Is the fight against inflation still the primary target?

In Europe yesterday we had the release of the HICP rates for March, notably Germany’s coming in higher than expected, despite a substantial easing, resulting in an upwards movement by the EUR against the USD as this could possibly support the ECB’s case to potentially increase interest rates. Traders should note the incoming French and Eurozone HICP rates that are due out today, as the ECB has continuously re-iterated since its last MPC meeting that it will now be more data dependent, the current rates today could potentially provide some insight as to the interest rate decision that will be taken at the next meeting on the 4 of May. In the UK we note an acceleration of GDP for Q4 as the figures came in higher than expected, potentially providing some support for the GBP against its counterparts as we note that the UK banking industry has remained relatively unscathed from recent turmoil, it may further support confidence in the UK economic environment thus benefitting the pound. Across the pond we note that the US GDP for Q4 came in lower than expected in addition to the initial jobless claims increasing, thus we saw some weakening for the USD against its counterparts as the US economy appears to be growing at a slower rate than anticipated. We also note Treasury Secretary Yellen’s speech yesterday which called for stronger regulation of the ‘shadow bank’ sector such as money market funds, hedge funds and crypto assets according to Reuters. Furthermore, Yellen re-iterated comments that the regulatory requirements in the banking industry have been loosened up in the past few years adding to comments made by Fed Barr during the senate committee hearing on Wednesday. We note that the safe haven outflows suffered by the USD may have also been one of the factors weakening it. The easing of the market worries tends on the other hand to support riskier assets such as US equities which characteristically were in the greens yesterday shaking off any doubts of traders for the equities markets’ direction. On the monetary front, we note Minneapolis Fed President Kashkari’s comments yesterday that “more work needs to be done” to combat inflation, thus implying that more rate hikes lay ahead for the Fed. Following Fed Kashkari’s comments yesterday, also a degree of uncertainty on a fundamental level, might be sensed as despite continuous comments that the banking sector is sound and resilient, we see minute cracks in Fed Kashkari’s statements such as “What’s unclear is how much of banking stresses of past few weeks is leading to a sustained credit crunch”, potentially indicating that the situation may have yet to pass and it may take some time until the true impact is seen.

EUR/USD seems to have failed to break above resistance at the 1.0930 (R1) line, however it still remains above the upwards moving trendline. As such we maintain a bullish outlook for the pair, as the RSI indicator is still above the reading of 50 which tends to imply bullish support for the pair. Should the bulls continue to reign over the pair we may see the pair breaking above the R1 clearly and take aim of the 1.1050 (R2) level. Should the bears be in charge we may see the pair breaking below the upwards trendline and move towards the 1.0830 (S1) line, with the next possible target for the bears being the 1.0715 (S2) line.

GBP/USD continued to edge higher yesterday validating the upwards trendline yet hit a ceiling at the 1.2400 (R1) resistance line. Given that the pair continues to validate the upwards trendline and the RSI is close to 70 we hold a bullish outlook for the pair. For our bullish outlook to continue we would require a clear break of the 1.2400 (R1) with the next possible target for the bulls being the 1.2480 (R2) level. Should the bears take over, we may see the pair reversing course, breaking below the aforementioned upwards trendline and potentially aiming for the 1.2230 (S1) line, with the next potential target for the bears being the 1.2150(S2) resistance line.

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During the European session we note the release of the Czech Republics revised GDP for Q4, followed by the Eurozone’s preliminary HICP rate for March. Later on, during the American session we note the US Consumption data, Core PCE Index for the month of February followed by Canada’s GDP for January. We highlight the final release of the University of Michigan’s sentiment for the month of March. In addition, ECB’s Lagarde and NY Fed President Williams are due to speak later in the day.