Weekly Outlook

Investors got a break last week after peace talks took place for the war in Ukraine but this week they will watch for a detailed look into the next impact of the war and the rise of living costs on the service sector. Although the outlook around the Ukraine war remains highly uncertain, developments led investors to express optimism as they began to calm themselves around the idea of increasing interest rates. March FOMC’s minutes from the Fed may help soothe frayed nerves.

EU inflation soars

Reports on the manufacturing industries will be released next week, with a summary of the March data. Manufacturing PMI surveys showed that only a minor impact is being felt in major developed economies due to tensions with Russia over Ukraine. The sharp acceleration in prices is mainly due to the effects of the war on energy and food prices.

The Eurozone has a lot of data coming out this week, though most attention will be on the March PMI readings. The figures reached 44.7% from 32% during February. All signs indicate that prices will accelerate in the coming months. The PMI Composite last week revealed that both input and output prices had surged at historic rates. Inflation, is now triple ECB’s levels, at 7.5%.

EURUSD found resistance at its 50-day average near $1.1170 last week. It then slid down to $1.1030. While the resistance level remains intact and far-fetched, the next support lies near $1.0992. A slight relief can be expected, however, $1.10 will be hard to penetrate.

Surprise from RBA?

This week the Reserve Bank of Australia, which was not happy about the federal government’s pre-election budget, will publish its monthly meeting, displaying concern from some economic experts. The Federal government’ inclusion of an $8.6 billion support package in the budget has raised inflation worries for financial markets and is considered a sign of inflation rising.

The federal government revised its deficit down to $80 billion and made economic projections suggesting that the combined rate of unemployment would fall to 3.75 percent, a quarter ahead of the Reserve Bank’s own projections. The CPI is expected to have grown by 4.25% by June, more than the central bank’s predicted growth of 3.75%.

A surprise hike would help AUDCHF propel towards 0.95 and perhaps higher. The pair has crossed above its 200 and 50-day average and is somewhat bid as long as it remains above 0.9250. The interim support at 0.9337 could provide an extra bit of optimism if it holds.

Balance sheet clues awaited

Traders will use the minutes from the FOMC meeting as a forecast for future rate hikes. An even more aggressive near-term hike path is forecast by some analysts. S&P Global’s data shows input costs have been increasing at a high rate, as well as strong output and demand. The expectation for growth remains high, despite the decline in confidence. So, markets will still like to evaluate how much the rebound from the pandemic could be disrupted.

The Federal Reserve has yet to announce when it wants to regulate its balance sheet. A lot of attention will shift there.

USDCHF is between a wall and a hard place; the 50-day average at 0.9270 and the 200-at 0.9220. A break of the range could lead the pair to major levels. 0.92 is the round support below the 200-MA, whereas on the other side 0.9334 is the first level of significance.

Canada is back! Will it stay?

Canada’s jobs market is finally recovering from the blow COVID-19 dealt two years ago, with the employment rate and unemployment share reaching their pre-pandemic levels. Even though wages are going up, they are not keeping up with the rising cost of living. This isn’t as bad as it sounds, but it may have minor repercussions for market participants if it maintains a slack.

CADJPY reached 100 last week after seven years, and an immediate rejection was experienced from investors and traders alike as expected. Although the range down to 98 is sizeable, it also formed a low which if breaks, opens up the room to 95/96. On the top side, well, 100 is the top – for now.

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