EUR/USD

EUR/USD has had a bumpy ride so far this year with the most actively traded fx-pair starting the year just off a six-month high before sliding to a multi-week low in mid-February. Since then the pair have pushed higher, making a clear ascending channel, before starting to turn lower again. And as we head into the second quarter of the year, EUR/USD is trading around a technically important area, which for now looks likely that it will lead the pair lower. EUR/USD has closed, and more importantly opened, below the recent trend support level and is now siting just above all three simple-moving averages and the 23.6% Fibonacci retracement of the late-September 2022 to mid-July 2023 rally. A break below 1.0787 opens the way to further losses down to the mid-February low just under 1.0700. Below here, the October 2022 low at 1.0450 becomes the next target. Any move higher in EUR/USD will likely be due to changes in the US dollar and market expectations of their upcoming rate cut cycle. Any move higher in EUR/USD will find initial resistance around 1.0980. If this is broken with conviction, a cluster of prior resistance levels between 1.1095 and 1.1139 will prove difficult to break.

EUR/USD Daily Price Chart

Source: TradingView, Prepared by Nick Cawley

EUR/GBP

EUR/GBP is another pair that has been trading in a defined range over most of the first quarter. Support around 0.8500 has held firm and promoted a sharp rebound during its two tests, while the 0.8550 area has seen a variety of highs and lows printed on either side. As we write, multi-month resistance is being broken due to a current bout of Sterling weakness, and the 200-day SMA at 0.8606 and a prior set of highs around 0.8620 is set to come under pressure soon. In the short term, a move above 0.8620 may well happen but with the CCI indicator showing the market in extremely overbought territory, a period of consolidation is likely. While the path of least resistance remains pointed higher, a move substantially higher – above 0.8700 – will struggle for traction. EUR/GBP looks set to trade higher in Q2, but not noticeably.

EUR/GBP Daily Price Chart

Source: TradingView, Prepared by Nick Cawley

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EUR/JPY

EUR/JPY has trended higher since the start of 2024 despite expectations that the European Central Bank will cut rates and that the Bank of Japan will raise interest rates. Indeed, the EUR/JPY ascending channel has been in place since May 2020 when the pair traded around 115, compared to a current spot price of 164. From a fundamental angle, EUR/JPY should start to turn lower in the second quarter as the yield differential between the two currencies narrows. However, from a technical point of view, the pair may move higher still. The weekly chart shows that the ascending channel remains in place and the pair trade above all three simple moving averages. The CCI indicator suggests EUR/JPY is starting to become overbought but is not yet close to the extreme levels seen in November last year. EUR/JPY will likely range trade in the coming weeks before either fundamentals or technicals take over and direct the next move.

EUR/JPY Weekly Price Chart

Source: TradingView, Prepared by Nick Cawley

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I wrote on 17^th March that the best trade opportunities for the week were likely to be:

1. Long of the NASDAQ 100 Index following a daily close above 18288. This gave a win of 0.16%.
2. Long of the S&P 500 Index following a daily close above 5157. This gave a win of 0.89%.
3. Long of Bitcoin, following a daily close above $74,000. This did not set up.
4. Long of Gold following a daily close above $2183. This gave a loss of 0.96%.
5. Long of Cocoa Futures, but with only half a normal position size. This gave a win of 4.95%.
6. Long of CPER (Copper) ETF following a daily close above $25.71. This only set up on a strong down day, so it was not a good signal, but if taken, it gave a loss of 3.03%.

The overall result was a net win of 2.01%, resulting in a gain of 0.34% per asset.

Last week saw very low directional volatility in the Forex market, which has been relatively low since 2024 started.

US stock markets still look very bullish, with the S&P 500 Index standing out as it briefly made a new record high. The slightly higher-than-expected US GDP data released last week caused a minor strengthening of the US Dollar over the past week. We also saw weakness in the Japanese Yen, which resulted in the USD/JPY currency pair briefly trading at a new 34-year high just below ¥152.

Gold was a standout asset last week as it rose strongly to close right on its fresh all-time high it made on Friday at $2232.

There was interesting action in other commodities markets, with Cocoa futures trading at a new record above $10,000 and, for the first time, becoming more expensive pound for pound than Copper, which has also recently seen a long-term high. WTI Crude Oil is rising to hit new 4-month highs.

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There were a few other important economic data releases last week:

1. Fed Chair Powell and FOMC Member Waller Spoke on Monetary Policy – no surprises.
2. US Core PCE Price Index – a month-on-month increase of 0.3%, exactly as expected.
3. US Final GDP – stronger than expected, showing an annualized rate of 3.4%.
4. US CB Consumer Confidence – came in a bit lower than expected, suggesting consumers feel less inclined to spend.
5. Australian CPI: A little weaker than expected at 3.4%, which pushed the Aussie into losing some value.
6. Canadian GDP – stronger than expected, with a monthly increase of 0.6%.
7. US Unemployment Claims – as expected.
8. US Pending Home Sales – slightly stronger than expected.
9. US Revised UoM Consumer Sentiment – a little stronger than expected.

The most important items over the coming week will be US Non-Farm Payrolls & Average Earnings, Fed Chair Powell giving a speech, and German Preliminary CPI (inflation) data. Apart from this, there are a few other important items:

1. US JOLTS Job Openings
2. Swiss CPI (inflation)
3. US ISM Services PMI
4. US ISM Manufacturing PMI
5. US Unemployment Rate
6. US Unemployment Claims
7. Canadian Unemployment Rate

I did not make a monthly forecast for March, as no obvious long-term trend in the US Dollar could be relied upon at the start of the month.

For April, the long-term trend in the US Dollar is unclear, so I again refrain from making any monthly Forex forecast.

Last week, I made no weekly forecast, as there were no strong counter-trend price movements in any currency crosses, which is the basis of my weekly trading strategy.

I again give no forecast this week.

Directional volatility in the Forex market fell last week, with only one of the most important currency pairs fluctuating by more than 1%.

Last week, relative strength was observed in the Canadian Dollar, and relative weakness was observed in the Swiss Franc. The absolute numbers were so small that they were effectively meaningless, although the Swiss Franc has been trending lower over recent weeks so that decline might be significant.

You can trade these forecasts in a real or demo Forex brokerage account.

The US Dollar Index printed a small doji candlestick last week, with the key resistance level at 104.47 holding the upper boundary of the week’s price action. The weekly close presented a mixed long-term trend, as it was higher than three months ago but lower than six months ago.

Zooming out to look at the long-term price action shows that the US Dollar Index may have just broken decisively above the narrowing triangle pattern, which would be a bullish sign.

The problem is the resistance at 104.47 looks strong and may continue to hold down the price.

It makes sense to ignore the US Dollar over the coming week. It has no trend, although there is some short-term bullish momentum. Until we see more direction, it will likely be wise to trade non-USD assets and avoid Forex as an asset class.

If the coming week ends with a bullish close above 104.47, that could signify the start of a major bullish price movement, but this is unlikely to happen. The rise in the Dollar is due more to flow into US investments than a rise in the relative value of the greenback itself.

The S&P 500 Index printed another bullish candlestick last week and briefly traded at a new record high the previous week. The weekly close was the highest ever, and the close was also near the top of the week’s range. These are bullish signs.

There is more confidence that the Fed will cut later this year, which helps bulls.

Notably, this Index performed better last week than the NASDAQ 100 Index, which typically outperforms it.

The long-term outlook is bullish because its first break to a fresh all-time high, as happened just a few weeks ago, has historically generated an advance of a median of 13% over the following year.

After two indecisive weeks, Bitcoin is looking more bullish. It ended the week with its highest-ever weekly close. Despite that, the bullishness seems a little muted, as the price is struggling to establish itself above the key resistance level of $72,212.

Bitcoin is a buy once we get a daily close at new highs above $74,000. We see several speculative assets, such as commodities and stocks, rising and testing record highs, so there is no reason for Bitcoin to be any exception, especially as Bitcoin ETFs are now available for retail traders who don’t have the size to trade Bitcoin futures safely.

Using a trailing stop in this kind of trade is important due to the high volatility and unpredictability inherent to even major cryptocurrencies such as Bitcoin.

Gold rose very strongly last week, printing a large bullish candlestick which closed extremely close to the top of its weekly price range. The close was at an all-time high price for every major currency, even the strong USD.

Gold is remarkably strong now, having risen convincingly during the strong risk-on rally of recent weeks if it can be called that for simplicity’s sake. It is important to remember that Gold has historically been positively correlated with the stock market and other risky assets, and it is far from being a hedge against them as is commonly supposed.

I see Gold as a buy right now.

The USD/JPY currency pair briefly made a new 34-year high price of just under ¥152 but could only break the record by a few pips before falling back. The Bank of Japan and the Japanese Finance Ministry are determined to prevent the Yen from weakening much further, which it seems liable to do despite the recent rake hike and abandonment of an ultra-loose monetary policy by the Bank of Japan over recent weeks.

Key support levels continue to hold, and trend traders and other investors and traders are still entering long trades or at least holding onto them. However, the above resistance at ¥152 seems to be a formidable barrier, so it is unclear which will give way first – ¥152 or the support level at ¥151.17.

Cocoa Futures made yet another strong bullish move last week and rose by almost 10% to a new multiyear high. The price closed quite near the top of its range, which is bullish.

You can apply a linear regression analysis to the start of the increased bullish momentum 13 weeks ago. Since then, the price of Cocoa futures has more than doubled! Cocoa is now more expensive pound for pound than Copper.

Cocoa is trading near its all-time high, so it can be bought right now as a breakout, although there is always a risk of a sudden bearish reversal. Using a trailing stop in this kind of trade is extremely important.

I see the best trading opportunities this week as follows:

1. Long of the S&P 500 Index.
2. Long of Bitcoin, following a daily close above $74,000.
3. Long of Gold.
4. Long of the USD/JPY currency pair following a daily close above ¥152.
5. Long of Cocoa Futures, but with only half a normal position size.

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EUR/USD Current price: 1.0880

• The US Dollar eased further ahead of the US Consumer Price Index.
• The European Central Bank will announce its decision on monetary policy next Thursday.
• EUR/USD gains bullish traction in the near term, faces resistance at 1.0910.

The US Dollar kept shedding ground throughout the first half of Thursday, peaking during European trading hours at 1.0883. Speculative interest is trying to find out when central banks will kick start loosening their monetary policies, with the focus this week on the Federal Reserve (Fed) and the European Central Bank (ECB).

Financial markets were enthusiastic in December when the Fed shared the Summary of Economic Projections (SEP) or dot plot, anticipating at least three potential rate cuts this year. However, hopes cooled down after inflation heated up in January and March, to the point that investors are merely hoping for two rate cuts in 2024, with increased chances the first one could take place in July. Fed Chairman Jerome Powell clarified that officials are in no rush to trim rates, given the overall progressing economy and inflation holding above the central bank’s goal.

The US will release the March Consumer Price Index (CPI) on Wednesday, and it could be a game changer in terms of when the Fed will finally revert its current monetary policy. The annual CPI is foreseen at 3.4%, up from the 3.2% posted in February, while core annual inflation is expected to have risen by 3.7%, slightly below the previous 3.8%.

Across the Atlantic, the ECB will announce its decision on monetary policy next Thursday. European officials seem as cautious as their American counterparts, but at the same time, they are paving the way for a June rate cut. No changes are expected this time, but whatever they announce on future decisions will surely be a catalyst for EUR/USD.

Meanwhile, a scarce macroeconomic calendar exacerbates range trading. The ECB released the Bank Lending Survey (BLS), which showed banks reported a slight further tightening of their credit standards for loans or credit lines to enterprises in the first quarter of 2024. Additionally, net demand for housing loans saw a slight decline, while net demand for consumer credit was broadly stable.

Market players are also monitoring government bonds and yields. Bonds sunk on Monday, with yields soaring to fresh 2024 highs, although Treasuries changed direction ahead of Tuesday’s opening. At the time, the 10-year Treasury note yielded 4.38%, after flirting with 4.50% at the beginning of the week.

EUR/USD short-term technical outlook

The EURUSD pair has been advancing for over a week now and slowly gaining bullish strength. The daily chart shows that the Momentum indicator cannot surpass its midline, although the Relative Strength Index (RSI) indicator heads north at around 56, reflecting increased buying interest. At the same time, the pair is recovering above its moving averages, albeit the 100 and 200 Simple Moving Averages (SMAs) remain directionless.

The uptrend is notable in the near term, and according to the 4-hour chart. Technical indicators head firmly north within positive levels, while EUR/USD accelerates higher above all its moving averages. The 20 SMA reflects renewed near-term interest as it gains upward traction between the longer ones, which remain flat. The pair needs to clear 1.0910 to gain further bullish traction and extend gains towards the 1.1000 threshold in the following sessions.

Support levels: 1.0840 1.0800 1.0750

Resistance levels: 1.0910 1.0945 1.0990

EUR/USD Current price: 1.0880

• The US Dollar eased further ahead of the US Consumer Price Index.
• The European Central Bank will announce its decision on monetary policy next Thursday.
• EUR/USD gains bullish traction in the near term, faces resistance at 1.0910.

The US Dollar kept shedding ground throughout the first half of Thursday, peaking during European trading hours at 1.0883. Speculative interest is trying to find out when central banks will kick start loosening their monetary policies, with the focus this week on the Federal Reserve (Fed) and the European Central Bank (ECB).

Financial markets were enthusiastic in December when the Fed shared the Summary of Economic Projections (SEP) or dot plot, anticipating at least three potential rate cuts this year. However, hopes cooled down after inflation heated up in January and March, to the point that investors are merely hoping for two rate cuts in 2024, with increased chances the first one could take place in July. Fed Chairman Jerome Powell clarified that officials are in no rush to trim rates, given the overall progressing economy and inflation holding above the central bank’s goal.

The US will release the March Consumer Price Index (CPI) on Wednesday, and it could be a game changer in terms of when the Fed will finally revert its current monetary policy. The annual CPI is foreseen at 3.4%, up from the 3.2% posted in February, while core annual inflation is expected to have risen by 3.7%, slightly below the previous 3.8%.

Across the Atlantic, the ECB will announce its decision on monetary policy next Thursday. European officials seem as cautious as their American counterparts, but at the same time, they are paving the way for a June rate cut. No changes are expected this time, but whatever they announce on future decisions will surely be a catalyst for EUR/USD.

Meanwhile, a scarce macroeconomic calendar exacerbates range trading. The ECB released the Bank Lending Survey (BLS), which showed banks reported a slight further tightening of their credit standards for loans or credit lines to enterprises in the first quarter of 2024. Additionally, net demand for housing loans saw a slight decline, while net demand for consumer credit was broadly stable.

Market players are also monitoring government bonds and yields. Bonds sunk on Monday, with yields soaring to fresh 2024 highs, although Treasuries changed direction ahead of Tuesday’s opening. At the time, the 10-year Treasury note yielded 4.38%, after flirting with 4.50% at the beginning of the week.

EUR/USD short-term technical outlook

The EURUSD pair has been advancing for over a week now and slowly gaining bullish strength. The daily chart shows that the Momentum indicator cannot surpass its midline, although the Relative Strength Index (RSI) indicator heads north at around 56, reflecting increased buying interest. At the same time, the pair is recovering above its moving averages, albeit the 100 and 200 Simple Moving Averages (SMAs) remain directionless.

The uptrend is notable in the near term, and according to the 4-hour chart. Technical indicators head firmly north within positive levels, while EUR/USD accelerates higher above all its moving averages. The 20 SMA reflects renewed near-term interest as it gains upward traction between the longer ones, which remain flat. The pair needs to clear 1.0910 to gain further bullish traction and extend gains towards the 1.1000 threshold in the following sessions.

Support levels: 1.0840 1.0800 1.0750

Resistance levels: 1.0910 1.0945 1.0990

• AUD/USD advanced further and approached 0.6650.
• Next on the upside is the March top near 0.6670.
• Australian Consumer Confidence eased to 82.4 in April.

Another irresolute session in the US Dollar (USD) helped to sustain the robust recovery in AUD/USD, prompting the pair to extend further its recent breakout of the 0.6600 yardstick and advance to the vicinity of 0.6650.

Simultaneously, the Australian dollar’s additional strength coincided with the ongoing surge in copper prices, reaching the $840.00 region, and the marked bounce in iron ore prices, which regained the $100.00 mark and above per tonne.

Furthermore, positive results from the Chinese manufacturing sector also contributed to the AUD’s monthly resurgence, alongside ongoing speculation about potential stimulus measures from both the government and the PBoC. Continued improvements in economic indicators are crucial for bolstering the Aussie dollar and potentially initiating a more sustainable uptrend in AUD/USD.

In terms of the Reserve Bank of Australia (RBA), the recent publication of its March meeting Minutes confirmed the bank’s decision to refrain from considering tightening monetary policy. RBA cash rate futures still suggest an anticipation of just under 50 bps of policy rate cuts in 2024, with the first rate cut seen in November.

It’s noteworthy that the RBA is one of the final G10 central banks expected to consider interest rate adjustments this year.

Given the differing timelines for monetary policy adjustments between the RBA and the Fed, the Australian dollar may gain momentum later in the year, potentially leading to further strengthening in AUD/USD. If the pair surpasses the December 2023 peak of 0.6871, it could target a significant level of 0.7000 in the near term.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further upside momentum in AUD/USD is expected to challenge its March high of 0.6667 (March 8) before reaching its December 2023 top of 0.6871. Further north comes the July peak of 0.6894 (July 14) and the June high of 0.6899 (June 16), all prior to the key 0.7000 mark.

If sellers regain control, the pair could initially drop to the key 200-day SMA at 0.6543 ahead of the April low of 0.6480 (April 1), which is closely followed by the March low of 0.6477 (March 5), and the 2024 low of 0.6442 (February 13). Breaking below this level may lead to a test of the 2023 bottom of 0.6270 (October 26), before the round level of 0.6200.

Looking at the big picture, the pair is expected to continue its bullish trend if it successfully surpasses the key 200-day SMA.

On the 4-hour chart, the pair’s constructive bias appears to be intact for the time being. The initial resistance is at 0.6644 ahead of 0.6667. On the other hand, new losses may cause the pair to retest the 200-SMA of 0.6553 seconded by 0.6549 and finally 0.6480. Furthermore, the MACD remained in the positive zone, and the RSI dropped below 65.

• AUD/USD advanced further and approached 0.6650.
• Next on the upside is the March top near 0.6670.
• Australian Consumer Confidence eased to 82.4 in April.

Another irresolute session in the US Dollar (USD) helped to sustain the robust recovery in AUD/USD, prompting the pair to extend further its recent breakout of the 0.6600 yardstick and advance to the vicinity of 0.6650.

Simultaneously, the Australian dollar’s additional strength coincided with the ongoing surge in copper prices, reaching the $840.00 region, and the marked bounce in iron ore prices, which regained the $100.00 mark and above per tonne.

Furthermore, positive results from the Chinese manufacturing sector also contributed to the AUD’s monthly resurgence, alongside ongoing speculation about potential stimulus measures from both the government and the PBoC. Continued improvements in economic indicators are crucial for bolstering the Aussie dollar and potentially initiating a more sustainable uptrend in AUD/USD.

In terms of the Reserve Bank of Australia (RBA), the recent publication of its March meeting Minutes confirmed the bank’s decision to refrain from considering tightening monetary policy. RBA cash rate futures still suggest an anticipation of just under 50 bps of policy rate cuts in 2024, with the first rate cut seen in November.

It’s noteworthy that the RBA is one of the final G10 central banks expected to consider interest rate adjustments this year.

Given the differing timelines for monetary policy adjustments between the RBA and the Fed, the Australian dollar may gain momentum later in the year, potentially leading to further strengthening in AUD/USD. If the pair surpasses the December 2023 peak of 0.6871, it could target a significant level of 0.7000 in the near term.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further upside momentum in AUD/USD is expected to challenge its March high of 0.6667 (March 8) before reaching its December 2023 top of 0.6871. Further north comes the July peak of 0.6894 (July 14) and the June high of 0.6899 (June 16), all prior to the key 0.7000 mark.

If sellers regain control, the pair could initially drop to the key 200-day SMA at 0.6543 ahead of the April low of 0.6480 (April 1), which is closely followed by the March low of 0.6477 (March 5), and the 2024 low of 0.6442 (February 13). Breaking below this level may lead to a test of the 2023 bottom of 0.6270 (October 26), before the round level of 0.6200.

Looking at the big picture, the pair is expected to continue its bullish trend if it successfully surpasses the key 200-day SMA.

On the 4-hour chart, the pair’s constructive bias appears to be intact for the time being. The initial resistance is at 0.6644 ahead of 0.6667. On the other hand, new losses may cause the pair to retest the 200-SMA of 0.6553 seconded by 0.6549 and finally 0.6480. Furthermore, the MACD remained in the positive zone, and the RSI dropped below 65.

• EUR/USD’s upside momentum faltered ahead of 1.0900.
• The ECB is seen keeping its rates unchanged this week.
• Investors’ focus now shifts to US CPI and FOMC Minutes.

EUR/USD traded slightly on the defensive despite hitting new multi-week tops in the 1.0885–1.0890 band earlier in the session, always against the backdrop of another uneventful session and vacillating price action in the Greenback.

Meanwhile, diminishing yields on both sides of the ocean accompanied humble losses in spot amidst an unchanged monetary policy framework, firm conviction that the ECB will hold its hand at its event later in the week, and increasing prudence ahead of the release of the US CPI and the FOMC Minutes, both due on Wednesday.

On this note, both the Federal Reserve (Fed) and the European Central Bank (ECB) are expected to initiate easing cycles, possibly starting in June. However, the pace of subsequent interest rate cuts may differ, potentially resulting in divergent strategies between the two central banks. Nevertheless, it is anticipated that the ECB will not significantly trail behind the Fed.

Regarding the Fed, N. Kashkari (Minneapolis) contended that potential rate cuts for the current year are at risk if inflation remains stagnant, whereas A. Goolsbee (Chicago) emphasized the need for the Fed to consider the effects of a restrictive policy stance, and FOMC Governor M. Bowman remarked that efforts to reduce inflation have hit a roadblock.

So far, according to the FedWatch Tool provided by CME Group, the likelihood of a rate cut in June has remained just above 56%.

Looking ahead, the relatively subdued fundamentals of the eurozone, coupled with the increasing probability 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 introduce easing measures almost simultaneously. In such a scenario, EUR/USD could undergo a more pronounced decline, initially targeting its year-to-date low around 1.0700 before potentially revisiting the lows observed in late October 2023 or early November below 1.0500.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to face initial resistance at the so-far April peak of 1.0885 (April 9) ahead of the March high of 1.0981 (March 8), and the weekly peak of 1.0998 (January 11), which precedes the psychological barrier of 1.1000. Further advances from here may result in a test of the December 2023 high of 1.1139 (December 28).

On the flip side, immediate contention emerges at the critical 200-day SMA at 1.0832 prior to the April low of 1.0724 (April 2) and the 2024 low of 1.0694 (February 14). Down from here comes the November 2023 low of 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 round milestone of 1.0400.

The 4-hour chart shows that the bullish tone remains in place for the time being. Next on the upside comes 1.0885 ahead of 1.0942. In the other direction, the next ] downward barrier appears to be the 100-SMA and 55-SMA of 1.0828 and 1.0809, respectively, ahead of 1.0791. The Moving Average Convergence Divergence (MACD) maintained the positive stance, but the Relative Strength Index (RSI) deflated to around 55.

• EUR/USD’s upside momentum faltered ahead of 1.0900.
• The ECB is seen keeping its rates unchanged this week.
• Investors’ focus now shifts to US CPI and FOMC Minutes.

EUR/USD traded slightly on the defensive despite hitting new multi-week tops in the 1.0885–1.0890 band earlier in the session, always against the backdrop of another uneventful session and vacillating price action in the Greenback.

Meanwhile, diminishing yields on both sides of the ocean accompanied humble losses in spot amidst an unchanged monetary policy framework, firm conviction that the ECB will hold its hand at its event later in the week, and increasing prudence ahead of the release of the US CPI and the FOMC Minutes, both due on Wednesday.

On this note, both the Federal Reserve (Fed) and the European Central Bank (ECB) are expected to initiate easing cycles, possibly starting in June. However, the pace of subsequent interest rate cuts may differ, potentially resulting in divergent strategies between the two central banks. Nevertheless, it is anticipated that the ECB will not significantly trail behind the Fed.

Regarding the Fed, N. Kashkari (Minneapolis) contended that potential rate cuts for the current year are at risk if inflation remains stagnant, whereas A. Goolsbee (Chicago) emphasized the need for the Fed to consider the effects of a restrictive policy stance, and FOMC Governor M. Bowman remarked that efforts to reduce inflation have hit a roadblock.

So far, according to the FedWatch Tool provided by CME Group, the likelihood of a rate cut in June has remained just above 56%.

Looking ahead, the relatively subdued fundamentals of the eurozone, coupled with the increasing probability 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 introduce easing measures almost simultaneously. In such a scenario, EUR/USD could undergo a more pronounced decline, initially targeting its year-to-date low around 1.0700 before potentially revisiting the lows observed in late October 2023 or early November below 1.0500.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to face initial resistance at the so-far April peak of 1.0885 (April 9) ahead of the March high of 1.0981 (March 8), and the weekly peak of 1.0998 (January 11), which precedes the psychological barrier of 1.1000. Further advances from here may result in a test of the December 2023 high of 1.1139 (December 28).

On the flip side, immediate contention emerges at the critical 200-day SMA at 1.0832 prior to the April low of 1.0724 (April 2) and the 2024 low of 1.0694 (February 14). Down from here comes the November 2023 low of 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 round milestone of 1.0400.

The 4-hour chart shows that the bullish tone remains in place for the time being. Next on the upside comes 1.0885 ahead of 1.0942. In the other direction, the next ] downward barrier appears to be the 100-SMA and 55-SMA of 1.0828 and 1.0809, respectively, ahead of 1.0791. The Moving Average Convergence Divergence (MACD) maintained the positive stance, but the Relative Strength Index (RSI) deflated to around 55.

The Pound Canadian Dollar (GBP/CAD) exchange rate traded sideways on Tuesday as a lack of significant data releases left the currency pairing trapped in a narrow range.

At the time of writing GBP/CAD traded at around CA$1.7085, virtually unchanged from Tuesday’s opening rate.

Pound (GBP) Exchange Rates Lifted by Upbeat Retail Data

The Pound (GBP) managed to hold steady against the majority of its peers on Tuesday as it was underpinned by the latest retail sales monitor from the British Retail Consortium (BRC).

March’s yearly figures surged past expectations and came in at 3.2% rather than a more modest expiation of a 1.8% reading.

The index confirmed the highest figure in over two years, and was primarily put down to an increase in consumer spending over the Ester weekend.

Linda Ellett, KPMG UK’s Head of Consumer Markets, Leisure and Retail, explained: ‘High street sales growth was driven by food and drink, health and beauty and keen gardeners who headed outside to enjoy the first days of spring.
There were also some signs of improvement, with more categories starting to see positive sales growth in March for the first time in months. As April signals big increases in the sector’s cost base – through the rise in minimum wage rates and business rate hikes for the larger high street brands – retailers will be hoping that the bounceback of March sales is more than just an Easter blip.’

Driven by hopes that the UK retail sector may be turning a corner, Sterling managed to stay above ground during the first half of Tuesday’s European session.

Canadian Dollar (CAD) Exchange Rates Quiet amid Lack of Data

The Canadian Dollar (CAD) treaded water against the majority of its rivals on Tuesday as a lack of any impactful economic data releases left the Canadian currency struggling to find a clear trajectory.

Elsewhere, the crude-linked ‘Loonie’ was mildly supported by a small rise in oil prices, as the commodity-driven currency benefits from increases in goods prices such as crude and brent oil.

Furthermore, CAD exchange rates could be struggling to catch bids as investors likely hold of placing any overly aggressive bets ahead of the Bank of Canada (BoC)’s upcoming interest rate decision, scheduled for release on Wednesday.

GBP/CAD Forecast: BoC Interest Rate Decision to infuse Volatility in the Canadian Dollar?

Looking ahead, the primary driver of movement for the Pound Canadian Dollar exchange rate for the remainder of the week is likely to be the Bank of Canada’s upcoming interest rate decision.
The BoC is widely expected to keep interest rates on hold at 5% on Wednesday. As such, investors will likely turn their focus to the central bank’s accompanying forward guidance.
Should policymakers hint at a possible upcoming interest rate cuts, CAD exchange rates could slump. However, should officials deliver a more hawkish stance surrounding the future of monetary policy, the ‘Loonie’ could firm in mid-week trade.

Turning to the Pound, a lack of domestic data releases for the majority of the week may leave the Pound vulnerable to shifts in market mood, and could see Sterling sentiment rise if markets turn to upbeat trade.

The one data release of note will come in the form of the UK’s latest GDP data, scheduled for release on Friday.

The data is forecast to report a minor 0.1% increase following a previous reading of 0.2%, which could see GBP exchange rates struggle to catch bids should the data confirm that growth slowed to a crawl in February.

Foreign currency analysts at HSBC have shifted their US Dollar to Yen (USD/JPY) exchange rate forecast and now expects losses will be held to 145 at the end of 2024 compared with the previous forecast of 136.

HSBC expects higher US yields and Japanese capital outflows will curb and yen rebound.

USD/JPY has edged higher and is currently trading close to 34-year highs just below the 152.0 level.

Yield trends will remain important for dollar moves and HSBC notes that at the end of 2023 markets were pricing in six Fed rate cuts for 2024. This pricing has continued to shrink with markets now pricing in just under three cuts.

This shift in expectations will underpin the dollar, especially with US yields moving higher.

HSBC also notes that there have been substantial capital outflows from Japan while overseas companies have continued to issue yen-denominated bonds.

The bank notes that Japanese investment trusts bought $21bn in overseas equities in the first quarter of 2024, three times the normal pattern.

These capital flows will continue to undermine the Japanese currency in the short term.

Although it considers USD/JPY is theoretically overvalued, it considers that current levels are within justifiable ranges given overall fundamentals.

Key Quotes:
“Market pricing for rate cuts by the Fed in 2024 has shrunk from 140bp in December 2023 to just c65bp.”

“Short JPY speculative positions have gone to the largest levels since mid-2007.”

“Investment trusts bought USD21bn of foreign equities in January-March, close to three times of their normal buying patterns.”

“USD-JPY remains overvalued based on rate differentials.”

“Considering… the broad USD’s strength, robust risk appetite and strong JPY-funded carry trades, USD-JPY seems inside its range of modelled outcomes.”

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• GBP/USD consolidates weekly gains slightly below 1.2700 on Wednesday.
• The technical outlook points to a buildup of bullish momentum.
• The pair needs soft inflation data from the US to continue to stretch higher.

GBP/USD retreated slightly after rising above 1.2700 for the first time in over two weeks on Tuesday but closed the day in positive territory. The pair holds steady slightly below this level early Wednesday as market focus shifts to the US inflation data for March.

The core Consumer Price Index, which excludes volatile food and energy prices, is forecast to rise 0.3% and 3.7% on a monthly and yearly basis, respectively, in March. In case the monthly print comes in below analysts’ estimate, investors could start pricing in a Federal Reserve rate cut in June and trigger a leg lower in the US Treasury bond yields. In turn, the US Dollar (USD) could face heavy selling pressure and allow GBP/USD to gather bullish momentum.

On the other hand, the USD could outperform its rivals and force GBP/USD to turn south if the monthly core CPI rises at a stronger pace than expected.

The CME FedWatch Tool shows that markets see a nearly 54% probability of the Fed lowering the policy rate in June. Hence, the market reaction to inflation data could deny or confirm a policy pivot in June and ramp up the USD volatility.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) on the 4-hour chart stays above 60, reflecting the bullish bias. More importantly, GBP/USD closed above 1.2660 on Tuesday, where the 20-day, 50-day and the 100-day Simple Moving Averages (SMA) converge.

On the upside, 1.2710 (Fibonacci 50% retracement of the latest downtrend) aligns as first resistance before 1.2750 (Fibonacci 61.8% retracement) and 1.2800 (Fibonacci 78.6% retracement).

A daily close below 1.2660 could discourage buyers and pave the way for an extended correction. In this scenario, supports could be seen at 1.2620 (Fibonacci 23.6% retracement) ahead of 1.2590 (200-day SMA).

 

• GBP/USD consolidates weekly gains slightly below 1.2700 on Wednesday.
• The technical outlook points to a buildup of bullish momentum.
• The pair needs soft inflation data from the US to continue to stretch higher.

GBP/USD retreated slightly after rising above 1.2700 for the first time in over two weeks on Tuesday but closed the day in positive territory. The pair holds steady slightly below this level early Wednesday as market focus shifts to the US inflation data for March.

The core Consumer Price Index, which excludes volatile food and energy prices, is forecast to rise 0.3% and 3.7% on a monthly and yearly basis, respectively, in March. In case the monthly print comes in below analysts’ estimate, investors could start pricing in a Federal Reserve rate cut in June and trigger a leg lower in the US Treasury bond yields. In turn, the US Dollar (USD) could face heavy selling pressure and allow GBP/USD to gather bullish momentum.

On the other hand, the USD could outperform its rivals and force GBP/USD to turn south if the monthly core CPI rises at a stronger pace than expected.

The CME FedWatch Tool shows that markets see a nearly 54% probability of the Fed lowering the policy rate in June. Hence, the market reaction to inflation data could deny or confirm a policy pivot in June and ramp up the USD volatility.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) on the 4-hour chart stays above 60, reflecting the bullish bias. More importantly, GBP/USD closed above 1.2660 on Tuesday, where the 20-day, 50-day and the 100-day Simple Moving Averages (SMA) converge.

On the upside, 1.2710 (Fibonacci 50% retracement of the latest downtrend) aligns as first resistance before 1.2750 (Fibonacci 61.8% retracement) and 1.2800 (Fibonacci 78.6% retracement).

A daily close below 1.2660 could discourage buyers and pave the way for an extended correction. In this scenario, supports could be seen at 1.2620 (Fibonacci 23.6% retracement) ahead of 1.2590 (200-day SMA).

 

• Since the start of trading this week, the EUR/USD currency pair has been attempting to rebound upwards.
• These rebound gains have not exceeded the 1.0858 resistance level.
• It is stabilizing around 1.0850 at the time of writing the analysis and before the announcement of the US inflation figures and the content of the minutes of the last meeting of the US Federal Reserve.

The reaction will be strong on the performance of the EUR/USD so caution is required. After these important events, the euro price will await the decisions of the European Central Bank tomorrow, Thursday. The European Central Bank is not likely to keep interest rates at their current restrictive levels, according to economists at two European investment banks, one of whom said that we could be surprised by a rate cut on Thursday.

In this regard, Nick Konis, an economist at ABN AMRO, says: “We see that interest rates are currently in a very restrictive area.” Added, “The eurozone economy has been in recession for more than a year.”

These expectations come ahead of the ECB’s April monetary policy decision, due to be announced tomorrow, Thursday, when interest rates are expected to be kept unchanged. Overall, the ECB is expected to provide guidance that it will cut interest rates for the first time in June and say that any further rate cuts will depend on incoming economic data, a message that is likely to prevent the market from raising bets strongly on further rate cuts.

In general, the low volatility environment affecting global forex exchange markets reflects the doubt that the ECB and other global central banks in developed markets intend to emulate the US Federal Reserve when it comes to cutting interest rates, in the hope of avoiding any potential negative currency effects that early movers may be inclined to.

Meanwhile, one need only look at the sharp sell-off in the Swiss franc following the Swiss National Bank’s surprise decision to cut interest rates in March to show the extent of the difference in risk policy. But the analyst says the ECB’s cautious stance is unwarranted because the US economy has proven to be much stronger than the eurozone economy. He explains: “The US Federal Reserve does not have a great urgency to cut interest rates given the strong growth backdrop, making a monetary policy link between the two central banks unlikely.”

ABN AMRO Bank augmented that the only justification for restrictive monetary policy is inflation that exceeds the target. Added, “However, the inflation picture is changing rapidly. Even assuming an interest rate cut of 125 basis points in the second half of this year, monetary policy will remain constrained at the end of 2024.” The analyst included that there are “very few compelling reasons” why the ECB cannot cut interest rates as early as this week’s ECB meeting, and that any delay until June is confirmation that the central bank is pursuing a monetary strategy that “relies on… The US Federal Reserve Bank” which comes at the expense of a “data-driven” policy.

Julius Baer adds that low inflation and stable central bank interest rates mean that real interest rates in the euro area rose from 0% in September 2023 (when interest rates were last raised) to 1.6% in March. Also, the economists at ABN AMRO say the ECB will cut interest rates in June, and the real question for markets is what happens next.

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EUR/USD Technical Analysis and forecast:

As mentioned before, the stability of the EUR/USD exchange rate near the psychological support level of 1.0800 will continue, supporting further bearish dominance in the trend. If the US dollar gains positive momentum from today’s data, bears may push the currency pair towards stronger support levels, with the next targets being 1.0745, 1.0660, and 1.0580, respectively. Moreover, from the second and final level, technical indicators will move towards oversold levels.

On the other hand, if US inflation figures come in lower than expected, bulls may have an opportunity to exploit the recent upward rebound. As mentioned before, the psychological resistance at 1.1000 remains crucial for a bullish trend reversal. So far, any gains for the EUR/USD will remain temporary and not sustainable, given the euro’s loss of investor confidence in the future of the European Central Bank’s policy.

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