• Amid a temporary halt in US dollar gains ahead of important data and events, the price of the GBP/USD pair managed to rebound higher.
• It extended gains above the resistance level of 1.2710 before settling around the 1.2675 level at the start of Wednesday’s session.

This session includes the announcement of crucial US inflation figures followed by the release of the minutes from the latest Federal Reserve meeting. Amid cautious anticipation, forex analysts at Morgan Stanley expect this week’s US inflation report to fall below expectations, leading to weakness in the US dollar. Andrew Waters, an expert at Morgan Stanley, states, “We see bearish risks in the near term for the US dollar from the March Consumer Price Index reading.”

According to economic calendar data, the release of US inflation is the most significant event for global markets this week, as it could reinforce expectations about whether the Federal Reserve will push for a rate cut in June or not. Therefore, Morgan Stanley researchers suggest that a stable US Consumer Price Index indicates a downward surprise of 3.36% on an annual basis, while the market is poised to read 3.5% based on a Bloomberg survey of economists.

Meanwhile, the economists at Morgan Stanley expect the outcome to be below expectations, sticking to a result of 3.4%. Given the historical relationship between Consumer Price Index surprises and the US dollar, Morgan Stanley anticipates a Consumer Price Index surprise of 0.86 standard deviations associated with a 0.5% decline in the US Dollar Index (DXY) by 9:00 am Eastern Time (with data released at 08:30).

Such a broader decline in the US dollar could allow the GBP/USD exchange rate to expand its post-US jobs report recovery towards the 1.27 resistance level, provided market volatility remains low before the result. Overall, forex market volatility is historically low, which may limit the sterling’s upward trend in the event of data shortfall. Also, this may mean that any strength ultimately fades in the hours and days following the initial move upwards.

In general, US data tends to rise suddenly in 2024, as the economy proves to be more resilient than investors expected at the beginning of the year. Clearly, this may indicate that it will take more than just one mild inflation reading to reverse the trend against the dollar.

As 2024 dawned, markets were priced in for up to 150 basis points of US interest rate cuts in 2024, but by the time of writing, this has been reduced to just 68 basis points, boosting US bond yields relative to other markets. Consequently, this supported the US dollar, the best-performing currency of the year. Obviously, the US dollar will remain preferred over other major currencies if inflation numbers this week exceed expectations. The decline in inflation has stalled, and fundamental progress remains stubbornly slow. Fixed services and rising gasoline and energy prices pose upward risks in the future. However, the lagged effect of falling rents, which account for more than half of total inflation, should weigh on the CPI in the coming months,” say market analysts at Vantage.

GBPUSD Expectations and Analysis Today:

There is no change in our technical view of the performance of the price of the British pound currency pair against the US dollar GBP/USD, just the performance on the daily chart attached. The price of the currency pair is in the stage of breaking the downward channel that was formed recently. As mentioned before, the movement will remain above the resistance 1.2775 to start the bulls’ control of the trend. Technically, the next most important peaks may be 1.2830 and 1.3000, respectively. The last level confirms that the general trend has turned bullish. Moreover, this may happen if US inflation numbers come in below expectations and confidence in the Bank of England’s tightening returns again. On the other hand, if the US inflation numbers become stronger than all expectations and momentum increases towards the future tightening of the US Central Bank’s policy, the sterling/dollar pair may return below the psychological support of 1.2600 again. Ultimately, there are hopes of a rebound to the current level.

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• Analysts expect the headline US inflation figure to have slowed to 0.3% in March.
• The likelihood of a Fed cut in June rose to 58%. 
• Traders were preparing for the Bank of Canada policy meeting.

The USD/CAD forecast horizon appears shrouded in bearish sentiment as the dollar weakens due to a surge in rate-cut bets ahead of the US inflation report. At the same time, the Canadian dollar strengthened due to an increase in oil prices.

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Investors were positioning themselves ahead of the US consumer inflation report. These figures will determine whether the Fed will cut interest rates in June. Analysts expect the headline figure to have slowed to 0.3% in March. 

Notably, rate-cut bets increased before the report, with the likelihood of a cut in June rising to 58%. This figure is up from 52% on Monday and shows that investors expect a slowdown in inflation. At the same time, markets now forecast 74 bps of cuts in 2024. 

On the other hand, the Canadian dollar was stronger on Wednesday as oil prices recovered. The deadlock in a Gaza ceasefire has caused a lot of worries about oil supply, pushing up prices. 

At the same time, traders were preparing for the Bank of Canada policy meeting later in the day. The BoC will likely hold rates at 5%. However, traders expect a more dovish meeting after recent economic data. 

Inflation in Canada has slowed down significantly. Similarly, the labor market has weakened, showing weaker economic demand. As a result, there is more pressure on the central bank to lower interest rates. Therefore, policymakers might signal the start of cuts in June. 

USD/CAD key events today

• US Consumer Price Index report
• BoC monetary policy meeting
• FOMC meeting minutes

USD/CAD technical forecast: 30-SMA pauses decline to channel support

On the technical side, the USD/CAD price has paused at the 30-SMA support. Similarly, the RSI has fallen to retest the pivotal 50 level. However, on a larger scale, the price is in a shallow uptrend that keeps chopping through the SMA. 

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Furthermore, it trades in a bullish channel with clear support and resistance. Therefore, since the price recently touched the resistance, there is a high chance it will fall to retest the channel support.  Consequently, bears might target the 1.3500 level. Still, the price must break below the SMA for this to happen. Otherwise, it might rise to a new high.

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• EUR/USD plummeted to multi-day lows near 1.0730.
• US inflation figures came in above estimates in March.
• The ECB is largely anticipated to keep rates on hold on Thursday.

EUR/USD experienced a sharp defensive move and retreated to the 1.0730 region, or multi-session lows, amidst the unexpected robust rebound in the US Dollar (USD).

Contributing to the Dollar’s uptick, US yields across different timeframes gathered pace and rose to multi-week tops in response to the higher-than-estimated US inflation figures gauged by the CPI for the month of March.

On the latter, bets for a June rate cut were drastically reduced, with a probability of such event hovering around 20% when tracked by the CEM Group’s FedWatch Tool.

Given this scenario, there seems to be a shift in perception regarding the Federal Reserve (Fed), which is now expected to commence its easing cycle later than initially projected, possibly in the fourth quarter. Meanwhile, there’s speculation that the European Central Bank (ECB) might initiate interest rate reductions during the summer months.

Looking ahead, the relatively subdued economic fundamentals in the eurozone, coupled with the growing likelihood of a “soft landing” in the US economy, reinforce expectations of a stronger Dollar in the medium term, particularly now that the ECB could reduce its rates earlier than the Fed. In such a scenario, EUR/USD could experience a more significant decline, initially targeting its year-to-date low near 1.0700 before potentially revisiting the lows observed in late October 2023 or early November, dipping below 1.0500.

EUR/USD daily chart

EUR/USD short-term technical outlook

The loss of the crucial 200-day SMA at 1.0831 opens the door to extra losses in the very near term. That said, the next support comes at the April low of 1.0724 (April 2) seconded by the 2024 bottom of 1.0694 (February 14). Down from here is 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.

On the upside, EUR/USD is projected to find early resistance at the so-far April high of 1.0885 (April 9), followed by the March top of 1.0981 (March 8) and the weekly peak of 1.0998 (January 11), which precedes the psychological barrier of 1.1000. Further increases from here may lead to a test of the December 2023 high of 1.1139 (December 28).

The 4-hour chart reveals a resumption of the bearish bias. That said, initial support comes at 1.0724 and 1.0694. In the opposite direction, the 200-SMA comes at 1.0851 ahead of 1.0885. The Moving Average Convergence Divergence (MACD) remained positive, but the Relative Strength Index (RSI) fell to approximately 32.

• AUD/USD collapsed to the vicinity of 0.6500.
• The sharp bounce in the Greenback kept the AUD under pressure.
• The focus has now shifted to the 2024 low near 0.6480.

The strong resumption of the bid bias in the US Dollar (USD) prompted an equally marked retracement in the Aussie dollar and the rest of its risk-related peers, pushing AUD/USD to multi-session lows near 0.6500 on Wednesday.

In the meantime, the strong rebound in iron ore prices failed to mitigate the increased downward trend of the Australian dollar, while the knee-jerk in copper prices accompanied the daily pullback in spot.

Regarding the Reserve Bank of Australia (RBA), the recent release of its March meeting Minutes affirmed the bank’s stance to refrain from considering tightening monetary policy. RBA cash rate futures still indicate an expectation of just under 50 bps of policy rate cuts in 2024, with the initial cut anticipated in November.

It’s worth noting that the RBA is among the last G10 central banks expected to contemplate interest rate adjustments this year.

With the Federal Reserve’s (Fed) reinforced stance on maintaining tighter policies over an extended period, accentuated by recent US inflation data, and the anticipation of the RBA beginning an easing cycle later in the year, AUD/USD faces increased potential for extended and intensified downward movements in both the short and medium terms.

AUD/USD daily chart

AUD/USD short-term technical outlook

If sellers remain in control, AUD/USD could fall to the April low of 0.6480 (April 1), followed by the March low of 0.6477 (March 5) and the 2024 bottom of 0.6442 (February 13). Breaking below this level may result in a test of the 2023 low of 0.6270 (October 26), prior to the round level of 0.6200.

Further upward is projected to initially test the April top of 0.6644 prior to the March peak of 0.6667 (March 8) and the December 2023 high of 0.6871. Further north, the July top of 0.6894 (July 14) precedes the June peak of 0.6899 (June 16) and the critical 0.7000 mark.

Looking at the big picture, the pair is projected to maintain its bearish trend while below the important 200-day SMA.

On the 4-hour chart, the pair’s constructive bias appears threatened. The support comes at 0.6498 ahead of 0.6480. On the other hand, immediate resistance is at 0.6644, before 0.6667. Furthermore, the MACD stayed bullish, and the RSI fell to around 31.

• AUD/USD collapsed to the vicinity of 0.6500.
• The sharp bounce in the Greenback kept the AUD under pressure.
• The focus has now shifted to the 2024 low near 0.6480.

The strong resumption of the bid bias in the US Dollar (USD) prompted an equally marked retracement in the Aussie dollar and the rest of its risk-related peers, pushing AUD/USD to multi-session lows near 0.6500 on Wednesday.

In the meantime, the strong rebound in iron ore prices failed to mitigate the increased downward trend of the Australian dollar, while the knee-jerk in copper prices accompanied the daily pullback in spot.

Regarding the Reserve Bank of Australia (RBA), the recent release of its March meeting Minutes affirmed the bank’s stance to refrain from considering tightening monetary policy. RBA cash rate futures still indicate an expectation of just under 50 bps of policy rate cuts in 2024, with the initial cut anticipated in November.

It’s worth noting that the RBA is among the last G10 central banks expected to contemplate interest rate adjustments this year.

With the Federal Reserve’s (Fed) reinforced stance on maintaining tighter policies over an extended period, accentuated by recent US inflation data, and the anticipation of the RBA beginning an easing cycle later in the year, AUD/USD faces increased potential for extended and intensified downward movements in both the short and medium terms.

AUD/USD daily chart

AUD/USD short-term technical outlook

If sellers remain in control, AUD/USD could fall to the April low of 0.6480 (April 1), followed by the March low of 0.6477 (March 5) and the 2024 bottom of 0.6442 (February 13). Breaking below this level may result in a test of the 2023 low of 0.6270 (October 26), prior to the round level of 0.6200.

Further upward is projected to initially test the April top of 0.6644 prior to the March peak of 0.6667 (March 8) and the December 2023 high of 0.6871. Further north, the July top of 0.6894 (July 14) precedes the June peak of 0.6899 (June 16) and the critical 0.7000 mark.

Looking at the big picture, the pair is projected to maintain its bearish trend while below the important 200-day SMA.

On the 4-hour chart, the pair’s constructive bias appears threatened. The support comes at 0.6498 ahead of 0.6480. On the other hand, immediate resistance is at 0.6644, before 0.6667. Furthermore, the MACD stayed bullish, and the RSI fell to around 31.

• EUR/USD plummeted to multi-day lows near 1.0730.
• US inflation figures came in above estimates in March.
• The ECB is largely anticipated to keep rates on hold on Thursday.

EUR/USD experienced a sharp defensive move and retreated to the 1.0730 region, or multi-session lows, amidst the unexpected robust rebound in the US Dollar (USD).

Contributing to the Dollar’s uptick, US yields across different timeframes gathered pace and rose to multi-week tops in response to the higher-than-estimated US inflation figures gauged by the CPI for the month of March.

On the latter, bets for a June rate cut were drastically reduced, with a probability of such event hovering around 20% when tracked by the CEM Group’s FedWatch Tool.

Given this scenario, there seems to be a shift in perception regarding the Federal Reserve (Fed), which is now expected to commence its easing cycle later than initially projected, possibly in the fourth quarter. Meanwhile, there’s speculation that the European Central Bank (ECB) might initiate interest rate reductions during the summer months.

Looking ahead, the relatively subdued economic fundamentals in the eurozone, coupled with the growing likelihood of a “soft landing” in the US economy, reinforce expectations of a stronger Dollar in the medium term, particularly now that the ECB could reduce its rates earlier than the Fed. In such a scenario, EUR/USD could experience a more significant decline, initially targeting its year-to-date low near 1.0700 before potentially revisiting the lows observed in late October 2023 or early November, dipping below 1.0500.

EUR/USD daily chart

EUR/USD short-term technical outlook

The loss of the crucial 200-day SMA at 1.0831 opens the door to extra losses in the very near term. That said, the next support comes at the April low of 1.0724 (April 2) seconded by the 2024 bottom of 1.0694 (February 14). Down from here is 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.

On the upside, EUR/USD is projected to find early resistance at the so-far April high of 1.0885 (April 9), followed by the March top of 1.0981 (March 8) and the weekly peak of 1.0998 (January 11), which precedes the psychological barrier of 1.1000. Further increases from here may lead to a test of the December 2023 high of 1.1139 (December 28).

The 4-hour chart reveals a resumption of the bearish bias. That said, initial support comes at 1.0724 and 1.0694. In the opposite direction, the 200-SMA comes at 1.0851 ahead of 1.0885. The Moving Average Convergence Divergence (MACD) remained positive, but the Relative Strength Index (RSI) fell to approximately 32.

• EUR/USD plummeted to multi-day lows near 1.0730.
• US inflation figures came in above estimates in March.
• The ECB is largely anticipated to keep rates on hold on Thursday.

EUR/USD experienced a sharp defensive move and retreated to the 1.0730 region, or multi-session lows, amidst the unexpected robust rebound in the US Dollar (USD).

Contributing to the Dollar’s uptick, US yields across different timeframes gathered pace and rose to multi-week tops in response to the higher-than-estimated US inflation figures gauged by the CPI for the month of March.

On the latter, bets for a June rate cut were drastically reduced, with a probability of such event hovering around 20% when tracked by the CEM Group’s FedWatch Tool.

Given this scenario, there seems to be a shift in perception regarding the Federal Reserve (Fed), which is now expected to commence its easing cycle later than initially projected, possibly in the fourth quarter. Meanwhile, there’s speculation that the European Central Bank (ECB) might initiate interest rate reductions during the summer months.

Looking ahead, the relatively subdued economic fundamentals in the eurozone, coupled with the growing likelihood of a “soft landing” in the US economy, reinforce expectations of a stronger Dollar in the medium term, particularly now that the ECB could reduce its rates earlier than the Fed. In such a scenario, EUR/USD could experience a more significant decline, initially targeting its year-to-date low near 1.0700 before potentially revisiting the lows observed in late October 2023 or early November, dipping below 1.0500.

EUR/USD daily chart

EUR/USD short-term technical outlook

The loss of the crucial 200-day SMA at 1.0831 opens the door to extra losses in the very near term. That said, the next support comes at the April low of 1.0724 (April 2) seconded by the 2024 bottom of 1.0694 (February 14). Down from here is 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.

On the upside, EUR/USD is projected to find early resistance at the so-far April high of 1.0885 (April 9), followed by the March top of 1.0981 (March 8) and the weekly peak of 1.0998 (January 11), which precedes the psychological barrier of 1.1000. Further increases from here may lead to a test of the December 2023 high of 1.1139 (December 28).

The 4-hour chart reveals a resumption of the bearish bias. That said, initial support comes at 1.0724 and 1.0694. In the opposite direction, the 200-SMA comes at 1.0851 ahead of 1.0885. The Moving Average Convergence Divergence (MACD) remained positive, but the Relative Strength Index (RSI) fell to approximately 32.

Japanese Yen (USD/JPY) Analysis

• Dollar response to hot CPI data sends USD/JPY higher
• USD/JPY enters a danger zone as the FX intervention threat looms
• Dollar yen breaks 152.00 and enters overbought territory
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Dollar Response to Hot CPI Data Sends USD/JPY Higher

The disconnect between the dollar and US yields in recent trading sessions presented an opportunity for USD bulls to bridge the gap if inflationary pressures showed up in the March CPI report. Indeed, US CPI beat consensus estimates across the board with headline and core inflation surpassing expectations on both the year-on-year as well as month-on-month readings.

In the buildup to the data, US 10 and 2-year treasury yields had been rising steadily while the US dollar – via the US dollar basket (DXY) – was experiencing a decline. In response to the inflation data, US yields shot up even more, compelling the dollar to follow suit, resulting in a higher USD/JPY price. The chart below highlights the move in USD/JPY and the increasing yield differential between the US and Japan which is helping to drive the carry trade.

USD/JPY Daily Chart with the US/Japan 10-year yield differential

Source: TradingView, prepared by Richard Snow

USD/JPY Enters a Danger Zone as the FX Intervention Threat Looms

With USD/JPY around 153.00, both the finance minister and deputy finance minister issued their displeasure at the unfavourable volatility associated with the yen’s recent decline. The messages echoed what we have heard before however, the finance minister Mr Suzuki addressed the levels of 152.00 and 153.00 when explaining it is not the level of dollar yen that is in focus, rather the background that has led to the weakness. Nevertheless, USDJPY trades above the prior intervention level (152.00) and appears to hold comfortably around 153.00.

The chart below provides context for the pair, charting a new path at such elevated levels. The blue and red rectangles have been used as guides based on the average price move exhibited over the last two quarters. The potential upside target appears unrealistic as the finance ministry and BoJ are likely to intervene well before prices get that high, while the downside level may come into play should FX intervention be deployed to strengthen the yen amid the prospect of another rate cut from the BoJ later this year. One thing that continues to work against the yen is the fact that the carry trade is still very appealing, borrowing yen at low interest rates to invest in the higher-yielding USD. Additionally, given strong economic, jobs and inflation data, the Fed is likely to consider fewer rate cuts this year and potentially deciding to hold rates at current levels.

USD/JPY Weekly Chart

Source: TradingView, prepared by Richard Snow

The dollar yen pair is one of the most liquid, most highly trades pairs in the word. It has strong links to international trade and is well known for facilitating the ‘carry trade’ . Find out more by reading the DailyFX guide below:

USD/JPY Breaks 152.00 and Enters Overbought Territory

USD/JPY held the overnight level, around 153.00 as the pair enters overbought territory. Before the bullish catalyst, the pair had traded within a narrow range beneath the 152.00 marker. The risk-to-reward ratio of a bullish continuation appears highly unfavourable at such elevated levels. Keep an eye out for communication suggesting the BoJ/finance ministry has contacted banks looking for FX quotes – if the prior intervention playbook can be used.

USD/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

• GBP/USD recovered above 1.2550 after suffering large losses on Wednesday.
• The near-term technical outlook suggests that the bearish bias stays intact.
• The pair could face strong resistance at 1.2590.

GBP/USD came under heavy bearish pressure and touched its lowest level in two months at 1.2520 during the American trading hours on Wednesday. The pair stays in positive territory above 1.2550 early Thursday but the technical outlook doesn’t yet point to a build up of recovery momentum.

The US Dollar (USD) outperformed its rivals in the second half of the day as investors reacted to the US inflation data for March, triggering a sharp decline in GBP/USD.

The US Bureau of Labor Statistics announced that the annual Consumer Price Index (CPI) rose 3.5%, at a stronger pace than the 3.2% increase recorded in February and the market expectation of 3.4%. Additionally, the core CPI inflation held steady at 3.8% on a yearly basis. 

The probability of the Federal Reserve opting for another policy hold in June jumped above 80% after this data from 40% earlier in the day, the CME FedWatch Tool showed. In turn, the USD Index, which tracks the USD’s valuation against a basket of six major currencies, advanced to a new 2024-high above 105.00.

Later in the day, the weekly Initial Jobless Claims and the Producer Price Index data for March will be featured in the US economic docket. These data are unlikely to change investors’ mind about a further delay in the Fed policy pivot. Nevertheless, a soft producer inflation reading, coupled with a significant increase in the Initial Jobless Claims, could limit the USD’s upside with the immediate reaction.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40 despite edging higher in the European session, suggesting that the latest recovery attempt is a technical correction rather than the beginning of a reversal. Additionally, GBP/USD closed well below the 200-day Simple Moving Average after holding above this level in the previous five trading days.

On the downside, interim support seems to have formed at 1.2530 before 1.2500 (static level) and 1.2450 (static level from November). 1.2590 (200-day SMA) aligns as strong resistance before 1.2650 (50-day SMA, 100-day SMA).

• GBP/USD recovered above 1.2550 after suffering large losses on Wednesday.
• The near-term technical outlook suggests that the bearish bias stays intact.
• The pair could face strong resistance at 1.2590.

GBP/USD came under heavy bearish pressure and touched its lowest level in two months at 1.2520 during the American trading hours on Wednesday. The pair stays in positive territory above 1.2550 early Thursday but the technical outlook doesn’t yet point to a build up of recovery momentum.

The US Dollar (USD) outperformed its rivals in the second half of the day as investors reacted to the US inflation data for March, triggering a sharp decline in GBP/USD.

The US Bureau of Labor Statistics announced that the annual Consumer Price Index (CPI) rose 3.5%, at a stronger pace than the 3.2% increase recorded in February and the market expectation of 3.4%. Additionally, the core CPI inflation held steady at 3.8% on a yearly basis. 

The probability of the Federal Reserve opting for another policy hold in June jumped above 80% after this data from 40% earlier in the day, the CME FedWatch Tool showed. In turn, the USD Index, which tracks the USD’s valuation against a basket of six major currencies, advanced to a new 2024-high above 105.00.

Later in the day, the weekly Initial Jobless Claims and the Producer Price Index data for March will be featured in the US economic docket. These data are unlikely to change investors’ mind about a further delay in the Fed policy pivot. Nevertheless, a soft producer inflation reading, coupled with a significant increase in the Initial Jobless Claims, could limit the USD’s upside with the immediate reaction.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40 despite edging higher in the European session, suggesting that the latest recovery attempt is a technical correction rather than the beginning of a reversal. Additionally, GBP/USD closed well below the 200-day Simple Moving Average after holding above this level in the previous five trading days.

On the downside, interim support seems to have formed at 1.2530 before 1.2500 (static level) and 1.2450 (static level from November). 1.2590 (200-day SMA) aligns as strong resistance before 1.2650 (50-day SMA, 100-day SMA).

• Headline US inflation rose 0.4% monthly and 3.5% on an annual basis.

• Investors now expect the first Fed cut in September.

• Governor Tiff Macklem said that the BoC will likely cut rates in June.

The USD/CAD outlook shines brighter with bullish prospects as the outlook for rate cuts between Canada and the US continues to diverge. On Wednesday, the US released the CPI report showing a jump in inflation. Meanwhile, the Bank of Canada signaled the start of rate cuts in June.

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As more data comes in, it is clear that the Bank of Canada will be ready to cut rates earlier than the Fed. Notably, annual and monthly US inflation figures came in higher than expected, indicating a pause in the downtrend. Headline inflation rose 0.4% monthly and 3.5% on an annual basis. Consequently, rate-cut bets fell sharply, with investors now expecting the first Fed cut in September. Furthermore, there is a chance the Fed will only cut rates two times this year. 

Fed policymakers have been waiting to assess data for confidence that inflation will reach the 2% target. However, after three months of hot figures, policymakers and investors have lost confidence. Moreover, the labor market has remained resilient, with the last jobs report beating forecasts.

Meanwhile, the situation in Canada is the complete opposite. Data on the labor market revealed a deteriorating economy that is putting pressure on the Bank of Canada to start cutting interest rates. At the policy meeting on Wednesday, the BoC held rates at 5% as expected. However, Governor Tiff Macklem said that the central bank would likely cut rates in June if inflation continues easing. 

USD/CAD key events today

• US core PPI m/m
• US PPI m/m
• US unemployment claims
• US 30-y bond auction

USD/CAD technical outlook: Channel breakout signals momentum surge

On the charts, the USD/CAD price has broken above its bullish channel, showing a surge in momentum. Consequently, this might be the start of a stronger bullish trend. The rise in momentum came when the price paused at the 30-SMA support. From here, it made a bullish engulfing candle that broke above the channel resistance. At the same time, the RSI rose to the overbought region.

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Currently, the price has paused at the 1.3700 key resistance level. It might consolidate below this level as the SMA catches up before breaking above.

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• The pound sterling fell as traders flocked to the US dollar amid falling expectations of US rate cuts.
• According to forex trading platforms, GBP/USD fell to a two-month low of 1.2520 after stronger-than-expected US inflation data, which dampened expectations of a rate cut by the US Federal Reserve this year.

Overall, markets now expect approximately 50 basis points in total easing from the US Federal Reserve this year, compared to about 70 basis points of interest rate cuts in Britain. Last month, the Bank of England backed borrowing costs at a 16-year high of 5.25%, with two of its more hawkish members abandoning their calls for rate hikes and Governor Andrew Bailey hinting at possible rate cuts this year.

Now, the investors are awaiting the British monthly GDP figures scheduled to be released tomorrow, Friday, for more clarity on the bank’s policy path.

The US dollar rose after US inflation came in stronger than expected in March, pushing the probability of a June Fed rate cut below 50%. As a result, the pound’s exchange rate against the dollar fell by more than two-thirds of a percent in a 15-minute window after news that US inflation rose 3.5% year-on-year in March from 3.2% in February, beating market expectations of a 3.4% print.

According to the economic calendar data, the core measure of inflation, which is more closely watched by the Fed, rose 3.8% year-on-year, unchanged from February and above expectations of 3.7%. According to the Bureau of Labor Statistics, the increase in inflation was primarily driven by rising energy prices and shelter costs. Furthermore, this is the latest set of monthly inflation figures to confirm that the disinflationary process underway in the US during 2023 has stalled and is now reversing, leading to fading chances of a June Fed rate cut.

As a result, the market has moved to price in a 50% chance of a move in June, with a total of around 70 basis points of cuts over the full year. The rise in US yields and the dollar confirm that the chances have been further reduced after this inflation reading. According to analysts, “Today’s data suggests that the trend in core inflation is still much stronger than markets and Fed officials previously expected, implying that the shift to easier policy could be delayed by several months, at least.”

Ali Jaffari, an economist at CIBC, says the data means that the risk of high and persistent core inflation is once again the Fed’s top priority, even though inflation is not much above target. “The big question for the FOMC is what is behind this rise in inflation to start 2024. Powell seems to think that residual seasonality plays a big role and that still seems plausible. But it is also very difficult now to rule out risks to the Commission and demand in the economy is keeping service prices high with strong consumer spending and a job market that continues to give. Added, “This will keep the Fed waiting until the dust settles.”

GBPUSD Expectations and Analysis Today:

The GBP/USD pair has now fallen, trading several levels below the 100-hour moving average line on the 60-minute chart. As a result, the currency pair fell to the oversold levels of the 14-hour RSI. In the near term, and according to the performance on the hourly chart, it appears that the GBP/USD pair has recently completed a downward breach from the formation of an ascending channel. Additionally, the 14-hour RSI appears to be supporting a short-term bearish bias after falling into oversold levels. Therefore, the bears will target an extended series of declines at around 1.2519 or lower at the 1.2485 support. On the other hand, the bulls will be looking to pounce on bounces at around 1.2564 or higher at 1.2585 resistance.

In the long term, and according to the performance on the daily chart, it appears that the GBP/USD pair is trading within a descending channel. Also, the 14-day RSI appears to be supporting a bearish bias after pulling back towards oversold conditions. Therefore, bears will target long-term profits at around 1.2448 or lower at 1.2366 support. On the other hand, the bulls will look to pounce on profits at around 1.2618 or higher at the 1.2700 resistance.

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