Financial markets experienced another week of roller coaster price action before equities pulled higher by the end of the week. President Donald Trump's tariff escalation temporarily paused (except with China), providing the market with much-needed relief.
Comments from the FED further soothed the market. Boston Federal Reserve President Susan Collins said the Fed is prepared to keep financial markets functioning should the need arise.
The US dollar further fell, reaching 100 levels not seen since July 2023. Declining inflation, which the market expected to show a 2.4% year-over-year increase, came in 0.1% below expectations, and the market interpreted it as a clear signal to the central bank that it can decrease the interest rate if it wishes so, and consequently increase the supply of the dollar.
The lower-than-expected reading of the Core Producer Price Index (-0.1% vs 0.3% consensus) further weighed on the dollar. Reserve Bank of New Zealand lowered the interest rate to 3.50% as anticipated, while the UK's GDP growth surprised, coming at 0.5%.
The week ahead will bring more CPI data and central bank decisions. The ECB is expected to cut the interest rate from 2.65% to 2.40%, while the Bank of Canada is expected to keep it at 2.75% ahead of the April 28 elections. Australian unemployment and New Zealand's CPI news could cause heightened volatility in the Asian trading session in the second half of the week.
Key News:
- Tuesday: CAD – CPI
- Wednesday: GBP – CPI, USD – Retail Sales, Powell Speech, CAD – BOC Rate Decision
- Thursday: NZD – CPI, AUD – Unemployment. EUR – ECB Rate Decision, USD – Unemployment
Pairs In Focus
1. GBP NZD
This pair experienced a multi-month rally with occasional pullbacks, and the premise behind this move is yet another pullback, as signaled by the higher timeframe.
On the monthly chart, this pair experienced a blowoff top and a swift retracement, which has been seen before in October 2018 and March 2020. The weekly candle swept the previous week's high before turning, engaging, and closing below the previous week's low. The expectation is to see a further pullback—likely to at least 2.22500, near the market trendline, but possibly as far as 2.19200.
GBP/NZD Daily Chart, Source: TradingView
Retail sentiment is nearly 50-50 long-short, but if it spikes above 65-70% for the long side, this fortifies the potential short-selling thesis.
2. EUR JPY long
This pair has reclaimed a range it lost in the previous sell-off, reaching the key level of 161.100. The anticipation is that it will try to take out the previous resistance and possibly the yearly high around 164.600.
EUR/JPY Daily Chart, Source: TradingView
Retail sentiment is 60% short, which is a positive sign, especially if it increases further.
Notes:
- AUD/CAD: Pulled back 250 pips, and further pullbacks can bring the price to support around 0.88300.
- AUD/NZD: Continued to decline after a pullback. AUD is still relatively weaker than NZD.
- AUD/SGD: Bounced back almost 300 pips after taking out a 5-year low.
- AUD/JPY: Bounced back almost 400 pips, and further pullback is possible toward the 92.200 level.
- AUD/CHF: Rejected the pullback, but failed to establish a new low.
- CAD/JPY: Remained in a range as anticipated. Currently sitting in the middle, so unlikely to be the best pair to trade next week.
- CHF JPY: Rallied as anticipated and overshoot our target, closing above 176.
- EUR/AUD: The Euro is still relatively strong against the Aussie dollar, but it failed to close the week on a strong note.
- EUR/NZD: Very similar price action to EUR/AUD. The movement is closely matched, indicating a strong correlation.
- GBP/JPY: Pulled back after a decline, but not before it swept a low. Further rise is possible, and a key level to reach would be 190.100.
- GBP/AUD: Pulled back after a massive bull run. Further pullbacks are possible, but the strong support should be around 2.06300.
- NZD/JPY: The pair broke back above the key level of 82.860. If the market overcomes 84.500 resistance, further rallies are possible but it is advisable to avoid trading correlated pairs simultaneously.
- SGD/JPY: Tried to rally but saw a big rejection at 110. Remains in the downtrend.
Note: Any opinions expressed in this article are not to be considered investment advice and are solely those of the authors. Singapore Forex Club is not responsible for any financial decisions based on this article's contents. Readers may use this data for information and educational purposes only.
