USD/CAD drops amid improved market mood

  • Reports of progress in Russia – Ukraine favors risk-on market mood, weighing on the USD, thus slightly boosting the CAD.
  • An uptick in oil prices underpinned the loonie bulls.
  • Market expect aggressive rate hike in 2022 from Fed and BoC.

 

USD/CAD is trading downside amid reports of progress in peace talks between Russia and Ukraine and renewed upside in oil prices.

In Tuesday’s face-to-face talks in Istanbul, Russia pledged to scale down military operations around the Ukrainian capital of Kyiv, while Ukraine proposed adopting a neutral status. However, the U.S. warned that the threat to Kyiv remains, pouring cold water on the optimism for an end to the war that began with the Russian invasion on Feb. 24. The risk on mood weighed on the greenback.

WTI prices rebounded after tumbling on Tuesday. Firmer oil prices extends support to the Canadian dollar. Additionally, The Bank of Japan (BOJ) unlimited bond-buying program-led slump in USD/JPY also added to the weight on the greenback.

Elsewhere, Philadelphia Fed President Patrick Harker crossed the wires. Harker noted that inflation in the US would be around 4% in 2022 and also added that the US central bank “misjudged” the effect of fiscal expenditure on inflation. He added to the list of policymakers those do not rule out a 50-bps increase to the Federal Funds Rate. Harker commented that the QT could add the equivalent of two quarter-point rate increases to Fed tightening.

Market are pricing at more rate hikes by the Federal Reserve in 2022. In fact, some market players expect two 50 bps increases in the May and June meetings.

Meanwhile, according to reuters, regarding Bank of Canada, “Market are pricing in between 200 and 225 basis points in the six remaining interest rate announcements in 2022, up from about 140 basis points before a blockbuster employment report this month.”

USD/CAD 4 Hour Chart:

Support: 1.2469 (S1), 1.2439 (S2), 1.2409 (S3).

Resistance: 1.2530 (R1), 1.2560 (R2), 1.2590 (R3).

Amidst all the catalysts favoring the CAD in the risk on mood making USD lose demand as a safe haven. We expect a bearish trend for USD/CAD.

BOJ’s intervention favors Yen

  • The Bank of Japan (BOJ) on Tuesday told the market it would make unlimited amounts of purchases of 10-year JGBs at 0.25%.
  • Japan’s Policymakers stressed the need to keep monetary policy easy despite of rising prices.
  • Japan Prime Minister orders cabinet to compile relief package to combat rising prices.

 

US dollar is trading low against the Japanese yen during Tuesday trading session on BOJ’s second consecutive day of intervention.

Japan’s 10-year government bond yields hovered near the upper limit of the Bank of Japan’s yield target on Tuesday, even as the central bank remained determined to defend the target, repeating its offer to purchase bonds. The Bank of Japan (BOJ) on Tuesday told the market it would make unlimited amounts of purchases of 10-year JGBs at 0.25%. That was in line with its statement on Monday of a standing offer to buy the bonds at 0.25% for three days starting on Tuesday after yields on Monday rose to that level, the highest in six years, and the upper limit of the BOJ’s policy band. This, in turn, provided a goodish lift to the Japanese yen.

Meanwhile, Japanese policymakers stressed the need to keep monetary policy ultra-loose, even as some of them saw signs of growing inflationary pressure from the Ukraine crisis, according to a summary of opinions at their March meeting released on Tuesday.

Japanese Prime Minister Fumio Kishida on Tuesday ordered his cabinet to put together a fresh relief package by the end of April to cushion the economic blow from rising fuel and raw material prices.” We need to prevent rising fuel, raw material and food prices from inflicting a huge impact on people’s livelihood and economic activity,” Kishida told his cabinet ministers, underlining the policy dilemma facing Japan and the rest of the world as the Ukraine crisis fans global inflationary pressures.

Kishida said for the time being, the government will tap special reserves set aside under the fiscal 2022 budget to fund the spending measures, the 5.5-trillion yen ($44.4 billion) in special reserves is mainly set aside for emergency spending to cope with the COVID-19 pandemic.

On the other hand, it is worth noting that a slew of influential FOMC members, including Fed Chair Jerome Powell, left the door open for a larger rise in borrowing costs to bring down unacceptably high inflation. The markets were quick to price in the possibility of a 50 bps Fed rate hike move at the May policy meeting. This underpinned the 10-year US government bond to stand tall near the highest level since 2019 and limiting the downside for the yen pair.

USD/JPY 4 Hour Chart:

Support: 122.22 (S1), 120.56 (S2), 119.12 (S3).

Resistance: 125.32 (R1), 126.76 (R2), 128.42 (R3).

The yen pair remains volatile amidst Fed-BoJ divergence, we expect a bearish trend for USD/JPY.

Hopes of progress in peace talks weighs on gold

  • Yellow metal drops amid firmer USD and hopes of progress in peace talks between Russia- Ukraine.
  • Risk averse sentiment amid tensions between the West and Russia and indecision over the Moscow-Kyiw talks favors the greenback.
  • Higher yields and interest rates increase the opportunity cost of holding non-yielding bullion.

 

Gold drops against the US dollar during Monday trading session since the dollar index gained and the US Treasury yields were firm near multi-month highs. Meanwhile, market is focused on the potential Russia-Ukraine peace talks this week which further weighs on the gold price.

The yields for the benchmark 10-year bonds in the US and Japan recently reached the highest levels since 2019 and 2016 respectively.

There is a hope for progress on the Russia-Ukraine peace talks, as negotiators meet for another round of talks in Turkey from March 28-30. However, Market sentiment remains risk averse because of tensions between the West and Russia additionally, indecision over the Moscow-Kyiw talks. The comments from US President Joe Biden suggesting the indirect threat to the Russian President Vladimir Putin weighs on the market sentiment although White House and Germany tried to reduce the fears.

Whereas, Ukrainian President Volodymyr Zelenskyy makes statement showing interest in peace talks, “We’re ready to discuss neutrality and non-nuclear status if security guarantees are provided.” However, his statements like, “Ukraine to insist on sovereignty and territorial integrity with talks with Russia,” poses a challenge to the odds of success.

The Fed raised borrowing costs for the first time in three years last week, and traders are pricing in a probability of a 50-basis-points rate hike during the policy meeting in May. Higher yields and interest rates increase the opportunity cost of holding non-yielding bullion. This further weighs on the yellow metal.

High bullion prices led some people to sell old jewellery in India last week amid dim physical gold demand, while a resurgence in COVID-19 cases in China hit purchases of the metal in the country. China’s financial hub of Shanghai launched a planned two-stage lockdown of the city of 26 million people on Monday to contain surging local COVID-19 cases. The rising cases of covid in china also weighed on the market sentiment.

XAU/USD 4 Hour Chart:

Support: 1945.7 (S1), 1933.8 (S2), 1924.4 (S3).

Resistance: 1966.9 (R1), 1976.3 (R2), 1988.2 (R3).

The Firmer USD amid sour market sentiment weighs on the non yielding bullion. We expect a bearish trend for XAU/USD.

BTC/USD Weekly Forecast (28th March 2022 – 1st April 2022)

Fundamental view:

Bitcoin traded high against the US dollar during the trading course of the week. News of Russia accepting cryptocurrency in exchange of oil and gas exports favors the Bitcoin. Russia’s head of the energy committee has said the country is willing to accept bitcoin in exchange for oil and gas exports from countries like China and Turkey, as sweeping sanctions over its war in Ukraine hit trade. In a news conference televised on Thursday, Pavel Zavalny said Western countries can pay in the ruble and gold if they want to buy Russian energy, according to translated remarks.  But for “friendly” countries like China and Turkey, the country is open to payment in their own currencies – or even in the leading cryptocurrency, he said. Meanwhile, US Secretary of the Treasury Janet Yellen nodded to the benefits offered by cryptocurrencies, stating that the Treasury wants to provide guidance for future regulation that supports innovation in the space, this also helped the Bitcoin bulls.

On the other hand, Federal Reserve Chairman Jerome Powell talked about the need to establish new regulation for crypto currency during a panel discussion on digital currencies organized by the Bank for International Settlements (BIS). He noted that new forms of digital money, including cryptocurrencies and stablecoins, will require new rules to protect consumers. This news weighed on the Bitcoin. Besides this, FOMC members hawkish stance on rate hike and escalating Ukraine saga weighed on the Bitcoin.

The major economic events deciding the movement of the pair in the next week are Goods Trade Balance at Mar 28, CB Consumer Confidence Index at Mar 29, ADP Nonfarm Employment Change, GDP quarterly report, EIA Crude Oil Stocks Change at Mar 30, Initial Jobless Claims at Mar 31 and Nonfarm Payrolls at Apr 01 for US.

BTC/USD Weekly outlook:

Technical View:

Last week’s high was 6.05% higher than the previous week. Maintaining high at 45099.5 and low at 40519.0 showed a movement of 4580 pips.

In the upcoming week we expect BTC/USD to show a bullish trend. The Instrument is trading above the 200 Simple Moving Average and the MACD trades to the upside. A solid breakout above 46037.9 may open a clean path towards 47859.0 and may take a way up to 50618.5. Should 41457.4 prove to be unreliable support, the BTCUSD may sink downwards 38697.9 and 36876.9 respectively. In H4 chart ascending scallop pattern favors prospects of a bullish trend. Bullish harami pattern constructs a bullish outlook for the pair in the upcoming week.

Preference
Buy: 44268.5 target at 48387.9 and stop loss at 41452.6

 

Alternate Scenario
Sell: 41452.6 target at 36877.4 and stop loss at 44268.5