime, and according to CME Group’s FedWatch Tool, the probability of a 25 bps rate hike by the Fed on Wednesday hovers around the 80%, although investors are expected to closely follow any suggestion by the Committee that the Fed could pause its tightening cycle in the relatively near term.
The above appears somehow justified by the loss of momentum in some US fundamentals as of late and the persistent disinflation witnessed since July 2022.
Data wise in the US, the only release of note will come from the Existing Home Sales for the month of February.
What to look for around USD
The index remains under pressure and keeps the trade well in the sub-104.00 region amidst a broad-based range bound theme in the rest of the markets.
The risk aversion derived from banking jitters appears diminished and supports the selling bias in the dollar amidst firmer conviction among investors of a 25 bps rate hike by the Federal Reserve at the next meeting on March 22.
So far, reinvigorated bets of a Fed’s pivot in the short-term horizon could keep the price action around the dollar somewhat depressed. However, the still elevated inflation and the resilience of the US economy should continue to play against that view.
Key events in the US this week: Existing Home Sales (Tuesday) – MBA Mortgage Applications, FOMC Interest Rate Decision, Powell press conference (Wednesday) – Initial Jobless Claims, Chicago Fed National Activity Index, New Home Sales (Thursday) – Durable Goods Orders, Advanced PMIs (Friday).
Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Persistent narrative for a Fed’s tighter-for-longer stance. Terminal rates near 5.5%? Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.
USD Index relevant levels
Now, the index is advancing 0.13% at 103.44 and faces the next resistance at 105.88 (2023 high March 8) seconded by 106.62 (200-day SMA) and then 107.19 (weekly high November 30 2022). On the other hand, the breach of 103.27 (monthly low March 20) would open the door to 102.58 (weekly low February 14) and finally 100.82 (2023 low February 2).
Full ArticleEUR/NOK: Norges Bank can help Krone to gain strength if keeps door open for further hikes – Commerzbank
March 21, 2023 15:56 FXStreet Market News
These are tough times for the Norwegian Krone. Will Norges Bank be able to give NOK some strength? Economists at Commerzbank analyze what should do the central bank to support the currency.
It would be disastrous not to hike the key rate further
“It would be disastrous not to hike the key rate further in view of the broad-based inflation pressure, even less so signalling an end of the rate cycle. Even though Norges Bank was one of the first central banks to hike its key rate while inflation pressure does not show any signs of easing Norges Bank will have to keep a tight grip on the situation and keep the door open for further hikes.”
“If Norges Bank, who seems less restrictive compared to the ECB anyway, chooses this approach it can help NOK to gain new strength as the market, contrary to the analysts’ opinions, is expecting unchanged key rates and significant rate cuts in the autumn and would therefore have to adjust its expectations significantly. Otherwise, it will be difficult for NOK to record notable gains against the Euro in the near future and downside potential will then dominate instead.”
Full Article