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.
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.
NZD/USD trades to a fresh yearly high (0.6998) as it retraces the decline from the start of the week, and the exchange rate may continue to appreciate over the remainder of the week as it climbs above the 200-Day SMA (0.6908) for the first time since November.
NZDUSD initiates a series of higher highs and lows after failing to test the 0.6870 zone, with the exchange rate pushing back around 0.6940 to 0.6990 as it trades to a fresh yearly high (0.6998).
Need a close above the overlap around 0.6940 to 0.6990 to bring the 0.7070 to 0.7110 area on the radar, with a break above the October high (0.7219) opening up the 0.7260 region.
Failure to hold above the overlap around 0.6940 to 0.6990 may push NZD/USD back below the 200-Day SMA (0.6908), with a move below the 0.6870 zone, with the next area of interest coming in around 0.6770 to 0.6810 which largely lines up with channel support.
In the absence of significant scheduled risk events this week, sterling could fall back in line with its historical performance for the month of April, shown in the heatmap below. Using GBP/USD data from the beginning of 2010 until now, April emerges as cables strongest month followed immediately by May, the worst month on average. On average, since 2010 the pound appreciated by 1.39% for April while May saw a depreciation vs the dollar of 1.80%.
Should history repeat itself, cable is in a prime position for an extended move higher. GBP/USD has sold-off since June 2021 and currently trades around the lower bound of the long-term descending channel , meaning there is a lot of room to the upside should we start to see significant bullish momentum.
While the current chart still appears bearish, sterling appears to have bounced off the 1.3080 level , a prior level of support. Short term sterling momentum may see prices approach 1.3190 as the nearest level of resistance, followed by the zone of resistance around 1.3265.
Something to keep in mind is the relative stages of the rate hiking cycle between the Fed and the Bank of England (BoE). The dollar has shown resilience and is likely to remain at elevated levels when considering the increasing probability of 50 basis point hikes in May and June. In contrast, the BoE has already hiked in all of their last three meetings (none of them being as large as 50 basis points) and may become reluctant to hike at the same pace in light of the negative economic effects of the war in Ukraine - mainly stubbornly high energy prices.
AUD/USD trades to a fresh yearly high (0.7528) as it extends the series of higher highs and lows from the start of the week, and the rally may push the Relative Strength Index (RSI) into overbought territory for the first time in 2022 as it appears to be on track to test the October high (0.7556).
AUD/USD appreciates amid the ongoing improvement in investor confidence, with the recent strength in commodity bloc currencies largely coinciding with the rise in global equity prices, and a further improvement in risk appetite may continue to push the exchange rate to fresh yearly highs even as a growing number of Federal Reserve officials show a greater willingness to adjust the exit strategy.
AUD/USD trades above the 200-Day SMA (0.7297) for the first time since June 2021 as it clears the yearly opening range in March, with the break/close above the 0.7440 (23.6% expansion) region pushing the exchange rate towards the 0.7560 , which lines up with the October high (0.7556).
The recent advance AUD/USD may push the Relative Strength Index (RSI) above 70 for the first time in 2022 as the exchange rate extends the series of higher highs and lows from earlier this week, with a break/close above the 0.7560 area bringing the 0.7640 region on the radar.
However, failure to clear the October high (0.7556) may push AUD/USD back towards the 0.7440 region, with a break/close below 0.7370 bringing the 0.7260 area back on the radar.