The dollar is the frontrunner on the session, alongside the yen, as we continue to see the same old themes play out before the weekend approaches.
Higher yields, stronger dollar, and more sluggish equities seems to be the name of the game in April and not much will change before the FOMC meeting on 4 May in my view.
EUR/USD is pinned down 0.3% to test 1.0800 again, though recent lows close to 1.0760 might provide some additional support for the pair for the time being. But the downside for the euro is that it is seen struggling despite markets pricing in a more hawkish ECB. I’d argue that there is still the propensity for the central bank to disappoint come July.
Meanwhile, the pound is in freefall after a break below 1.3000 in cable. The next key support is the 50.0 retracement level at 1.2830 and the pair is still holding down 1% around 1.2890 currently.
USD/JPY is keeping rather flattish around 128.30 but that belies the more back and forth action from earlier with dip buyers stepping in after the pair fell to a low of 127.75.
Elsewhere, the aussie and kiwi are also pinned lower with AUD/USD breaking below some key support levels:

The pair has fallen past the 50.0 retracement level of its swing higher this year @ 0.7315 and also broken the trendline support during that move. The 200-day moving average (blue line) @ 0.7293 is the next key support level to watch.

The offshore yuan weakened to 6.52 against the dollar today, the lowest level since July last year.
Chinese policymakers sort of disappointed on expectations for a LPR cut this week but they are making up for that in supporting the economy through other means. The evident weakening of the yuan is one of that.
The Chinese currency is set for its biggest weekly drop against the dollar since the early days of the pandemic. And allowing it to weaken past 6.50 sets the stage for added weakness until we start to see local authorities step in.
The previous „range“ that Chinese officials were comfortable with was around 6.30 to 6.40. We’re off now to figure out where exactly they’d be happy to see the currency hold next. The March 2021 high just above 6.58 will be one to watch as a break above that could hint at the PBOC wanting a much weaker currency to bolster exports.As mentioned as well a few days back, the move here is also one to be mindful about as it also helps to provide a tailwind for the dollar in general.

It is said that Lagarde has told policymakers to hold back on criticism and dissenting views on policy decisions for several days. The move comes as Lagarde is said to struggle with the vocal dissent from more hawkish members and persistent leaks about the internal debate within the governing council.The sources note that Lagarde has told policymakers to present the majority view after policy decisions – which are on Thursdays – and hold back on „personal“ views until the Monday after.The supposed guideline also calls for policymakers to not leak details of internal discussions to the press but these are informal directions so policymakers aren’t exactly obliged to follow them.The sources reporting also adds that Lagarde’s effort above is not really going down too well with some members. One of the sources stated that:“Do you want leaks? Because this is how you get them. If people can’t speak openly, they’ll still talk but using different channels.“Well, with surging inflation pressures, it is certainly making it easy for ECB hawks to keep sniping at the central bank’s decision and guidance these days. You can’t blame Lagarde for wanting to control the situation but I fear it will not win her any friends considering how diverse and at times divided the ECB can be on these views.In part, it is also to strengthen the decision and statement put out by the central bank on the day itself. I mean how many times have we seen one thing from the ECB decision only for „close sources“ to leak out a different story a couple of hours after that?

Headlines:ECB’s de Guindos: A rate hike is possible in July, will depend on dataECB’S Wunsch says policy rates could turn positive this yearECB’s Lagarde: Policy will depend on incoming dataBOJ Gov Kuroda says its desirable for forex rates to move stably, reflecting fundamentalsEurozone March final CPI +7.4% vs +7.5% y/y prelimFrance April business confidence 106 vs 107 priorChina commerce ministry says to roll out targeted measures to boost consumptionMarkets:EUR leads, NZD lags on the dayEuropean equities higher; S&P 500 futures up 0.9%US 10-year yields up 3.3 bps to 2.869%Gold down 0.8% to $1,941.50WTI up 1.0% to $103.21Bitcoin up 2.9% to $42,630The euro was the notable mover on the session as it got inspired by some added hawkish talk by ECB vice president Luis de Guindos, hinting at a potential rate hike in July.That saw EUR/USD move up from 1.0857 to 1.0936 before retreating to 1.0880 levels currently. There are large expiries at 1.0900-05 rolling off today helping to keep a lid on price action alongside key Fib levels pointed out here.The dollar is holding up decently, keeping above 128.00 against the yen while GBP/USD is down 0.2% to 1.3040. The aussie and kiwi are also slightly softer on the day but price movements in FX are still fairly narrow for the most part.The bond selling is continuing with Treasury yields keeping slightly higher across the curve. Meanwhile, equities are looking buoyed with US futures soaring after Tesla’s earnings was a blowout. The more positive mood is also buoying European indices on the day.Elsewhere, gold is seen struggling as it slumps to near two-week lows as price falls further after the rejection near $2,000 at the start of the week.

Inflation. Inflation. Inflation.That is number one topic in markets at the moment and we are not likely to see the focus shift before the next Fed policy meeting on 4 May.The bond market remains a key driver of trading sentiment, as evident with the somewhat parabolic rise in yen pairs since March trading. The price action there mimics the surge higher in bond yields during the period.All of this comes as inflation is rampaging higher and is putting central banks under the microscope.That said, there are certain quarters in the market that are coming around on the idea of ‚peak inflation‘. That may be something that could play out in the weeks/months ahead as central banks also adopt a similar view. If so, what comes next?It’s all about data at the end of the day and if inflation pressures are showing signs of slowing down, it could very well drive yields and the US dollar in the opposite direction. The greenback has benefited strongly from the market pricing in a rather aggressive Fed but the rates outlook may not be as bullish if ‚peak inflation‘ attaches a ceiling on policy action.Besides, can you say that the market isn’t quite prepared for 2.50% to 3.00% Fed funds rate now? Certainly not. Pretty much everyone is expecting such a trajectory in this cycle. As such, talk of ‚peak inflation‘ will present risks to that outlook and we could see some pushback to the recent market movements.But for now until 4 May, things aren’t likely to change. Central banks will dominate proceedings in the weeks ahead but let’s also not forget about month-end trading coming up next week.

Fibonacci retracements
levels are horizontal lines plotted on a chart using the corresponding tool
that display possible support and resistance levels. The levels are
based on the Fibonacci’s golden ratio, that is 1.618 and it can be used to
describe proportions of everything in nature, from atoms to complex patterns in
the universe like celestial bodies, therefore, many traders believe that these
numbers also have relevance in financial markets.

 

The
retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not officially a
Fibonacci ratio, 50% is also used. The indicator is useful because it can be
drawn between two significant price points, such as a swing high and a swing
low to pinpoint a possible entry on a pullback. In an uptrend you draw it from
the swing low to the swing high, while in a downtrend from the swing high to
the swing low. The tool will then display the levels between those two points.

 

 

The thing
that makes Fibonacci quite effective is because lots of traders use them and so
everyone expects others to act from Fibonacci levels making it almost a
self-fulfilling prophecy. Many traders also draw more Fibonacci levels from
different swings when they are confusing to get confluence.

 

Look for the
most obvious swings when drawing Fibonacci levels and try to get some
confluence with other technical concepts like support and resistance,
trendlines, indicators and so on. Fibonacci helps you to plot levels where a
retracement from the overall trend may bounce back giving you a trading
opportunity to enter or re-enter the market.

 

 

This article
was written by Giuseppe Dellamotta.

Ample policy support remains in placeSees further inflation pressure from supply bottlenecksNot really giving much away here with these remarks but they also don’t really take away from the more hawkish comments from Kazaks and de Guindos so far this week. Just a heads up, Lagarde will be speaking later in the day alongside Powell in a panel discussion as Eamonn previewed earlier here.

Just a couple to take note of for the day, that being large ones for EUR/USD at 1.0900-05 and USD/CAD at 1.2500.I highlighted the significance of the former earlier here, after the euro got a bit of a boost to push above 1.0900 following more hawkish remarks by ECB vice president Luis de Guindos. That could keep euro price action more anchored alongside Fib levels @ 1.0921 and 1.0971 respectively as also pointed out in the linked post above.Meanwhile, the largish one for USD/CAD may help to keep a lid on any upside push alongside some light offers as the pair tests waters below the 1.2500 mark. Besides that, there isn’t anything else too significant.For more information on how to use this data, you may refer to this post here.

Headlines:The yuan drop this week is one to pay attention toECB’s Kazaks: A rate hike is possible as soon as JulyBOJ to continue with bond market intervention through to next weekNo such thing as good or bad when it comes to exchange rate, says Japan govt officialUS MBA mortgage applications w.e. 15 April -5.0% vs -1.3% priorGermany March PPI +4.9% vs +2.6% m/m expectedEurozone February industrial production +0.7% vs +0.7% m/m expectedEurozone February trade balance -€7.6 billion vs -€27.2 billion priorMarkets:JPY leads, USD lags on the dayEuropean equities higher; S&P 500 futures up 0.1%US 10-year yields down 5.4 bps to 2.861%Gold up 0.2% to $1,954.10WTI up 1.5% to $104.06Bitcoin up 2.0% to $42,140The yen weakened to its lowest level in two decades in Asia Pacific trading but caught a bid after hitting an air pocket with USD/JPY sliding from a high of 129.40 to a low of 127.60 in European morning trade.The pair is still down nearly 120 pips now to 127.70 levels as we see a bit of a retracement amid fears of intervention and profit-taking on the way up towards the 130.00 level.The drag in the pair is also weighing on the dollar across the board as we see the bond market selling also take a bit of a breather. 10-year Treasury yields are down over 5 bps to 2.86% after having hit a high of 2.98% during the early stages of the week.The dollar drag helped to see EUR/USD climb to 1.0840 before hawkish remarks by ECB policymaker Kazaks on a July rate hike helped to prop up the euro to 1.0865 though that jump has since abated. GBP/USD is up 0.5% to 1.3050-60 as buyers continue to hold a defense of the 1.3000 level.Elsewhere, AUD/USD is seeing a decent jump of 0.9% back above 0.7400 to 0.7430-40 levels as buyers seize back some near-term control in the pair. Put together the near-term dollar charts and that hints at a bit of a breather in the recent dollar momentum.There isn’t much leading the change in narrative though we are seeing USD/JPY be rather overstretched so perhaps that calls for a bit of a correction. Besides that, the usual drivers are still at play i.e. the bond market and inflation vs central bank debate.

The European Central
Bank kept its benchmark interest rates unchanged, as widely expected and stuck
to its decision to end the stimulus program in the third quarter of this year
but did not provide any further details that disappointed markets, as many expected
a hawkish reaction in light of surging inflation that prompted a number of
major central banks to start tightening policies.

 

The ECB’s President Christine Lagarde
pointed to growing uncertainty on the war in Ukraine, as the main obstacle, but
said that the central bank will maintain optionality, gradualism and
flexibility in conducting its monetary policy.

 

The end of asset
purchases could come at any time in the third quarter but without any further
information about the timing, as well as no timeframe for when the central bank
would start to raise rates, adding that rate hike could occur weeks or even
months after the stimulus ends and when the ECB gets there.

 

Unexpectedly dovish
stance suggests that the European Central bank is diverging from its all major
peers, as the US Federal Reserve and The Bank of England already started to
tighten their policies after nearly three years, with the US central bank
leading on expectations for eight or more hikes in next two years.

 

The most recent action
in increasing the cost of borrowing, was seen from the central banks of New
Zealand, Canada and South Korea.

 

The policymakers were
split, as hawks, including governors of Germany, Austria, Netherlands and
Belgium, made the case for rate hikes, arguing that inflation could rise
further, with households and the economies overall being already strongly hit
by rising energy prices, draining
household savings and growing uncertainty.

 

On the other side,
doves supported their decision by the notion that most of the inflation is a
result of an external supply shock, therefore the price pressures will fade over
time.

Lagarde supported the
central bank’s decision to stay on hold, by the situation in Ukraine, as all 19
economies of the eurozone are heavily exposed to the conflict that further
damages the confidence and adds to persisting supply disruptions that started
during the coronavirus pandemic.

 

The bloc’s members are
also strongly concerned about the reverse impact of sanctions imposed on
Russia, as the newest plan to add Russian oil and natural gas to the list of
banned items imported from Russia, as the bloc is so far lacking unity on this
matter, with strong dissonant tones coming from Germany, the EU’s largest
economy, Hungary and Slovakia.

 

If all members agree on
imposing sanctions on energy from Russia that would further undermine the
already fragile bloc’s economy, not recovered from the pandemic and sent most
of the countries of the union into recession, a scenario that all want to
avoid.

Lagarde stressed that
the EU economy’s development will be strongly dependent on how the conflict
evolves that results in the central bank’s prolonged ‘sit and wait’ policy
which continues to damage the confidence and darkens the outlook, as economists
already lowered bets on a rate hike by the end of the year.

 

The ECB currently faces two opposing economic
forces as the recent surge in inflation, which rose to a record high at 7.5%,
collides with the central bank’s
purchases of nearly 5 trillion euros of public and private debts in the past
few years, aiming to revive inflation which was stubbornly low since 2015 until
recently.

 

Continuation of pumping
money into the economy, although the ECB signaled it will end purchases
sometime in the third quarter, will continue to fuel the inflation which is
already at the historical high and threaten of further undermining the economic
growth that would push the bloc’s economy into recession.

 

On the other side, the
European Central Bank fears that raising interest rates in a situation when the
economy has not recovered from a strong contraction during Covid pandemic,
could produce a negative effect.

 

Overall, the EU is in a
difficult situation, as five top German economic agencies sharply lowered their
forecasts for the GDP growth of the bloc’s largest economy which is expected to
reflect on the whole union’s economy, with a dramatic warning that the economy
would fall into recession as the EU would sanction itself by imposing sanctions
on Russian energy.