XtreamForex | Daily Technical Analysis

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USD/JPY Outlook Mired by Failure to Test December High
USD/JPY appears to be reversing ahead of the December 2022 high 138.18 as it fails to hold above 200-day SMA, but the Bank Of Japan interest rate decision may curb the recent decline in the exchange rate as the central bank is expected to retain its easing cycle.

USD/JPY snaps the series of higher highs and lows from earlier this week to keep the Relative Strength Index below overbought territory, and the exchange rate may continue to give back the advance from earlier this month as the oscillator shows the bullish momentum abating.

However, the BOJ is expected to retain the Quantitative and Qualitative Easing program with Yield-Curve Control at Governor Haruhiko Kurdo’s last meeting, and more of the same from the central bank may produce headwinds for the Japanese Yen as the board retains a dovish forward guidance for monetary policy.

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Preview of NZ Q4 GDP
The expectation is 0.2% fall in GDP for the December Quarter, following two quarters of extremely strong growth.

This does not necessarily mark the start of a recession. GDP data has been choppy since Covid, and the details don’t tell a consistent story about whether monetary policy is biting.

Nevertheless, it does show that the economy is coming from a less overheated starting point than the Reserve Bank thought.

We think that will nudge them towards a smaller 25 basis point hike at the April OCR review.

The New Zealand economy went on a tear through the middle part of last year, as the return of overseas tourists lifted GDP by almost 4% over the June and September quarters. Coming off the back of that, we were already bracing for much more subdued growth in December quarter. But the final batch of indicators released last week actually suggest a slight contraction. We now estimate that GDP fell by 0.2% in the December quarter.

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Gold Price Rallies As SVB Failure Casts Doubt for Fed Rate Hikes

The price of gold carves a series of higher highs and lows following the failed attempt to test the February low of $1805, and the failure of Silicon Valley Bank (SVB) may continue to heighten the appeal of bullion as market participants scale back bets for higher US interest rates.

The price of gold trades back above the 50-day SMA as it rallies to a fresh monthly high, and the precious metal may once again track the positive slope in the moving average as fears surrounding the US banking sector drags on the risk-taking behavior.

As a result, the threat of contagion may lead to a flight to safety even as the Federal Reserve announces that it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors, and it remains to be seen if the Federal Open Market Committee will adjust the forward guidance for monetary policy as central bank is slated to release the updated Summary of Economic Projections on March 22.

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Sentiment Improves as China Data Boosts Hopes of 5% Growth

China’s banks lent a record 4.9 trillion yen in January as the economy reopened from lockdowns. And there was some anticipation to see whether the new loans were making their way through the economy to aid the governments GDP target of around 5% this year. Early data suggests they are:

Retail rose to 3.5% as expected, up from -1.8% previously.

Fixed asset investment rose 5.5%, above 4.4% expected and 5.1% prior.

Industrial output rose 2.4% y/y. This was below estimates of 2.6% y/y, is a big improvement from 1.4% in January.

During the accompanying press conference, the National Bureau of Statistics (NBS) cited seasonality for the slight rise in the unemployment rate to 5.5%, but more importantly, China’s growth target of around 5% is in line with economic data although the economy does face many challenges.

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AUD/USD Rate Outlook Mired By Failure To Test

AUD/USD appears to be reversing course ahead of the 200-Day SMA as it fails to clear the week high, but data prints coming out of Australia may prop up the exchange rate as job growth is expected to rebound in February.

AUD/USD largely mirrors the weakness across the commodity bloc currencies as it gives back the advance from the monthly low 0.6565, and the exchange rate may track the negative slope in the long-term moving average as the Reserve Bank of Australia seems to be nearing the end of its hiking-cycle.

The update to Australia’s Employment report may generate a bullish reaction in AUD/USD as the economy is anticipated to add 48.5k jobs in February, and a positive development may push the RBA to pursue a more restrictive policy as the Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target.

In turn, AUD/USD may face headwinds ahead of the next RBA rate decision as Governor Lowe and Co. prepare Australian households and businesses for a wait-and-see approach, and the exchange rate may struggle to retain the advance from the monthly low 0.6565 amid the failed attempt to clear the week high 0.6717.

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ECB Hike 50bps but Euro Slips


Dovish rate hike by ECB
EUR falls across the board
Attention turns to Lagarde at ECB presser

The ECB had set itself up to disappoint some market participants after talking up 50 basis points. As it turned out, and despite all the troubles in the banking sector, it stuck to script and delivered that 50-bps hike. Initially, the euro rose a tiny bit, but then it slumped. The DAX hit a new weekly and multi-month low, before bouncing back a little off its worst levels. Keep an eye on the EUR/JPY, which could drop to a new low for the year in light of the risk off sentiment.

Traders realized that this was the best ECB could have done in these circumstances. By not hiking and going back on their words, this would have seen the ECB lose some credibility. It had to hike. But here is the clever bit: the ECB also didn’t want to disappoint those who were calling for a smaller or no rate hike at all. So, it provided no forward guidance or commitment to future hikes. It said that “the elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decision”. In other words, this was as dovish a rate hike as you would have seen in these circumstances.
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Cautious Trade to start the week, EUR/AUD Focused

Australia’s ASX 200 index fell by -96.3 points and currently trades at 6,898.50.
Japan’s Nikkei 225 index has fallen by -360.97 points and currently trades at 26,972.82.
Hong Kong’s Hang Seng index has fallen by -534.15 points and currently trades at 18,984.44
China’s A50 index has fallen by -28.90 points and currently trades at 12,866.03

UK and Europe:

UK’s FTSE 100 futures are currently down -16.5 points, the cash market is currently estimated to open at 7,318.90
Euro STOXX 50 futures are currently down -35 points, the cash market is currently estimated to open at 14,733.20

US Futures:

DJI futures are currently down -30 points
S&P 500 futures are currently up 2.25 points
Nasdaq 100 futures are currently up 16 points

It has been a quiet session overnight, as traders wait to see how Europe reacts to the weekend’s headlines.
The Fed, ECB, BOJ, SNB, BOE and BOC have coordinated action to boost liquidity via their standing swap arrangements to support financial stability.

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RBA Board opens the door to a pause in April

The Minutes emphasize a high degree of uncertainty; do not take into account the global banking disruptions; and point to a pause in April.

The Minutes of the Reserve Bank Board meeting on March 7 highlight that unlike recent meetings when several policy options were considered the March meeting only considered the case for 25 basis point increase – the resulting decision.

However the Minutes note that “Members agreed to reconsider the case for a pause at the following meeting, recognizing that pausing would allow additional time to reassess the outlook for economy.”

There is considerable discussion of market pricing in the Minutes. “ Market pricing implied a 25 basis point increase in the cash rate at the March meeting and suggested that the cash rate would peak at around 4.25% in the second half of 2023,” – with the market response to the global disruptions to the financial sector this pricing has fallen to below 3.6%; that is no further rate hikes with the possibility of rate cuts.

Similarly on international markets the Minutes refer to, “Market participants’ expectations of the path policy rate in advanced economies had shifted up since the previous meeting.” Now, market pricing for the FOMC is predicting a series of rate cuts over the course of 2023.

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EUR/USD Approaches Key Support, Dollar Could Resume Losses

EUR/USD started a downside correction from the 1.0930 level.
It traded below a key bullish trend line with support at 1.0810 on the 4-hours chart.
GBP/USD is consolidating gains above the 1.2200 support zone.
USD/JPY extended losses below the 130.50 support zone.

EUR/USD

The Euro started a major increase above the 1.0750 resistance against the US dollar. EUR/USD even climbed above 1.0900 before it started a downside correction.

Looking at the 4-hours chart, the pair traded as high as 1.0929 before it faced sellers. There was a drop below the 1.0850 and 1.0820 support levels. The pair even traded below a key bullish trend line with support at 1.0810.

However, the pair is still above the 100 simple moving average (red, 4-hours) and the 200 simple moving average (green, 4-hours). On the downside, an immediate support is near the 1.0750.

The next major support is near the 1.0720 level, below which there is a risk of a move towards the 100 simple moving average (red, 4-hours). Any more losses might open the doors for a fresh decline towards the 1.0520 level.

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GBP/USD Eyes Sustained Increase Above

GBP/USD is showing positive signs above the 1.2220 level.
A connecting bullish trend line is forming with support at 1.2240 on the 4-hours chart.
EUR/USD is well supported above the 1.0720 support zone.
USD/JPY might attempt a recovery wave if it clears the 132.00 resistance.

GBP/USD
The British Pound gained pace above the 1.2050 resistance against the US dollar. GBP/USD broke the 1.2150 level to settle in a positive zone.

Looking at the 4-hours chart, the pair even settled above the 1.2200 level, the 100 simple moving average (red, 4-hours) and the 200 simple moving average (green, 4-hours). It traded towards 1.2350 before there was a downside correction.

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