• EUR/USD extended its recovery above 1.0800.
• EMU advanced CPI rose less than estimated in March.
• The US Dollar accelerated its bearish note on weak data.

Another marked drop in the Greenback favoured a strong advance in EUR/USD, which managed to not only trespass the 1.0800 yardstick, but also flirt with the critical 200-day SMA in the 1.0830-10840 band on Wednesday.

Price action in spot, in the meantime, were accompanied by further gains in US yields across various maturity periods, vs. a slight drop in German 10-year bund yields, while the monetary policy framework stayed unchanged.

Regarding monetary policy, both the Federal Reserve (Fed) and the European Central Bank (ECB) are expected to begin easing cycles, possibly starting in June. However, the pace of subsequent interest rate cuts may differ, leading to potentially divergent strategies between the two central banks. Nonetheless, it is anticipated that the ECB will not significantly lag behind the Fed.

Early in the session, Atlanta Fed President Raphael Bostic reiterated his view of one rate hike this year, most likely in the fourth quarter. Later, Federal Reserve (Fed) Chair Jerome Powell reiterated that the Fed has the flexibility to carefully consider its inaugural interest rate reduction, citing the robustness of the economy and recent elevated inflation figures.

According to the FedWatch Tool offered by CME Group, the likelihood of a rate cut in June just surpassed 60%.

Around a potential ECB rate cut, flash inflation figures in the broader euro area showed the headline CPI rise by 2.4% in March and the Core CPI gain 2.9% over the last twelve months, both prints coming in below estimates and adding to Tuesday’s disinflationary pressures in Germany, after the CPI rose by 2.2% from a year earlier.

Looking ahead, the eurozone’s relatively subdued fundamentals, combined with the growing likelihood of a “soft landing” for the US economy, reinforce expectations of a stronger Dollar in the medium term, particularly as both the ECB and the Fed may implement easing measures almost simultaneously. In this scenario, EUR/USD may have a more dramatic drop, initially targeting its year-to-date low around 1.0700 before perhaps revisiting the lows seen in late October 2023 or early November under 1.0500.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to face early resistance at the transitory 100-day SMA at 1.0875, followed by the March high of 1.0981 (March 8), the weekly top of 1.0998 (January 11), and the psychological barrier of 1.1000. Further rises from here may result in a December 2023 peak of 1.1139 (December 28).

On the downside, another test of the April low of 1.0724 (April 2) is not out of the question, as is the 2024 low of 1.0694 (February 14). The November 2023 low is 1.0516 (November 1), followed by the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and

The 4-hour chart shows a strong rebound from recent lows near 1.0720. The initial level of resistance is the 200-SMA at 1.0846 ahead of 1.0864. In the other direction, the next observable downward barrier appears to be 1.0724, followed by 1.0694 and 1.0656. The Moving Average Convergence Divergence (MACD) rebounded and flirted with the positive territory, while the Relative Strength Index (RSI) rose above 67.

• EUR/USD extended its recovery above 1.0800.
• EMU advanced CPI rose less than estimated in March.
• The US Dollar accelerated its bearish note on weak data.

Another marked drop in the Greenback favoured a strong advance in EUR/USD, which managed to not only trespass the 1.0800 yardstick, but also flirt with the critical 200-day SMA in the 1.0830-10840 band on Wednesday.

Price action in spot, in the meantime, were accompanied by further gains in US yields across various maturity periods, vs. a slight drop in German 10-year bund yields, while the monetary policy framework stayed unchanged.

Regarding monetary policy, both the Federal Reserve (Fed) and the European Central Bank (ECB) are expected to begin easing cycles, possibly starting in June. However, the pace of subsequent interest rate cuts may differ, leading to potentially divergent strategies between the two central banks. Nonetheless, it is anticipated that the ECB will not significantly lag behind the Fed.

Early in the session, Atlanta Fed President Raphael Bostic reiterated his view of one rate hike this year, most likely in the fourth quarter. Later, Federal Reserve (Fed) Chair Jerome Powell reiterated that the Fed has the flexibility to carefully consider its inaugural interest rate reduction, citing the robustness of the economy and recent elevated inflation figures.

According to the FedWatch Tool offered by CME Group, the likelihood of a rate cut in June just surpassed 60%.

Around a potential ECB rate cut, flash inflation figures in the broader euro area showed the headline CPI rise by 2.4% in March and the Core CPI gain 2.9% over the last twelve months, both prints coming in below estimates and adding to Tuesday’s disinflationary pressures in Germany, after the CPI rose by 2.2% from a year earlier.

Looking ahead, the eurozone’s relatively subdued fundamentals, combined with the growing likelihood of a “soft landing” for the US economy, reinforce expectations of a stronger Dollar in the medium term, particularly as both the ECB and the Fed may implement easing measures almost simultaneously. In this scenario, EUR/USD may have a more dramatic drop, initially targeting its year-to-date low around 1.0700 before perhaps revisiting the lows seen in late October 2023 or early November under 1.0500.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to face early resistance at the transitory 100-day SMA at 1.0875, followed by the March high of 1.0981 (March 8), the weekly top of 1.0998 (January 11), and the psychological barrier of 1.1000. Further rises from here may result in a December 2023 peak of 1.1139 (December 28).

On the downside, another test of the April low of 1.0724 (April 2) is not out of the question, as is the 2024 low of 1.0694 (February 14). The November 2023 low is 1.0516 (November 1), followed by the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and

The 4-hour chart shows a strong rebound from recent lows near 1.0720. The initial level of resistance is the 200-SMA at 1.0846 ahead of 1.0864. In the other direction, the next observable downward barrier appears to be 1.0724, followed by 1.0694 and 1.0656. The Moving Average Convergence Divergence (MACD) rebounded and flirted with the positive territory, while the Relative Strength Index (RSI) rose above 67.

Recently, the pair has fallen by about 3% from its 7-month high hit in early March and is nearing a test of its 2024 low near $1.25 support. 

• Finally, hopes of the GBP/USD currency pair moving towards the psychological resistance level of 1.3000 in the near term have evaporated.
• The US dollar is witnessing an increase, supported by US economic data that have surpassed consensus, indicating that the Federal Reserve is likely to cut interest rates after the Bank of England and the European Central Bank.

According to forex trading platforms, the pound sterling exchange rate against the dollar (GBP/USD) dropped to support at 1.2540, the lowest level since February, after the US Manufacturing Purchasing Managers’ Index (PMI) rose to a reading of 50.3 in March from 47.8 in February, comfortably exceeding expectations of 48.4. Also, the report indicated that inflationary pressures facing US companies are increasing again, with the prices paid component in the report rising to 55.8, surpassing estimates of 52.6.

Overall, market expectations for a rate cut by the US Federal Reserve in June have decreased after the release of the data, which boosted US yields and the dollar. The US dollar was further bolstered by the strong ISM index, according to Ulrich Leuchtmann, Head of FX, and Commodity Research at Commerzbank. He stated, “Strong growth in the United States may allow the Federal Reserve to maintain its federal funds rate at its current elevated level for longer than previously assumed by the market.”

Meanwhile, this development reinforces the growing downtrend in the GBP/USD exchange rate, which has now fallen below the 50-week moving average. The performance on the chart above shows that the 50-week moving average provided support for the pound, and we are now seeing that a long-term downtrend may be forming. However, daily support is at February lows near 1.2517, a level we are watching this week.

In general, the upside trend for the GBP/USD pair in the near term will be determined by the 100-day moving average, which is currently located at 1.2652, which has limited the upside potential for the pound since March 22.

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According to analysts, amid strong US data at the start of the week, the pound broke below some key moving averages against the US dollar in a bearish move that suggests the possibility of a deeper decline in GBP/USD in the short term. Recently, the pair has fallen by about 3% from its 7-month high hit in early March and is nearing a test of its 2024 low near $1.25 support. Thus, hopes of trading at $1.30 this spring are quickly fading.

Looking at the economic calendar this week, the ISM services PMI, job openings and the US non-farm payrolls report will be closely watched, as will comments from a number of Fed officials. It is worth noting that April is usually a good month for the pound, and analysts say the currency could rise against the euro and the dollar. April is ranked among the best months of the year for the pound thanks to companies repatriating foreign currency to pay dividends. The average monthly gain over the past ten years in April has been 0.8%. Ultimately, the standard deviation is 2.2%.

According to analysts at Bank of America, “April is the right place for the pound.” If history is any guide, the GBP/USD $1.30 price is likely to be tested. However, past performance is by no means a firm guide to future developments, and there is a risk that April 2024 will be a down month due to the buoyant US economy and increased odds that the Bank of England will cut interest rates before the Fed does.

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• USD/CAD regains positive traction on Wednesday and is supported by a combination of factors.
• A downtick in Oil prices undermines the Loonie and acts as a tailwind amid some USD dip-buying.
• Reduced June Fed rate cut bets, along with a softer risk tone, benefits the safe-haven Greenback.

The USD/CAD pair attracts some dip-buying on Wednesday, albeit lacks bullish conviction and remains below the 1.3600 mark through the early European session. The US Dollar (USD) stalls the previous day’s retracement slide from its highest level since February 14 amid the uncertainty over the Federal Reserve’s (Fed) plans to cut interest rates. Apart from this, a modest pullback in Crude Oil prices, from over a five-month top set earlier today, undermines the commodity-linked Loonie and further seems to act as a tailwind for the currency pair.

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department showed that employers posted 8.76 million job vacancies in February, up slightly from 8.75 million in the previous month. Separately, the Commerce Department reported that orders for manufactured goods rebounded after two straight monthly declines and rose more than expected, by 1.4% in February. This comes on top of the US ISM Manufacturing PMI released earlier this week, which moved into expansion territory during March for the first time since September 2022 and pointed to a still-resilient economy. Adding to this, hawkish remarks by Fed officials raised doubts about the possibility of three interest rate cuts by the end of this year.

In fact, Fed Chairman Jerome Powell said last Friday that there was no need to be in a hurry to cut interest rates. Furthermore, San Francisco Fed President Mary Daly noted on Tuesday that inflation is gradually decreasing, though feels no urgency to lower interest rates and that three rate cuts this year is a projection, not a promise. Adding to this, Cleveland Fed President Loretta Mester said that substantial progress has been made on inflation, though wants to see more evidence that it is headed towards the 2% target before cutting interest rates. The markets were quick to price in in an even chance that the Fed will start cutting rates in June and a total of 65 basis points (bps) rate cut for 2024, lower than 75 bps projected by the central bank.

The shift in expectations lifts the yield on benchmark 10-year US government bond to a four-month high, which, along with a softer risk tone, acts as a tailwind for the safe-haven Greenback and the USD/CAD pair. Meanwhile, investors remain about tight global supplies in the wake of Ukrainian attacks on Russian refineries and the risk of a widening of the Israel-Hamas conflict to more directly include Iran. This continues to lend some support to Crude Oil prices and might keep a lid on any meaningful appreciating move for the major. Traders now look to the US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI – for some impetus later during the North American session.

Investors will further take cues from speeches by influential FOMC members, including the Fed Chair Jerome Powell, which, along with the US bond yields and the broader risk sentiment, should drive the USD demand. Apart from this, Oil price dynamics should contribute to producing short-term trading opportunities around the USD/CAD pair. Nevertheless, the aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before placing fresh bullish bets and positioning for further gains.

Technical Outlook

From a technical perspective, any subsequent move-up might continue to confront stiff resistance near the 1.3600-1.3610 supply zone. A sustained move beyond, however, could trigger a short-covering rally and allow the USD/CAD pair to challenge the top end of a nearly three-month-old ascending trend channel, currently pegged near the 1.3670-1.3675 region. Some follow-through buying will mark a fresh bullish breakout and lift spot prices beyond the 1.3700 mark toward testing the next relevant hurdle near the 1.3740-1.3750 region.

On the flip side, the 1.3535-1.3530 horizontal zone is likely to protect the immediate downside ahead of the 1.3500 psychological mark. The latter coincides with the very important 200-day Simple Moving Average (SMA) and is followed by the ascending channel support, near the 1.3480-1.3475 region, which if broken decisively will set the stage for deeper losses. The USD/CAD pair might then accelerate the downward trajectory further towards the 1.3420-1.3415 intermediate support en route to the 1.3400 round figure.

USD/CAD daily chart

• USD/CAD regains positive traction on Wednesday and is supported by a combination of factors.
• A downtick in Oil prices undermines the Loonie and acts as a tailwind amid some USD dip-buying.
• Reduced June Fed rate cut bets, along with a softer risk tone, benefits the safe-haven Greenback.

The USD/CAD pair attracts some dip-buying on Wednesday, albeit lacks bullish conviction and remains below the 1.3600 mark through the early European session. The US Dollar (USD) stalls the previous day’s retracement slide from its highest level since February 14 amid the uncertainty over the Federal Reserve’s (Fed) plans to cut interest rates. Apart from this, a modest pullback in Crude Oil prices, from over a five-month top set earlier today, undermines the commodity-linked Loonie and further seems to act as a tailwind for the currency pair.

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department showed that employers posted 8.76 million job vacancies in February, up slightly from 8.75 million in the previous month. Separately, the Commerce Department reported that orders for manufactured goods rebounded after two straight monthly declines and rose more than expected, by 1.4% in February. This comes on top of the US ISM Manufacturing PMI released earlier this week, which moved into expansion territory during March for the first time since September 2022 and pointed to a still-resilient economy. Adding to this, hawkish remarks by Fed officials raised doubts about the possibility of three interest rate cuts by the end of this year.

In fact, Fed Chairman Jerome Powell said last Friday that there was no need to be in a hurry to cut interest rates. Furthermore, San Francisco Fed President Mary Daly noted on Tuesday that inflation is gradually decreasing, though feels no urgency to lower interest rates and that three rate cuts this year is a projection, not a promise. Adding to this, Cleveland Fed President Loretta Mester said that substantial progress has been made on inflation, though wants to see more evidence that it is headed towards the 2% target before cutting interest rates. The markets were quick to price in in an even chance that the Fed will start cutting rates in June and a total of 65 basis points (bps) rate cut for 2024, lower than 75 bps projected by the central bank.

The shift in expectations lifts the yield on benchmark 10-year US government bond to a four-month high, which, along with a softer risk tone, acts as a tailwind for the safe-haven Greenback and the USD/CAD pair. Meanwhile, investors remain about tight global supplies in the wake of Ukrainian attacks on Russian refineries and the risk of a widening of the Israel-Hamas conflict to more directly include Iran. This continues to lend some support to Crude Oil prices and might keep a lid on any meaningful appreciating move for the major. Traders now look to the US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI – for some impetus later during the North American session.

Investors will further take cues from speeches by influential FOMC members, including the Fed Chair Jerome Powell, which, along with the US bond yields and the broader risk sentiment, should drive the USD demand. Apart from this, Oil price dynamics should contribute to producing short-term trading opportunities around the USD/CAD pair. Nevertheless, the aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before placing fresh bullish bets and positioning for further gains.

Technical Outlook

From a technical perspective, any subsequent move-up might continue to confront stiff resistance near the 1.3600-1.3610 supply zone. A sustained move beyond, however, could trigger a short-covering rally and allow the USD/CAD pair to challenge the top end of a nearly three-month-old ascending trend channel, currently pegged near the 1.3670-1.3675 region. Some follow-through buying will mark a fresh bullish breakout and lift spot prices beyond the 1.3700 mark toward testing the next relevant hurdle near the 1.3740-1.3750 region.

On the flip side, the 1.3535-1.3530 horizontal zone is likely to protect the immediate downside ahead of the 1.3500 psychological mark. The latter coincides with the very important 200-day Simple Moving Average (SMA) and is followed by the ascending channel support, near the 1.3480-1.3475 region, which if broken decisively will set the stage for deeper losses. The USD/CAD pair might then accelerate the downward trajectory further towards the 1.3420-1.3415 intermediate support en route to the 1.3400 round figure.

USD/CAD daily chart

The overall trend remains bullish and may continue as such until intervention from Japan in the markets to prevent further currency depreciation, alongside the negative US job figures at the end of the week.

• Hopes for an early US interest rate cut by the Federal Reserve were dashed again at the start of this week’s trading after more upbeat data from the US.
• As a result, the USD/JPY currency pair remained stable around the 151.80 resistance level, which is close to the levels where talk of Japanese intervention in the markets to prevent further collapse of the currency is increasing.

According to the results of the economic calendar, the US ISM manufacturing index rose more than expected in March, rising above 50 to the expansionary zone for the first time since September 2022. In addition, the sub-index of prices paid also rose, hitting its highest level since July 2022, in a further sign that inflationary pressures have not completely dissipated. Moreover, the strong PMI reading follows last Friday’s strong US core personal consumption spending reading and somewhat hawkish comments from Fed Chair Powell. Furthermore, the CPI and PCE data continue to support the view that inflation is still largely on a downward path, albeit increasingly shallow, other indicators are confirming the Fed’s caution about price expectations.

Subsequently, an early US rate cut in June started to look doubtful, and the probability of a 25-basis point cut in the federal funds rate fell to around 60%. More importantly, investors are now pricing in fewer cuts for 2024 compared to what the latest FOMC dot-plots projected just two weeks ago.

On the other hand, Treasury bond yields rose on the back of the data, as the yield on 10-year bonds rose by 13.5 basis points. Also, the jump in yields led to a new rise in the price of the US dollar, which extended its gains to its highest levels in four and a half months against a basket of currencies early Tuesday.

In contrast, the euro and sterling fell to their lowest levels in a month and a half against the US dollar as the European Central Bank continued to price in a rate cut in June. Also, investor confidence grew that the Bank of England would be able to start an easing cycle in the summer. This contrasts with the growing uncertainty surrounding the timing of the Fed’s first move.

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At the same time, the price of the Japanese yen remained confined within a narrow range, hovering around 151.70 to the US dollar, as traders were alert about possible intervention by the Japanese authorities near the 152 level. In this regard, the Japanese Finance Minister reiterated on Tuesday that officials “will take appropriate action.” Against excessive volatility,” which led to a slight rise in the value of the yen.

There is no change in our technical view on the performance of the USD/JPY currency pair. Obviously, the overall trend remains bullish and may continue as such until intervention from Japan in the markets to prevent further currency depreciation, alongside the negative US job figures at the end of the week.

Particularly, the gains of the upward trend have driven all technical indicators towards levels saturated with strong buying. As mentioned, the divergence between the policies of the Bank of Japan and the Federal Reserve, along with economic performance, continues to support the upward trend for some time. Currently, the nearest resistance levels are 151.85, 152.30, and 153.00 respectively.

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We recognize that this is a market that is short-term focused, and therefore I wouldn’t hang onto a position for too long. I think this is a trade only, not some kind of massive investment waiting to happen.

• The Euro initially pulled banks just a bit but at this point in time has turned around the show signs of life during the Tuesday session.
• This is not a huge surprise considering that the market has been consolidating for some time.
• I think it does make a certain amount of sense that the market has to bounce from a major support level when you have a scenario that just shows itself to be just kind of back and forth and without any real conviction.

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We have the jobs number on Friday, so the market is going to continue to see a lot of back and forth, but as we are extended all the way down to the bottom, it is likely that if nothing else, some short covering comes in. The jobs numbers will cause a lot of noise. In general, I think you have a situation where you just have to be cautious and recognize that we have a scenario where we may get a bounce towards the 1.09 level maybe just above the 200 day EMA. If we can break that, then the 1.10 level above will be the next target.

On the other hand, if we were to turn around and break down below the 1.07 level, then we could open up a move down to the 1.05 level. That of course would be a huge dollar positive move and you would probably see the US dollar strengthening against everything. That being said, I think over the next couple of days we will probably drift a little higher. At this point, I think you have a situation where we will eventually find stability that we can take advantage of. The EUR/USD market could pullback a bit further, but with enough patience I think you will get a lot of value to take advantage of.

While I do think that the market will bounce, I also recognize that this is a market that is short-term focused, and therefore I wouldn’t hang onto a position for too long. I think this is a trade only, not some kind of massive investment waiting to happen.

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Euro gains; EUR/GBP at key support. Value hunters eye 0.85 level, with potential swing trade opportunities. Technicals point to support at 0.85, resistance at 0.86.

• Euro traders have seen the currency rally a bit during the training session on Tuesday, across the board.
• Ultimately, one pair that I’m watching very closely as the EUR/GBP pair, due to the fact that it is at a region that is massive support, so therefore we need to pay close attention to it.
• With that being said, you need to think about this through the prism of finding value, as the 0.85 level underneath has been crucial for longer-term traders.

Looking at this chart, the 50-Day EMA suggests that there is a certain amount of support in this general vicinity, and of course we have the 200-Day EMA above is a very resistant level, near the 0.86 level. In general, this is a market that I think continues to see a lot of choppy volatility, but this could be setting up for a bigger move. Because of this, the market is likely to continue to see value hunters come in and try to deal with the support level, as longer-term traders may be looking for a bit of a swing trade.

Initially, the market did fall during the trading session on Tuesday, only to turn around and show signs of life. Ultimately, this is a market that I think it will probably continue to be noisy, but it certainly looks like we have a lot of support at that 0.85 level. The 0.85 level is likely to continue to offer a bit of a “floor the market”, and if we were to turn her in the breakdown below there, it would be absolutely horrific for the Euro itself.

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If we can break above the 200-Day EMA above, then it opens up the possibility of a move to the 0.8750 above, which is an area that has offered a significant amount of resistance, and therefore it’s likely that we could see traders target for that move. If we were to break above there, then it really could set a precedent for much higher rates. That being said, keep in mind this market is very choppy, due to the fact that the 2 economies are so heavily intertwined.

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• USD/CAD regains positive traction on Wednesday and is supported by a combination of factors.
• A downtick in Oil prices undermines the Loonie and acts as a tailwind amid some USD dip-buying.
• Reduced June Fed rate cut bets, along with a softer risk tone, benefits the safe-haven Greenback.

The USD/CAD pair attracts some dip-buying on Wednesday, albeit lacks bullish conviction and remains below the 1.3600 mark through the early European session. The US Dollar (USD) stalls the previous day’s retracement slide from its highest level since February 14 amid the uncertainty over the Federal Reserve’s (Fed) plans to cut interest rates. Apart from this, a modest pullback in Crude Oil prices, from over a five-month top set earlier today, undermines the commodity-linked Loonie and further seems to act as a tailwind for the currency pair.

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department showed that employers posted 8.76 million job vacancies in February, up slightly from 8.75 million in the previous month. Separately, the Commerce Department reported that orders for manufactured goods rebounded after two straight monthly declines and rose more than expected, by 1.4% in February. This comes on top of the US ISM Manufacturing PMI released earlier this week, which moved into expansion territory during March for the first time since September 2022 and pointed to a still-resilient economy. Adding to this, hawkish remarks by Fed officials raised doubts about the possibility of three interest rate cuts by the end of this year.

In fact, Fed Chair Jerome Powell said last Friday that there was no need to be in a hurry to cut interest rates. Furthermore, San Francisco Fed President Mary Daly noted on Tuesday that inflation is gradually decreasing, though feels no urgency to lower interest rates and that three rate cuts this year is a projection, not a promise. Adding to this, Cleveland Fed President Loretta Mester said that substantial progress has been made on inflation, though wants to see more evidence that it is headed towards the 2% target before cutting interest rates. The markets were quick to price in in an even chance that the Fed will start cutting rates in June and a total of 65 basis points (bps) rate cut for 2024, lower than 75 bps projected by the central bank.

The shift in expectations lifts the yield on benchmark 10-year US government bond to a four-month high, which, along with a softer risk tone, acts as a tailwind for the safe-haven Greenback and the USD/CAD pair. Meanwhile, investors remain about tight global supplies in the wake of Ukrainian attacks on Russian refineries and the risk of a widening of the Israel-Hamas conflict to more directly include Iran. This continues to lend some support to Crude Oil prices and might keep a lid on any meaningful appreciating move for the major. Traders now look to the US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI – for some impetus later during the North American session.

Investors will further take cues from speeches by influential FOMC members, including the Fed Chair Jerome Powell, which, along with the US bond yields and the broader risk sentiment, should drive the USD demand. Apart from this, Oil price dynamics should contribute to producing short-term trading opportunities around the USD/CAD pair. Nevertheless, the aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before placing fresh bullish bets and positioning for further gains.

Technical Outlook

From a technical perspective, any subsequent move-up might continue to confront stiff resistance near the 1.3600-1.3610 supply zone. A sustained move beyond, however, could trigger a short-covering rally and allow the USD/CAD pair to challenge the top end of a nearly three-month-old ascending trend channel, currently pegged near the 1.3670-1.3675 region. Some follow-through buying will mark a fresh bullish breakout and lift spot prices beyond the 1.3700 mark, towards testing the next relevant hurdle near the 1.3740-1.3750 region.

On the flip side, the 1.3535-1.3530 horizontal zone is likely to protect the immediate downside ahead of the 1.3500 psychological mark. The latter coincides with the very important 200-day Simple Moving Average (SMA) and is followed by the ascending channel support, near the 1.3480-1.3475 region, which if broken decisively will set the stage for deeper losses. The USD/CAD pair might then accelerate the downward trajectory further towards the 1.3420-1.3415 intermediate support en route to the 1.3400 round figure.

USD/CAD daily chart

US DOLLAR OUTLOOK – EUR/USD, USD/JPY, USD/CAD

• U.S. dollar, via the DXY index, eases off multi-month highs as global yields soar
• The spotlight this week will be the release of the March U.S. jobs report
• This article explores the technical outlook for EUR/USD, USD/JPY and USD/CAD

Most Read: US Dollar Rallies, EUR/USD Slumps, Gold Continues to Push Ever Higher

The U.S. dollar, as measured by the DXY index, fell on Tuesday (-0.2% to 104.75), stepping back from a 5-month peak established in the overnight session. While government rates were mostly higher on the day, the greenback was unable to capitalize from this trend, as global yields, such as those from Germany and the UK, moved up more vigorously, playing catch-up with recent Treasury market dynamics.

Source:TradingView

Casting our gaze towards the days ahead, there are several high-profile events on the U.S. economic calendar, but the most important will likely be the release of March nonfarm payrolls on Friday. This report, widely followed on Wall Street, will provide an updated view of the labor market and possibly guide the Federal Reserve’s next move in terms of monetary policy.

Consensus estimates suggests U.S. employers added 200,000 workers to their ranks last month, a figure anticipated to keep the jobless rate steady at 3.9%. However, given that job growth has consistently outperformed forecasts recently, traders should prepare for the the possibility of another upside surprise in the NFP headline print.

If hiring activity outpaces projections by a wide margin, traders are likely to temper bets of the Fed delivering 75 basis points of easing in 2024, further reducing the odds that the first rate cut of the cycle will arrive at the June FOMC meeting, which currently stands at 61.6%. This scenario could contribute to increased upward pressure on U.S. yields, boosting the U.S. dollar in the process.

Source: CME Group

On the other hand, a disappointing NFP report, particularly one marked by a notable deficit in job creation relative to what’s priced in, could strengthen the case for earlier Fed rate cuts. Such a turn of events could weigh on yields, paving the way for a bearish reversal in the U.S. dollar. A headline NFP reading near or below 100,000 could catalyze this response.

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EUR/USD FORECAST – TECHNICAL ANALYSIS

Following a sharp pullback in recent days, EUR/USD rebounded on Tuesday from a key support near 1.0725. Should this upward movement gain traction in the days ahead, resistance looms at 1.0800, followed by 1.0835, where the 50-day and 200-day simple moving averages converge.

On the contrary, if sellers regain control and push prices lower, the first critical support to watch is positioned at 1.0800. Bulls must vigorously protect this area to prevent sentiment towards the euro from deteriorating further; a failure to do so could spark a decline towards 1.0700 and 1.0640 thereafter.

EUR/USD PRICE ACTION CHART

EUR/USD Chart Created Using TradingView

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USD/JPY FORECAST – TECHNICAL ANALYSIS

USD/JPY traded within a confined range on Tuesday, hovering below overhead resistance at 152.00. This technical ceiling demands careful monitoring, as a breakout may trigger intervention from the Japanese government to prop up the yen. In such scenario, a swift reversal below 150.90 could ensue, followed by a slump towards the 50-day simple moving average at 149.75.

In the event that USD/JPY breaches the 152.00 mark and Tokyo refrains from intervening, choosing instead to let markets self-adjust, buyers may feel emboldened to initiate a bullish assault on 153.85, a key barrier created by an ascending trendline tracing back to December of the previous year.

USD/JPY PRICE ACTION CHART

USD/JPY Chart Created Using TradingView

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Change in	Longs	Shorts	OI
Daily	9%	-1%	3%
Weekly	2%	-13%	-7%

What does it mean for price action?

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USD/CAD FORECAST – TECHNICAL ANALYSIS

USD/CAD remained steady on Tuesday, failing to extend its rebound from the prior session. Despite market indecisiveness, prices maintain their position above key moving averages and a trendline dating back to December, signaling a bullish outlook. With that in mind, if the pair resumes its upward bounce, horizontal resistance can be spotted at 1.3600. Beyond this point, attention will shift towards 1.3695.

On the other hand, if USD/CAD encounters a setback and changes direction downwards, technical support stretches from 1.3510 to 1.3495, followed by 1.3480. Continued losses beyond this juncture would draw focus to 1.3420.

USD/CAD PRICE ACTION CHART

USD/CAD Chart Created Using TradingView

Technically, moving below the psychological support level of 1.0800 will ensure the bears further downward movement.

• Strong US economic data results at the start of trading this important week allowed bears to drive the EUR/USD currency pair towards deeper support levels.
• It hit the lowest level for the euro dollar in a month and a half at 1.0730.
• The EUR/USD may remain low pending the reaction to the US jobs figures announcement this week. As I mentioned before, the 1.0800 support level will open the door for bears to move the euro dollar towards stronger support levels.

The US ISM Manufacturing PMI rose to a reading of 50.3 in March 2023, up from a reading of 47.8 in February and exceeding market expectations of 48.4. Obviously, this represents the first growth in the manufacturing sector after 16 months of contraction. There were positive trends in demand, with indicators such as the New Orders Index (51.4 versus 49.2 the previous month) and the New Export Orders Index (51.6, the same figure in February) showing expansion, while the backlog of orders (at 46.3) remained at a moderate level of contraction. Participating companies also significantly increased their production levels (54.6 versus 48.4). On the other hand, employment figures continued to decline (47.4 versus 45.9). At the same time, prices continued to rise moderately to 55.8 from 52.5, driven by volatile commodity costs.

Spending on construction in the United States contracted by 0.3% from the previous month in February 2024, following a 0.2% decrease in the preceding month and defying market expectations of a 0.7% increase. This marks the second consecutive decline in construction spending, driven by a decrease in public construction expenditures (-1.2%). Meanwhile, private construction spending remained unchanged, with a 0.7% increase in residential construction offset by a 0.9% decrease in non-residential construction. On an annual basis, construction spending grew by 10.7% in February.

In this regard, forex market analysts at Danske Bank see potential for the euro’s exchange rate against the dollar (EUR/USD) to rise to the psychological resistance level of 1.10 on a monthly basis, but they anticipate a new decline to the support level of 1.05 over a 12-month period. Conversely, ING Bank sees room for the euro to decline against the US dollar (EUR/USD) in the short term due to hawkish comments from the Federal Reserve, but they expect significant gains to 1.14 by the end of this year. During the week, the EUR/USD pair dropped to its lowest levels in 5 weeks, staying below the psychological level of 1.0800 amid hawkish rhetoric from the Federal Reserve.

Regarding the US Federal Reserve’s policy, Fed Chair Powell adopted a broadly hawkish stance in his statements last Wednesday. According to Powell, the Federal Reserve needs to see at least two months of data to ensure that US inflation is heading towards 2% and that there is a need for further progress before supporting an interest rate cut.

In this context, he added that there was no rush to cut interest rates, and the latest data suggest that there may be fewer interest rate cuts this year, especially since the most recent data has been generally disappointing. Following these comments, markets now expect a slightly lower probability, down from 70% previously, of the Federal Reserve cutting interest rates at the June policy meeting, to around 65%.

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Danske Bank still expects the US Federal Reserve to ease as the economy deteriorates. It said: “We expect the current disinflationary trend to allow the Fed to cut earlier than the market expects in May, followed by two more quarterly cuts during the year.” Danske added; “In the near term, we believe the prospect of an early Fed cut poses an upside risk to the currency, and perhaps markets have also become too optimistic about US exceptionalism and too pessimistic about economic data from the euro zone and China.”

However, he added: “Strategically, we maintain our positive bias for the US dollar, as the structural growth story looks much stronger compared to the rest of the world.”

ING Bank commented: “Better activity data and price stability have supported US interest rates and the dollar in the first months of the year. However, according to the bank; “The Fed’s commitment to easing suggests that the dollar’s downward trend is already starting to show now.” He added; “We look for the soft-landing narrative to gain momentum over the coming months and expect dollar spreads to move to see the EUR/USD currency pair rise gently above the year-end consensus at 1.10.”

Moreover, according to Credit Agricole Bank: “We expect both the Fed and the ECB to start cutting interest rates in 2024, but we believe that the Governing Council will ease rates more aggressively than the FOMC.” He added that the euro “will be one of the worst performing currencies in 2024 on the back of the more dovish ECB policy stance and ongoing concerns about the euro zone outlook”.

The EUR/USD exchange rate is expected to reach 1.05 by the end of 2024.

However, Westpac expects a constructive tone for the US dollar in the short term and added: “It looks set to break higher, with the ECB, Bank of England and Bank of Canada all set to cut rates in June, while June Fed rate cut expectations are at risk of being scaled back.” According to Westpac, the EUR/USD pair may remain range-bound, but the 1.0700 support level appears increasingly vulnerable as the US dollar remains strong. NatWest, for its part, expects the EUR/USD pair to reach 1.15 by the end of 2024.

The continued momentum of the US dollar against other major currencies in the shadow of the US Federal Reserve’s hawkish policy will ensure that the bears control the performance of the EUR/USD currency pair. Technically, moving below the psychological support level of 1.0800 will ensure the bears further downward movement. As mentioned, the next most important support levels 1.0745 and 1.0670 will move the technical indicators towards strong oversold levels. Ultimately, the euro-dollar pair will remain under downward pressure until the market and dollar react to the announcement of US jobs figures at the end of the week.

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Currently, we prefer to buy sterling dollars, but without risk, from the support levels 1.2490 and 1.2400.

• At the end of last month, the pound fell to $1.26, close to its lowest level since February 19, and is on track to lose about 1% against the dollar in the first quarter.
• At the start of trading in the first week of April, the GBP/USD currency pair fell to 1.2540, close to breaking a new psychological support level.
• Recently, Sterling losses widened as investors digested cautious comments from central bank officials.
• In this regard, Fed Governor Waller noted that recent inflation data supports the Fed’s case for holding off on cutting the target short-term interest rate, although he did not rule out the possibility of a rate cut later in the year.

In the UK, Bank of England official Haskell said rate cuts should remain “off the table,” while colleague Mann warned against over-expecting rate cuts this year, suggesting that the UK is unlikely to move ahead of the Fed. At its March meeting, the Bank of England kept interest rates unchanged, with two policymakers who had previously advocated for rate hikes switching to a neutral stance, tilting the central bank’s decision towards a more dovish stance than expected.

Looking ahead to Bank of England policy, MUFG Bank suggests there is a 50% chance of a rate cut in June and a 20% chance of a move in May. Stated, “There is still a strong belief that the BoE will need to see more evidence in the coming quarter that core inflation and wage pressures are continuing to slow to give the BoE enough confidence to start cutting rates.”

Consistently, Danske Bank has argued that UK inflation will fall sharply. According to the data calendar, headline inflation in the UK fell to 3.4% in February from 4.0% previously and is likely to fall sharply in the next two months, especially with retail energy prices falling in April. Danske Bank added in this context; “Data releases last month generally pointed to further easing of price and wage pressures in the UK. More broadly, the large base effects from energy prices are expected to bring headline inflation back to 2% in Q2 2024.”

Meanwhile, Danske expects lower inflation to allow interest rates to be cut in the second quarter and weaken sterling. The bank added; “We continue to expect the Bank of England (BoE) to position markets for a rate cut at its May meeting which includes updated forecasts, delivering the first 25 basis point cut in June. However, we stress that the recent cautious turn in vote split, statement wording, and Governor Bailey’s comments opens the door to a cut already in May.

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The British pound sterling’s exchange rate against the US dollar (GBP/USD) decreased by 0.0073 or 0.58% to reach 1.2540 on Monday, April 1st, down from 1.2623 in the previous trading session. Thus, it is expected that the British pound will trade at 1.25 by the end of this quarter, according to the overall global models of Trading Economics and analyst forecasts. Looking ahead, we anticipate it to be trading around 1.21 within 12 months.

According to the performance on the daily chart attached, the price of the GBP/USD currency pair is on the path of a descending channel. Its downward momentum may culminate in a move towards the psychological support level of 1.2500.

From this support and below, the technical indicators will move towards strong saturation levels for selling. As we expected, the trend for the sterling/dollar currency pair will remain bearish until the reaction to the announcement of the US jobs numbers at the end of the week, which will have a reaction on the future of the US Central Bank’s policy.

Currently, we prefer to buy sterling dollars, but without risk, from the support levels 1.2490 and 1.2400. On the other hand, over the same time period, the resistance 1.2775 will remain the most important for bulls to start controlling the trend. Today, the reading of the British manufacturing Purchasing Managers’ Index will be announced, then the number of available American job opportunities, the first releases of American job numbers for this week.

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