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

Fundamental view:

The Euro dropped against the US dollar during the trading course of the week. The Federal Reserve policymakers hawkish stance favored the greenback meanwhile escalating Ukraine – Russia saga weighed on the Euro. US Federal Reserve Chair Jerome Powell aggressive speech helped the dollar. A slew of Fed members along with Powell favored the 50bps hike and has noted they would support such a move as soon as May. He noted that their plans to reduce the balance sheet would likely be completed by the next meeting, although he did not clarify when they would start shrinking it. Meanwhile, several members of the ECB have hinted at a rate hike by the end of the year. This is now planned for the third quarter of the year, earlier than previously planned by the central bank.  

US President Joe Biden had a meeting  with European leaders, G-7 partners, and NATO allies before a White House press briefing. Besides other things, Biden said he would support the expulsion of Russia from the G-20, noting that sanctions could not deter Russia but might eventually force it to end the invasion. Additionally, he said that the US does not confirm that it will send troops to Ukraine if the Kremlin decides to use weapons of mass destruction.

In this week, ECB President Lagarde Speech on 21st March,  EU Leaders Summit on 24th March and US Core Durable Goods Orders monthly report on 24th March underpins the bullish trend whereas Eurozone PPI monthly report on 21st March and US Pending Home Sales yearly report on 25th March underpins the bearish trend for the pair.

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

EUR/USD Weekly outlook:

Technical View:

Last week’s high was 0.61% lower than the previous week. Maintaining high at 1.1070 and low at 1.0961 showed a movement of 109 pips.

In the upcoming week we expect EUR/USD to show a bearish trend. The currency pair is trading below the 200 Simple Moving Average and the MACD trades to the downside. Should 1.0943 proves to be unreliable support then the pair may fall further to 1.0897 and 1.0834 respectively whereas a solid breakout above 1.1052 will open a clear path upward to 1.1115 and then will further raise up to 1.1161. In H4 chart, if breakout of the Symmetrical triangle is to the downside then bearish expectation is favored. Also to be noted bearish engulfing pattern formation exerts the expectation of downtrend for the pair.

Preference
Sell: 1.0977 target at 1.0871 and stop loss at 1.1057

 

Alternate Scenario
Buy: 1.1057 target at 1.1160 and stop loss at 1.0977

Uptick in oil prices favors CAD

  • An uptick in crude oil prices underpins the commodity-linked loonie.
  • Markets sentiment remains sour about the lack of progress in the Russia-Ukraine peace negotiations.
  • Jonathan Wilkinson said Canada can help improve global energy security by increasing oil and gas exports following Russia’s invasion of Ukraine.

 

The Canadian dollar trades high against the US dollar during Friday trading session with rising oil prices amidst sour market sentiment and broad USD strength.

An uptick in crude oil prices has favored the commodity-linked loonie and kept a lid on any meaningful upside for the USD/CAD pair.  The latest upside in oil prices has roots in the expectations that Europe’s reliance on Russian oil, that restricts the US to take stronger action against Russia, might not be able to solver the supply crunch fears.

Market sentiment remains sour about the lack of progress in the Russia-Ukraine peace negotiations. Besides this, the stoppage of crude exports from Kazakhstan’s Caspian Pipeline Consortium (CPC) terminal underpinned crude oil prices.

Western leaders piled on military and humanitarian aid for Ukraine on Thursday and denounced Moscow’s invasion of its neighbour as “barbarism” as thousands in besieged cities sheltered underground from Russian bombardment.

This week, FOMC members including Fed Chair Jerome Powell, raised the possibility of a 50 bps rate hike at the upcoming policy meeting in May. Increasing Oil prices and the rate hike puts additional pressure on the already high inflation which favors the greenback.

Natural Resources Minister Jonathan Wilkinson said in a statement on Thursday that Canada has capacity to increase oil and gas exports by up to 300,000 barrels per day (bpd) in 2022 to help improve global energy security following Russia’s invasion of Ukraine, .Canada, the world’s fourth-largest crude producer, is keen to help shore up long-term energy security as countries that previously relied on Russian oil and gas look for replacements amid sanctions aimed at punishing Russia.

USD/CAD 4 Hour Chart:

Support: 1.2494 (S1), 1.2464 (S2), 1.2418 (S3).

Resistance: 1.2570 (R1), 1.2616 (R2), 1.2646 (R3).

The focus will remain on geopolitics amid expectations that US President Joe Biden will announce new sanctions targeting Russian politicians, Comments from Bank of Canada’s (BOC) Deputy Governor Toni Gravelle and Fed policymakers to take clues on further direction of the quote. In the meantime, we expect a bearish trend for USD/CAD.

Strong demand for Safe haven favors bullion

  • The yellow metal climbs higher amid the lack of progress in the Russia-Ukraine peace talks.
  • A firmer dollar backed by hawkish Fed puts a cap on gold’s gains.
  • Analyst say “Investor demand was also boosted by higher energy prices, which will put further pressure on inflation.”

 

The yellow metal trades high against the US dollar during Thursday trading session as inflation risks and the intensifying Ukraine crisis propped up demand for safe havens, although firmer dollar places a cap on gold’s gains.

Federal Open Market Committee member Loretta Mester is in favor of some 50bp hikes this year, and she also added that the economy has excess demand. However, She doubts rate hikes will cause a recession and that unwinding the balance sheet will help reduce distortions in the yield curve. Meanwhile, St. Louis Federal Reserve President James Bullard’s remains hawkish and comments that “US economy will continue to grow above trend this year and next.”

According to a Analyst, “High inflation is in favour of precious metals and it is not going to go away anytime soon,” Meanwhile rising bond yields were limiting the gains in gold and could force the metal to trade “sideways and choppy.”

Analysts at ANZ Bank said ”Investor demand was also boosted by higher energy prices, which will put further pressure on inflation. Adding to the positive backdrop was a fall in US bond yields. Bonds have been selling off amid hawkish comments from the Federal Reserve.”

Lack of progress in the  Russia-Ukraine peace negotiations makes the market sentiment sour. Italy’s Prime Minister Mario Draghi noted that Russia is not showing interest in a truce for successful peace talks. Separately, Russian Foreign Minister Sergei Lavrov said that talks with Ukraine are difficult as Kyiv is constantly changing its position.

Additionally, Russian President Vladimir Putin’s threat to switch certain gas sales to roubles sent European futures soaring on concerns the move would exacerbate an energy crunch and jam up deals that run to hundreds of millions of dollars every day.

XAU/USD 4 Hour Chart:

Support: 1923.2 (S1), 1903.0 (S2), 1890.4 (S3).

Resistance: 1956.1 (R1), 1968.7 (R2), 1988.9 (R3).

The bullion price is on firm ground amid the strong demand for safe-haven assets; we expect a bullish trend for XAU/USD.

Pound edges higher ahead of CPI

  • If CPI unfolds above or meets the preliminary estimate then it will create hope for one more rate hike from BoE.
  • The market prices with a 72.2% probability that the Fed will hike the fed fund rates by 50 basis points in May.
  • President Volodymyr Zelenskiy said Talks between Ukraine and Russia are confrontational but moving forward, West plans more sanctions.

 

Pound traded higher against the US dollar during Tuesday trading session. The sterling has been underpinned by strength in risk appetite as global equities move higher, resulting in a weaker USD and this move comes ahead of the CPI data which is due later today.

 A preliminary estimate for the yearly UK’s CPI is 5.9% that is far high then the previous record of 5.5%. If the CPI comes as per expectation then it will create hope for one more rate hike by the Bank of England (BOE). Meanwhile. BOE has increased its interest rates by 25 basis points (bps) three times in a row. Also, the BOE was the first central bank, which elevated its interest rates after the widespread of Covid-19.

On the other hand, the market already digested the 7 rate hike announcement from the Fed. St. Louis Fed President James Bullard called for the central bank to raise its benchmark overnight interest rate to 3% this year and move aggressively to keep inflation under control. The market is pricing in a 72.2% probability that the Fed will hike the fed fund rates by 50 basis points in May. Odds for a bigger hike jumped from just over 50% on Monday.

Talking about the Ukraine crisis, Talks between Ukraine and Russia are confrontational but moving forward, President Volodymyr Zelenskiy said on Wednesday, as the West plans to announce more sanctions against the Kremlin amid a worsening humanitarian crisis.

Intense Russian air strikes are turning besieged Mariupol into the “ashes of a dead land”, the city council said on Tuesday, as street fighting and bombardments raged in the port city.

In an early morning address, Zelenskiy held out hope for negotiations, which have yielded little since the Feb. 24 invasion began. “It’s very difficult, sometimes confrontational,” he said. “But step by step we are moving forward.”

Mariupol has become the focus of the war that erupted when Putin sent his troops over the border on what he calls a “special military operation” to demilitarise Ukraine and replace its pro-Western leadership. If the war situation escalates then it would weigh on the risk perceived pound

GBP/USD 4 Hour Chart:

Support: 1.3164 (S1), 1.3065 (S2), 1.3011 (S3).

Resistance: 1.3317 (R1), 1.3371 (R2), 1.3470 (R3).

Apart from the UK CPI data and Fed Powell speech will be the key catalysts in directing the pair, However market will also keep an eye on the Ukraine headlines. In the meantime, we expect a bullish trend for GBP/USD.