Markets appear to be convinced that the US Federal Reserve would raise interest rates more aggressively to confront persistently rising inflation. Meanwhile, the mood surrounding the Bank of England is dovish after the dovish rise given in March, owing to concerns about the economic prospects. Nonetheless, higher-than-expected inflation in the coming weeks may put further pressure on the Fed to move more aggressively.
The GBP/USD price is traveling at the 1.3012 level. The price is below 20, 50, 100, and 200 SMAs, signifying a bearish trend.
The next key resistance level for the pair is 1.3074. If we see a rise beyond this level, the cable can climb towards the price goes above this level, it can further climb towards 1.3094.
On the other hand, the next support is at 1.3000. If the price dips below this level, we can see it further drifting towards the 1.2972 level.
Yesterday, WTI crude oil took out the March low fractionally before reversing higher to close above the low of 93.53. The low, given the test and daily closing hold yesterday, makes support even more important. Today we are seeing some follow through that could lead to a meaningful recovery.
Maintaining support will be key to the outlook moving forward. It appears there is a high likelihood we see a bounce back over 100 in the near-term, but where we go from there will be interesting should it happen. A descending wedge will be in the works at that juncture.
Right now, there is no wedge to speak of, but should it come to pass, then the coiling up of price action following the fireworks to 130 will likely lead to another powerful move. Descending wedges tend to hold a bearish tilt, but need to be taken into context.
The lower highs and flat bottom indicate a market that is losing its ability to hold a rally at increasingly faster rates. This often times leads to the flat bottom support getting taken out. But the overall trend in oil is higher, so we could see a top-side breach. Have to play wedges/triangles as they unfold.
For now, there is resistance around the March 29 low at 98.44. The past few days oil has found it difficult to rise above, so if the rally is to extend higher off the larger support level, then it will need to clear that level. Above there the trend-line off the March high will come into play.
To get a solid-looking wedge the trend-line will need to be taken out with price advancing to around the 104/108 area. If we don’t see price rise from here and the March low gets clipped on a daily closing basis we may see oil decline towards the 2021 high at 85.41.
A more sanguine tone across the equity space as European bourses look to claw back yesterday’s hefty losses. However, despite the mild reprieve, risks remain geared towards the downside for risk assets. Last week’s failure at the 14800 pivot suggests that this area will continue to limit relief rallies in the index and thus will remain an area to fade. Meanwhile, a break below 14000 opens the door towards 13500-13600.
Next week the ECB will deliver their interest rate decision which is not expected to reveal a surprise rate hike but more importantly, market participants will be hanging on every word from ECB President Christine Lagarde regarding the end of APP (ECB’s version of QE) and the subsequent rate hike timeline.
The minutes from the March meeting were largely received as hawkish, much like the meeting itself but members of the governing council still differ in their views on inflation with some advocating for immediate normalization measures while others seemingly comfortable with inflation’s medium-term outlook.
The daily EUR/USD chart shows a strong rejection at the blue trendline resistance stemming from May 2021 which coincided with the upper bound of the rising channel. Since then, EUR/USD broke below the lower bound of the channel and now approaches the 2017 trendline acting as support. The trendline appears just before the March low of 1.0805 which is well within reach ahead of the ECB meeting. A deeper move would see 1.0635 appear as support – the March 2020 low. Any euro defiance would be contained by 1.0940 before the psychologically important 1.1000 comes back into focus.
The USD/JPY move during March was something to behold as the market was clearly caught on the wrong side of it. The move ended with a bang and right near multi-year highs over the 12500 mark. The pullback that came was to be expected given the 10 figure run proceeding it. Now that it is on the offensive again it will be interesting to see how another run in with 12500+ will be treated. The thinking is that it could result in a swat lower as the market needs more time to digest last month’s activity.
The high from 2015 at 12585 is the high of highs to watch, just above the March high at 12510. A small breakout of the March high may draw in new buyers, but will need to be careful with the more important level just beyond there. A knife through would pave the wave for an even more extended move, a scenario that certainly can’t be dismissed after volatility in USD/JPY was suppressed for several years. Even the pandemic only awakened it temporarily.
A reversal around resistance may keep USD/JPY sidelined for a few weeks. This would do it some good to rebuild up power to continue pressing on to even higher levels. For now, a short trade may develop on a failure to break above resistance.