It’s been a calm week in terms of FX market movements and the week ahead seems to be light in economic events too. In the U.S., traders will be watching for additional comments from some Fed speakers after last week's meeting, while in Europe the spotlight will be on any potential peace talks between Ukraine and Russia.
The results of various surveys are also expected to come out and they could be given more weight than usual because they can provide clues on how the conflict in Ukraine impacted the economy. In Europe we have the flash PMIs surveys, the German Ifo survey, the retail survey and so on.
Another important thing to watch this week is the U.K. inflation, which analysts expect to rise again. Expectations are 6% from the last print of 5.5%, but unfortunately this won’t likely be the peak as many analysts expect inflation to reach 8% in the near future.
We also have an SNB press conference for the CHF, but no significant changes are expected.
There are no key events for Japan this week, but Nomura analysts believe the recent depreciation of the JPY compared to the USD, if it continues to accelerate this week, could trigger a change in the government's stance on further JPY weakness. USD/JPY reached its highest levels last week since 2016.
From a technical perspective, the USD/JPY seems to have a bearish divergence in formation on MACD on the H4 chart. After reaching its highest level at 119.39 it could have a correction before a clear signal to further appreciate, if Japanese officials don't make any further comments on the latest yen depreciation.
On the downside, the next level of support is at 118.35 and the next one at 116.30. If rejected, the pair could resume its uptrend and test the resistance at 121.30 which can be seen on the MN chart.
Last week the BOJ maintained its policy as expected with Kuroda noting that a weaker JPY is positive for the economy overall and that there is "absolutely no need" to raise rates. He also warned that inflation could rise to 2% in April. As a reaction, the USD/JPY strengthened further.
USD/CAD expectations
On the H1 chart, from a technical perspective, USD/CAD looks good for selling opportunities. The price is near the 1.2590 level of support and, if rejected, can go to test the resistance at 1.2695. If the price doesn’t manage to break through the resistance it could resume its downtrend and test the support at 1.2495.
The CAD was supported by firm commodity prices and as the conflict in Ukraine seems far from over, more volatility is expected. Scotiabank expects a downside trend for USD/CAD moving into Q2 citing positive underlying fundamentals, tighter Bank of Canada policy and positive seasonal trends -- Apr. has historically been the worst month of the year for the USD in relation to the CAD (-1% over 25 years) with additional losses on average in May and June usually marking the worst quarter in USD performance in the calendar year.
This article was written by Gina Constantin.