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United States CFTC S&P 500 NC Net Positions increased to $-45.3K from previous $-50.3K
US equity markets saw a late surge despite a lack of fundamental catalysts at the time on Friday. That meant that the S&P 500 was able to close at a f
  • US equity markets saw a late surge despite a lack of fundamental catalysts at the time on Friday.
  • Some desks cited Fed jawboning on how the coming spike in inflation will be transitory as supportive for stocks.
  • The S&P 500, Dow and Nasdaq 100 all clinched record closing levels.

US equity markets saw a late surge despite a lack of fundamental catalysts at the time on Friday. That meant that the S&P 500 was able to close at a fresh record high at 4127 (up 0.7% on the day), the Dow managed to clinch the 33.8K mark (up 0.9% on the day), also a record high. Meanwhile, though the Nasdaq 100 was not able to clinch an intra-day all-time high, it did manage to post a record close at 13845 (up 0.6% on the day). The Russell 2000 was flat and the CBOE saw a slight decline of 0.38 to just above 16.50.

In terms of the GICS sectors; there was no clear risk bias to the performance of sectors. Health care and industrials did the best, tech, financials, materials, communication services and real estate all gained, consumer staples and utilities were flat and energy was lower. A modest rise in US government bond yields did not have much of an impact on duration-sensitive growth and tech names. In terms of individual movers, Amazon was a standout performer, gaining 2.2% after winning a union ruling vote.

Driving the day

The March Producer Price Inflation report for the month of March was released on Friday; the YoY rate of PPI was 4.2% in March (its highest since September 2011), a jump of 1.4% from February and well above expectations for a reading of 3.8%. The Core PPI was also higher than expected, rising to 3.1% YoY from 2.5% in February, above expectations for a 2.7% reading. According to ING, the latest PPI report adds upside risk to next week's Consumer Price Inflation (CPI) report (also for the month of March).

They expect CPI to come in at 2.4% YoY in March, but then to rise towards 4.0% over the summer “as prices in a vibrant, re-opened, stimulus fuelled economy contrast starkly with those of twelve months before when the economy was largely in lockdown”. The bank disagrees with the Fed, who thinks that inflation will then moderate; “we think that pandemic-related scarring and supply constraints will keep inflation elevated for longer than they do”. ING conclude that “inflation could stay closer to 3% for much of the next couple of years and in an environment of strong growth and rapid job creation it adds to our sense that risks are increasingly skewed towards a late 2022 rate hike rather than 2024 as the Fed currently favours”.

Speaking of the Fed, FOMC officials have been keen to jawbone to the market over the past few days about how they expect the coming rise in inflation to be transitory. That was one of the key messages from Fed Chair Jerome Powell on Thursday and Vice Chair Richard Clarida on Friday. Some desks attributed this reassurance from the Fed that the coming spike in inflation will not cause them to start thinking about tightening as one key reason for why major equity bourses have been able to push to further all-time highs throughout the week.

Looking ahead then, if stocks have taken on board the Fed’s “don’t worry about inflation message”, a strong CPI reading next Wednesday ought not to cause too many concerns. Meanwhile, the March Retail Sales numbers should show an explosion in spending, given American’s each received another $1400 in direct government cheques that month. A massive number should not come as a surprise to equity investors but may still underpin the growing sense of economic optimism with regards to the US recovery, which (as long as the Fed stays dovish, which they are) is only a good thing for sentiment right now.

United States CFTC Oil NC Net Positions dipped from previous 531.3Kto 511.7K
European Monetary Union CFTC EUR NC Net Positions down to ?67.5K from previous ?73.7K
United Kingdom CFTC GBP NC Net Positions down to 20K from previous 25K
Japan CFTC JPY NC Net Positions increased to -58K from previous -59.5K
United States CFTC Gold NC Net Positions up to $189.5K from previous $167.5K
Australia CFTC AUD NC Net Positions declined to $4.1K from previous $12.3K
GBP/USD saw a brief spell of weakness early on during European hours, dipping as low as the 1.3670s, but has recovered modestly in recent trade and lo
  • GBP/USD dipped as low as the 1.3670s but is now consolidating above 1.3700 again.
  • Cable was driven by the USD side of the equation on Friday, which moved in tandem with US bond yields.

GBP/USD saw a brief spell of weakness early on during European hours, dipping as low as the 1.3670s, but has recovered modestly in recent trade and looks likely to close out the week just above the 1.3700 big figure. Support in the form of the 25 March low came in handy, it seems. Perhaps this will be the start of a longer-term double bottom. Conversely, if cable continues to suffer in the coming week and breaks below support in the 1.3670s, that could open the door for an extension of the selling pressure towards the next major area of support around 1.3570.

Driving the day

Cable was predominantly driven by the USD side of the equation on Friday, rising in tandem with a rise in US government bond yields (10-year yields peaked at 1.68%) before sliding as yields came under pressure again (10-year yields falling back under 1.65%) and now consolidating as bond market price action calms (10-year yields consolidating either side of 1.65%). Fundamental developments took a back seat in terms of the price action. Out of the UK, there was not a great deal of news.

In the UK, the vaccine rollout continues to go well and infection rates remain low, with country on track to reopen a large part of its economy at the start of next week. Focus now is on travel to and from the UK; the government’s travel task force will announce early next month which countries will be included in the red, amber, or green categories as part of a new traffic light system based on virus risk, and the task force will also confirm if international travel can resume from 17 May as is currently planned. At the moment, traveling for holiday is illegal and all must have a “valid reason” for leaving the country if they plan to return.

Turning to the US, there is more to talk about, but just as was the case with UK news, not anything that really had much of a notable impact on the price action in FX markets. The March Producer Price Inflation report for the month of March was released on Friday; the YoY rate of PPI was 4.2% in March (its highest since September 2011), a jump of 1.4% from February and well above expectations for a reading of 3.8%. The Core PPI was also higher than expected, rising to 3.1% YoY from 2.5% in February, above expectations for a 2.7% reading. According to ING, the latest PPI report adds upside risk to next week Consumer Price Inflation (CPI) report (also for the month of March).

They expect CPI to come in at 2.4% YoY in March, but then to rise towards 4.0% over the summer “as prices in a vibrant, re-opened, stimulus fuelled economy contrast starkly with those of twelve months before when the economy was largely in lockdown”. The bank disagrees with the Fed, who thinks that inflation will then moderate; “we think that pandemic-related scarring and supply constraints will keep inflation elevated for longer than they do”. ING conclude that “inflation could stay closer to 3% for much of the next couple of years and in an environment of strong growth and rapid job creation it adds to our sense that risks are increasingly skewed towards a late 2022 rate hike rather than 2024 as the Fed currently favours”.

Elsewhere, various Fed speakers have been on the wires on Friday, though not with much impact on FX markets. Fed Vice Chair Richard Clarida stuck to the usual dovish script and echoed Chairman Jerome Powell’s remarks on Thursday, saying that the Fed wants to see “actual” progress towards its goals before tightening policy. He also played down concerns about inflation, highlighting that while next week’s CPI inflation reading is likely to be high, this is likely a “transitory” increase in prices. However, he did add something new compared to what Powell has said on inflation, saying that if inflation has not declined by the end of the year, it may no longer qualify as transitory. On the recent labour market data, he welcomed the strength but reiterated the Fed’s stance that there remains a long way to go.

Separately, one of the more hawkish Fed members Robert Kaplan also gave remarks. Kaplan noted lingering concerns about the impact of the Covid-19 and the dangerous of variants, but said that once the pandemic storm has been weathered, he wants to err on the side of removing extraordinary policy measures sooner rather than later (i.e. by the sounds of it, Kaplan will be one of the soonest to push for QE tapering). For reference, Kaplan is one of the FOMC members predicting a rate hike by the end of 2022.

Looking ahead, the main event for USD traders to focus on next week will be the US March Consumer Price Inflation report, though the US March Retail Sales report will also likely be a market mover. A few Fed speakers are also scheduled and should be taken note of. GBP traders, meanwhile, ought to be on notice for a speech from dovish BoE member Tenreyro on Monday, followed by a hefty dose of February hard data, including the monthly GDP growth estimate, on Tuesday.

 

Previewing next key macroeconomic events from the US, TD Securities analysts said that Retail Sales likely surged in March (forecast: +8.5% m/m) follo

Previewing next key macroeconomic events from the US, TD Securities analysts said that Retail Sales likely surged in March (forecast: +8.5% m/m) following a plunge in February (-3.0%) and a surge in January (+7.6%).

Key quotes

"The volatility reflects the impact of severe weather in February as well as the disbursement of stimulus payments in January and March, but the net result appears to have been booming growth in spending in Q1. Spending will probably fall in April."

"The CPI probably surged, and not just due to energy prices this time. We caution against extrapolating, but the core reading will probably be boosted by a bounce in travel-related prices, most notably for airfares, hotels, and used cars. We see some upside risk for rents as well. Changes to the seasonal factors could also be a source of strength, with payback later in the year."

Spot gold (XAU/USD) prices have seen choppy price action this Friday, dropping from Asia Pacific levels in the upper-$1750s to lows around $1730, befo
  • Gold has seen choppy price action, dropping from the upper-$1750s to lows around $1730 back to the mid-$1740s again.
  • The correlation between gold, the US dollar and bond yields was tight on Friday, with yields leading the dance.

Spot gold (XAU/USD) prices have seen choppy price action this Friday, dropping from Asia Pacific levels in the upper-$1750s to lows around $1730, before recovering back to the mid-$1740s in recent trade. The precious metal seemingly found support amid buying interest at the Wednesday low/ahead of the 21-day moving average, which currently resides at $1728.75. Near-term gold bulls will now be eyeing a move back to recent highs just under the $1760 mark and perhaps a test of the 50-day moving average at $1762. Alternatively, a break below support around $1730 would open the door to a move towards support around $1720 and then perhaps down towards the end-of-March lows around $1680.

Driving the day

The correlation between gold, the US dollar and bond yields was tight on Friday, with each asset class moving in tandem. As is most often the case, US government bond yields seemingly led this particular dance; as the 10-year yields topped out above 1.68%, the DXY hit highs around 92.40 and gold hit lows just above $1730. Now that yields have dropped (and the 10-year is back under 1.65%), the DXY has dropped back under 92.20 and gold has recovered to the mid-$1740s. Choppy bond market action appeared not to have been linked to any particular fundamental catalysts.

Not that there isn’t plenty for dollar, bond and precious metals traders to think about right now. The risks posed by the worsening state of the global pandemic (think the rise in infections in India, Brazil, developed Asia and Europe in lockdown) seem to be capping the rise in yields right now, even though the long-term economic outlook remains as strong as ever. The US economic outlook is particularly strong and if bond market traders refocus on this, then there could be more upside for yields coming, though the threat of another rise in Covid-19 infections in the US is an obstacle.

Then there is inflation; the US March PPI report on Friday was hot. Most desks agree that this adds upside risks to next week’s CPI inflation report. The Fed thinks that this increase in inflation is going to be transitory (i.e. die down by the end of the year) and it appears the market agrees with them, otherwise yields (on nominal bonds, anyway) would be higher. The question as to whether the increase in inflation is transitory or not will be a key theme for markets this year; any indications that inflation is persistently high and making the Fed uncomfortable will trigger a hawkish shift in the market’s expectations for Fed policy and this could hurt gold. A hot CPI report next week will not be enough to cause this on its own, however.

 

United States Baker Hughes US Oil Rig Count remains unchanged at 337
EUR/USD has reverted back towards the 1.1900 figure from earlier session lows around the 1.1870 mark. The pair, which still trades lower on the day by
  • EUR/USD has reverted back towards the 1.1900 figure from earlier session lows around the 1.1870 mark.
  • EUR/USD has traded as a function of rate differentials on Friday.
  • US PPI came in much hotter than expected, adding upside risk to next week’s CPI report.

EUR/USD has reverted back towards the 1.1900 figure from earlier session lows around the 1.1870 mark. The pair, which still trades lower on the day by about 15 pips or just over 0.1%, is likely to consolidate within its recent 1.1860-1.1920ish intra-day parameters over the next few hours as FX volumes drop ahead of the weekend. For now, the pair has managed to move back to the north of its 200-day moving average, which currently resides at 1.1885.

Driving the day

EUR/USD has traded as a function of rate differentials on Friday, moving lower in tandem with a rise in US government bond yields (when 10-year yields went as high as 1.68%) before rising from lows as US yields pulled back from highs (when 10-year yields dropped back to 1.65%). No major catalysts seem directly to be causing the choppy bond market conditions, though there are a few developments worth noting, particularly out of the US.

Firstly, the March Producer Price Inflation report for the month of March was released on Friday; the YoY rate of PPI was 4.2% in March (its highest since September 2011), a jump of 1.4% from February and well above expectations for a reading of 3.8%. The Core PPI was also higher than expected, rising to 3.1% YoY from 2.5% in February, above expectations for a 2.7% reading. According to ING, the latest PPI report adds upside risk to next week Consumer Price Inflation (CPI) report (also for the month of March).

They expect CPI to come in at 2.4% YoY in March, but then to rise towards 4.0% over the summer “as prices in a vibrant, re-opened, stimulus fuelled economy contrast starkly with those of twelve months before when the economy was largely in lockdown”. The bank disagrees with the Fed, who thinks that inflation will then moderate; “we think that pandemic-related scarring and supply constraints will keep inflation elevated for longer than they do”. ING conclude that “inflation could stay closer to 3% for much of the next couple of years and in an environment of strong growth and rapid job creation it adds to our sense that risks are increasingly skewed towards a late 2022 rate hike rather than 2024 as the Fed currently favours”.

Elsewhere, various Fed speakers have been on the wires on Friday, though not with much impact on FX markets. Fed Vice Chair Richard Clarida stuck to the usual dovish script and echoed Chairman Jerome Powell’s remarks on Thursday, saying that the Fed wants to see “actual” progress towards its goals before tightening policy. He also played down concerns about inflation, highlighting that while next week’s CPI inflation reading is likely to be high, this is likely a “transitory” increase in prices. However, he did add something new compared to what Powell has said on inflation, saying that if inflation has not declined by the end of the year, it may no longer qualify as transitory. On the recent labour market data, he welcomed the strength but reiterated the Fed’s stance that there remains a long way to go.

Elsewhere, one of the more hawkish Fed members Robert Kaplan also gave remarks. Kaplan noted lingering concerns about the impact of the Covid-19 and the dangers of variants, but said that once the pandemic storm has been weathered, he wants to err on the side of removing extraordinary policy measures sooner rather than later (i.e. by the sounds of it, Kaplan will be one of the soonest to push for QE tapering). For reference, Kaplan is one of the FOMC members predicting a rate hike by the end of 2022.

Looking ahead, the main event to focus on next week will be the US March Consumer Price Inflation report, though the US March Retail Sales report will also likely be a market mover. A few Fed speakers are also scheduled.

 

The real gross domestic product (GDP) in the United States is expected to grow by 6%, down from 6.2% on April 7, in the first quarter of 2021, the Fed

The real gross domestic product (GDP) in the United States is expected to grow by 6%, down from 6.2% on April 7, in the first quarter of 2021, the Federal Reserve Bank of Atlanta's latest GDPNow report showed on Friday.

"After this morning’s wholesale trade release from the US Census Bureau and this morning’s report on producer prices from the US Bureau of Labor Statistics, the nowcast of the contribution of inventory investment to first-quarter real GDP growth decreased from -0.90 percentage points to -1.04 percentage points," the Atlanta Fed explained.

Market reaction

This report was largely ignored by market participants and the US Dollar Index was last seen posting modest daily gains at 92.17.

Analysts at CIBC maintain an upward bias on the USD/MXN pair. They see the pair trading at 21.00 by the end of the second quarter and at 21.5 by the e

Analysts at CIBC maintain an upward bias on the USD/MXN pair. They see the pair trading at 21.00 by the end of the second quarter and at 21.5 by the end of the third. 

Key Quotes: 

“Banxico’s decisive end to the monetary policy easing cycle, with a cautious and uncertain bias to the inflation risk balance should provide support for the MXN in the immediate term. The CB has left the door open to reassess this neutral stance if inflation further deviates from the CB forecast and inflation expectations increase. This will be the most significant test for the CB as the new composition of the board of directors suggests keeping monetary policy accommodative, and favouring growth due to the lack of fiscal stimulus.”

“In line with the latest central bank announcement, and the return of a cautious tone in the statement, we expect Banxico to remain on hold for most of 2021, and to start a gradual tightening cycle in Q4.”

“We maintain our USD/MXN upward bias and suggest buying USD/MXN dips to 20.30 with a 21.50 target and a 19.70 stop. Five factors support this view. 1) increasing US yields – reflation story; 2) the market is already pricing an aggressive hiking cycle in the next year, far from our expectations of an on hold Banxico for most of the year; 3) lack of fiscal support to growth; 4) continuous fiscal aid to Pemex, and concerns about further credit ratings downgrades; and, 5) June mid-term elections are likely to reignite concerns of populist measures and government intervention.”
 

After rising above 1.2600 earlier in the day, the USD/CAD pair reversed its direction as the upbeat labour market data from Canada provided a boost to
  • USD/CAD remains on track to close second straight day in the red.
  • Unemployment Rate in Canada declined to 7.5% in March.
  • US Dollar Index clings to small daily gains around 92.20.

After rising above 1.2600 earlier in the day, the USD/CAD pair reversed its direction as the upbeat labour market data from Canada provided a boost to the loonie. As of writing, the pair was trading at a fresh daily low of 1.2535, losing 0.22%.

CAD capitalizes on impressive data

The monthly data published by Statistics Canada showed on Friday that the Unemployment Rate in March dropped to its lowest level since the beginning of the pandemic at 7.5%, compared to analysts' estimate of 8%, from 8.2%. Further details of the jobs report revealed that employment increased by more than 300,000 during that period.

On the other hand, the US Dollar Index (DXY) edged lower from session highs as the 10-year US Treasury bond yield, which gained more than 4% earlier in the day, lost traction. Currently, the DXY is clinging to small daily gains at 92.20 and the 10-year US T-bond yield is up 2%.

The US Bureau of Labor Statistics reported earlier in the day that the Core Producer Price Index (PPI) advanced to 3.1% on a yearly basis in March. Although this reading surpassed the market expectation of 2.7%, it failed to trigger a noticeable market reaction.

Meanwhile, the barrel of West Texas Intermediate (WTI) continues to move in a three-day-old horizontal channel below $60, not having an impact on the CAD's market valuation ahead of the weekend.

Technical levels to watch for

 

Analysts at MUFG Bank present the idea of a long trade in the AUD/USD pair, with an entry-level at 0.7620, a target at 0.7895 and a stop-loss at 0.746

Analysts at MUFG Bank present the idea of a long trade in the AUD/USD pair, with an entry-level at 0.7620, a target at 0.7895 and a stop-loss at 0.7460. 

Key Quotes:

“Based on the view that a broader less US-centric optimism over the global recovery is emerging, we see better prospects ahead for the Australian dollar. The better vaccination outlook in Europe and positive growth prospects in China should allow for a slow grind higher for AUD/USD.”

“Jobs data from Australia will be released next week and we see greater upside surprise risks than downside which should help to provide support over the short-term. We have also witnessed strong communication from the Fed over the prospects for continued loose monetary policy. The FOMC minutes indicated that as did comments from a number of Fed speakers.”

“Not until around the end of the year will the Fed have a handle on whether the imminent rise in inflation proves transitory or sustained implying no change in QE tapering at least until then. These consistent messages from the Fed will we believe have an impact on containing yields for a period of time ahead, potentially allowing for some reversal of USD strength, mainly against the higher beta, global growth sensitive currencies like the Australian dollar.”

Analysts at Capital Economics expect that higher government bond yields in the US than in other developed markets (DMs) will push the US dollar up, as

Analysts at Capital Economics expect that higher government bond yields in the US than in other developed markets (DMs) will push the US dollar up, as has generally been the case since the Global Financial Crisis.

Key Quotes:

“Our economic forecasts suggest that growth in the US will rise to its highest level since 2001 relative to growth in the rest of the world. nd minutes from the Fed’s March meeting reinforce our assumption that it will not try to anchor long-term yields in the way that the ECB and BoJ do. As a consequence, we expect the yield gap between the US and other DMs will continue to widen, and drive further gains in the dollar against most DM currencies.”

“We think it will fare particularly well against the euro, yen, and the Swiss franc, as these currencies face weaker economic growth prospects, persistently low inflation, and more active central bank management of long-term government bond yields.”
 

Analysts at CIBC argue the British pound should hold versus the recent gain ground versus the US dollar. They see the GBP/USD pair trading at 1.38 by

Analysts at CIBC argue the British pound should hold versus the recent gain ground versus the US dollar. They see the GBP/USD pair trading at 1.38 by the end of the second quarter and at 1.41 by the end of the third. 

Key Quotes: 

“As we move into Q2, we have seen the market pare aggregate GBP holdings, albeit after reaching one year highs. The correction leaves the market somewhat better positioned into April. In this context, we note that the month has witnessed strong across the board Sterling gains over more than a decade. Corporate repatriation flows, ahead of dividend payments in May, provide a positive GBP inflow, albeit dividend distribution results in something of a mirror image next month.”

“Beyond corporate flow dynamics, we view the correction in Sterling positions as providing scope for holdings to be rebuilt. Unlike the rest of the European continent, the UK is witnessing a downslope of Covid cases. Moreover, with almost 60% of the UK adult population having received one dose of the vaccine, prospects for a consumer led rebound are growing.”

“Forward looking survey indicators, services PMI, GfK consumer confidence or the CBI distributive trades survey all point towards strong activity gains. With consumer activity likely to exceed what is generally anticipated, Sterling should hold its ground against the USD over Q2.”
 

The Canadian March employment report released on Friday showed better-than-expected numbers. Analysts at MUFG Bank, point out Canada should not be cla

The Canadian March employment report released on Friday showed better-than-expected numbers. Analysts at the National Bank of Canada, point out Canada should not be claiming victory just yet, as more losses are likely in April. 

Key Quotes:

“As COVID-19 caseloads eased in the country, the sectors most affected by social distancing recovered strongly. Indeed, the wholesale/retail trade, accommodation/food services and information/culture/recreation segments accounted for roughly 58% of headline job gains in the month. It has to be said, though, that employment in the categories most affected by the pandemic remained 7.6% below its pre-crisis level in March. By way of comparison, total employment stood just 1.5% below that mark (that’s 296K jobs).”

“The participation rate improved markedly and stood just three ticks below its level in February last year. This compares favorably to the situation in the United States (where the participation remains a full 2.0% below its pre-crisis level, see chart on the right) and suggests that sidelined workers are making their way back into the labour force. The higher part rate in Canada might also be the result of the wage subsidy program put in place by the Federal government to prevent unwanted lay-offs.”

“As good as March’s LFS report was, Canada should not be claiming victory just yet. More job losses are likely in store for April as several provinces re-introduced strict social distancing rules to prevent the spread of the virus. With luck, this downturn should be limited to the month of April (and quite possibly May). After that, vaccination should allow the employment recovery to resume.”

Analysts at CIBC expect the EUR/USD pair to trade at 1.16 by the end of the second quarter and at 1.18 by the end of the third. They consider the euro

Analysts at CIBC expect the EUR/USD pair to trade at 1.16 by the end of the second quarter and at 1.18 by the end of the third. They consider the euro will struggle against a stronger dollar in the near-term. 

Key Quotes: 

“The first quarter witnessed the single currency depreciate by around 4% versus the USD. Real money and speculative investors pared EUR holdings amidst concerns over eurozone recovery hopes being compromised by a third Covid wave. Moreover, EU vaccination rollout has been bedevilled by political mismanagement, while vaccine hesitancy proved to be amplified by unhelpful political comments.”

“While the ECB will maintain an easy monetary stance, the fiscal backdrop relative to the US remains somewhat constrained. While the agreement on the EU rescue fund was a truly ground breaking decision, the failure to push forward and actually disburse the funds remains an ongoing concern.”

“Sliding macro sentiment has seen leveraged shorts extend to levels last seen before the EU rescue fund decision. Despite the early year growth headwinds prompting a lower EUR trading trajectory than previously assumed, we do not expect the EUR to unwind H2 2020 gains. A somewhat belated ramping up in vaccinations will help to limit macro negativity ahead.”

“An uptick in vaccinations in the weeks ahead will add to already elevated forward looking eurozone sentiment indicators. While the EUR will struggle against a still resurgent greenback in the near term we would expect a mild rebound into H2 as growth dynamics become more supportive.”
 

US inflation numbers released on Friday showed higher-than-expected numbers, with the annual PPI hitting the highest level in years. Analysts at Wells

US inflation numbers released on Friday showed higher-than-expected numbers, with the annual PPI hitting the highest level in years. Analysts at Wells Fargo point out the increase of 1.0% in March of the index is the latest sign that inflation is heating up. 

Key Quotes: 

“In the latest sign that inflation is heating up, prices for domestically produced goods and services jumped 1.0% in March. The increase sent the 12-month change in the PPI for final demand to 4.2% (NSA) from 2.8%, and is the first example of low base comparisons from this time last year generating substantial jumps in the year-ago rates of inflation.”

“With supply chain bottlenecks and the economy's broad re-opening fueling gains, the Fed is likely to continue to sit on its hands with policy as it awaits to see whether the recent pickup will have staying power beyond this year.”

“The strongest year-over-year increase in producer prices in nearly 10 years reflects more than just easy base comparisons from last spring, however.”

“We expect to see the year-over-year rates of inflation rise further over the course of this year, not just due to the easy base effects of last spring, but also due to the recent strengthening in demand at a time businesses are having difficulty getting their hands on materials and labor. However, we expect this too will have a transitory element to it. As bottlenecks ease and the initial flurry of services activity ebbs later this year, we expect to see a moderation in the monthly pace of price increases, which will generate a slowdown in the year-ago rate of inflation by mid-2022.”
 

Crude oil markets continue to see range-bound trading conditions; front-month WTI futures remain locked between the $59.00-$60.00 ranges that have pre
  • Crude oil markets continue to see range-bound trading conditions, with front-month WTI futures remain locked between the $59.00-$60.00 ranges.
  • Indecisive trading conditions are not too surprising given the numerous themes being juggled by crude oil market participants.

Crude oil markets continue to see range-bound trading conditions; front-month WTI futures remain locked between the $59.00-$60.00 ranges that have prevailed over the past few days and have been swinging between slightly in the red and slightly in the green. Beyond the recently established intra-day range, the main levels of support and resistance to look out for are the $58.00 and $61.00 areas.

Driving the day

Indecisive trading conditions in crude oil markets are not too surprising, given the numerous themes being juggled by crude oil market participants at the moment, themes which seem at the moment to be cancelling one another out. On the bullish side of the equation; optimism has been growing about the outlook for the global economic recovery in recent weeks, particularly with regards to the US economy following the string of strong data releases at the end of last week/start of this week. Vaccine rollouts continue and sooner or later market participants are expecting an end of pandemic containment restrictions and resurgence in demand for crude oil.

However, near-term demand catalysts are marring the otherwise rosy picture; the pandemic has been accelerating in India, Brazil and some key developed Asia countries, raising the risk of tougher lockdowns there. Meanwhile, Europe remains (mostly) under lockdown and while Italy will soon be easing restrictions, Germany is likely to toughen them. The darkening of the near-term crude oil demand outlook has been reflected in downwards revisions to desks’ and major oil market institution’s oil demand growth forecasts for 2021. Meanwhile, supply-side news has been more negative than positive as of late; OPEC+ are gradually increasing output over the coming months according to last week’s decision and the US and Iran look to be taking steps in the right direction towards a return to the JCPOA meaning a large lump of Iranian supply could soon return to the market (though desks think the rest of OPEC+ will cut output to make up for this).

For crude oil markets to resume their long-term upwards trajectory, the near-term demand outlook is going to have to take a turn for the better, i.e. the likes of Europe, India and Brazil getting the virus under control and easing lockdowns. According to UBS commodity analyst Giovanni Staunovo, “oil is currently in a wait and see mode, with market participants looking at the vaccination pace to understand when oil demand will recover further and at nuclear talks in Vienna to see when more Iranian barrels might come back”.

 

The US economy is expected to grow by 6% in the first quarter of 2021 and 1.5% in the second quarter, the Federal Reserve Bank of New York's latest No

The US economy is expected to grow by 6% in the first quarter of 2021 and 1.5% in the second quarter, the Federal Reserve Bank of New York's latest Nowcasting Report showed on Friday. 

"News from this week’s data releases decreased the nowcast for 2021:Q1 by 0.2 percentage point and decreased the nowcast for 2021:Q2 by 0.1 percentage point," the NY Fed explained in its publication. "A negative surprise from international trade data accounted for most of the decrease in both quarters."

Market reaction

This report was largely ignored by market participants and the US Dollar Index was last seen gaining 0.2% on a daily basis at 92.25.

The GBP/JPY printed a fresh correction low at 149.59, extending the decline from the multi-year high it reached on Tuesday above 153.00. Then it compl
  • GBP/JPY bottomed at 149.59, a fresh two-week low, and then rebounded.
  • The recovery found resistance at the uptrend line and under 151.00.

The GBP/JPY printed a fresh correction low at 149.59, extending the decline from the multi-year high it reached on Tuesday above 153.00. Then it completed a pullback to the recently broken trendline.

The pound failed to remove the negative bias and it is trading around 150.50. A consolidation below would suggest a range trading at lower levels between 149.90 and 150.50. A break under 149.90 would expose the recent low near 149.60.

Technical indicators still points to the downside, but the negative momentum eased over the last hours. A recovery above 151.20 would alleviate further the bearish tone. The next resistance stands at 151.80.

GBP/JPY 4-hour chart

gbpjpy

 

US President Joe Biden's administration submitted the preliminary fiscal-year (FY) 2022 discretionary budget request to Congress for $1.52 trillion, u

US President Joe Biden's administration submitted the preliminary fiscal-year (FY) 2022 discretionary budget request to Congress for $1.52 trillion, up 8.4% from FY 2021 enacted level, Reuters reported on Friday.

Key takeaways

"Biden's budget request seeks $769 billion in non-defense discretionary spending in FY22; up 16% from enacted FY21 level; plus $753 billion for defense, up 1.7%."

"Biden's budget proposal would restore non-defense discretionary funding to 3.3% of GDP, up from 3% in FY21."

White House expects to submit the full budget to Congress in late spring."

"Biden's preliminary budget proposal does not include $2 trillion infrastructure proposal or tax changes."

Market reaction

This headline doesn't seem to be having a significant impact on market sentiment. As of writing, the S&P 500 Index was trading at a fresh all-time high at 4,104, rising 0.15% on a daily basis.

EUR/GBP came within a whisker of the 0.8700 level early on during the European session but has since pulled back to trade closer to the 0.8650 mark an
  • EUR/GBP came within a whisker of the 0.8700 level but has since pulled back to trade closer to 0.8650.
  • To the downside, support in the form of the 50-day moving average sits at 0.8640.

EUR/GBP came within a whisker of the 0.8700 level early on during the European session but has since pulled back to trade closer to the 0.8650 mark and actually at one point fell below it, though is now consolidating in the 0.8660s. To the upside, the big figure is the key area of resistance to note while, to the downside, the 50-day moving average sits at 0.8640. At present, the pair trades with losses of about 10 pips or 0.1% on the day.

Driving the day

In terms of fundamental catalysts out of the EU and UK, there isn’t anything particularly consequential to update on. The Covid-19 pandemic news out of the EU has been mixed; German public health authorities are calling for a national lockdown to contain the third wave, a Paris hospital trust is reportedly predicting the third wave to peak in France on the 20 April and Italy is slated to ease Covid-19 restrictions for most of the country soon.

Sticking with the EU; German trade and industrial production numbers for the month of February were released early in the European session. The latter showed a slightly smaller than expected trade surplus of EUR 19.1B, though this was driven by a larger than expected MoM growth rate in imports, which can hardly be seen as a bad thing. Meanwhile, industrial production unexpectedly posted a MoM contraction of 1.6% versus forecasts for an expansion of 1.5%.

Turning to the UK the vaccine rollout continues to go well and infection rates remain low, with the country on track to reopen a large part of its economy at the start of next week. Focus now is on travel to and from the UK; the government’s travel taskforce will announce early next month which countries will be included in the red, amber or green categories as part of a new traffic light system based on virus risk, and the task force will also confirm if international travel can resume from 17 May as is currently planned. At the moment, traveling for holiday is illegal and all must have a “valid reason” for leaving the country if they plan to return.

 

"I would not want to see the Federal Reserve taking actions that get in the way of the treasury market," Dallas Federal Reserve President Robert Kapla

"I would not want to see the Federal Reserve taking actions that get in the way of the treasury market," Dallas Federal Reserve President Robert Kaplan said on Friday, as reported by Reuters.

Additional takeaways

"Once the pandemic is weathered and we see progress on employment and inflation, I will advocate for QE taper."

"In financial markets, I'm more concerned about what I'm not seeing than what I see."

"The Fed's inflation objective is still 2%, even under the new framework."

"I'm going to want to see outcomes but I'm still going to use forecasting."

Market reaction

Market participants don't seem to be paying any mind to these comments. As of writing, the US Dollar Index was up 0.17% on the day at 92.22.

 

US ten-year yields have been rising from their lows ? and that is an adverse development for gold. The price of the precious metal has been descending

US ten-year yields have been rising from their lows – and that is an adverse development for gold. The price of the precious metal has been descending from the highs as returns on Treasuries respond to a sharp increase in producer prices, which may eventually turn into consumer inflation. 

In the meantime, how is XAU/USD positioned on the charts?

The Technical Confluences Detector is showing that gold faces substantial resistance at $1,749. This line is the convergence of the Fibonacci 38.2% one-day, the Pivot Point one-week Resistance 1, and the previous 4h-low. 

The next cap is at $1,760, which is the meeting point of the Bollinger Band one-day Upper and the previous monthly high. 

Looking down, weak support awaits at $1,739, which is the confluence of the Simple Moving Average 10-15m, the PP one-day S1, and the BB 1h-Lower.

A more significant cushion is at $1,733, which is a juncture including the previous daily low and the previous weekly high.

XAU/USD resistance and support levels

Confluence Detector

The Confluence Detector finds exciting opportunities using Technical Confluences. The TC is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.

Learn more about Technical Confluence

 

Dallas Federal Reserve President Robert Kaplan said on Friday that he will not be preemptive in talking about QE taper until it's clear that the US ha

Dallas Federal Reserve President Robert Kaplan said on Friday that he will not be preemptive in talking about QE taper until it's clear that the US has emerged from the virus, as reported by Reuters.

Additional takeaways

"We are going to have to shift our approach coming out of the virus."

"The question now for the Fed is to balance, how not to be preemptive or too reactive."

"Once it's clear we've weathered the virus, I will want to err on side of starting to remove extraordinary policies sooner than later."

"Excessive accomodation for longer than we need has side effects."

"Some of the inflation rise in coming months will be transitory but some may not be."

"I'll also be looking at excess risk-taking in financial markets."

"I'd like to see a sustainable achievement of employment, inflation goals."

"Equity market cap to GDP is historically elevated, credit spreads tight, housing market elevated."

"We do not have good visibility on non-bank financial markets."

Market action

These comments don't seem to be having a noticeable impact on the USD's performance against its rivals. As of writing, the US Dollar Index was up 0.17% on a daily basis at 92.22.

 

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