Yes, Bank of Japan has been ultra dovish but it’s now the central bank is buying bonds without a limit. This rallied to USDJPY big time. I’ll take a look at it in this report below. US stocks bounced a bit higher in yesterday’s trading while market participants kept on bidding the dollar higher. As a result gold and silver were under pressure and oil lost some of its momentum seen the day before. USD keeps on rocketing higher as traders and investors alike believe the Fed will hike the rates. USDJPY rallied strongly and moved to 20-year highs after BOJ surprised the markets and said it will offering to buy bonds without a limit. With the Fed promising to hike 0.50% in the next meeting there was no selling pressure in USDJPY. EURUSD continues lower as the war in Europe is expected to have negative consequences for the European economy. Heads up for the US GDP release! By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
EURUSD has moved to levels last traded in 2017. USD buying has pressured the pair. Widening yield spreads and risk aversion has moved investor money in to the dollar as investors prepare to see growth slowing down in Europe. The comments from German economy minister highlighted the growth risks in Europe. According to him Germany has to sacrifice economic growth in the fight against Russia. Technically EURUSD is deeply oversold and extended to the downside. The pair hit a key support level (1.0494) so even though the market is still in a downtrend further downside could be limited. I will place EURUSD on a watchlist. For those of you that interested in trading the pair intraday today the nearest key S&R levels are 1.0481, 1.0571, 1.0586 and 1.0634.
Gold broke out of the sideways range yesterday as expected. I noted yesterday that the market was making lower highs inside the range and said that the pressure was likely to build on the lower end of the range. Gold has now reached the downside target at 1873.78 and bounced higher from it. There must have been significant buying interest at the level. Another spot on analysis and trade idea!
USDJPY rallied to my 128.75 target after breaking above 128.20. The move, however, didn’t stop there and the pair broke out of the bearish channel after which it took off big time. The pair is now trading about 1.4% higher than at the time of my analysis yesterday. That’s 180 pips and just shows you the power of diligent market analysis. Those that bought the breakout made either a decent intraday trade or are now holding a position that is deep in the money. USDJPY has rallied what is know as a measured move from the consolidation channel and is now taking a breather (profit taking) but the fundamentals are still supportive and the market is technically bullish therefore it still makes sense to look for buying opportunities at support levels. The nearest key support levels are at 128.88 and 129.38 and the nearest intraday support level is at 130.00.
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Silver stayed under pressure after I said the day before yesterday that we should look for short signals below a recently broken key support level. I said here that I was looking for shorting opportunities below 23.96 with a T1 at 23.27 and T2 at 23.05. Now both targets have been reached and the market has bounced higher from the T2 level. The nearest resistances are at 23.39 and 23.68.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Several FOMC members support 0.5% rate hike in May. The Fed is prepared to taper by $60B of treasuries and $35B of mortgage back securities per month.|
|Stimulus||The Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe.|
|Yields||The US 10-year treasury yield has risen to 2.187% as investors sell the bonds and adjust to the expected rate hikes.|
|Employment||The March non-farm payrolls increased by 431K while the analyst consensus had predicted 492K new jobs. The unemployment rate dropped to 3.6% and average hourly earnings were in line with expectations (0.4% vs. 0.4% expected).|
|Inflation||The annual headline inflation reading for January came in at 7.5% (7% prior). This was the highest CPI print in 40 years. The core CPI (all items less food and energy) was confirmed at 6.0% (5.5% previous).|
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The Next Main Risk Events
- USD – Advance GDP q/q
- USD – Advance GDP Price Index q/q
- USD – Unemployment Claims
- CHF – SNB Chairman Jordan Speaks
- EUR – CPI Flash Estimate y/y
- CAD – GDP m/m
- USD- Core PCE Price Index m/m
- USD – Revised UoM Consumer Sentiment
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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