Central Banks Hold Rates Put Awaiting Further Inflation Data

The forex market has fully absorbed the busy news week, with four major central banks delivering no surprises. Rates remained put as bankers carefully asses the latest market data, particularly inflation numbers which recently ticked higher in countries like Canada or the UK, raising questions about anticipated rate cuts.

The Bank of England, which voted 8-1 to keep interest on hold, took a more cautious stance than the previous meeting, which voted 7-2, as the institution warned about intensifying global trade uncertainty.  Next week, the market will deliver fresh news about European and US manufacturing, followed by inflation news for Australia and the UK. The GDP projections for the US and Canada will also be on traders' radars. The weekly round-up will conclude with Friday's Core Personal Consumption Expenditures Price Index – which is broadly seen as the FED's preferred measure of inflation.

Key News:

• Monday: EUR, GBP, USD - Manufacturing PMI
• Wednesday: AUD - CPI, GBP - CPI
• Thursday: USD - GDP, USD - Unemployment, GBP - Retail Sales
• Friday: CAD - GDP, USD - Core PCE Price Index

Pairs In Focus

1. AUD CAD 

This pair took the previous week's high and then reversed and took its low, creating engulfing bearish price action. This pair came close to a key support level of 0.89700. If it closes below this level on the daily chart, it has the potential to continue lower, going to at least 0.88700 and possibly further.

AUD CAD daily Chart, Source: Trading View

The ideal price action for this setup is a minor rally early in the week, followed by a reversal that closes below the key level. The retail sentiment is 92% long, creating an excellent opportunity for a squeeze.

2. EUR JPY

After hitting the key designated resistance level from last week's report, this pair sharply reversed, falling back to the support. The level to observe remains around 161.130, which has to be broken and closed below on the daily chart to consider shorts. If this scenario materializes, it opens up an opportunity for follow-up shorts to take out stops resting around 160.200 and possibly lower at 159.

EUR/JPY Daily Chart, Source: TradingView

Notes:

• AUD/NZD: Declined as anticipated, hitting the target of 100 pips. Pulled back somewhat, and further pullbacks are likely.
• AUD/SGD: It rallied before declining dramatically later in the week. It might decline further to test support around 0.83400.
• AUD/JPY:  Failed to break a key resistance at 95.230. Further declines are possible toward 92.400.
• AUD/CHF: Similarly, the trend failed to reverse. Remains in a strong downtrend.
• CHF/JPY: Successfully bounced from support at 168.100. A bullish continuation is likely to test resistance near 171.
• EUR/AUD: The pullback was rejected, and it remains in the strong uptrend.
• GBP/NZD: Rejected the pullback; might challenge resistance around 2.27450 again.
• GBP/JPY: Failed to break through the resistance from January at 194.800. Lower support is at 192.
• GBP/SGD:  Bullish momentum is starting to fade. It is likely to test support around 1.71500.
• GBP/AUD: In a strong uptrend. If it continues, it will challenge resistance at 2.08500, the high point from March 2020.
• NZD/JPY: Bullish move stalled at February’s resistance of 87.200. A continuation lower would not be a surprise.
• SGD/JPY: Rallied but failed to close above the key level 112.300. It might enter a ranging period before the next big move.

Stjepan Kalinic

Stjepan is a multi-asset analyst, working in institutional and retail finance since 2015. During that time he published over a 1,000 reports, covering equities, commodities and currencies. His work has been published by notable outlets like Yahoo Finance, Benzinga, Simply Wall St, Fidelity and Nasdaq.