Forex News

In the opinion of UOB Group’s Economist Lee Sue Ann and Market Strategist Quek Ser Leang, NZD/USD is still seen navigating within the 0.6160-0.6280 range in the near term.

Key Quotes

24-hour view: “Yesterday, we held the view that NZD ‘could break above 0.6280 but it is unlikely to maintain a foothold above this level’. However, NZD did not break 0.6280 as it dropped from 0.6271 to a low of 0.6215. Downward momentum has improved a tad and today, NZD is likely to edge lower but a break of 0.6190 is unlikely. On the upside, a breach of 0.6250 (minor resistance is at 0.6235) would indicate that the current mild downward pressure has eased.”

Next 1-3 weeks: “We highlighted yesterday (29 Mar, spot at 0.6250) that ‘if NZD breaks and stays above 0.6280, it would increase the risk of a break of 0.6310’. NZD rose to 0.6271 before dropping quickly from the high. The build-up of momentum fizzled out quickly. In other words, instead of breaking upwards, NZD is more likely to trade in a range for the time being, expected to be between 0.6160 and 0.6280.”

Here is what you need to know on Thursday, March 30:

Choppy action continues in financial markets in the second half of the week but investors prepare for volatility to pick up later in the day. Business and consumer sentiment data from the Eurozone, March inflation data from Germany and fourth-quarter Gross Domestic Product (GDP) reading from the US will be featured in the economic docket. Participants will also pay close attention to comments from Federal Reserve officials, including Richmond Fed President Thomas Barking and Minneapolis Fed President Neel Kashkari.

Risk flows dominated the markets in the second half of the day on Wednesday and the US Dollar's rebound following a two-day slide remained limited. Early Thursday, the US Dollar Index fluctuates in a tight channel at around 102.50 and the benchmark 10-year US Treasury bond yield stays in weekly range above 3.5%. Meanwhile, US stock index futures trade modestly higher in the early European session. In the final revision, Q4 GDP in the US is expected to match the previous estimate of 2.7%. The US Department of Labor will release its weekly Initial Jobless Claims data as well.

Earlier in the day, the data from Spain showed that the annual Harmonized Index of Consumer Prices (HICP) declined sharply to 3.1% in March from 6% in February. This reading came in much below the market expectation of 4%. In Germany, annual HICP is forecast to drop to 7.5% from 9.3%. Despite the soft inflation data from Spain, EUR/USD continues to trade in its daily channel at around 1.0850 in the European morning.

Following Wednesday's pullback, GBP/USD has regained its traction and climbed to the 1.2350 area in the European session. The UK's FTSE 100 Index opened marginally higher.

USD/JPY took advantage of the risk-positive market environment on Wednesday and registered impressive gains. The pair seems to have gone into a consolidation phase early Thursday and was last seen trading in negative territory below 132.50.

Gold price edged lower on Wednesday but didn't have a difficult time holding above $1,960. With the US yields staying indecisive on Thursday, XAU/USD continues to move up and down in its daily range slightly below $1,970.

Supported by the improving market mood, Bitcoin gained nearly 4% on Wednesday and reclaimed $28,000. BTC/USD holds its ground on Thursday and continues to edge higher toward $29,000. Ethereum registered small gains on Wednesday and was last seen moving sideways near $1,800.

The South African central bank (SARB) is likely to hike its key rate by a further 25 bps today to 7.5%. A lot already seems to have been priced in, so that the reaction of the Rand exchange rates should be moderate, economists at Commerzbank report.

SARB likely to hike further today

“With a view to rising inflation risks it cannot be excluded that a larger rate step of 50 bps will at least be discussed. However, due to the weak economy we assume that the majority on the board will vote in favour of a moderate 25 bps hike.”

“Possible ZAR gains in case of a hawkish seeming SARB are likely to be limited.”

“We do not foresee a sustainable recovery in ZAR in the current market environment and in view of the domestic challenges. ZAR investors are likely to remain cautious going forward due to possible fiscal risks too.”

• NZD/USD rebounds from the 0.6200 mark and reverses a part of the overnight losses.
• A positive risk tone undermines the safe-haven USD and benefits the risk-sensitive Kiwi.
• The upside seems limited as traders keenly await the US Core PCE Price Index on Friday.

The NZD/USD pair attracts fresh buying near the 0.6200 mark on Thursday and builds on its steady intraday ascent through the early European session. The pair is currently placed just below mid-0.6200s, up over 0.25% for the day, and for now, seems to have stalled the overnight rejection slide from a technically significant 50-day Simple Moving Average (SMA).

As investors look past softer data from New Zealand, a generally positive tone around the equity markets undermines the safe-haven US Dollar (USD) and turns out to be a key factor benefitting the risk-sensitive Kiwi. Against the backdrop of easing fears of a widespread banking crisis, hopes for a strong economic recovery in China boost investors' confidence and remain supportive of the prevalent risk-on environment. The optimism is fueled by comments from China's Premier Li Qiang, promising more stimulus to boost domestic spending and delivering reforms that can help stimulate growth.

The upside for the NZD/USD pair, however, seems limited, at least for the time being, amid reviving bets for further policy tightening by the Federal Reserve (Fed). The takeover of Silicon Valley Bank by First Citizens Bank & Trust Company calmed market nerves about the contagion risk. Furthermore, the fact that no further cracks have emerged in the banking sector over the past two weeks raises hopes that a full-blown banking crisis has been averted. This could allow the US central bank to move back to its inflation-fighting interest rate hikes, which could lend support to the Greenback.

Hence, it will be prudent to wait for strong follow-through and sustained strength above the 50-day SMA before positioning for any further appreciating move for the NZD/USD pair. Investors also seem reluctant and might prefer to wait for the release of the US Core PCE Price Index - the Fed's preferred inflation gauge on Friday - before placing aggressive directional bets. In the meantime, Thursday's US economic docket, featuring the final Q4 GDP print and Initial Weekly Jobless Claims, might influence the USD and provide some impetus to the major later during the early North American session.

From a technical perspective the pair is precariously positioned at the lower boundary line of a rising wedge pattern which has formed in the midst of NZD/USD's medium term downtrend. The pair's first attempt to breakout from the wedge on March 27, failed and the second attmept on Wednesday has equally reversed and seen prices recover. Given the longer term bearish picture, however, the pair looks vulnerable to a breakout lower. Such a breakdown would require confirmation from pushing below the March 27 lows at 0.6180 but if successful would probably fall to an initial target of 0.6160 and the 200-DMA, followed by 0.6120 – the 61.8% extension of the height of the wedge – and in a more bearish scenario, to 0.6060, the 100% extension.

Technical levels to watch

• The annual HICP in Spain declined to 3.1% in March.
• EUR/USD is holding higher ground near 1.0850 on the dismal Spanish data.

According to the latest data published by the Instituto Nacional de Estadístic (INE) on Thursday, inflation in Spain decelerated to 3.1% year-on-year (YoY) in March, compared with the previous month's unexpected jump to 6.0% and missing the market's expected forecast of 4.3%.

On a monthly basis, the Spanish Harmonized Index of Consumer Prices (HICP) measure fell to 1.1% in March from 0.9% recorded in February. The expectations were for a 1.6% reading.

Meanwhile, the annualized Consumer Price Index (CPI) in the fourth largest euro area economy fell sharply to 3.3% vs. 3.8% expected and 6.0% previous.

The Spanish monthly CPI declined to 0.4% in March vs. 0.65% expected and the February print of 0.9%

Spain has been routinely seen as a 'bellwether' for broader Eurozone inflation with a lead of about four months.

Market reaction

EUR/USD showed little to no reaction to the Spanish inflation data. The pair is trading at 1.0842, modestly flat on the day.

• EUR/CHF extends the previous day’s pullback from a one-week high to pare Tuesday’s heavy gains.
• U-turn from monthly resistance line, looming bear cross on MACD lures sellers.
• Convergence of 100, 200-EMA and a fortnight-old ascending trend line appears a tough nut to crack for bears.

EUR/CHF holds onto the previous day’s bearish bias while refreshing intraday low near 0.9945 during early Thursday morning in Europe.

On Tuesday, the cross-currency pair marked the heaviest daily gains in 11 weeks but failed to surpass a downward-sloping resistance line from March 02.

Not only the failure to cross the key resistance line but the overbought RSI (14) and the impending bear cross on the MACD also lures the EUR/CHF pair sellers during the second consecutive loss-making day.

It’s worth noting, however, that the 100-bar and 200-bar Exponential Moving Average (EMA) joins a two-week-long ascending trend line to highlight the 0.9915-10 area as the key challenge for the EUR/CHF bears to tackle to keep the reins.

Following that, the 0.9900 round and multiple levels around 0.9850 can offer intermediate halts during the pair’s fall targeting the monthly low of around 0.9705.

On the flip side, a clear break of the aforementioned resistance line, close to 0.9985 at the latest, isn’t an open invitation to the EUR/CHF bulls as a downward-sloping trend line from January 12, near 1.0020, acts as an extra filter towards the north.

Should the EUR/CHF price manage to cross the 1.0020 hurdle, the odds of witnessing a rally towards the yearly top of around 1.0100 can’t be ruled out.

EUR/CHF: Four-hour chart

Trend: Limited downside expected

Preliminary March inflation readings in Spain and Germany will be closely watched today. Regarding EUR/USD, economists at ING expect the pair to hover around 1.0840.

First CPI readings in focus

“The German figures will obviously draw greater interest, and consensus expectations are for a deceleration from 8.7% to 7.3% in the headline rate. Spanish numbers did trigger some market shake-up recently. Expectations are for a flat core rate at 7.6%, but a sharp deceleration in headline inflation from 6.0% to 3.7%.”

“With the European Central Bank explicitly data-dependent despite an implicit hawkish bias, this week’s inflation figures are set to be an important driver of the market’s rate expectations.”

“The EUR/USD rally took a break around 1.0840 and we could see it hover around those levels today, but we still favour a break above 1.0900 and ultimately a test of 1.1000 in the near term.”

See – EU HICP Preview: Forecasts from seven major banks, headline inflation falls sharply, but core remains high

Czech Koruna rallied late yesterday with EUR/CZK moving below 23.60 after the Czech National Bank (CNB) hinted at a rate hike. Economists at Commerzbank expect CZK to remain supported for now.

Hawkish CNB message

“CNB Governor Alles Michl made hawkish remarks following the rate meeting, saying that the market’s assessment – that CNB’s rate hikes are over – could prove wrong.”

“Whether Michl would really pull the trigger easily or not remains to be seen, but for now his verbal intervention will support the Czech Koruna.”

Frank Elderson, member of the Executive Board of the European Central Bank (ECB) and Vice-Chair of the Supervisory Board of the central bank, said in a media interview on Thursday, “we must reduce the very high rate of inflation.”

Additional quotes

“The rate increase decision made in March was robust."

“We are not pre-empting future decisions.”

“The ECB will reduce its bond holdings in a balanced manner.”

His comments come just ahead of the release of the flash estimate of the Spanish inflation data.

Also read: Euro area HICP Preview: Peak inflation or base effects? No trade-off for ECB (for now)

Market reaction

EUR/USD is holding steady just below 1.0850 on the above comments, awaiting the critical inflation readings from the euro area economies.

• EUR/JPY retreats from three-week-old resistance line, depressed near the intraday low of late.
• Multiple hurdles stand tall to challenge bears; bulls need validation from 144.20.
• RSI’s retreat from overbought territory suggests a mild pullback in prices, bullish MACD signals favor buyers.

EUR/JPY licks its wounds around the intraday low of 143.50 as it consolidates the previous day’s heavy gains during early Thursday in Europe.

The cross-currency pair rallied the most since early January 2023 before reversing from a downward-sloping trend line from March 07. The pullback moves also take clues from the RSI’s (14) retreat from the overbought territory. As a result, the quote’s short-term downside can’t be ruled out.

However, an upward-sloping support line from the last Friday, close to 143.00 at the latest, restricts the immediate downside of the EUR/JPY.

Following that, the 100-SMA and a two-week-long previous resistance line, respectively near 142.45 and 142.10 in that order, could challenge the EUR/JPY bears. It’s worth noting that the 142.00 round figure acts as the last defense of the pair buyers.

On the contrary, recovery moves need a clear upside break of the aforementioned three-week-old resistance line, around 144.20 at the latest.

In that case, the monthly high of around 145.50 may act as an intermediate halt before fueling the price towards the multi-year top marked in February, around 148.40.

Overall, EUR/JPY remains on the bull’s radar despite the latest pullback.

EUR/JPY: Four-hour chart

Limited downside expected

FX option expiries for Mar 30 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0680 1.3b
• 1.0700 2.8b
• 1.0840 784m
• 1.0950 1.5b
• 1.1000 1.9b

- USD/JPY: USD amounts                     

• 130.00 1.1b
• 130.50 658m
• 131.00 1.6b
• 131.50 1.2b
• 132.00 1.4b
• 132.90 1.1b
• 134.20 647m

- AUD/USD: AUD amounts  

• 0.6600 834m
• 0.6650 850m
• 0.6745 530m

- USD/CAD: USD amounts       

• 1.3312 1.0b