ForexMart's Daily Market Analysis

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Breaking forecast for EUR/USD on March 9, 2023

Jerome Powell's speech led to a slump in the single currency and forced investors to revise their attitude toward the current state of affairs. Against the backdrop, all the macroeconomic reports were ignored yesterday. Notably, a lot of information was issued. Thus, the third estimate of the eurozone GDP was worse than the previous one. The economic growth contracted to 1.8% from 2.4%. This means that Europe may slip into a recession. Meanwhile, US employment increased by 242,000 instead of 191,000, thus pointing to further improvement in the US labor market. Both reports should have led to the appreciation of the greenback but the market got stuck. Investors are trying to predict the future actions of the Fed.

Today, the market is likely to remain stagnant if the forecasts for the US unemployment claims meet reality. A change is expected to be insignificant. Thus, the number of initial claims may increase by 2,000, whereas the number of continuing claims may drop by 5,000. Such figures will hardly revive the market. However, traders should keep in mind that the US dollar is overbought and it may unexpectedly drop.

The euro is stagnant but may rebound against the US dollar after a bearish rally recorded on March 7. Short positions have become overheated amid a sharp price change. This points to the euro's oversold conditions in the short-term periods.

On the one-hour chart, the RSI managed to leave the oversold area thanks to the current stagnation. On the four-hour and daily charts, the indicator is hovering in the lower area of 30/50, which points to the mainly bearish sentiment among traders.

On the four-hour and daily charts, the Alligator's MAs are headed downwards, which corresponds to the existing cycle. On the one-hour chart, the indicator is pointing to a pause in the downward cycle as MAs are intersecting each other.

Outlook

The current stagnation within the range of 40 pips could be considered an accumulation process. This, in turn, may spur an outgoing impulse, indicating the price direction.

The complex indicator analysis unveiled that in the short-term period, indicators are signaling mixed opportunities amid stagnation. In the intraday and mid-term periods, indicators are still providing a bearish signal.

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Hot forecast for GBP/USD on 10/03/2023

At first glance, it is not surprising that the pound was able to show quite good growth yesterday, as the data on unemployment claims in the United States was not only worse than expected, but also pointed to a clear deterioration of the situation in the labor market. For example, the number of initial applications has grown by 21,000 instead of the expected 2,000. The number of new applications, which was expected to fall by 5,000, jumped by 69,000. It turns out that the data only confirmed the validity of this growth. While its main reason was because the pound was oversold. The most important thing is that all the labor market data is coming out in different directions and it is quite obvious that the content of the report, which will be published today by the U.S. Labor Department, will be very different from the forecasts. It is just not clear in which direction it will head.

The number of jobless claims (United States):

Anyway, the start of the trading day isn't going to be very good for the pound as the pace of industrial production decline is expected to accelerate from -4.0% to -4.8% in Great Britain. Moreover, monthly GDP data is not expected to be very encouraging either as it should show a -0.2% drop of the economy. So the British economy is steadily sliding into recession.

Industrial production (UK):

The main event not only of the day, but also of the week, is the report of the United States Department of Labor. If we proceed from current forecasts, which are the only ones we can rely on for the time being, then everything looks good. With a stable level of unemployment, 210,000 new jobs should be created outside of agriculture. This is enough to keep the unemployment rate, which is already incredibly low, stable. And results like that should help the dollar strengthen. The problem is that the data will most likely not match the forecasts. But it's hard to tell whether it will be better or worse. In other words, investors will not take chances and will wait for the report and then they will make their decision.

Unemployment Rate (United States):

GBPUSD reduced the volume of short positions around 1.1800. As a result, there was a slowdown in the bearish cycle, and then the quote reversed. This movement caused the pound to recover relative to its decline on March 7.

On the four-hour chart, during the process of recovery, the RSI crossed the 50 middle line and made its way upwards. This confirms the bullish sentiment.

On the same chart, the Alligator's MAs are intertwined with each other. This is the primary signal of the slowdown of the downward cycle. One the one-day chart, the indicator lines are directed downwards, which corresponds to the downward movement from the beginning of February.

Outlook

As a result, the quote returned to the lower limit of the horizontal channel (1.1920/1.2150) it had already passed. At the moment, the 1.1920/1.1950 area may serve as resistance, and in terms of technical analysis, this can reduce bullish sentiment on the pound. This in turn allows the price to rebound.

However, in case the bullish sentiment persists among traders, and the quote is able to stay above 1.2000, then the pound can rise further.

The complex indicator analysis in the short-term and intraday periods indicate an upward bias or bullish sentiment, this is because the price bounced from 1.1800.

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Hot forecast for EUR/USD on 13/03/2023

All of the recent labor market data in the United States clearly indicated that the content of the Labor Department report would be very different from what had been predicted, and the only question was in which direction. Since all of this data showed different directions. This is exactly what happened. And everything went according to the negative scenario. The unemployment rate, which should have remained unchanged, increased from 3.4% to 3.6%. And so the dollar instantly began to lose its positions. And quite substantially at that. And it didn't matter that 311,000 new jobs were created outside of agriculture. Which is 101,000 more than it was forecasted. The very growth of the unemployment rate clearly points to the worsening situation on the labor market, the state of which bound the hands of the Federal Reserve, forcing it not only to raise interest rates, but even consider a 50 bps hike, despite the slowdown of inflation. In other words, the content of the United States Department of Labor report removes any questions about the extent of the upcoming refinancing rate hike, which will pass at the minimum bar. This is the main reason why the dollar weakened.

The unemployment rate (United States):

But the problems for the dollar seems to be just beginning, because on Friday night, Silicon Valley Bank announced bankruptcy, one of the second ten largest credit institutions in the United States. This is the biggest bankruptcy since 2008. Almost immediately thereafter, the Federal Reserve Bank of New York decided to close Signature Bank. According to the central bank's statements, the reason was systemic risks caused by massive deposit outflows. At this moment, events are developing in a typical way for a banking crisis - the bankruptcy of one bank entails a chain reaction, as the other banks that issued short interbank loans to the bankrupt credit organization face liquidity shortages and are not able both to return the funds already raised by them or provide credit resources to other financial institutions. If monetary authorities did not immediately intervene, other bankruptcies would follow. For this reason there is immediate talk of the need to turn on the printing press and provide immediate emergency aid to credit institutions. This is nothing but another iteration of quantitative easing, or trivial money emission. And a $1.1 trillion figure even came up. In addition, some media have already found the culprit in the bankruptcy of Silicon Valley Bank - the Federal Reserve. They say that the increase in interest rates has severely shaken the stability of the financial system. It's very reminiscent of an attempt to put pressure on the central bank to start cutting interest rates. As a result, both the prospect of switching on the printing press and reduction of the refinancing rate will weigh on the dollar and facilitate its further weakening. And the situation is so serious that Joe Biden is speaking about it today, and much will depend on the words of the President of the United States.

The euro strengthened in value by about 100 points against the U.S. dollar last Friday. This was caused by a massive reduction of dollar positions due to the release of the U.S. labor market report. As a result, the quote reached the local highs of the week.

On the four-hour chart, the RSI was in the overbought zone during the bullish momentum, which indicates that long positions could "overheat" in the short term. The RSI is moving within the 70 zone, which is also consistent with an overbought signal.

On the four-hour and one-hour charts, the Alligator's MAs are pointing upwards, which points to the bullish momentum. However, on the daily chart, it is still on the bearish cycle from the beginning of February.

Outlook

In this situation, keeping the price above 1.0700 might push the euro to rise further, ignoring the sign that it is overbought in the short term. However, things could change if the euro falls below 1.0650.

The complex indicator analysis unveiled that in the intraday and short-term periods, technical indicators are pointing to bullish sentiment due to the upward momentum.

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Rally in euro and pound may end quickly

The unexpected crisis in the US banking sector has crushed all hopes for a new acceleration in the pace of interest rate hikes. Goldman Sachs economists said they no longer see the Fed raising rates next week, even after US authorities took steps to contain the crisis caused by the collapse of Silicon Valley Bank and Signature Bank. This caused two-year Treasury bond yields to fall by 18 basis points to 4.34%, reaching its sharpest three-day drop since October 1987. Expectations of a less aggressive policy stance and sharp demand for German bonds also affected the euro.

Most likely, Fed officials will announce a pause in interest rate hikes this week ahead of their meeting on March 21-22. Economists were expecting to see around 0.25% to 0.5% increase earlier, but everything changed since last Sunday, when US authorities had to act very quickly in order to contain the spreading of SVB's problem to other US banks. The Fed had to open an emergency line of credit, allowing banks to pledge a range of high-quality assets to obtain cash for a period of one year. They also pledged to fully protect uninsured depositors in SVBs, as well as relax lending conditions through the Fed's discount window. These measures should provide liquidity shortages to banks.

Now, the Fed is expected to raise the rate by a quarter point next week, which means that the peak will be around 5.1% in six months, slightly lower than the previously projected 5.74%.

The current situation is quite negative for dollar as it most certainly raises risk appetite. However, market players should keep in mind that if the crisis in the US banking sector is not solved quickly, it will spread to other regions, which will result in a collapse in other currencies such as euro and pound.

Ahead is an important US report, that is, the inflation data for February this year. Economists are predicting that the index will show a 0.4% increase, slightly lower than the previous month's 0.5%. Yearly data should be 5.5%, which is also lower than the 5.6% earlier.

Demand for euro has intensified after all the news, so buyers have a chance to continue building the new upward trend. However, the quote needs to stay above 1.0700 as only by that will euro go beyond 1.0730 and head towards 1.0770 and 1.0800. Should the quote decline below 1.0700, EUR/USD will slip to 1.0666.

In GBP/USD, bulls also control the market, but the quote needs to stay above 1.2130 so that pound could have the chance to break through 1.2170 and head towards 1.2215 and 1.2265. If bears manage to gain control, the pair may dip to 1.2080 and 1.2050.

Hot forecast for EUR/USD on 15/03/2023

The US media has already found the culprit in the banking crisis, and of course it is the Federal Reserve. They're saying that everything happened because the Fed has aggressively lifted interest rates. Supposedly, the main reason why two banks went bankrupt was because of the central bank. Now they are demanding that the Fed immediately start reducing interest rates and switch on the printing press and put out the fire with money. Furthermore, critics of the Fed have another reason to celebrate. Yesterday, we learned that US inflation slowed from 6.4% to 6.0%. It is decelerating for the eighth straight month, and in such circumstances, it will be very difficult for Fed Chairman Jerome Powell to explain the need not only to further raise interest rates, but also to do anything other than lower the refinancing rate.

Inflation (United States):

The dollar, on the other hand, will continue to be under pressure, as it loses ground not only because of the banking crisis in the United States and the clouds gathering over the Fed. Apparently, the banking crisis is already starting to spill over to Europe as well. We're talking about macro data, which are starting to point to more and more problems in the United States, and the stabilization of the situation in the euro area. In particular, the rate of industrial production decline in Europe should be replaced by growth from -1.7% to 0.5%.

Industrial production (Europe):

In the United States, the growth rate of retail sales should slow down from 6.4% to 4.3%. And if all of these forecasts are confirmed, the dollar will have no choice but to keep losing ground.

Retail Sales (United States):

The euro continued to rise against the U.S. dollar after a brief pullback. It passed 1.0700 earlier, which played the role of support, strengthening the bullish sentiment in the market.

On the four-hour chart, the RSI technical indicator is moving in the upper area of 50/70, which indicates bullish sentiment among traders. On the daily chart, the RSI recently climbed above the 50 midline, which indicates a change in sentiment.

On the four-hour and one-hour charts, the Alligator's MAs are headed upwards, which corresponds to the upward cycle from the middle of last week. On the daily chart, the primary signal will show change in trading sentiment, as the moving lines are intertwined with each other.

Outlook

The technical signal that shows change in sentiment, which indicates that the euro will gradually recover against the decline in February, will emerge if the price stays above 1.0800. Until then, that level will act as resistance, relative to which it is possible to reduce the volume of long positions on the euro.

The complex indicator analysis unveiled that in the intraday and short-term periods, technical indicators are pointing to bullish

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Trading Signal for GOLD (XAU/USD) for March 17 - 20, 2023: key level $1,921 (21 SMA - symmetrical triangle)

Early in the European session, Gold (XAU/USD) is trading around 1,927, above the 21 SMA, and within a symmetrical triangle formed in the last 48 hours.

The outlook for gold remains bullish. If it consolidates above the daily pivot point (1,920), it could continue rising to reach 1,945, the level which coincides with the third weekly resistance.

A technical bounce around the 21 SMA located at 1,921 could give us the opportunity to resume buying with targets at 1,937 and 1,945.

On the contrary, in case gold breaks the uptrend channel formed since March 10 and consolidates below 1,917 in the next few hours, we could expect a further bearish movement and the instrument could reach 5/8 Murray located at 1,906 and finally could fall towards the EMA 200 located at 1,882.

According to the 1-hour chart, gold has upside potential. It is likely that if it trades above 1,920 (21 SMA), we could expect it to reach the resistance zone of 1,945.

Our trading plan is to watch a key level of 1,921 which could set the trend for gold. If it trades below this level in the next few hours, it will be considered an opportunity to sell and could accelerate the bearish movement until the price covers the gap left at 1,867.

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Hot forecast for GBP/USD on 20/03/2023

The US industrial production report turned out to be much worse than expected and the previous data was revised from 0.8% to 0.5%. And instead of slowing to 0.2%, the industrial production showed a decline of 0.2% year-on-year. These results made it possible for the pound to fully recover its losses, which the pound suffered right after the Credit Suisse announcement, which triggered the euro's fall and eventually pulled the pound down. The single currency has not returned to its previous values and it will probably do that during the day. Moreover, we found out that Credit Suisse has been purchased by another Swiss bank - UBS. So it looks like Europe managed to save the emerging bank crisis, which gives investors optimism of course. Anyway, the GBP has won back its losses, and now it will wait for the euro. So, a temporary stagnation is the most likely outcome. Moreover, the macroeconomic calendar is totally empty today.

Industrial Production (United States):

GBP/USD ended last week with growth. As a result, it came close to the local high of the uptrend, which indicates the bullish sentiment prevails.

On the four-hour, one-hour and one-day charts, the RSI technical indicator is moving in the upper area of the indicator, which confirms the signal of growth of the volume of long positions on the euro.

On the four-hour and one-day charts, the Alligator's MAs are headed upwards, which corresponds to the bullish momentum.

Outlook

We can assume that keeping the price stable above 1.2200 will strengthen long positions in the market, which in turn will open the way towards 1.2300. However, falling below 1.2100 may lead to another move towards the psychological level of 1.2000.

The complex indicator analysis unveiled that in the intraday, medium-term and short-term periods, technical indicators are pointing to bullish sentiment.

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EUR/USD and GBP/USD trading plan for beginners on March 23, 2023

Details of the economic calendar on March 22
The U.S. Federal Reserve raised its benchmark interest rate for the eighth time in a year. During the March meeting, the regulator expectedly raised the interest rate by 25 basis points to 4.75–5%. The central bank also stressed some additional policy firming ahead.

As for the banking sector, Fed Chairman Jerome Powell has repeatedly said that the U.S. banking system is reliable and stable. According to him, recent events are likely to tighten credit conditions for households and businesses and put pressure on economic activity, hiring, and inflation.

Analysis of trading charts from March 22
EUR/USD broke through the 1.0800 resistance level during the inertial movement. As a result, there was an increase in the volume of long positions, which indicated the recovery of the euro relative to the decline in February.

GBP/USD jumped above 1.2300 during the general sale of dollar positions. This move indicates a subsequent price recovery from the fall in February.

Economic calendar for March 23
The Bank of England will hold a meeting today, where interest rate is expected to be raised by 25 basis points to 4.25%. Of particular interest will be the regulator's commentary on future actions. Note that inflation data released yesterday showed an acceleration in growth to 10.4%. This may serve as a basis for a further interest rate hike.

Time targeting:

Bank of England meeting results – 12:00 UTC

EUR/USD trading plan for March 23
Based on the technical signal that the euro is overbought in the intraday period, we can assume that a pullback will appear on the market. During which, there will be a regrouping of long positions. However, speculators may ignore signals from technical analysis in vain. In this case, the price may move towards the local high of the medium-term upward trend (1.1033).

GBP/USD trading plan for March 23
A stable holding of the price above the level of 1.2300 allows the further growth of the British currency up to complete recovery. However, it is worth taking into account the technical factor of overbought, which can reach a critical point in this price move.

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Hot forecast for EUR/USD on 27/03/2023

At first glance, preliminary estimates of PMIs in Europe turned out to be very good. At 55.6, the services Purchasing Managers' Index hit a 10-month high in March, up from 52.7 in February, with a forecast of 52.3 points. In other words, it should have declined, but instead it rose. Due to that the flash composite output index, which should have decreased from 52.0 to 51.3 points, rose more-than-expected to 54.1 in March. Only the manufacturing PMI fell to a four-month low of 47.1 from 48.5 in the previous month, though it should have increased to 49.8 points. To a certain extent this was what prevented the euro from rising further.

Composite PMI (Europe):

And after the opening of the US trading session, the euro fell, because in America, not only were the same PMIs better than forecasts, in fact, they turned out to be much better. The US Manufacturing PMI in March was 49.3 points, up from the previous value of 47.3 points. It was expected to have fallen to 47.0 points. Meanwhile, the Services PMI jumped to 53.8 points instead of increasing from 50.6 to 51.0. As a result, the composite purchasing managers index rose from 50.1 points to 53.3 points, with a forecast of 49.0 points.

Composite PMI (United States):

Today, the macroeconomic calendar is completely empty and the market is likely to consolidate around the reached values.

The euro entered a bearish correction after it sharply rose last week. The pair broke through a resistance level of 1.0800. As a result, the volume of short positions increased.

On the four-hour chart, the RSI downwardly crossed the 50 middle line, thus reflecting bearish sentiment among traders.

On the same chart, the Alligator's MAs are intertwined, signaling a slowing bull cycle. On the one-day chart, the Alligator's MAs are still headed upwards.

Outlook

Based on the corrective phase, its scale has already reached the possible limit. Therefore, the euro can still recover and climb above 1.0800. However, in case the bearish sentiment persists, and the quote stays below 1.0700, the market situation may still change.

The complex indicator analysis points to a correction in the short-term and intraday periods.

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Oil prices have many positive factors for growth

Oil prices were up and down on Wednesday afternoon. The West Texas Intermediate (WTI) for May delivery was trading at $73.39 a barrel, up 0.36% on the New York Mercantile Exchange.

Oil prices have been hit especially hard by the banking crisis - falling all of 13% two weeks ago. However, last week ended with the price rising by about 3%.

Oil prices were also moving up on Tuesday. The market, obviously, overestimated the prospects amid a decline of exports from Iraq's Kurdistan and considering the dynamics of stocks in the United States. The activity of M&A in the US banking sector was also extremely positive.

Recall that oil pumping from Kurdistan through the Kirkuk-Ceyhan pipeline was suspended. It means that 370 million barrels a day of oil from Kurdistan and another 75,000 from the fields of northern Iraq simply would not come to the world market. And it's all about the International Chamber of Commerce, which decided that the supply of this oil is illegal.

It is clear that oil prices benefit from this supply cut in light of an already tight market. However, we don't know how long the Kurdish supply will stop.

Meanwhile, strikes are ongoing in France, leading to the shutdown of some major refineries, in particular the TotalEnergies plant in Gonfreville-l'Orcher, which processed 240,000 barrels of oil a day. And on Monday, the strike at the refinery was extended for another three days, which created a temporary but very negative impact on crude oil consumption in the European Union. At the same time, problems with fuel availability at gas stations are worsening in France, adding to the already significant pressure on consumers' costs.

Meanwhile, a weekly review by the Energy Information Administration of the U.S. Department of Energy reported that the country's commercial oil inventories fell by 7.5 million barrels, or 1.6%, last week.

According to the terms of the OPEC+ agreement, the allowed production level for Russia in February was 10.478 million bpd. In other words, Russia did not produce about 537,000 bpd in the reporting month in order to reach its full production quota.

Since December 5, oil sanctions came into force, according to which the European Union does not accept the Russian oil, which is transported by sea. In addition, the G7 countries, Australia and the European Union imposed a price cap on Russian oil transported by sea at $60 per barrel, and more expensive oil can no longer be transported and insured. Russia, in response to such measures, banned from February 1 to supply oil to foreign parties if the contracts directly or indirectly provide for the use of the marginal price fixing mechanism.

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Gold to climb above $2,000​​​​​​​

Throughout this week, many analysts predicted that gold could jump to $2,000 and even above. The yellow metal met expectations and reached the specified peaks. Now the primary task for the precious metal is to sustain its gains, experts believe.

Weak data on the US labor market has acted as a strong driving force behind gold's rally. Recall that in February, the number of job openings in the US labor market (JOLTS) dropped to 9.93 million, the lowest level since May 2021. Notably, in January 2023, the figure was 10.56 million. According to analysts, the current data indicates a cooling labor market. Previously, Fed officials, including Chairman Jerome Powell, emphasized that the overheated US labor market hinders the regulator in their efforts to curb inflation. Therefore, the Federal Reserve is confidently moving towards its goal, specifically achieving a 2% inflation rate.

Experts estimate that the current JOLTS reports have reinforced market expectations of the Fed's shift to a softer approach to monetary policy. Currently, the majority of analysts (almost 60%) expect the regulator to keep the key interest rate in a range of 4.75% - 5% per annum at the May meeting. At the same time, some experts anticipate a 25 basis-point rate hike.

After the JOLTS reports were released, the yellow metal broke through the level of $2,000 per troy ounce. On Tuesday evening, April 4, gold prices jumped from $1,990 to $2,020 within 20 minutes. Later, the precious metal stabilized at around $2,010, reaching the highest level since March 2022. On Wednesday, April 5, gold slightly appreciated, rising to $2,040 per troy ounce.

According to experts' estimates, the precious metal added 2% amid a weaker greenback. As a result, the US dollar index, which measures the performance of the dollar against a basket of six currencies, fell by 0.55% to 101.58. However, despite a decline in the dollar and a rise in the precious metal, Commerzbank economists believe that gold may enter a correction and lose value. This is facilitated by a recent increase in oil prices, which worries market participants and increases the risk of another inflationary spiral.

Currently, the value of gold is being formed by "fears of the dollar as economic factors do not provide substantial support for the US currency," David Lennox, an analyst at Fat Prophets, said. In addition, demand for the yellow metal as a safe-haven asset increased amid the recent banking crisis and geopolitical tensions.

Economists at Swiss investment bank UBS assume that gold will gain ground in the near future, proving its traditional "safe-haven" status in the current uncertain environment. Amid recent turmoil in the financial market, spot gold prices surpassed the $2,000 mark, reaching a 12-month high. The yellow metal gained momentum due to falling yields in the US, a weaker dollar, and increased risk appetite, experts estimated.

According to UBS forecasts, in the current situation, gold will reach the target mark of $2,100 per troy ounce in 2023. Previously, bank analysts expected the metal to achieve this height by the end of March 2024. However, things have changed, and the precious metal is now actively gaining value. This can be attributed to the global banking crisis. Against this background, gold prices soared to an all-time high, rising above $2,000 per troy ounce. A subsequent minor correction did not change investors' views. Market participants remained bullish on the precious metal.

Another factor contributing to higher gold prices is increased demand from central banks seeking to diversify their investments. Notably, gold is a great choice for investors to hedge against potential financial risks amid possible monetary policy easing. Market players are currently pricing in such a scenario.

Many analysts believe that by the end of this year, the FOMC may move to lower interest rates. However, this step is not favorable to gold. A perfect driving force for gold would be a situation where the Fed and the ECB begin to cut rates earlier than anticipated, while inflation targets are not met. In this case, demand for gold as a safe-haven asset will increase sharply. However, there is an alternative scenario. It suggests that the precious metal will trim some of its early gains if higher oil prices raise concerns about another inflationary spiral and further interest rate hikes.

Among recent forecasts, there is an almost fantastic one. Some economists expect gold prices to reach $3,000 per troy ounce. They believe it is a matter of time as the financial system has faced serious shocks. Against this background, interest in safe-haven assets is growing, primarily in gold. After the metal overcomes the barrier of $2,000 per troy ounce, it will probably head toward a new high. This scenario is possible in the long run.

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Hot forecast for GBP/USD on 10/04/2023

There is nothing surprising about the fact that the market stood still on Friday despite the release of the US Department of Labor report, as both Europe and North America were observing Good Friday. However, the contents of the report were quite interesting. It was not about the unemployment rate, which remained unchanged as expected, but about the number of new non-farm jobs created, which was only 236,000. It was expected to be 250,000, while in the previous month 326,000 new jobs were created. In other words, the US labor market is clearly losing momentum, which of course increases the chances of a gradual easing of the monetary policy of the Federal Reserve. And it will naturally put pressure on the dollar. The only thing is to wait for the market's reaction after the opening of the US trading session, since Europe is still observing a holiday.

Number of new non-farm jobs created (United States):

The GBPUSD pair is in the stage of a pullback from the resistance level of 1.2500. As a result, the pound has lost about 0.8%, which is approximately 110 pips. Despite the ongoing pullback, the uptrend persists, as shown by the recent update of the local high of the medium-term.

On the four-hour chart, the RSI downwardly crossed the 50 middle line, during the pullback. In the intraday period, the signal points to the growth in the volume of short positions.

The Alligator's MAs are intertwined in the 4-hour time frame, signaling a slowing bull cycle. In the daily chart, the Alligator's MA's are still heading upward, reflecting a bullish cycle.

Outlook

We can assume that the pullback serves as a time of regrouping trading forces, during which a new wave of growth is possible. However, in order to make this a reality, a number of technical conditions must be met. First and foremost, the current pullback should end. The 1.2380/1.2400 area may serve as a support. A subsequent signal in favor of growth is when the price trades within the level of 1.2500, and as a result, the volume of long positions may increase.

As for the bearish scenario, traders consider it as a full-size correction, where the current pullback will remain towards the level of 1.2300.

The complex indicator analysis unveiled that in the intraday and short-term periods, technical indicators are pointing to the pullback. Meanwhile, in the medium-term periods, the indicators are reflecting an upward cycle.

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EUR/USD. The inflation report has bumped the dollar. Welcome to the 1.10th figure?

The EUR/USD pair approached the limits of the 10th figure, impulsively rising to 1.0990. The greenback fell across the market, reacting to the US inflation report, and the dollar index updated its weekly low. However, despite the upward momentum, bulls have not yet been able to test the 10th figure, let alone consolidate above the 1.1000 mark. The fact is that the inflation report is somewhat contradictory: while the Consumer Price Index continues to fall, the core index showed an upward dynamic. Therefore, the 1.1000 level holds steady, although the positions of the dollar bulls have noticeably shaken.

In the language of dry numbers:

The CPI fell quite sharply in March - by 1% compared to the February value. With a forecasted decline to 5.6% (according to other estimates - to 5.2%), the indicator came out at 5.0% in annual terms (in February, the index was at 6.0% y/y). This is the weakest growth rate since May 2021. In monthly terms, the index was also in the "red", reaching 0.1% (with a forecasted growth of 0.3%).

At the same time, the core CPI, excluding food and energy prices, came out at the forecasted level: in annual terms, the indicator rose to 5.6%. Notably, for the last 5 months, the core index consistently declined from 6.6% (in September 2022) to 5.5% (in February 2023). For the first time in the last six months, the growth rate of the core CPI accelerated.

The report indicates that energy prices in March fell by 6.4% after February's growth of 5.2% (in particular, gasoline prices dropped by 17.4%). Food prices in March rose by 8.5% after an increase of 9.5% in February. Used cars became cheaper by 11.6% (in February, a decline of 13.6% was recorded). Overall, most price categories showed easing price pressure - even rent. This segment is important because high rental prices have prevented underlying inflationary pressure from easing. However, according to some experts' estimates, in the mid-term (in the coming months), a further decline in rental inflation can be expected.

Market reaction

Markets reacted quite significantly to the sharp drop in inflation. The US dollar index fell within a few hours from 101.85 to the current low of 101.16. If the current rates persist, the index will test the hundredth figure – for the first time since early February. Treasury yields also fell: in particular, the yield on 10-year government bonds has currently dropped by 5 basis points (i.e., to 3.378%), while the yield on 2-year notes has fallen by 7.9 basis points, to 3.945%.

On the other hand, gold is showing an uptrend: June gold contracts on the New York Comex exchange have impulsively risen by almost 1% to $2,037 per troy ounce.

The dollar is also getting weaker amid growing hawkish expectations. According to data from the CME FedWatch Tool, the probability of a 25 basis point rate hike in May is currently over 70% (72.2%). On Tuesday, the chances of this scenario being realized were estimated at 60% (and accordingly, the probability of maintaining the status quo was 40%).

Conclusions

Despite the growth of hawkish expectations, the dollar remains under significant pressure, even in the EUR/USD pair. In my opinion, this is due to the assumption that the anticipated 25-point rate hike at the May meeting will be the last in the current cycle of monetary tightening. The recent "banking crisis" did not go unnoticed – including for the Federal Reserve, which significantly softened its position after the March shocks in the banking sector. It is unclear how these events will affect lending and, consequently, economic activity in the United States in the mid- and long-term. Therefore, in addition to the expected completion of the current tightening cycle, the Fed also has the option to lower rates in the second half of this year. Whether the Fed will use this option or not is an open and debatable question, but the mere fact of such a discussion will put pressure on the greenback. By the way, according to Fed Chairman Jerome Powell, such a scenario "is not a base case" (meaning it is not completely ruled out). At the same time, the European Central Bank shows a more hawkish stance, allowing, in particular, a 50-point rate hike in May.

Thus, the fundamental background for the pair continues to favor the growth of EUR/USD. The report weakened the dollar across the market and triggered a bullish momentum for the pair, and so bulls approached the limits of the 10th-figure closely. A slight "blemish" in the report, in the form of a rise in core CPI, did not allow traders to impulsively overcome the support level of 1.1000, but the bullish sentiment prevails.

The technical picture indicates that on the daily chart, the pair is between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator (including above the Kumo cloud). This combination suggests that we go for long positions. The resistance level (the target of the bullish movement) is located at 1.1030 – this is the upper line of the Bollinger Bands indicator on the same chart.

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EUR/USD. "Red hue" of US inflation, dovish rhetoric from Williams, and the high of the year

On Thursday, the EUR/USD pair overcame the resistance level of 1.1030, which corresponds to the upper line of the Bollinger Bands indicator on the daily chart. The price has updated the annual high (1.1034), which was set in early February. The pair is moving towards the 1.11th figure as a result of the previous momentum, when the dollar fell across the market on Wednesday, reacting to the Consumer Price Index. Another inflation report was published in the US, which provided more support to the bulls. This is the Producer Price Index, which came out in the "red", reflecting the slowdown of US inflation.

The "red hue" of the PPI

So, the PPI disappointed the dollar bulls again. The index came out at 2.7% in annual terms, versus an estimate of a 3.0% decline. This is the weakest growth rate since January 2021. The indicator has been consistently declining for nine straight months. The core PPI, excluding food and energy prices, also fell significantly, reaching 3.4% (the weakest growth rate since March 2021). This component of the report has been declining since April last year.

It is noteworthy that, following the two inflation reports, the probability of a rate hike at the May meeting has only increased, despite the significant drop in the CPI and PPI. According to data from the CME Group FedWatch Tool, there's a 66% chance of a quarter point rate hike in May. This is because core inflation has accelerated. The core CPI, excluding food and energy prices, rose to 5.6% in annual terms. Meanwhile, the core index had been consistently declining for the last five months. This fact has led to the assumption that the Federal Reserve will be forced to raise the rate once again, possibly at the next meeting. As a reminder, the Fed's updated median forecast also assumes one more rate hike in 2023.

But all these hawkish circumstances, as they say, light up but do not fuel the dollar bulls. Despite the growth of hawkish expectations, the dollar continues to plunge across the market.

Is the Fed ready to take a step back?

In my opinion, this situation is related to the growing dovish expectations in the long term. Rumors that the Fed will lower the rate closer to the end of the current year are being circulated more and more recently. And after the recent statement by the New York Fed Chief John Williams (who has a permanent voting right in the Committee and is considered one of the most influential Fed officials), these rumors have gained practical significance.

In an interview with Reuters, Williams said that if inflation decreases, then "the Federal Reserve will have to lower rates." At the same time, he acknowledged that the central bank is likely to raise the rate again in May, as the Bank "needs to see a decrease in core inflation." However, the market focused its attention on the dovish aspects of his speech. In fact, Williams admitted the realization of such a scenario within the current year.

I would like to remind you that after the March meeting, Fed Chairman Jerome Powell also did not deny such a development of events. He diplomatically noted that this scenario "is not the base case."

Conclusions

The US dollar index continues to plunge, reacting to the decline in inflation indicators. Following the CPI, the PPI also came out in the red. Prior to this, the core PCE index also demonstrated a downtrend.

Inflation in the US is slowing down, and this is putting pressure on the greenback, even despite a slight acceleration in the core CPI index. Overall, in my opinion, the market has come to several conclusions: 1) in May, the Fed will likely go for another quarter point rate hike ; 2) this will be the last in this cycle of monetary tightening; 3) if the current pace of declining inflation indicators persists, the Fed will, in a few months, update the discussion on lowering the rate (Williams brought this up the other day, admitting the realization of a dovish scenario).

All these conclusions are on the side of the EUR/USD bulls.

The technical picture for the pair shows similar signals. On all higher charts (from H4 and above), the pair is either at the top or between the middle and top lines of the Bollinger Bands indicator. In addition, on the daily chart, the Ichimoku indicator has formed one of its strongest bullish signals - the "Parade of Lines". Therefore, it would be wise to use any corrective pullbacks to open long positions – with the first, and for now, the main price target of 1.1100.

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Euro locks in profit

When American exceptionalism turns into doom, the US dollar has nothing left to do but flee the battlefield. In Forex, there is a growing opinion that only the US will face a recession in 2023, while the eurozone will manage to avoid an economic downturn, and China will be vigorously recovering. This is in stark contrast to last year's events when, due to the armed conflict in Ukraine and the energy crisis, the currency bloc was on the verge of collapse, and EURUSD fell below parity for the first time in 20 years. Today, the market has different realities.

The release of US retail sales data only heightened investors' concerns about a significant slowdown in GDP. The indicator shrank for the second consecutive time, significantly stronger, at 1% MoM, than Bloomberg experts estimated. If consumer spending collapses following the crisis in the real estate and banking sectors, a recession will become inevitable. The Federal Reserve will have to make a dovish pivot in 2023, no matter what the central bank says otherwise. This will weaken the US dollar.

Dynamics of retail sales in the US

Markets are currently set for a 25 basis point increase in the federal funds rate in May, followed by a 75 basis point decrease in the second half of the year. Such a balance of power became possible after consumer prices slowed from 6% to 5% and the first slump in producer prices in two years on a monthly basis. US inflation is clearly slowing down, allowing investors to argue that the Fed has done its job and the monetary tightening cycle is nearing its end.

In Europe, the picture is different. There, European Central Bank officials are very aggressive amid record core inflation levels. It needs to be broken, and the short-term market predicts a further 75 basis point increase in the deposit rate, to 3.75%. At the same time, derivatives believe that at the next Governing Council meeting in May, the cost of borrowing will increase by 31 basis points. So the chances of +50 basis points still remain, which contributes to the rise in EURUSD quotes. In terms of the interest rate swap market, the euro is still undervalued compared to the USD.

Dynamics of EURUSD and interest rate swap differentials

In my opinion, the decline in the main currency pair in response to the disappointing US retail sales data is the result of speculators taking profits on long positions after a sharp EURUSD rally throughout the week leading up to April 14. When everyone is buying, there is an excellent opportunity to sell, so there is no need to be surprised by the seemingly unexpected strengthening of the US dollar. It's just the peculiarities of trading.

Technically, on the daily chart, EURUSD bounced off the upper limit of the fair value range at 1.0675-1.0975. No asset can grow indefinitely, and the correction seems like a necessary breather. At the same time, the uptrend persists, and a bounce off support levels at 1.097 and 1.09 should be used to establish long positions.

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Pension funds and hedge funds opt for gold

Despite hopes for lower inflation, the world's pension funds are still not taking risks. They are increasing their interest in gold, expanding their positions. According to the latest risk management report by Ortec Finance, published on Thursday, the company's analysts stated that they are 90% confident in a decline in inflation. Worldwide, more than half of the managers of government pension funds with a total of over $3 trillion in assets under management assume that inflation will be 3.3% or even lower this year. This assumption is already much lower than last year's survey, which predicted inflation at around 6.4%. The survey also showed that only 10% of global asset managers believe inflation will exceed 6%.

A week after the U.S. Department of Labor published data on the Consumer Price Index, which grew less than expected over the last 12 months to 5%, the survey results appeared. However, despite the optimism of fund managers that inflation will continue to decline, they are still not taking risks, increasing their positions in gold and other commodities.

According to the study, about 70% of the surveyed fund managers said their plans include increasing their participation in commodities. Specifically, 40% decided to increase their investments in gold; 42% said they increased their bond holdings.

Analysts believe that hedge funds' interest in gold should continue to support the precious metal and push prices to historical highs. Nevertheless, analysts noted that their bullish positions in gold are currently low compared to last year.

According to the latest data from the Commodity Futures Trading Commission, asset managers have long positions in gold of 104,000 contracts, about 27% of the peak in 2022 when prices exceeded $2,000 an ounce. Also, holdings in gold-backed exchange-traded products show there are fewer investors compared to the previous period. In March, gold-backed ETFs received a net inflow for the first time in 10 months.

Now, the world's largest gold ETF, SPDR Gold Shares (NYSE: GLD), contains 926.57 tons of gold. This is less than in March 2022, when it contained 1,100 tons.