Yield differentials keep driving markets

GBPUSD – technical overview

The market is in a correction phase in the aftermath of the run to fresh multi-month highs in 2021. At this stage, additional setbacks should be limited to the 1.3000 area ahead of the next major upside extension towards a retest and break of critical resistance in the form of the 2018 high. Back above 1.3835 takes immediate pressure off the downside. Only a weekly close below 1.3000 will force a shift in the outlook.

• R2 1.3225 – 25 March high – Medium
• R1 1.3183 – 30 March high – Medium
• S1 1.3000 – Psychological – Medium
• S2 1.2982 – 8 April/2022 low – Strong

GBPUSD – fundamental overview

Most of the Pound weakness we've been seeing is more about US Dollar strength than anything else. The Fed has been pushing ahead with a more aggressive policy normalization track and this has opened broad based USD demand. At the same time, we are seeing some weakness in the Pound from political uncertainty, this after the story of a tax scandal around potential PM candidate Sunak. Key standouts on today’s calendar include UK industrial production, construction output, trade and GDP, US consumer inflation expectations, and some Fed speak.

USDJPY – technical overview

The market has rocketed higher to fresh multi-month highs and is now staring at a retest of the critical peak from 2015 up ahead of 126.00. Technical studies are however quite extended, with scope for a sizable correction in the weeks ahead.

• R2 125.86 – 2015 high – Strong
• R1 125.11 – 25 March/2022 high – Medium
• S1 122.26 – 4 April low – Medium
• S2 121.28 – 31 March low – Strong

USDJPY – fundamental overview

The Yen continues to take its hits from the massive yield differential and monetary policy divergence between the BOJ and Fed. The BOJ continues with its effort to buy long bonds, with the 30 year JGB settling below 1%, and BOJ Kuroda continues to welcome Yen weakness as a benefit to the economy. Meanwhile, Fed policy continues to lean more hawkish. Key standouts on today’s calendar include UK industrial production, construction output, trade and GDP, US consumer inflation expectations, and some Fed speak.

AUDUSD – technical overview

At this stage, the market has found a bottom and is trying to work back to the topside. Ultimately, it will take a weekly close back above 0.7600 to officially shift the focus back on the topside.

• R2 0.7700 – Figure – Medium
• R1 0.7662 – 5 April/2022 high – Strong
• S1 0.7418 – 11 April low – Medium
• S2 0.7400 – Figure – Medium

AUDUSD – fundamental overview

The Australian Dollar has come under some pressure in recent sessions on the back of rising US yields, toppish iron ore prices, and a downturn in global risk sentiment. Key standouts on today’s calendar include UK industrial production, construction output, trade and GDP, US consumer inflation expectations, and some Fed speak.

USDCAD – technical overview

Signs of a major bottom in the works after a severe decline from the 2020 high. A recent weekly close back above 1.2500 encourages the constructive outlook and opens the door for a push back towards next critical resistance in the 1.3000 area. Any setbacks should be well supported into the 1.2200s.

• R2 1.2625 – 22 March high – Strong
• R1 1.2619 – 8 April high  – Medium
• S1 1.2429 – 30 March low – Medium
• S2 1.2403 – 5 April/2022 low – Strong

USDCAD – fundamental overview

The Canadian Dollar hasn't been able to do much with Friday's strong Canada jobs report. The currency has fallen victim to broad based US Dollar demand from US yields and on the back of the concurrent wave of risk off flow. Oil has also come under a little pressure, adding to selling in the Loonie. Key standouts on today’s calendar include UK industrial production, construction output, trade and GDP, US consumer inflation expectations, and some Fed speak.

NZDUSD – technical overview

The market has been trending lower since topping out in 2021, making a series of lower highs and lower lows. Look for the latest recovery rally to set up the next lower top for a bearish continuation below 0.6500. Back above 0.7200 would be required to negate and force a shift in the structure.

• R2 0.7100 – Figure – Medium
• R1 0.7035 – 5 April/2022 high – Strong
• S1 0.6813 – 11 April low – Medium
• S2 0.6800 – Figure – Medium

NZDUSD – fundamental overview

The New Zealand Dollar has come back under pressure in recent sessions as risk comes off and as the US Dollar is broadly bid on rising US yields. All of this is also having an impact on RBNZ pricing, with the market now considering the possibility of a letdown 25bp hike from the RBNZ this week as opposed to a 50bp hike. Key standouts on today’s calendar include UK industrial production, construction output, trade and GDP, US consumer inflation expectations, and some Fed speak.

US SPX 500 – technical overview

Longer-term technical studies are in the process of unwinding from extended readings off record highs. Look for rallies to be well capped in favor of lower tops and lower lows. Back above 4,700 will be required at a minimum to take the immediate pressure off the downside.

• R2 4700 – Round number – Strong
• R1 4641 – 29 March high – Medium
• S1 4374 – 18 March low – Medium
• S2 4330 – 17 March low – Medium

US SPX 500 – fundamental overview

With so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for sustainable runs to the topside on easy money policy incentives and government stimulus, should no longer be as enticing to investors. Meanwhile, ongoing worry associated with coronavirus fallout, rising inflation, and geopolitical tension should weigh more heavily on investor sentiment in Q2 2022.

GOLD (SPOT) – technical overview

The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs. Setbacks should now be well supported above 1900.

• R2 2076 – Record high, August 2020 – Strong
• R1 2071 – 8 March/2022 high – Medium
• S1 1900 – Round number – Medium
• S2 1878 – 16 November high – Strong

GOLD (SPOT) – fundamental overview

The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about exhausted monetary policy, extended global equities, coronavirus fallout, inflation risk, and geopolitical tension. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.