It’s been a light week for the FX market with USD/CAD moving as expected and USD/JPY unbothered by the latest comments of Japanese officials and reaching new highs.
The UK inflation rose to 6.2%, the highest in 30 years, and is not showing signs of slowing down, especially with higher commodity and energy prices. Analysts think that it will continue to exceed expectations in the future.
The week ahead is an interesting one. Following J. Powell's hawkish comments last week, traders are waiting for additional commentary from Fed speakers that could provide more explanations about consecutive rate hikes of 50 basis points in May, but also in June and going forward. Another thing to watch for will be ADP, Core PCE, PMI, Nonfarm Payroll, month-end rebalancing and the OPEC-JMMC Meetings.
In the euro area, inflation is expected to rise again this week and exceed expectations for the time being.
Good data is expected for the USD on Friday. Job growth has been good in recent months and it's likely to continue on the same path. With constraints around COVID easing and financial needs rising, the frequency of hiring has increased. February saw hiring delays due to Omicron and stalling of the average hourly earnings growth, but a rebound is expected this month. Expectations for NFP are 485K, and the unemployment rate is expected to drop to 3.7% from the last print of 3.8%.
Analysts don't anticipate a major shift from OPEC-JMMC meetings, with members likely to stick to their plans of raising production as planned before the conflict in Ukraine.
For month-end rebalancing, Wells Fargo strategists forecast a $12 billion pension reallocation to fixed income, which would be the biggest inflow since March 2021. This would result in a -13% return for the US long credit index quarter to date.
Other things to watch for are Yen depreciation risk, the Australian pre-election budget and the COVID-19 trends.
Analysts at Nomura point out that when it comes to the rise in yen rates, the Bank of Japan is likely to conduct a fixed rate of purchase operation to limit the rise in 10 years JGB yields. As for the yen depreciations, it is not the BOJ's jurisdiction, but the Ministry of Finance's which, based on the latest comments, is unlikely to intervene in the foreign exchange market to impact the USD/JPY.
Unfortunately, as the war in Ukraine continues with no signs of reaching a conclusion in the near future, there is a lot of uncertainty in the market, and this won't change for a while.
USD/CAD expectations
On the H1 chart USD/CAD looks good for selling opportunities. The price is near the 1.2455 level of support and the next target could be 1.2420 which is the next important level of support on the daily chart. Until then, I expect a correction in the 1.2520 area and, if the level is not broken and nothing significant changes fundamentals, the downside trend will continue.
As expected, the CAD was supported by firm commodity prices last week and this could continue. The Canadian resource sector will benefit from the global focus on supply chains, food and energy security.
The country is a major supplier of hydrocarbons and will remain so for the foreseeable future as it pledged to boost oil and natural gas exports to Europe in order to reduce the continent's dependency on Russia. There is also a strong demand for nickel and copper, of which Canada is the fifth largest global producer.
EUR/USD expectations
Nothing interesting happened last week with the EUR/USD as the price entered a consolidation phase. It's clear that the Russian invasion into Ukraine affected the Eurozone and the euro is vulnerable to energy security risks. Analysts at Rabobank anticipate that the next few weeks will be critical for Europe's energy policies, and it remains to be seen if the market will continue to expect that blackouts and stagflation can be avoided in Europe.
From a technical perspective on the H1 chart the price didn't break the 1.1030 level of resistance and the next level of support is 1.0915. If broken, the next one is at 1.0800. On the upside, the major level of resistance is at 1.1135.
This article was written by Gina Constantin.
