Market Trading News and Research from 18 April 2024

• Gold remains lifted by geopolitical risks amid sharp rise in US Treasury yields.
• Federal Reserve officials emphasize ongoing inflation concerns, hinting at maintaining higher interest rates for longer.
• Strong US labor market data reinforces robust economic backdrop.

Gold prices advanced late in the North American session on Thursday, underpinned by heightened geopolitical risks involving Iran and Israel. Federal Reserve (Fed) officials delivered hawkish messages, triggering a jump in US Treasury yields, which boosted the Greenback.

XAU/USD trades at $2,384, with gains of more than 1%, after hitting a daily low of $2,361. Major central bank speakers are grabbing the spotlight, pushing aside the release of economic data from the United States (US), which paints an optimistic outlook for the labor market.

On Thursday, Fed policymakers crossed the wires. Atlanta Fed’s Raphael Bostic noted that inflation is too high, and the US central bank still has a way to go to tame it. He added the Fed won’t be able to reduce rates. Earlier, New York Fed President John Williams stated that the Fed is data-dependent and emphasized that monetary policy is in a good place, so he wasn’t in a rush to cut rates. His baseline doesn’t consider hiking rates but added that the Fed will hike if needed.

Following Bostic’s remarks and strong data that showed US Initial Jobless Claims remained unchanged compared to the previous reading, the golden metal continued to climb.

Daily digest market movers: Gold shrugs off higher yields, strong US data

• The US Department of Labor revealed that Initial Jobless Claims for the week ending April 13 fell to 212K, below the predicted 215K. Continuing Jobless Claims for the week of April 6 slightly rose to 1.812 million from 1.810 million but were still below the expected 1.818 million.
• The Philadelphia Fed Manufacturing Index increased significantly, jumping to 15.5, far surpassing minimal forecasts of 1.5. US Existing Home Sales declined by 4.3% MoM, falling from 4.38 million to 4.19 million, which was also below the anticipated 4.2 million.
• In the meantime, the CME FedWatch Tool shows the first rate cut could happen in September, with odds for a quarter percentage point cut standing at 66%, down from yesterday’s 71%.
• Despite decent US economic data, market participants seem to be focused on geopolitical risks.
• Tensions in the Middle East subsided after Israeli officials commented that they considered striking Iran on Monday but decided to wait, according to Axios. Jake Sullivan, the White House National Security Advisor, said the US decided to impose new sanctions on Iran in the upcoming days.
• US Dollar Index (DXY), which tracks the buck’s performance against a basket of six other currencies, loses 0.15% to 105.96.
• Gross Domestic Product (GDP) estimates for Q1 2024 show that the US economy is expected to grow 2.9%, up from 2.8% estimated on April 15, according to the Atlanta GDPNow model.

Technical analysis: Gold rises despite RSI in overbought levels

The Gold price remains bullishly biased, and price action of the last couple of trading days appears to form a Bullish Harami chart pattern that reassembles an inside day. That suggests the non-yielding metal could resume its uptrend, even though the Relative Strength Index (RSI) is at overbought levels. That said, buyers need to challenge the $2,400 figure. Once cleared, that could pave the way to test the year-to-date (YTD) high at $2,431.78, ahead of $2,500.

On the other hand, if XAU/USD is headed for a correction, the first support would be the $2,350 mark, followed by the April 15 daily low of $2,324. Once surpassed, Gold might test $2,300.

• The RSI on the daily chart of EUR/JPY indicates sustained bullish momentum.
• Hourly chart shows an RSI below its mid-zone and MACD with rising red bars, pointing towards possible consolidation.
• The EUR/JPY's position above main SMAs underscores a strong bullish bias.

The EUR/JPY slightly declined to 164.70 in Thursday’s session. That being said, the overall trend still favors the bulls but a consolidation phase, suggested by bears dominating the hourly chart, may create a balanced playing field for both buyers and sellers ahead of the Asian session.

On the daily chart, the Relative Strength Index (RSI) for the EUR/JPY pair is in positive territory, with a most recent reading of 58. This suggests that the pair's upsurge might remain intact as long as the RSI stays above the 50 mark, indicating that buyers are in control at this moment.

EUR/JPY daily chart

Meanwhile, on the hourly chart, the EUR/JPY's RSI declined below its middle zone, with the latest reading of 44 as of the last hour. This could point towards a pending period of consolidation. The Moving Average Convergence Divergence (MACD) displays rising red bars, also hinting at a temporary slowdown in the bullish momentum.

EUR/JPY hourly chart

Regarding the Simple Moving Average (SMA), the cross EUR/JPY holds strong above its 20, 100, and 200-day SMAs, indicating a bullish stance. That being said the pair must defend the 20-day SMA at 164.00 which is a strong support to maintain the positive short-term outlook.

Further hawkish comments from Fed speakers lent extra legs to the Greenback and sparked a decent bounce in US yields, while the ECB's officials continued to advocate the start of the bank’s easing programme in the summer.

Here is what you need to know on Friday, April 19:

The Greenback regained upside traction and lifted the USD Index (DXY) back to the area beyond 106.00. There will no data releases on the US docket on April 19 other than the speech by Chicago Fed A. Goolsbee.

EUR/USD resumed its decline and revisited the 1.0640 zone after faltering around 1.0690 during early trade. The euro calendar will be empty at the end of the week.

In line with its risk-linked peers, GBP/USD headed southwards and retested the 1.2430 zone. Retail Sales in March and speeches by BoE’s Ramsden and Breeden are also due on April 19.

USD/JPY kept its recent consolidative mood well and sound above the 154.00 hurdle. In Japan, the March Inflation Rate is expected on April 19.

AUD/USD succumbed to the Dollar’s rebound and receded to the low 0.6400s. The are no data releases in Australia on April 19.

WTI extended its drop for the third session in a row following demand concerns, the stronger dollar and higher US crude oil inventories.

Gold prices reversed two daily pullbacks in a row on the back of persistent geopolitical concerns. Silver prices added to Wednesday’s small uptick and maintained the trade above the $28.00 mark per ounce.

• Silver maintains modest gains supported by a still-bullish market sentiment despite high US Treasury yields.
• Technical outlook favorable as the Relative Strength Index (RSI) indicates buying activity despite a slight dip.
• Potential resistance and breakout points set at $28.75 and $29.00, with eyes on surpassing the year-to-date high of $29.79.

Silver clings to modest gains of 0.29% and stays above $28.00 for the sixth consecutive trading day amid higher US Treasury bond yields and a strong US Dollar. At the time of writing, the XAG/USD trades at $28.30 after hitting a daily low of $28.14.

XAG/USD Price Analysis: Technical outlook

The grey metal continues to hold to the $28.00 threshold, while the Relative Strength Index (RSI) continues to edge lower. One could assume that buyers are taking a respite as the RSI edges lower, but it remains above the latest through of 54.00. With that said, Silver remains upward-biased as momentum favors bulls.

If XAG/USD buyers reclaim the May 18, 2021, daily high at $28.75, they could challenge $29.00. A breach of the latter will expose the year-to-date (YTD) high at $29.79 before challenging $30.00.

Otherwise, Silver’s drop below $28.00 would give sellers the upper hand and expose key support levels. Firstly, the April 15 daily low at $27.59, followed by the confluence of the 50% Fibo retracement and the $27.00 figure.

XAG/USD Price Action – Daily Chart

• DXY Index recovers and flirts with November highs.
• Initial Jobless Claims data came out slightly lower than expected.
• Fed’s stance remains hawkish, persistently increasing pressure on US yields.

The US Dollar Index (DXY) rose toward 106.25 on Thursday and appears on track to test the November 1 high near 107.10. What is underpinning this rise is the Federal Reserve's (Fed) hawkish stance, along with a related recovery of US Treasury yields. Low Jobless Claims also benefited the US Dollar.

The US economy remains resilient, showing stubborn inflation and a strong economy. This has made the Fed adopt more hawkish messaging, and markets are delaying the start of the easing cycle.

Daily digest market movers: DXY demonstrates persistent growth coupled with robust inflation

• Fed remains committed to a hawkish stance, given ongoing inflation and robust growth in the US.
• Fed officials on Thursday spoke cautiously, asking for patience in regard to interest rate cuts.
• Market forecasts for the Fed's upcoming meeting showed an important shift and the chances for a rate cut in June have plunged to 20%, while the possibility for a rate cut in July dropped to 50%. Current estimates suggest a likely first cut in September with a 75% probability of a second one in December.
• The US Treasury bond yields show an upward trend for the 2-year, 5-year, and 10-year bonds, currently at 4.98%, 4.68% and 4.64%, respectively.
• On the data front, weekly Jobless Claims came in at 212K, lower than the 215K expected, adding arguments for a strong labor market.

DXY technical analysis: DXY bulls step in and recover ground

The indicators on the daily chart reflect a positive bias for DXY. The Relative Strength Index (RSI) has a positive slope, sitting comfortably in positive territory. This implies an underlying bullish momentum. Complementing this bullish bias is the Moving Average Convergence Divergence (MACD), which shows rising green bars, contributing to the overall buying sentiment.

As for the Simple Moving Averages (SMAs), the DXY pair remains above the 20, 100, and 200-day SMAs, inferring that buying momentum is strong. Adding to this bullish scenario is the ongoing resilience of the bulls, further grounding positive sentiment.

• GBP/USD remains flat, influenced by BoE's Megan Greene remarks and multiple Fed officials emphasizing rate patience.
• US economic updates reveal a decrease in Jobless Claims and a surge in the Philadelphia Fed Index but a drop in home sales.
• Shift in rate cut expectations for the Fed impacts currency strength, with only two cuts now anticipated in 2024.

The Pound Sterling is virtually unchanged against the US Dollar in the mid-North American session, amid a scarce economic docket in the United Kingdom (UK) if not interrupted by Bank of England (BoE) member Megan Greene. A slew of Federal Reserve officials keep pounding the mantra of patience when easing rates. The GBP/USD trades at 1.2456, almost flat.

BoE and Fed officials impact Sterling as US data shows mixed signals

Major central bank policymakers are grabbing the headlines, leaving economic data in the background. Therefore, Fed and BoE speakers are driving GBP/USD price action.

Recently, Atlanta’s Fed President Raphael Bostic said inflation is too high, that the US central bank still has a way to go on inflation, and that they won’t be able to reduce rates. Earlier, the New York Fed President John Williams said the Fed is data dependent and emphasized that monetary policy is in a good place, so he isn’t in a rush to cut rates. His baseline doesn’t consider hiking rates but added that the Fed will hike if needed.

On the BoE’s front, Megan Greene commented that inflation data is too high for the institution to consider cutting the Bank Rate. Greene blamed inflation in wages and services as not being “consistent with a sustainable 2% (consumer price) inflation target.”

Elsewhere, the US Department of Labor revealed that for the week ending April 13, US Initial Jobless Claims fell to 212K, below the predicted 215K. Continuing Jobless Claims for the week of April 6 slightly rose to 1.812 million from 1.810 million but were still below the expected 1.818 million.

Other featured data included the Philadelphia Fed Manufacturing Index, which experienced a significant increase, jumping to 15.5, far surpassing the modest expectation of 1.5. In the housing market, US Existing Home Sales declined by 4.3% month-over-month, falling from 4.38 million to 4.19 million, which was also below the anticipated 4.2 million.

Given the fundamental backdrop, traders expect just two rate cuts by the Fed instead of the six projected at the beginning of 2024. That has witnessed flows to the Greenback, which has been up nearly 4.50% so far this year. Hence, if the BoE cuts before the Fed, the GBP/USD pair could be driven lower.

GBP/USD Price Analysis: Technical outlook

The GBP/USD daily chart shifted bearishly once the pair dived below the November 22, 2023, swing low of 1.2448, which exposed the 1.2400 mark. Although buyers had achieved to recover some ground, the latest four candles in the daily chart show that buying pressure is building near the 1.2480/90 area. If the pair dives below 1.2400, further losses remain. The next key support level would be the November 17 daily low at 1.2374, followed by the November 10 low at 1.2187.

On the flip side, if buyers reclaim 1.2500, look for a recovery, but they must conquer the 200-day moving average (DMA) at 1.2575.

• Euro recovery fails ahead of 1.0700 and ECB policymakers point to a June rate cut.
• In the US, strong employment levels and some hawkish comments by Fed’s Williams have provided a fresh boost to the USD.
• The EUR/USD remains vulnerable, dangerously close to the mid-term low at 1.0600.

The Euro recovery has been capped a few pips shy of the 1.0700 area, and the pair pulled lower on Thursday, to hit intra-day lows at 1.0645. The dovish comments by ECB policymakers and strong US data endorsing the Fed’s “higher for longer” outlook have weighed the common currency.

Earlier today ECB’s Vice-President Francoise Villeroy, affirmed that, barring a major surprise the bank will cut rates in June. These words have been echoed by the Governor of the Austrian central bank and notorious hawk, Robert Holzmann.

US data confirms the strong economic outlook

In the US, macroeconomic data has endorsed the picture of a strong economy with a tight labour market. Jobless claims remain steady at relatively low levels while a manufacturing activity gauge has reached its best reading in two years.

Beyond that, the New York Fed President, John Williams has reiterated that there is not an urgency to lower interest rates, which has sent US yields and the US Dollar up from intra-day lows.

The near-term bias remains neutral, with the pair unable to put a significant distance from five-month lows. 1.0700 is the immediate resistance, followed by 1.0730 and 1.0755. Support levels are 1.0605 and 1.0553.

Speaking at the Greater Fort Lauderdale Alliance in Florida on Thursday, Atlanta Federal Reserve Bank President Raphael Bostic noted that U.S. inflation is anticipated to return to 2% at a slower pace than many had anticipated.

Key Quotes

Market Reaction

The US Dollar Index (DXY) keeps the bullish bias intact above the 106.00 hurdle so far on Thursday.

• Dow Jones index advances on more favorable risk environment.
• US equity markets remain positive despite strong macroeconomic data, hawkish comments from Fed’s Williams. 
• Broader Dow Jones trend remains negative, on corrective reversal from March highs.

The Dow Jones Industrial Average (DJIA) is finally posting gains in January as investors digest the strong US economic outlook and pare back their interest rate cut hopes.

US jobless claims and manufacturing activity figures have endorsed the view of strong economic momentum and a tight labour market. Beyond that, New York Federal Reserve (Fed) President John Williams has echoed the words from Chair Jerome Powell by stating that there is no rush to cut rates.

All the main Wall Street indices are trading higher.  The Dow Jones, advances 0.6% to 37,979, while the S&P 500 gains 0.44% to 5,043. The NASDAQ lags with a 0.4% gain to 15,743.

Dow Jones news

Most of the sectors are trading in the green on Thursday with Communication Services leading with a 1% advance, followed by Financials, up 0.9%, and Industrials, 0.6% above its opening level. At the bottom, Utilities and Energy are practically flat.

United Health (UNH) rose 3.1% to $493.51 and is the best performer for the second day in a row, fuelled by the strong quarterly earnings results. Next is Travelers Companies  (TRV) with a 1.6% gain to $209.79. Salesforce is leading losses with a 1.1% decline to $273.23, followed by Intel (INTC), down 0.4% to $35.53.

Dow Jones technical outlook

The DJIA is trimming some of last week’s losses, although the overall picture remains bearish. The move below 38,560 has activated a Head & Shoulders pattern that points toward a sharper decline.

Immediate support is 37,586, followed by the measured target of the H&S pattern, which meets the mid-January low and 38.6% Fibonacci retracement at 37,087. A bullish reaction might find resistance at the 38,531 previous support ahead of the 39,000 region (order block).

Dow Jones 4-Hour Chart

• Mexican Peso on defensive as USD/MXN is back above 17.00.
• Mexican economic growth estimated at 2.1% YoY in March, but market focus shifts to upcoming Retail Sales data.
• US Treasury yields increase following lower-than-expected unemployment rate and strong Philly Fed Manufacturing Survey.

The Mexican Peso depreciated against the US Dollar as sentiment shifted sour on Thursday. Treasury yields in the United States (US) are rising following the release of a subdued US jobs report. Market participants remain wary that the Federal Reserve will keep rates “higher for longer,” which would trigger flows toward the Greenback. Therefore, the USD/MXN trades at 17.06, gaining some 0.66%, and is about to refresh three-day highs.

Wall Street trades with losses amid a risk-averse scenario. Data-wise, the National Statistics Agency (INEGI) revealed that Mexico’s economy likely grew 2.1% YoY in March based on a preliminary estimate. Nevertheless, traders mainly ignored the report, as they remained focused on Mexico’s Retail Sales report due on April 19.

Across the border, the US Department of Labor revealed that the number of Americans filing for unemployment was lower than expected, which aligned with the previous reading and suggested that the labor market remains healthy. At the same time, the Philadelphia Fed Manufacturing Index for April crushed estimates.

On Tuesday, Federal Reserve Chair Jerome Powell said that recent data “lacked further progress on inflation this year,” pointing to the remarkable performance of the US economy. During those hawkish remarks, the swaps markets adjusted their bets from 75 to 50 bps of interest rate cuts by the US central bank toward the end of 2024.

Given the fundamental backdrop, US Treasury yields are climbing, with the 10-year benchmark note rate up four bps at 4.633%. The US Dollar Index (DXY), which measures the performance of the American currency against six others, climbs past the 106.00 threshold and clocks gains of 0.22%.

Daily digest market movers: Mexican Peso at mercy of strong US Dollar

• On Wednesday, Bank of Mexico (Banxico) Deputy Governor Jonathan Heath commented that caution is important before normalizing monetary policy amid stubbornly sticky inflation. He added, “Maintaining a restrictive monetary policy is key for some time.”
• The International Monetary Fund (IMF) revised its economic growth forecasts for Mexico, lowering the 2024 growth expectation from 2.7% to 2.4% and the 2025 forecast from 1.5% to 1.4%. The IMF attributed the reduction in the 2025 forecast to anticipated fiscal tightening by the new administration, which is expected to reverse the fiscal expansion that is driving growth this year. This reversal will involve scaling back current spending policies.
• US Initial Jobless Claims for the week ending April 13 came at 212K, below estimates of 215K. Continuing Jobless Claims calculated toward April 6 increased to 1.812 million from 1.810 million but missed estimates of 1.818 million.
• The Philadelphia Fed Manufacturing Index rose by 15.5, smashing estimates of 1.5. Other data showed that US Existing Home Sales tumbled 4.3% MoM, from 4.38 million to 4.19 million, below the forecast of 4.2 million.
• Geopolitical tensions in the Middle East would likely weigh on the Mexican currency.  USD/MXN traders must be aware that any escalation could prompt traders to ditch the Mexican Peso and buy US Dollars.
• Data from the Chicago Board of Trade (CBOT) suggests that traders expect the Fed funds rate to finish 2024 at 5.00%, up from 4.95% a day ago.

Technical analysis: Mexican Peso tumbles sharply as USD/MXN buyers eye 200-day SMA

The USD/MXN has shifted neutral to upward bias, with buyers aiming to test the 200-day Simple Moving Average (SMA) at 17.16. Momentum has shifted in favor of the buyers as the Relative Strength Index (RSI) has broken above the 60 level, with some room before turning overbought.

That said, a decisive breach above the 200-day SMA will expose the year-to-date (YTD) high at 17.38, ahead of the 17.50 psychological area. Once those levels are surpassed, look for a challenge of the 18.00 figure as the next resistance level.

On the other hand, if USD/MXN slides below 17.00, look for a pullback toward last year’s low of 16.62, followed by the April 12 low of 16.40.

• Upbeat US data and hawkish comments by Fed’s Williams throw a spanner on Canadian Dollar’s recovery
• US Initial Jobless Claims and housing data endorse belief in strong labor market, hot inflationary trends. 
• USD/CAD pullback is losing steam right above 1.3730 support area.

The Canadian Dollar (CAD) is trading higher for the second consecutive session on Thursday, yet with weaker bullish momentum. Strong US macroeconomic data and hawkish comments from New York Federal Reserve (Fed) President John Williams have provided some support to the USD.

US Initial Jobless Claims remained steady at relatively low levels last week. At the same time, the Philadelphia Fed Manufacturing Survey posted its best reading in a year, adding to the evidence of the strong US economic momentum.

Furthermore, US Existing Home Sales declined in March although their median price jumped 4.8% over the last twelve months, suggesting an inflationary contribution to the Consumer Price Index (CPI). In this context, Fed’s Williams has reiterated the idea that there is no urgency to rate cuts, putting the brakes on Canadian Dollar’s appreciation.

Daily digest market movers: USD/CAD finds support on back of strong US data

Canadian Dollar remains positive on Thursday despite USD trimming some losses. .
 

US Weekly Jobless Claims remain steady at 212K in the week of April 12, against expectations of an increase to 215K.
 

Philadelphia Fed Manufacturing Survey has increased to a 15.5 reading in April from 3.2 in March. The market had anticipated a decline to 1.5.
 

Existing Home Sales declined 4.3% in March after a 9.5% increase in February, although these data have been offset by the 4.8% yearly increment of the median sales price.
 

Fed’s Williams has stuck to the line that Fed decisions will be data-driven, reiterating that there is no rush to cut interest rates.
 

On Wednesday, US Beige Book reflected steady economic growth combined with sticky inflation expectations, a combination that has prompted investors to dial down Fed easing bets.
 

Bets for a Fed rate cut in July have dropped to 37% from 50% at the beginning of the week. Investors are now pricing in 40 bps of cuts in 2024, down from 150 bps in January.

• NZD/USD faces pressure while attempting to extend recovery above 0.5920 as market sentiment turns risk-averse.
• The US Dollar rebounds amid fears that the Fed will keep interest rates higher for a longer period.
• The RBNZ is expected to pivot to rate cuts starting in November.

The NZD/USD pair struggles to extend recovery above the immediate resistance of 0.5920 in Thursday’s early American session. The Kiwi asset faces pressure as the US Dollar rebounds after correcting as investors fear inflation in the United States economy will remain stubbornly higher. The US Dollar Index (DXY) recovers above 106.00 after correcting to 105.75.

The market sentiment turns risk-averse as investors worry about deepening Middle East tensions. The S&P 500 opens on a cautious note as Israel refuses to make a truce with Iran after meeting with foreign ministers of the United Kingdom and Germany. Israel’s Prime Minister Benjamin Netanyahu has made clear that, “their state will do everything necessary to defend itself” reported by The Times.

10-year US Treasury yields rise sharply to 4.63% as investors hope that strong US economic outlook due to tight labor market conditions and robust consumer spending. This will keep inflation persistently higher and will allow Federal Reserve (Fed) policymakers to keep interest rates higher for a longer period.

Meanwhile, traders have repriced speculation about the Reserve Bank of New Zealand (RBNZ) 's rate cuts. The central is expected to pivot to rate cuts in November as NZ inflation grew by 0.6%, as expected in the first quarter of 2024.

NZD/USD faces selling pressure near at April 1 low near 0.5940, which turns into a resistance for the Kiwi bulls on an hourly timeframe. The near-term outlook remains bearish as the asset trades below the 200-hour Exponential Moving Average (EMA), which trades around 0.5950.

The 14-period Relative Strength Index (RSI) drops after failing to sustain above 60.00, suggesting that sellers use the pullback to build fresh shorts.

Fresh downside would appear if the asset breaks below April 17 low at 0.5870. This would drag the asset toward 8 September 2023 low at 0.5847, followed by the round-level support of 0.5900

On the flip side, a recovery move above March 18 high at 0.6100 will drive the pair toward March 12 low at 0.6135. A breach of the latter will drive the asset further to February 9 high around 0.6160.

NZD/USD hourly chart

New York Federal Reserve President John Williams said on Thursday that he doesn't feel an urgency to cut rates, per Reuters.

Key takeaways

Fed is data dependent and the data have been very good."

"We have a strong economy."

Fed rates haven't caused the economy to slow too much."

"Economic imbalances have been reduced."

"Monetary policy is in a good place."

"I don't feel urgency to cut rates."

"Eventually interest rates will need to be lower."

"Rate cuts will be determined by economic activity."

"Fed rate hikes are not my baseline forecast."

"If data called for higher rates, Fed would hike."

Market reaction

The US Dollar Index showed no reaction to these comments and was last seen rising 0.1% on the day at 105.95.

• Silver price has risen up and touched the top of a huge four-year consolidation at just shy of $30.00. 
• XAG/USD has since pulled back and the RSI is flashing overbought on the weekly chart. 
• There is a risk of a deeper correction, although a clear break above the consolidation would confirm more upside. 

Silver (XAG/USD) has broken out of the narrow range it was trapped in since the start of 2023, which ran from between roughly $21.00 and $26.00, and risen up to the top of a larger consolidation.  

The precious metal has rallied rapidly over the last two weeks and reached the next key resistance level at the 2020 highs of $29.86. This is also the ceiling of a massive consolidation zone Silver price has been trading up and down in since 2020. 

Since touching the top of the zone earlier this week XAG/USD has pulled back down to the $28.60s over the last few days. 

Silver Weekly Chart

The Relative Strength Index (RSI) momentum indicator has entered overbought territory at 71.96, which indicates Silver may be peaking. There is an increased risk of a pullback evolving and long holders are advised not to add to their positions. 

It is rare for the RSI to reach overbought on the weekly chart. The last time this occurred was at the August 2020 highs over three and a half years ago. A considerable pullback then followed, which took Silver price back down to $21.00 – an over 30% decline. 

It is too early to say the same will happen this time, but there is clearly a risk of a deep correction. 

The short and intermediate-term trends are bullish, however, so there is also a possibility of a continuation higher. 

A decisive break above the 2021 high of $30.07 would provide confirmation of a continuation higher and a breakout of the whole four-year consolidation Silver has been trading in. Such a move might be expected to reach $32.40 initially, where former resistance lies. 

If a correction evolves, however, the exchange rate would be expected to fall to support from the former range highs at $26.00 initially, however, given the shorter time frame trends are bullish a recovery thereafter could very well also unfold. 

• EUR/GBP rebounds from 0.8500 as ECB Lagarde sees the fight with inflation is not over yet.
• ECB Knot is not uncomfortable with market expectations for rate cuts.
• Investors await the UK Retail Sales data for fresh guidance.

The EUR/GBP pair extends its recovery to 0.8550 in the early American session on Thursday. The cross recovered after discovering strong buying interest near the psychological support of 0.8500. The Euro strengthened against the Pound Sterling after commentary from ECB President Christine Lagarde raised doubts about whether the central bank will really pivot to rate cuts from the June meeting.

On Wednesday, ECB Lagarde commented, “Growth in Europe is mediocre, much slower than in the US”. Lagarde warned that the fight against inflation is not over. Contrary to Lagarde, ECB Governing Council member Klaas Knot said in Thursday’s European session that he is not uncomfortable with the market pricing of ECB rate cuts. Knot added, “he is increasingly confident about the disinflation process.”

Separately, ECB policymaker Joachim Nagel said that he can't rule out small rebounds in inflation in Germany in some months this year.

Meanwhile, traders have reassessed speculation for rate cuts by the Bank of England (BoE) as the Consumer Price Index (CPI) data for March softened at a slower rate than estimated. Investors see the BoE to reduce interest rates only once this year instead of three. Also, the BoE is anticipated to choose the November meeting for starting to reduce interest rates.

Going forward, the Pound Sterling will be guided by the United Kingdom Retail Sales data for March, which will be published on Friday. The monthly Retail Sales are forecasted to have grown by 0.3% after remaining stagnant in February.

• Initial Jobless Claims rose by 212K vs. the previous week.
• Continuing Jobless Claims rose by around 1.812M.

US citizens that applied for unemployment insurance benefits increased by 212K in the week ending April 13 according to the US Department of Labor (DoL) on Thursday. The prints came in a tad below initial consensus (215K) and matched the previous weekly gain (212K revised from 211K).

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1.2% and the 4-week moving average stood at 214.50, unchanged from the previous week's revised average.

In addition, Continuing Claims increased by 2K to 1.812M in the week ended April 6.

Market reaction

The US Dollar Index (DXY) clings to its daily gains around the 106.00 neighbourhood in the wake of the release.

• AUD/USD recovers marginally after the recent steep sell-off. 
• Both the Fed and RBA are expected to delay cutting interest rates now.
• This means the interest rate differential, a key driver of FX, is unlikely to widen as much as in other pairs. 

AUD/USD climbs about a tenth of a percent into the 0.6440s on Thursday, continuing the correction of the steep sell-off in the pair at the start of April. 

As can be seen from the chart below, an overall bearish tone dominates price action after the new year-to-date low made on Tuesday at 0.6389. 

AUD/USD Daily Chart 

The most recent leg down, which started on April 10, was driven by a sudden strengthening in the US Dollar (USD). 

A run of strong macroeconomic data from the US, a solid labor market and persistently high inflation means the US Federal Reserve (Fed) cannot go ahead and cut interest rates as soon as it had been planning. 

The expectation of interest rates remaining higher for longer in the US in order to continue cooling down the economy, has supported the US Dollar because higher interest rates attract greater inflows of foreign capital. 

The sell-off in AUD/USD was not as steep as in other Dollar pairs, however, because stubbornly high inflation in Australia means the Reserve Bank of Australia (RBA) is also expected to delay cutting interest rates. It was less vocal about cutting them at the start of the year, however, unlike the Federal Reserve (Fed). 

In Australia, a similar delay means the Reserve Bank of Australia (RBA) is now not expected to lower the 4.35% overnight cash rate until November 2024. 

“Markets currently price the RBA cash rate to be unchanged at the next meeting on 7 May, with a 60% chance of a cut by November,” said Westpac in a recent note. 

There has been a surprising down shift in the number of cuts the RBA is expected to make in 2024 over the past month, which mirrors what has happened in the US with the Fed. 

“The market is pricing in 90% odds of a 25 bp rate cut in 2024 vs. almost 50 bp of total easing that was seen earlier this month,” according to BBH. 

The main macroeconomic data to come out of Australia over the last few sessions was the Australian Bureau of Statistics Labour Force Survey (LFS). 

This showed employment down by 6.6k (from plus 117.6k in February), the Unemployment Rate rising to 3.8% (from 3.7%) and the Participation Rate at 66.6% (from 66.7%). 

The data failed to move the dial with regards to the Aussie Dollar. 

“It provided a slightly better read on the underlying state of labour market conditions over the opening quarter,” according to Westpac. 

Even though the Unemployment Rate rose to 3.8%, it is still below the RBA’s estimated full employment range of 4.0% - 5.75%, so is unlikely to impact their policy decisions in the near term, and therefore the Australian Dollar. 

French central bank head and European Central Bank (ECB) policymaker Villeroy de Galhau said on Thursday that they could cut rates in the next meeting, barring a major surprise, per Reuters.

Key takeaways

"The risk would be to be behind the curve and to pay a too high cost bin terms of economic activity."

"It is time to take an insurance against risk of being behind the curve.

"After the first rate cut, we will monitor inflation data."

"Inflation is coming back to target."

"We are focused on domestic price stability."

"The good news is we have avoided recession, though growth in Europe is insufficient."

"When inflation is receding, it is time to go back to structural transformation."

Market reaction

The EUR/USD pair inched slightly lower following these comments and was last seen losing 0.1% on the day at 1.0660.

• Philadelphia Fed Manufacturing Index rose sharply in April.
• US Dollar Index trades modestly higher on the day near 106.00.

The Diffusion Index for current general activity of the Federal Reserve Bank of Philadelphia's Manufacturing Survey rose sharply to 15.5 in April from 3.2 in March. This reading surpassed the market expectation of 1.5 by a wide margin. 

The New Orders Index rose 7 points in April and the Current Shipments Index rose 8 points to 19.1. Meanwhile, the Prices Paid Index jumped from 3.7 in March to 23.0 in April, marking its highest reading since December 2023.

"The survey’s indicators for general activity, new orders, and shipments all rose. However, the employment index remained negative," the publication read. "Both price indexes continue to suggest overall price increases. Most future activity indicators declined but continue to suggest that firms expect growth over the next six months."

Market reaction

The US Dollar Index edged slightly higher after this data and was last seen rising 0.112% on the day at 105.98.

In an interview with Bloomberg on Thursday, European Central Bank (ECB) Governing Council member Klaas Knot said that he is not uncomfortable with the market pricing of ECB rate cuts, adding that he is increasingly confident about the disinflation process.

Meanwhile, ECB policymaker Joachim Nagel said that he expects a "cautious slide" in key rates after June. Nagel further noted that they can't rule out small rebounds in inflation in Germany in some months this year. 

Market reaction

EUR/USD showed no reaction to these comments and was last seen fluctuating in its narrow daily range above 1.0650.

• WTI Oil sell-off persisted on Thursday, posting 3% losses in two trading days. 
• Oil prices broke below the pivotal $83.34 level, heading to $80.63 next.
• The US Dollar Index slides below 106.00 after a slew of central bankers are pushing against a stronger Greenback.

Oil prices retreat further on Thursday, extending the decline triggered on Wednesday after a string of headlines from the US President Joe Biden administration over tariffs and sanctions. On the tariff front, Biden called for higher fees on Chinese steel and aluminium. On the sanctions front, the US is set to reimpose sanctions on Venezuelan Oil and Gas while Washington considers adding sanctions on Iran’s Oil exports. 

The US Dollar, meanwhile, is facing pressure from several central banks across the world that are seeing their currencies depreciate against the US Dollar. The strength of the US Dollar is an issue for central banks as it trickles back inflation. In Asia, even a coordinated intervention could take place should the US Dollar Index (DXY) rally any further with Japan and South Korea set to jointly intervene in markets. 

Crude Oil (WTI) trades at $81.80 and Brent Crude at $86.44 at the time of writing.

Oil news and market movers: sanctions ahead

• Recent data shows that Iran is exporting the highest amount of Oil in more than six years, the Financial Times reports. 
• China is set to have a surplus of Oil production, expanding to 82m tons by 2030, according to Li Ran, a researcher at CNPC’s Economics & Technology Research Institute. This surplus would make up for any shortfall in the markets from OPEC and other suppliers.
• Leading Goldman Sachs Analyst Daan Struyven sees $90 as a ceiling for Brent Crude.
• The recent Crude Oil Inventories report from the US Energy Information Administration (EIA) showed that the Gulf Coast stockpiles are at their highest level in a year. Us Inventories grew by 2.74 million barrels, the highest since June 2023.

Oil Technical Analysis: Easing for now with tail risk in mind

Oil prices are not rallying despite the current stance from the Biden administration with sanctions being slapped on Venezuela and are set to be issued for Iran, which should be rather supportive for Oil prices. On the production front, Iran is number 3 and Venezuela is number 9 on oil production volumes within OPEC. Sanctions on Iran thus might be having a heavier impact on prices than the ones for Venezuela, which means the Biden administration will probably sanction non-oil sectors in order to avoid disruptions in the global Oil supply. 

With geopolitical tensions lingering, the $83.34 and  $90 handle should remain in grasp. One small barrier in the way is $89.64, the peak from October 20. In case of further escalating tensions in the Middle East, expect even $94 to become a possibility, and a fresh 18-month high could be on the cards. 

On the downside, $80.63 is the next candidate as a pivotal supportive level. A touch softer, the convergence with the 55-day and the 200-day Simple Moving Averages (SMAs) at $79.88 and $79.57 should halt any further downturn. 

US WTI Crude Oil: Daily Chart

• USD/CAD has pulled back after rallying strongly at the start of April. 
• US-Dollar strength drove the pair higher on the back of shifting monetary policy expectations.
• The Canadian Dollar weakened on the back of falling Oil prices, expected cuts to interest rates. 

USD/CAD is trading in the 1.3750s on Thursday, down roughly a tenth of a percent on the day as it continues to backtrack after the strong rally at the beginning of April. 

April’s up move was driven mostly by the US Dollar taking off on a blend of higher-than-expected US inflation data, strong jobs data and uber-hawkish comments from the Chairman of the Federal Reserve (Fed) Jerome Powell. 

In a speech on Tuesday Powell further stated he thought it would take more time to reach the Fed’s inflation target of 2%. “Given the strength of the labor market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us,” he said. 

Expectations that interest rates in the US would be cut in June have now been almost totally scrapped in favor of September. Since higher interest rates attract greater inflows of foreign capital the delay has supported the Greenback. 

The Canadian Dollar, meanwhile, has weakened on increasing expectations that the Bank of Canada (BoC) will cut interest rates in June. The markets are now pricing in a 70% probability of such a move, according to analysts at Brown Brothers Harriman (BBH). 

Bank of Canada (BoC) Governor Tiff Macklem highlighted a declining trend in Canadian inflation on Tuesday which supports the thesis that the BoC is getting ready to cut interest rates. 

Macklem said, “there’s some downward momentum in underlying inflation,” and the data seems to back this view up with both core-trim and core-median measures of the Consumer Price Index (CPI) easing to 3.1% (the lowest since June 2021) and 2.8% (matching the July 2021 low), respectively, according to BBH.  

Further, a bout of weakness in Oil prices has also weighed on CAD, since Oil is the country’s largest export. WTI Crude Oil has fallen 10% in April, from a peak of $87 a barrel on April 5 to $79 on April 18.

• USD/CHF drops below 0.9100, dragged by a correction in the US Dollar.
• The US Dollar drops as traders reprice the interest rate outlook of other central banks.
• The SNB could cut interest rates further amid easing price pressures.

The USD/CHF pair falls below the round-level support of 0.9100 in Thursday’s European session. The Swiss Franc asset comes under pressure as the US Dollar drops amid cheerful market mood.

The US Dollar faces selling pressure after refreshing a five-month high. The US Dollar Index (DXY) drops to 105.85 as investors reassess speculation about rate cuts by other central banks from developed nations. Federal Reserve (Fed) Chair Jerome Powell supported keeping interest rates higher for an extended period, with inflation remaining stubbornly higher in the first three months of this year, but policymakers from other central banks also turned cautious about premature rate cuts.

This forced traders to price out early rate-cut bets by central banks, such as the Bank of England (BoE) and the Reserve Bank of New Zealand (RBNZ).

Meanwhile, the appeal for risk-perceived assets remains strong. S&P 500 futures have posted significant gains in the London session. 10-year US Treasury yields correct further to 4.57%.

The US Dollar could regain bullish traction, knowing that the United States economy remains resilient due to strong economic growth, tight labor conditions and robust households’ spending. While other economies remain exposed to a technical recession.

On the Swiss Franc front, investors could capitalize the corrective move to build fresh longs. In the near-term, the Swiss Franc is expected to face more downside as the Swiss National Bank (SNB) is expected to reduce interest rates further. Price pressures in the Swiss economy remain below the desired rate of 2%, offering relief to SNB policymakers to lower borrowing rates further.

• The Mexican Peso consolidates after strengthening temporarily on Banxico Heath’s comments. 
• USD/MXN forms a bullish Pennant price pattern on the 4-hour chart. 
• The economic growth outlook for Mexico gets downgraded. 

The Mexican Peso (MXN) traces a flat line on most charts on Thursday, as traders digest the previous day’s gains prompted by comments from Banxico Deputy Governor Jonathan Heath. 

At its last meeting in March, Banxico decided to cut interest rates from 11.25% to 11.00%. However, Heath said that the bank would likely only make “fine adjustments” to interest rates going forward because stubbornly high inflation required them to remain elevated for some time yet.

It was necessary to ensure that “the restrictive monetary stance remains at these levels for as long as necessary until we see progress on inflation,” said Heath in an interview with Banorte’s Podcast on Wednesday. 

Since the maintenance of higher interest rates is positive for a currency, because it attracts greater inflows of foreign capital, the Mexican Peso appreciated on the news. 

Mexican Peso trending lower in April

The Mexican Peso has weakened overall in April despite Wednesday’s Heath-inspired recovery. This is mostly due to the Banxico cutting interest rates in March whilst the majority of major central banks continue to delay because of stubbornly high inflation. 

The Peso may also have been hit by recent downgrades to growth forecasts for the Mexican economy from both the Banxico and the IMF. 

“The forecast for Mexico is revised downward on account of weaker-than-expected outcomes for end-2023 and early 2024, with a contraction in manufacturing,” said the IMF in its latest World Economic Outlook report.

The fall off in economic growth is being put down to lower government spending in 2025, in order to bring down the country’s budget deficit. 

However, it’s difficult to see how a programme of radical budget cuts would work politically. 

Mexico will hold a presidential election on June 2, when it will also vote in the 628 deputies of the national assembly. It’s likely to be a two-horse race between the leading center-left candidates’ Claudia Scheinbaum and Xochitl Gálvez, according to Columbia Threadneedle Investments. 

“We believe that regardless of who wins the election, Mexico is bound for a similar fate as other countries in the region, where governability has weakened and policy proposals have stagnated,” says Columbia Threadneedle on the outcome. 

Given both candidates are of the left and likely to lead a weak government, expectations for budget tightening seem a little exaggerated, given the lack of maneuver foreseen to make unpopular decisions. 

Technical Analysis: USD/MXN forms bullish Pennant

USD/MXN – the value of one US Dollar in Mexican Pesos – is consolidating in what could be a kind of bullish Pennant price pattern on the 4-hour chart. 

The evolution of the Pennant suggests the likelihood of further upside if it breaks higher. 

Given peaks and troughs are overall rising on the chart, the trend is likely bullish in the short-term, favoring long positions. 

USD/MXN 4-hour Chart 

The Relative Strength Index (RSI) has pulled back out of overbought into neutral territory, releasing the potential for more upside. 

Support from the 50-day Simple Moving Average (SMA) at 16.82 is likely to put a line under further weakness. 

A break above the peak of the Pennant at around 17.09 would indicate a continuation of the uptrend to the next target, possibly located at 17.17 where the 200-day SMA is situated, followed by resistance from a long-term trendline and resistance level at around 17.37.

Analysts at TD Securities don't think that the latest employment data from Australia will bring the Reserve Bank of Australia (RBA) closer to lowering its policy rate.

Australian labour market remains tight with

"Australian headline employment fell 6.6k in March, softer than the +10k consensus and TD's +18k f/c. Given the significant increase in jobs posted in February, a much larger giveback could have happened, so the 6.6k drop is not too bad."

"Driving the negative print was the 34.5k drop in part time but full time rose 27.9k (this is strong) while there were upward revisions to headline and full time for February. Seasonally adjusted monthly hours worked rose by 0.9%. The participation rate dropped from 66.7% to 66.6%, helping to limit the back up in the unemployment rate from 3.7% to 3.8%."

"Overall today's report supports the call that the Australian labour market remains tight with employment growth of 2.4% YoY, the employment-to-population ratio and participation rates still close to their November record highs. There is little in today's report to suggest the RBA is closer to cutting."

• The US Dollar eases on concerns that the current elevated position against other peers is unsustainable.
• Several tailwinds are emerging on the US Dollar from central banks of Europe and Asia.
• The US Dollar Index deepens losses in its turnaround since Wednesday and snaps below 106.00.

The US Dollar Index (DXY), which tracks the US Dollar against six major currencies, is facing issues with several parties screaming bloody murder on the stronger Greenback. This week, European Central Bank (ECB) President Christine Lagarde was the first to start mentioning that the ECB is concerned with the weaker Euro against the US Dollar (EUR/USD) and sees inflation trickling into the Eurozone on the back of that. Overnight, the message got picked up by the Bank of Japan (BoJ), where even an intervention could take place any time now. 

Additionally, a joint statement was released overnight from the Finance Ministers of Japan and South Korea, addressing their weaker currencies to the US because of the Greenback’s recent outperformance. The substantial weaker Japanese Yen and Korean Won are causing issues for their central banks in their fight against inflation. The statement even mentions that a joint FX intervention could be needed in order to cool down current depreciations against the US Dollar, which would mean that the US Dollar Index could get slashed. 

On the economic data front, the weekly Jobless Claims will be the main figures published on Thursday. Add three Fed speakers and the US Dollar could be trading either back above 106.00 or snap even 105.00 in case a perfect storm gets formed. 

Daily digest market movers: Jobless Claims to confirm Dollar exceptionalism

• At 12:30 GMT:
  • Weekly Jobless Claims data is set to be released:
  • Initial Claims for the week ending April 12 are expected to increase to 215,000  from 211,000 seen a week before.
  • Continuing Claims for the week ending April 5. The previous week's data was 1.817 million. 
  • Philadelphia Fed Manufacturing Survey for April is expected to decline to 1.5 from 3.2.
• At 14:00 GMT the Existing Home Sales data for March will be released. Figures are set to show a decrease to 4.20 million from 4.38 million in February.
• Three US Federal Reserve speakers on Thursday:
  • At 13:05 GMT, Federal Reserve Governor Michelle Bowman delivers opening remarks at the New York Fed Regional Conference.
  • Federal Reserve Bank of New York President John Williams will participate in a discussion at the Semafor World Economy Forum in Washington D.C. at 13:15 GMT. 
  • Federal Reserve Bank of Atlanta President Raphael Bostic will make two appearances on Thursday. Near 15:00 GMT in a Q&A about the US economic outlook and again at 21:45 GMT.
• It seems to be a global attempt from equity markets to end this sell rally. They are green across the board, from Asian equities over Europe to US equity futures, on average gaining near 0.50% with no real outperformers.
• According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the May meeting are at 96%, while chances of a rate cut stand at 4%.
• The benchmark 10-year US Treasury Note trades around 4.58%, accelerating its retreat from Tuesday's high of 4.69%. 

US Dollar Index Technical Analysis: Eye on the price

The US Dollar Index (DXY) is facing a sudden pile-up of headlines that goes against any US Dollar strength. That some central banks around the globe are suddenly expressing their disfavour of the strong US Dollar is creating a bit of a knee jerk reaction, with traders taking their profits for now. In the longer run, towards June and the summer, the wider rate differential should still favor the Greenback and should see the DXY Index heading higher again. 

On the upside, the fresh Tuesday’s high at 106.52 is the level to beat. Further up and above the 107.00 round level, the DXY Index could meet resistance at 107.35, the October 3 high. 

On the downside, the first important level at 105.88, a pivotal level since March 2023, is being proved at the time of writing. Further down, 105.12 and 104.60 should also act as a support ahead of the region with both the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.17 and 103.91, respectively.

Analysts at Rabobank share a brief outlook for the USD/JPY pair.

BoJ may be able to hike rates again later this year

"Current USD strength is built around the expectation that Fed rates will stay stronger for longer. The greenback has also likely been boosted by safe-haven demand stemming from fears of an escalation of the Middle East crisis. Weaker US data and a reining in of concerns over the Middle East would both be useful in stemming USD strength."

"That said, it is our central view that the USD will remain relatively firm. Alternatively, stronger Japanese economic data and a boost to expectations that the BoJ may be able to hike rates again later this year would lend the JPY some broad-based strength. Earlier today, comments from BoJ dove Noguchi indicated that he was in no rush to hike rates again. That said, assuming that Japanese real household incomes turn positive later this year, we see risk that another BoJ rate hike could follow. This, however, is unlikely for some months. In the meantime, there is strong risk of MoF intervention in an attempt to protect USD/JPY pushing through the 155 area."  

• USD/JPY finds buying interest near 154.00 as investors see Japan’s intervention mere a temporary solution to support weak Japanese Yen.
• Japan’s National CPI data will impact market expectations for BoJ’s rate hikes.
• The US Dollar corrects despite the Fed is expected to keep interest rates higher for a longer period.

The USD/JPY pair recovered intraday losses and rebounds to 154.40 in Thursday’s European session. The asset finds buying interest as investors digest fears of potential Japan’s intervention in the FX domain to support the Japanese Yen from further declining.

Japan’s Vice Finance Minister for International Affairs Masato Kanda said on Wednesday that authorities would not rule out any options in dealing with excessive yen moves, reported Reuters.

Investors see Japan’s stealth intervention in the FX domain a temporary support to the Japanese Yen but this will not solve its fundamental problem. Lack of confidence among market participants over further policy tightening by the Bank of Japan (BoJ) amid doubts over wage growth spiral.

Meanwhile, investors focus on Japan’s National Consumer Price Index (CPI) data for March, which will be published on Friday. The inflation data will significantly influence speculation for the BoJ’s interest rate outlook. Japan’s annual headline CPI and measure excluding fresh foods are estimated to have softened to 2.7% from 2.8% in February. Easing price pressures would negatively impact market expectations for further policy-tightening by the BoJ.

Market sentiment remains upbeat despite Israel's absence of immediate response to Iran’s attack on its territory. S&P 500 futures have posted significant gains in the European session. The US Dollar Index (DXY) corrects sharply to 105.85 despite investors seeing the Federal Reserve (Fed) delaying rate cuts to later this year.

The CME FedWatch tool shows that traders have priced out rate cut expectations for June and July meetings and see the September meeting as the earliest time in which the Fed could begin lowering interest rates.

The Rabobank Research Team provided insights on Australia’s employment data for March and its implications on the Reserve Bank of Australia's (RBA) interest rate outlook.

Key quotes

“Aussie labor market data released earlier today saw some mean-reversion in the headline employment figures.”

“According to the ABS, Australia shed 6,600 jobs in March after gaining 117,600 in February.”

“Rabobank had been expecting 10,000 jobs to be lost - which puts us equal closest to the pin amongst forecasters - but despite a 1-tick rise, the unemployment rate of 3.8% remained below our forecast (and below the market consensus) because of a fall in participation.”

“All-in-all, it was another strong result for the Aussie labor market that does nothing for the view that Australia will be cutting rates imminently.”

• Gold price exhibits strength as geopolitical tensions keep safe-have demand firm.
• The US Dollar corrects amid fears that inflation will remain stubborn in other developed nations.
• Fed Mester is confident about policy normalisation but cautioned that it should not be done in a hurry.

Gold price (XAU/USD) rebounds to $2,380 in Thursday’s European session after posting losses on Wednesday. The precious metal holds gains amid fears that Middle East tensions could worsen and spread beyond Gaza if Israel responds brutally to Iran.

According to The Times, Israel’s Prime Minister Benjamin Netanyahu has clarified that “their state will do everything necessary to defend itself,” according to The Times. The comments from PM Netanyahu came after his conversation with foreign ministers from the United Kingdom and Germany.

The recovery in Gold is also driven by a decline in US Treasury yields, which are influenced by the Federal Reserve’s (Fed) interest rate outlook. 10-year US bond yields edge down to 4.57% from a more than five-month high of 4.70%. Lower yields on interest-bearing assets diminish the cost of holding non-yielding assets such as Gold.

Daily digest market movers: Gold price reverses Wednesday’s losses

• Gold price recovers majority of Wednesday’s losses and rises higher to $2,380 as investors remain worried about geopolitical tensions. Traders continue to gung-ho for Gold amid fears that Israel could retaliate to Iran’s attack on their territory in which the Iranian military launched hundreds of drones and missiles.
• A correction in the US Dollar also supports the precious metal. Five-day winning streak in the US Dollar has been halted as traders expect that other central banks from developed nations will also delay their rate cut plans due to persistent price pressures. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, falls sharply to 105.75. Generally, the appeal of dollar-denominated Gold improves amid soft US Dollar.
• The near-term demand for the US Dollar remains firm as Federal Reserve (Fed) policymakers see interest rates remaining higher for a longer period until they get convincing data that inflation will return sustainably to the desired rate of 2%. 
• On Tuesday, Fed Chair Jerome Powell said recent data has clearly not given policymakers confidence that they should start considering rate cuts. Instead, interest rates need to remain higher for longer than expected to gain that confidence.
• On Wednesday, Cleveland Fed Bank President Loretta Mester also argued for keeping the monetary policy framework restrictive. Mester remained optimistic that the Fed will eventually gain the confidence to lower interest rates and start normalising policy again, but that shouldn’t be done quickly.

Technical Analysis: Gold price rebounds to $2,380

Gold price advances to $2,380 in Thursday’s London session after edging down on Wednesday. The precious metal remains inside the $2,350-2,400 trading range from the last two trading sessions. The upside in the precious metal remains limited as momentum oscillators are cooling down after turning extremely overbought. The 14-period Relative Strength Index (RSI) on the daily chart drops slightly after peaking around 85.00. The broader-term demand is intact as the RSI remains in the bullish range of 60.00-80.00. 

On the downside, April 5 low near $2,268 and March 21 high at $2,223 will be major support areas for the Gold price.

Silver prices (XAG/USD) rose on Thursday, according to FXStreet data. Silver trades at $28.49 per troy ounce, up 1.03% from the $28.20 it cost on Wednesday.

Silver prices have increased by 11.86% since the beginning of the year.

The Gold/Silver ratio, which shows the number of troy ounces of Silver needed to equal the value of one troy ounce of Gold, stood at 83.54 on Thursday, down from 83.72 on Wednesday.

Investors might use this ratio to determine the relative valuation of Gold and Silver. Some may consider a high ratio as an indicator that Silver is undervalued – or Gold is overvalued – and might buy Silver or sell Gold accordingly. Conversely, a low ratio might suggest that Gold is undervalued relative to Silver.

Global Market Movers: Comex Silver price makes another headway toward $29.00

• Silver price extends its upside around $28.50 in Thursday’s early European session. 
• Rising industrial demand and ongoing tensions in the Middle East benefit the white metal. 
• ANZ commodity analysts said that Silver still has significant potential, even after hitting solid resistance at $29.90 last week.
• The higher chance that the Fed will delay its easing cycle might cap the upside of the ilver price.
• Fed Cleveland President Loretta Mester said on Wednesday that inflation is higher than anticipated and the Fed needs more confidence in its trajectory.
• Earlier this week, Fed Chair Jerome Powell emphasized that he will wait for more evidence to gain confidence that inflation is headed toward the central bank’s 2% goal before lowering borrowing costs. 

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• The Pound Sterling moves higher to 1.2480 as investors see the BoE delaying rate cuts.
• UK’s stable wage growth is limiting the slowdown in price pressures.
• The US Dollar corrects despite the Fed’s stance towards keeping interest rates higher for a longer period.

The Pound Sterling (GBP) extends its upside to 1.2480 in Thursday’s European session. The GBP/USD pair moves higher, driven by a steep correction in the US Dollar and rising expectations that the Bank of England (BoE) will delay rate cuts until the November meeting. Like the Federal Reserve (Fed), the BoE is also expected to delay rate cuts, which has faded potential fears of policy divergence between them.

The major catalyst that forced traders to pare BoE early rate cuts is the slow progress in inflation declining to the 2% target due to steady wage growth. The labor market report for the quarter ending February showed that Average Earnings including bonuses grew steadily by 5.6%, higher than expectations of 5.5%. 

For inflation to return to the 2% target, the annual wage growth excluding bonuses should be close to 3.5%. Higher wage growth feeds inflationary pressures as businesses pass on labor cost to end consumers. Also, households with higher income for disposal ramp up overall demand in the economy.

Daily digest market movers: Pound Sterling moves higher while US Dollar corrects

• The Pound Sterling rises to 1.2480 as persistence in the United Kingdom’s inflation data for March forced traders to price out expectations for the Bank of England pivoting to rate cuts in the September meeting. 
• Investors expect that the last mile for inflation to return to the 2% target will be bumpy. Currently, financial markets anticipate the BoE reducing interest rates only once this year in the November meeting. 
• The UK Inflation data released on Wednesday indicated that annual core CPI data, which strips off volatile food and energy prices, grew by 4.2% year-over-year in March, above the consensus of 4.1% but significantly decelerated from February’s reading of 4.5%. The core inflation data is the Bank of England’s preferred inflation measure for decision-making on interest rates. 
• A lower-than-expected decline in price pressures in March, combined with steady wage growth data for the three months ending February, forced traders to pare rate cut bets for the September meeting.
• After the release of the inflation data, BoE Governor Andrew Bailey said, “We’re pretty much on track for where we thought we would be in February on inflation. Bailey remains optimistic about a further drop in inflation next month. When asked about the impact of Middle East tensions, Bailey commented that the Oil price has not leaped as much as expected and the consequences of Middle East tensions are less than feared, reported FXStreet. https://www.fxstreet.com/news/boes-a-bailey-inflation-will-drop-strongly-in-the-next-month-202404171612 
• Apart from the revision in BoE rate cut prospects, the GBP/USD pair has benefitted from a slight correction in the US Dollar. The US Dollar Index (DXY), which tracks the US Dollar against six major currencies, fell sharply to 105.75 from a fresh five-month high of 106.40. The near-term demand for the US Dollar remains intact as Federal Reserve (Fed) policymakers keep emphasising the need for interest rates to remain higher for a longer period until they get convinced that inflation will return sustainably to the 2% target.

Technical Analysis: Pound Sterling eyes 1.2500

The Pound Sterling aims for firm footing after discovering strong buying interest near the round-level support of 1.2400. The GBP/USD pair rebounds from 1.2400 and focuses on recapturing the psychological resistance of 1.2500. 

The near-term outlook of the Cable remains bearish due to a breakdown of the Head and Shoulder pattern and a declining 20-day Exponential Moving Average (EMA) near 1.2560.

In addition, the 14-period Relative Strength Index (RSI) oscillates inside the bearish range of 20.00-40.00, suggesting momentum leaned to the downside.

Gold prices rose in India on Thursday, according to data from India's Multi Commodity Exchange (MCX).

Gold price stood at 73,030 Indian Rupees (INR) per 10 grams, up INR 45 compared with the INR 72,985 it cost on Wednesday.

As for futures contracts, Gold prices increased to INR 72,549 per 10 gms from INR 72,523 per 10 gms.

Prices for Silver futures contracts increased to INR 83,519 per kg from INR 83,499 per kg.

Global Market Movers: Comex Gold price resumes uptrend amid geopolitical risks

• Gold price appreciates as traders exercise caution amid concerns about escalating tensions in the Middle East.
• Jordan's Foreign Minister Ayman Safadi warned that Israeli retaliation against Iranian strikes could potentially escalate the conflict throughout the entire region.
• Furthermore, Israel's Air Force announced on Wednesday that its fighter jets had targeted Hezbollah infrastructure north of Baalbek in eastern Lebanon.
• The correction in the US Dollar, primarily influenced by subdued US Treasury yields and profit-taking, supports the demand for the USD-denominated yellow metal.
• Attention turns toward speeches from several US Federal Reserve (Fed) policymakers, which could influence the market expectations for an interest rate cut, significanly affecting the non-interest-bearing Gold price.

(An automation tool was used in creating this post.)

• EUR/USD recovers after Lagarde says “the game is not over” with inflation. 
• Slow economic growth and sticky inflation in the Eurozone could weigh on EUR/USD. 
• Federal Reserve Chairman Powell talks about keeping rates higher for longer, and longer.

EUR/USD is trading in the 1.0680s on Thursday, marginally higher on the day, building on the U-turn it began midweek after touching down at the 1.0601 lows of April. 

It is still too early to say whether EUR/USD is undergoing a correction of the downtrend or a reversal, given the strong bullish recovery so far – of 80 pips in 36 hours – keeps bullish hopes alive. 

EUR/USD rebound gains momentum on smidgin of doubt 

EUR/USD’s rebound got an added boost from comments by European Central Bank President Christine Lagarde, who said at a speech in Washington late on Wednesday that “The game (of fighting inflation) is not over,” despite adding, “Growth in Europe is mediocre, much slower than in the US. We’re clearly seeing timid signs of recovery.” 

Lagarde’s comments contrast a little with those of some of her ECB colleagues who have said inflation is behaving as it should and tracking nicely lower. It introduces a smidgen of doubt into whether the ECB really will start cutting interest rates in June as markets believe. The maintenance of higher interest rates for longer is positive for the Euro as it attracts more inflows of foreign capital.

Her remark about “Growth in Europe is mediocre,” echoes the view of Rabobank FX Strategists, who argue that whilst there is no risk of a “crisis” in the region, “ the combination of slow growth in the Eurozone and nagging budget pressures could lower the defenses of the EUR going forward." Rabobank suggests a fall to 1.0500 is probable, with risks tilted to the downside. 

EUR/USD pressured by talk of rates for longer in the US

EUR/USD plummeted at the start of April as bets the Federal Reserve (Fed) would cut interest rates in June quickly melted away amidst stickier-than-expected inflation and robust macroeconomic data. 

On Tuesday, Federal Reserve Chairman Jerome Powell said high interest rates would likely be around for longer than previously expected given the little progress being made on inflation in recent months. 

The Fed’s Beige Book, a comprehensive economic survey, on Tuesday repeated the view that little progress had been made on inflation but added that growth and employment were a little stronger than expected.

Everything points to the Fed maintaining interest rates at their relatively high (upper limit of 5.5% for the Fed Funds Rate) levels for a while until the behemoth of inflation is finally slain. 

Indeed, The CME FedWatch tool, a market gauge of the probability of Fed rate cuts, is showing only a 16% probability of a cut in June (from over 70% only a few weeks ago) whilst the odds of a cut by September are now around 70%.   

Technical Analysis: EUR/USD undertakes a youthful recovery

EUR/USD has undergone a volte-face after hitting a floor at 1.0601 on Tuesday (circled). The question now, as most technical questions are, is whether this is a reversal or just a pullback in an ongoing downtrend?

EUR/USD Daily Chart

Momentum has been strong in the short span of the recovery so far, and the Relative Strength Index (RSI) has moved out of oversold, giving a buy signal – another good sign. However, it is too early to draw conclusions. 

The intermediate-term downtrend is probably still in force and in the absence of further proof of a reversal, likely to resume and push the exchange rate lower again. 

Resistance from previous swing lows nearby at around 1.0700 could act as an obstacle to the recovery and see a rotation back down. The level will, in any case, offer technical resistance and provide a rallying point for bears even if their cause is doomed. 

A break below the 1.0601 April lows would post a lower low and indicate a continuation of the downtrend. After that, the next concrete target is at 1.0446, the October 2023 low.

• NZD/USD extends gains as the US Dollar faces challenges on subdued Treasury yields.
• The latest inflation data from New Zealand offers the RBNZ greater flexibility to consider interest rate cuts.
• Fed’s Mester acknowledged that the central bank needs additional assurance before confirming the sustainability of 2% inflation.

NZD/USD continues to gain ground for the second consecutive day, hovering around 0.5930 during the early European session on Thursday. The decline in the US Dollar (USD) contributes support for the NZD/USD pair, which could be attributed to the improved risk sentiment.

On Wednesday, the report indicated that New Zealand's Consumer Price Index (CPI) has hit a nearly 3-year low, registering at 4% year-over-year in the first quarter. This situation provides the Reserve Bank of New Zealand (RBNZ) with more flexibility to contemplate interest rate cuts. Despite acknowledging persistent inflation in specific sectors, the RBNZ opted to maintain interest rates at 5.5% during its policy meeting last week.

On the other side, Federal Reserve Bank of Cleveland President Loretta Mester acknowledged on Wednesday that inflation has exceeded expectations. Mester stressed that the Fed requires further assurance before confirming the sustainability of 2% inflation, as per a Reuters report.

In addition, US Federal Reserve (Fed) Chair Jerome Powell commented on Tuesday that recent data indicates limited progress in inflation this year, suggesting an extended period before reaching the 2% target. This statement potentially signals a hawkish sentiment surrounding the Fed’s upcoming policy decision, which could provide support for the US Dollar, consequently, limiting the advance of the NZD/USD pair.

On the data side, traders await the release of weekly Initial Jobless Claims and Existing Home Sales from the United States (US) on Thursday, which could provide further insight into the state of the US economy and potentially impact the direction of the Greenback.

"If our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction," European Central Bank Vice President Luis de Guindos said on Thursday, per Reuters.

He noted that inflation has fallen further this year and that it's expected to continue to decline in the medium term, albeit at a slower pace.

Market reaction

EUR/USD showed no reaction to these comments and was last seen trading marginally higher on the day at 1.0680.

Here is what you need to know on Thursday, April 18:

The US Dollar (USD) stays under modest selling pressure in the early European session on Thursday. The US economic calendar will offer weekly Initial Jobless Claims, Philadelphia Fed Manufacturing Survey for April and Existing Home Sales data for March. Several Federal Reserve (Fed) policymakers are scheduled to deliver speeches during the American trading hours.

The USD Index stays in negative territory below 106.00 after touching its highest level since early November at 106.50 on Wednesday. Following a sharp decline midweek, the benchmark 10-year US Treasury bond yield fluctuates below 4.6%. Meanwhile, US stock index futures trade in positive territory, reflecting an improving risk mood in the European morning. The US and the EU are expected to expand sanctions against Iran and markets seem to be optimistic about an avoidance of further escalation of the conflict between Iran and Israel.

During the Asian trading hours, the data from Australia showed that the Unemployment Rate edged higher to 3.8% in March from 3.7%, while the Employment Change came in at -6.6K, missing the market expectation for an increase of 7.2K. After snapping a three-day losing streak on Wednesday, AUD/USD stretched higher and was last seen trading in positive territory at around 0.6450.

Australian Dollar holds position amid tepid US Dollar ahead of Fedspeak.

USD/JPY staged a downward correction and closed in negative territory on Wednesday. The pair inched slightly lower in the Asian session and was last seen trading slightly above 154.00. National Consumer Price Index (CPI) data will be featured in the Japanese economic docket in the early hours of the Asian session on Friday.

Gold fell nearly 1% on Wednesday but found support near $2,360. XAU/USD gathered bullish momentum early Thursday and recovered toward $2,380.

EUR/USD rebounded decisively and gained 0.5% on Wednesday. The pair holds its ground early Thursday and trades slightly below 1.0700. Eurostat will publish Construction Output data for February later in the session. 

GBP/USD registered marginal gains on Wednesday and started to fluctuate in a narrow range above 1.2450 on Thursday. The UK's Office for National Statistics will release Retail Sales data for March in the early European session on Friday.

• Silver price extends its upside around $28.50 in Thursday’s early European session. 
• Rising industrial demand and ongoing tensions in the Middle East benefit the white metal. 
• The higher chance that the Fed will delay its easing cycle might cap the upside of the silver price.

Silver price (XAG/USD) gains momentum near $28.50 on Thursday during the early European session. The upsurge of the white metal is bolstered by rising industrial demand and safe-haven flows amid the ongoing geopolitical tensions in the Middle East. 

The Silver Institute released its annual World Silver Survey on Wednesday, showing that industrial demand in the silver market is expected to hit another record high this year, climbing 9% to 710.9 million ounces. The rising demand is driven by silver demand for Photovoltaic (PV) solar panels. Furthermore, the ongoing tensions in the Middle East, particularly between Iran and Israel, might further fuel the demand for silver. ANZ commodity analysts said that silver still has significant potential, even after hitting solid resistance at $29.90 last week.

On the other hand, the growing speculation that the Federal Reserve (Fed) will delay its easing cycle might cap the upside of silver price. Fed Cleveland President Loretta Mester said on Wednesday that inflation is higher than anticipated and the Fed needs more confidence in its trajectory. Earlier this week, Fed Chair Jerome Powell emphasized that he will wait for more evidence to gain confidence that inflation is headed toward the central bank’s 2% goal before lowering borrowing costs. It’s worth noting that the higher-for-longer US rate narrative might dampen demand for white metal, a non-interest-bearing asset. 

People’s Bank of China’s (PBOC) Deputy Governor said on Thursday that they “will keep the Yuan exchange rate basically stable.”

Additional comments

Market reaction

At the time of writing, USD/CNY is holding flat at 7.2368, off the five-month high of 7.2405.

• EUR/USD rebounds to 1.0688 amid the weaker US Dollar on Thursday. 
• The bearish outlook of the pair remains intact below the key 100-period EMA. 
• The first upside target is seen at 1.0700; the initial support level is located at 1.0622.

The EUR/USD pair extends its recovery near 1.0688 on Thursday during the early European trading hours. The rebound of the major pair is backed by the selling pressure in the US Dollar Index (DXY) to 105.78. However, the upside of EUR/USD might be limited as the market expected the European Central Bank to cut the interest rate in June, which weighs on the Euro (EUR) against the Greenback. 

From a technical perspective, EUR/USD keeps the bearish vibe unchanged on the four-hour chart as the major pair is below the key 100-period Exponential Moving Average (EMA). However, the Relative Strength Index (RSI) stands in bullish territory around 55, suggesting that further upside cannot be ruled out. 

The first upside barrier of the major pair will emerge near the 50-period EMA and round figure at 1.0700. The additional upside filter to watch is the 100-period EMA at 1.0745. Further north, the next hurdle is seen near a low of March 22 and psychological level at 1.0800, en route to a high of April 9 at 1.0885. 

On the flip side, the initial support level for the major pair is located near a low of April 12 at 1.0622. The next contention level to watch is the 1.0595–1.0600 zone, indicating the lower limit of the Bollinger Band and round mark. Any follow-through selling below the latter will pave the way to a low of November 2 at 1.0565.

EUR/USD four-hour chart

FX option expiries for Apr 18 NY cut at 10:00 Eastern Time, via DTCC, can be found below

- EUR/USD: EUR amounts

• 1.0625 610m
• 1.0635 618m
• 1.0640 498m
• 1.0650 909m
• 1.0700 910m

- GBP/USD: GBP amounts     

• 1.2390 716m
• 1.2400 445m
• 1.2450 706m

- USD/JPY: USD amounts                     

• 153.00 6.1b
• 153.25 1.1b
• 153.80 980m
• 154.50 1b
• 155.00 896m

- USD/CHF: USD amounts     

• 0.9000 928m

- AUD/USD: AUD amounts

• 0.6370 596m
• 0.6435 1.5b

- USD/CAD: USD amounts       

• 1.3750 993m

NZD/USD: NZD amounts

• 0.5900 745m
• 0.5995 2.3b

EUR/GBP: EUR amounts        

• 0.8490 800m
• 0.8535 400m
• 0.8650 786m

• USD/CAD loses ground due to the subdued US Dollar on Thursday.
• Lower US Treasury yields put pressure on the Greenback.
• The decline in the WTI price may limit the advance of the Canadian Dollar.

USD/CAD extends its losses for the second consecutive session on Thursday, trading around 1.3750 during the Asian session. The pair follows the retreat from the five-month high of 1.3846 reached on Tuesday.

Meanwhile, the US Dollar Index (DXY) loses ground, primarily influenced by subdued US Treasury yields. DXY falls to near 105.90 with the 2-year and 10-year yields on US Treasury bonds stand at 4.92% and 4.57%, respectively, by the press time. This decline in the US Dollar exerts pressure on the USD/CAD pair.

The US Dollar faced challenges after the neutral remarks from the Federal Reserve’s (Fed) official. Fed Governor Michelle Bowman remarked on Wednesday that progress in inflation is slowing, with a potential stall. Bowman also noted that monetary policy is currently restrictive, and its adequacy will be evaluated over time.

Furthermore, Federal Reserve Bank of Cleveland President Loretta Mester acknowledged that inflation has exceeded expectations. She emphasized that the Fed needs more assurance before confirming the sustainability of 2% inflation.

On the flip side, the downward trend in crude Oil prices might constrain the Canadian Dollar's (CAD) upward momentum, considering Canada's status as the largest Oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price dips to nearly $82.30 per barrel at the time of writing. Market concerns persist regarding demand for this year, particularly in light of indications suggesting the potential avoidance of a broader conflict in the Middle East.

The advance of the Canadian Dollar could be short-lived due to the dovish sentiment surrounding the Bank of Canada (BoC), which could mitigate losses in the USD/CAD pair. There are expectations for a 25 basis points (bps) rate cut from the BoC in June. This sentiment is reinforced by the mixed Canadian inflation data released on Tuesday.

Bank of Japan (BoJ) board member Asahi Noguchi said on Thursday that the “main scenario is that future rate hikes are likely to be slow, but that depends on economic data.”

Additional quotes               

Market reaction

At the press time, USD/JPY is consolidating its bounce near 154.30, still down 0.06% on a daily basis.

• WTI trades in negative territory for the third consecutive day near $82.25 on Thursday. 
• A rise in US crude inventory and a higher possibility of delay rate cuts from the Fed drag the black gold lower. 
• Oil traders will monitor the development surrounding Middle East geopolitical tensions. 

Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around $82.25 on Thursday. The black gold edges lower on the day due to a rise in US crude inventory and the expectation of delay rate cuts from the Federal Reserve (Fed). However, the escalating geopolitical tensions in the Middle East might limit the black gold’s downside. 

US crude oil stocks rose for a fourth straight week. Crude oil stockpiles in the United States for the week ending April 12 rose by 2.735 million barrels from a build of 5.841 million barrels in the previous week. The market consensus estimated that stocks would increase by 1.6 million barrels, according to the Energy Information Administration on Wednesday. 

Furthermore, several Fed officials delivered hawkish comments, which provided support to the US Dollar (USD) and dragged the USD-denominated WTI prices lower. Late Wednesday, Fed Cleveland President Loretta Mester said that inflation is higher than expected and the central bank needs more confidence in its trajectory. Meanwhile, Fed Chair Jerome Powell emphasized that he will wait longer than previously expected to cut rates after unexpectedly upside inflation data, adding that the US central bank will likely take more time to gain confidence that inflation is headed toward the Fed’s 2% target before lowering borrowing costs.

The risk of escalation in the Middle East appears to be limited for the time being. However, oil traders will keep an eye on Israel, and their response, especially after US President Joe Biden urged restraint and after Iran said they do not intend to continue strikes. Wider conflict in the Middle East might disrupt the oil supply and lift WTI prices. 

• Gold price appreciates as traders exercise caution amid concerns about escalating tensions in the Middle East.
• Jordan's Foreign Minister Ayman Safadi warned that Israeli retaliation against Iranian strikes could potentially escalate the conflict throughout the entire region.
• The correction in the US Dollar supports the demand for the yellow metal.

Gold price recovers its recent losses, trading around $2,370 per troy ounce during the Asian session on Thursday. The safe-haven yellow metal gains ground as traders exercise caution amidst heightened geopolitical tensions in the Middle East.

According to reports from Reuters, Jordan's Foreign Minister Ayman Safadi stated in an interview released by state media on Wednesday that Israeli retaliation against Iranian strikes could pose a significant risk of dragging the entire region into a devastating war.

Furthermore, Israel's Air Force announced on Wednesday that its fighter jets had targeted Hezbollah infrastructure north of Baalbek in eastern Lebanon. Concerns are rising that increased exchanges of fire between Israel and Hezbollah could lead to further escalation.

Prime Minister Benjamin Netanyahu of Israel asserted that Israel would make its own decisions regarding how to defend itself, as Western countries urged restraint in responding to a series of attacks from Iran.

Meanwhile, the US Dollar Index (DXY) loses ground, primarily influenced by subdued US Treasury yields. This correction in the US Dollar is to make Gold less expensive to buy for investors using other currencies.

Federal Reserve Bank of Cleveland President Loretta Mester, speaking on Wednesday, acknowledged that inflation has surpassed expectations. She stated that the Fed requires further assurance before confirming the sustainability of 2% inflation.

Additionally, Fed Chair Jerome Powell commented on Tuesday that recent data indicates limited progress in inflation this year, suggesting an extended period before reaching the 2% target. This statement potentially signals a hawkish stance on upcoming monetary decisions from the Fed. Higher interest rates could diminish the demand for non-yielding assets like Gold.

• Indian Rupee trades on a stronger note on Thursday. 
• Rising oil prices and higher expectations that the Fed will delay rate cuts weigh on the INR. 
• Investors await the Initial Jobless Claims, Philly Fed Manufacturing Index, Existing Home Sales, and Fed speakers on Thursday. 

Indian Rupee (INR) recovers some lost ground on Thursday. The INR dropped to a record low on Wednesday, weighed by the worries that escalating tensions in the Middle East could disrupt supplies and boost oil prices. India is the third-largest consumer and importer of crude oil. Therefore, higher oil prices could damage the economy and put pressure on INR. Furthermore, the growing expectations that the Federal Reserve (Fed) will delay rate cuts provide some support to the Greenback and create a tailwind for the USD/INR pair. However, the further upside of the pair might be limited due to the potential intervention from the Reserve Bank of India (RBI) to prevent local currency from depreciation.

Market participants will keep an eye on the usual weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales, due on Thursday. Also, the Fed’s Bowman, Williams, and Bostic are set to speak later in the day. On Friday, the RBI Monetary Policy Committee (MPC) Meeting Minutes will be released. 

Daily Digest Market Movers: Indian Rupee recovers amid RBI intervention possibility

• RBI was likely selling Dollars via state-run banks on Tuesday to curb the INR’s losses spurred by a selloff in Asian equities and currencies, four traders told Reuters.
• Indian economy's growth momentum is expected to decelerate in 2024 to 6.5% against the 6.7% growth recorded in the previous year, according to the United Nations Trade and Development (UNCTAD).
• Fed Cleveland President Loretta Mester said that inflation is higher than expected, and the US Fed needs more confidence in its trajectory. 
• Fed Governor Michelle Bowman noted that inflation progress slows and possibly halts, adding that monetary policy is currently restrictive and that time will tell if it is "sufficiently" restrictive.
• Fed Chair Jerome Powell said that he will wait longer than previously expected to cut rates after unexpectedly upside inflation data. Powell added that the Fed will likely take more time to gain confidence that price growth is headed toward the Fed’s 2% target before lowering borrowing costs.
• Fed funds futures have priced in a 71% odds that the first rate cut could come in September, according to the CME FedWatch Tool. 

Technical analysis: USD/INR keeps the bullish vibe unchanged

The Indian Rupee trades firmer on the day. The positive outlook of USD/INR remains intact as the pair is above the key 100-day Exponential Moving Average (EMA) on the daily chart. The bullish momentum is also supported by the 14-day Relative Strength Index (RSI), which hovers around 59.00, supporting the buyers for the time being. 

An all-time high of 83.72 acts as an immediate resistance level of the pair. Any follow-through buying above this level will expose the 84.00 psychological barrier. On the downside, the initial support level is seen near a low of April 12 at 83.30. The crucial contention level to watch is the 83.00–83.10 region, portraying the round figure and the 100-day EMA. A breach of the mentioned level will pave the way to a low of March 14 at 82.80. 

Japan’s top currency diplomat Masato Kanda said on Thursday that the G7 statement reconfirmed commitment on forex on the back of the stance put forward by Japan.

He added that he “won't comment on forex levels."

Related reads

• BoJ’s Noguchi: Focus now is on the pace at which the policy rate will be adjusted
• USD/JPY remains below 154.50 amid weaker US Dollar

• Australian Dollar appreciates as the ASX 200 Index continues to gain ground on Thursday.
• Australia’s Employment Change came in at -6.6K and the Unemployment Rate increased by 3.8% in March.
• US President Joe Biden calls for tripling the existing 7.5% tariff rate on Chinese steel and aluminum.
• The decline in the US Treasury yields contributes to pressure to undermine the US Dollar.

The Australian Dollar (AUD) continues to gain ground on the second consecutive day on Thursday. The decline in the US Dollar (USD) contributes support for the AUD/USD pair. However, the mixed Australian employment data appears to exert downward pressure on the AUD.

The Australian Dollar gains momentum as the ASX 200 Index continues to climb on Thursday. The domestic equity market is bolstered by gains in mining stocks, supported by firmer metals prices. This positive momentum persists despite US stocks extending losses overnight amidst concerns that the Federal Reserve (Fed) may delay rate cuts further into the future.

The US Dollar Index (DXY) loses ground. primarily influenced by subdued US Treasury yields. This correction in the US Dollar is further reinforced by renewed selling pressure and an overall risk-on sentiment in the market. Investors watch for the release of weekly Initial Jobless Claims and Existing Home Sales later on Thursday, which could provide further insight into the state of the US economy and potentially impact the direction of the US Dollar.

Daily Digest Market Movers: Australian Dollar extends gains amid mixed labor data

• Australia’s Employment Change posted a reading of -6.6K for March, against the expected 7.2K and 117.6K prior.
• Australia’s Unemployment Rate increased by 3.8% in March, lower than the expected 3.9% but higher than the previous reading of 3.7%.
• US President Joe Biden spoke at the heart of the American steel industry in Pittsburgh on Wednesday, emphasizing the need for increased pressure on the Chinese steel sector. He has directed US Trade Representative Katherine Tai to consider tripling the current 7.5% tariff rate on Chinese steel and aluminum, as reported by CBS News.
• Federal Reserve Bank of Cleveland President Loretta Mester, speaking on Wednesday, acknowledged that inflation has exceeded expectations, and the Fed needs further assurance before confirming the sustainability of 2% inflation. She also stated that monetary policy is well-positioned, with the possibility of a rate cut if labor market conditions worsen.
• Fed Governor Michelle Bowman commented on Wednesday that progress in inflation is slowing, with a potential stall. Bowman also noted that monetary policy is currently restrictive, and its sufficiency will be determined over time.
• The Federal Reserve's Beige Book survey of regional business contacts indicates that the US economy has "expanded slightly" since late February. Furthermore, firms reported facing increased challenges in passing on higher costs.
• US Building Permits (MoM) fell to 1.458 million in March, compared to the expected 1.514 million and 1.523 million prior. Housing Starts declined to 1.321 million MoM from 1.549 million, falling short of the expected 1.480 million.

Technical Analysis: Australian Dollar hovers around the major level of 0.6450

The Australian Dollar traded around 0.6440 on Thursday. The 14-day Relative Strength Index (RSI) suggests a bearish sentiment for the AUD/USD pair as it remains below the 50 level. Key resistance for the pair is anticipated at the 23.6% Fibonacci retracement level of 0.6449, coinciding with the significant level of 0.6450. A breach above this level could strengthen the pair's momentum, potentially testing the nine-day Exponential Moving Average (EMA) at 0.6475, followed by the psychological barrier of 0.6500. On the downside, notable support is identified at the psychological level of 0.6400. A breach below this level might increase downward pressure on the AUD/USD pair, potentially leading it towards the major support level at 0.6350.

AUD/USD: Daily Chart

Bank of Japan (BoJ) board member Asahi Noguchi said on Thursday that the “focus now is on the pace at which the policy rate will be adjusted and at what level it will eventually stabilize.”

Additional quotes

• USD/JPY continues to decline as the US Dollar correction exerts pressure on the pair.
• Japan's CPI data is scheduled to be released on Friday, expecting a moderation in consumer prices for March.
• US President Joe Biden calls for a tripling of tariffs on Chinese steel and aluminum.

USD/JPY extends its losses for the second successive session, trading around 154.30 during the Asian hours on Thursday. The decline in the US Dollar (USD) exerts pressure on the USD/JPY pair. The Japanese Yen (JPY) might have received support from Japan's trade balance shifting to a surplus in March.

Japan’s Merchandise Trade Balance Total improved to ¥366.5 billion surplus from the previous deficit of ¥377.8 billion. Additionally, the Japanese Yen could have strengthened due to safe-haven inflows, likely prompted by risk aversion amid heightened geopolitical tensions in the Middle East.

US President Joe Biden addressed the American steel industry hub in Pittsburgh on Wednesday, advocating for heightened pressure on the Chinese steel sector. He has urged US Trade Representative Katherine Tai to explore the possibility of tripling the existing 7.5% tariff rate on Chinese steel and aluminum, according to CBS News. This development could potentially benefit the Japanese market and provide support for the Japanese Yen (JPY).

Traders anticipate the release of Japan's National Consumer Price Index (CPI) data by the Statistics Bureau of Japan on Friday, with market expectations leaning towards a moderation in consumer prices for March.

On the other hand, the expectation of the Federal Reserve (Fed) maintaining elevated interest rates for an extended period, supported by a robust US economy and persistent inflation, serves as a counterbalance to the downward pressure on the USD/JPY pair.

Federal Reserve Bank of Cleveland President Loretta Mester addressed on Wednesday, noting that inflation surpasses expectations and that the Fed requires more assurance before confirming the sustainability of 2% inflation. She added that monetary policy is well-positioned, with a potential rate cut if labor market conditions deteriorate.

Additionally, Federal Reserve (Fed) Governor Michelle Bowman remarked that progress in inflation is slowing, potentially stalling altogether. Bowman also mentioned that monetary policy is presently restrictive, and time will determine if it is adequately so.

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Tuesday at 7.1020 as compared to the previous day's of 7.1025 and 7.2281 Reuters estimates.

• GBP/USD edges lower to 1.2450 in Thursday’s early Asian session. 
• Further easing in UK inflation data prompted the expectation that the BoE will start lowering interest rates this year. 
• Fed Chair Jerome Powell said he will wait longer than previously expected to cut rates after unexpectedly upside inflation readings.

The GBP/USD pair trades on a softer note around 1.2450 during the early Asian trading hours on Thursday. The softer UK inflation data prompted the expectation that the Bank of England (BoE) will start lowering interest rates in the coming months, which weighs on the Pound Sterling (GBP) against the Greenback. Investors will take more cues from the US weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, the CB Leading Index, and Existing Home Sales, due on Thursday. 

The BoE hinted that the UK is still on course for an interest rate cut, as recent data showed a further easing in the pace of price growth in the economy. On Wednesday, the Office for National Statistics (ONS) showed that the UK Consumer Price Index (CPI) inflation dropped to 3.2% in the 12 months to March, the softest level for two-and-a-half years. The figure was down from the previous reading of 3.4%. However, investors expect the first rate cut in August or September, according to the LSEG data. 

On the USD’s front, the upbeat February's Retail Sales earlier this week suggested a robust economy in the United States. The report triggered speculation that the Federal Reserve (Fed) might delay its easing cycle this year. The Fed Chair Jerome Powell stated that he will wait longer than previously expected to cut rates after unexpectedly upside inflation readings. Powell added that the US central bank will likely take more time to gain confidence that price growth is headed toward the Fed’s 2% target before lowering borrowing costs. This, in turn, provides some support to the Greenback and caps the upside of the GBP/USD pair.