EUR/USD struggled to preserve the overnight gains to a two-week high amid resurgent USD demand. The Fed’s hawkish outlook, elevated US bond yields, and the risk-off impulse underpinned the buck. Investors now look forward to the flash Eurozone/US PMI prints for some meaningful trading impetus. The EUR/USD pair witnessed good two-way price moves on Thursday and finally settled near the lower end of its daily trading range. The shared currency drew some support from hawkish comments by some ECB policymakers, which, along with some intraday US dollar selling, lifted the pair to a two-week high. ECB Vice President Luis de Guindos said in an interview that a rate hike is possible in the second half of the year, though the timing will depend on the economic projections. Adding to this, ECB Governing Council member Pierre Wunsch suggested a probable interest rate hike in July and anticipated that rates could be positive as soon as this year. Adding to this, Joachim Nagel, President of the Deutsche Bundesbank, noted that the ECB could raise interest rates at the start of the third quarter. The markets were quick to price in a more than 20 bps rise in July and nearly 80 bps of tightening by year-end. ECB President Christine Lagarde, however, said that the central bank might need to cut its growth outlook further amid concerns about the fallout from Russia's invasion of Ukraine. In contrast, Fed Chair Jerome Powell all but confirmed a 50 bps rate hike at the upcoming policy meeting on May 3-4 and hinted at consecutive increases this year. The divergence in the ECB-Fed policy stance acted as a headwind for the pair. The prospects for a more aggressive policy tightening by the Fed lifted the US Treasury bond yields back closer to the multi-year peak. The risk-off impulse revived demand for the safe-haven USD and led to the pair's sharp decline of over 100 pips. The downfall, however, lacked follow-through, and the pair was seen oscillating in a narrow trading band through the Asian session on Friday. Market participants now seem to await the release of the flash PMI prints from the Eurozone and the US before placing fresh bets. Traders will further take cues from ECB President Christine Lagarde's appearance and the USD price dynamics for some short-term opportunities. Technical outlook From a technical perspective, the pair’s inability to capitalize on this week’s rebound from the vicinity of the YTD low and the overnight downfall favours bearish traders. It will still be prudent to wait for sustained weakness below the 1.0800 mark before positioning for any further depreciating move. The following relevant support is pegged near the post-ECB low, around the 1.0760-1.0755 region, below which the pair is likely to accelerate the downward trajectory towards the 1.0700 round figure. On the flip side, the 1.0890-1.0900 area seems to be an immediate resistance ahead of the previous day’s high, around the 1.0935 zone. Some follow-through buying will suggest that the pair has formed a near-term bottom and pave the way for a move towards reclaiming the 1.1000 psychological mark. The momentum could further extend towards the 1.1025-1.1030 region en-route the next relevant hurdle around the 1.1085 level. 

Outlook: Forget data–today Fed chief Powell speaks and is widely expected to seal the fate of the next hike at 50 bp instead of the standard 25 bp. We have to ask where we stand in the “buy the rumor, sell the fact” cycle. If everyone already expects the 50 bp, and they should, does that feed a softening of the bond selloff (which may have gone overboard)? Bloomberg notes that the Beige Book yesterday uses the word “shortages” more than 50 times for the second report in row. Growth is moderate, prices are still rising and geopolitical developments still create uncertainty and cloud the outlook. Aside from the roiling CAD, the big mover is the dollar/yen, Japan’s FinMin Suzuki is meeting TreasSec Yellen today at G20. Yesterday Suzuki said “We must take appropriate action [on the yen] while closely communicating with financial authorities of the United States and others based on G-7 and other agreements.” Well, no. We can’t see Yellen agreeing to intervention, which is the hidden message when the cause of the yen weakness is at the MoF’s choice–unless we think the MoF and the Bank of Japan are at odds, which makes US or G7 intervention even more unlikely. As we warned yesterday, the correction is an organic thing and should not be considered a function of expectations of an intervention that is improbable in the extreme. Blomberg also summarizes the shift in the eurozone yield situation: “Traders are betting the European Central Bank will raise rates above zero this year for the first time since 2012, after a string of hawkish comments from policymakers. Money markets are pricing 75 basis points of interest-rate hikes by the ECB’s December decision, according to swap contracts linked to the euro short-term rate. The ECB should be able to phase out asset purchases in July to pave the way for an interest-rate increase as early as that month, according to Vice President Luis de Guindos.” Most of this is wishful thinking by hawks, although the part about ending assets purchases in July seems moored in reality. A hike at the same meeting is not likely, though. It’s hard to know whether this is Bloomberg bias showing through thin fabric or valuable inside information. We continue to expect the dollar to recover after traders unload a sufficient amount of them, because nothing developing points to a change in the relative differentials. Foreign affairs Russia claims to have captured the city of Mariupol, with thousands trapped inside a steel complex, including resistance fighters. In Germany, the FT Reports panic is spreading over the possible loss of Russian natural gas to embargo. It gets 55% of its supply from Russia. “The fear is that any sudden gas shut-off could paralyse large parts of the country’s industry. Martin Brudermüller, chief executive of the chemicals group BASF, says it would plunge German business into its ‘worst crisis since the second world war.’” Yes, indeed. “Energy veterans are at a loss. ‘I’ve seen many disruptions,’ says Leonhard Birnbaum, chief executive of German energy group Eon. ‘I’ve seen the energy transition from zero to, let’s say, full steam. I’ve seen Fukushima . . . I’ve seen turbulent times. But what we are observing right now is . . . unprecedented.’” The institutes joined together last week to predict an embargo would cause Germany to lose 2.2% of output next year and more than 400,000 jobs. The Kiel Institute says this is a wipeout of 6.5% of GDP. The FT article says the dependence grew out of East German relations with Russia and helped along by the Merkel government phasing out nuclear after Fukushima. “The German politicians seen as having fostered close ties to Russia are now being pilloried. One is Frank-Walter Steinmeier, a former foreign minister in Merkel’s government who is now Germany’s president. He had planned to visit Kyiv last week but was told by Volodymyr Zelensky’s government that he would be unwelcome – a spectacular snub.” The government is scrambling to find alternatives and some critics say Germany industry is exaggerating the potential negative effects, and even if dire outcomes fall on some, “ending Russian energy imports would be ‘manageable’ for the German economy. ‘It is a temporary crisis,’ [a professor] says. ’We can protect jobs with short-time work and support companies with capital injections by the government. We have done this before with Covid. Germany has the fiscal capacity to pay for this.’” We like that last part–Germany can pay for this. Tidbit: The WSJ Daily Shot has this chart on US consumer debt from Deutsche Bank. Debt has fallen mightily and consumers have more cash than debt for the first time in 30 years. What can this mean? First, maybe consumers were able to cut debt because of the emergency Covid payments from the government–and they will go right back to...

It is said that those who do not learn from history are bound to repeat it. Unfortunately, it would seem that this adage is all too applicable to today’s Federal Reserve, who is raising interest rates in a belated response to skyrocketing inflation that a year ago we were told was transitory and nothing to worry about. Had the Fed learned from the painful inflationary experience of the 1970s, it would not have allowed, as it did over the past two years, for the money supply to balloon out of control and interest rates to become as negative as they are today in inflation-adjusted terms. Had the Fed learned from the painful 2008 experience with the bursting of the housing and credit bubble, it would not have allowed even greater bubbles to form in the global equity, housing and credit markets. But instead, it engaged in one of the biggest and most unprecedented money printing programs that the world has ever seen. Fast forward to today, inflation is running at a 41-year high and still accelerating. If inflation continues to surge at the current pace, then we’re only months away from a return to double-digit inflation on the same scale last seen in the 1970s. With just over a week to go until the next highly-anticipated FOMC policy meeting – the Fed now unenviably faces its biggest dilemma ever. Which is to kick the can further down the road and allow inflation to run its course or go big on interest rate hikes at the risk of a recession. If history has taught us anything, then the one thing that we do know for certain is both scenarios, whether that’s persistent Inflation or a recession, ultimately present an extremely bullish backdrop for precious metal prices. Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

EUR/USD - 1.0842 Euro's rally above 1.0834/37 resistance to 1.0867 in Europe on broad-based retreat in usd due to fall in U.S. yields suggests recent erratic decline has made a temporary bottom at last Thursday's near 2-year bottom at 1.0758 and stronger retracement towards 1.0890/94 is likely before another fall, below 1.0807 would head back to 1.0783, then 1.0758/62 later. On the upside, only a daily close above 1.0923 would risk stronger gain to 1.0938/45, break, 1.0965/70. Data to be released on Thursday New Zealand CPI. France business climate, EU HICP. U.S. initial jobless claims, continuing jobless claims, Philly Fed manufacturing index and EU consumer confidence.

USDINR: 76.21 ▼ 0.29%. GBPUSD: 1.3063 ▲ 0.52%. EURUSD: 1.0855 ▲ 0.64%. India 10-Year Bond Yield: 7.105 ▼ 0.64%. US 10-Year Bond Yield: 2.874 ▼ 1.39%. Sensex: 17,136.55  ▲ 1.05%. Nifty: 57,037.50 ▲ 1.02%. Key highlights China held key interest rates for corporate and household loans steady, a surprise move that signals Beijing remains cautious about policy easing even as COVID-19 and the Ukraine war weigh on growth. The People’s Bank of China kept the one-year loan prime rate at 3.7% and the five-year rate at 4.6%. The Eurozone suffered a trade deficit for a fourth consecutive month in February as surging energy prices led to a sharp increase in the value of energy imports, data showed. Eurostat said the non-adjusted trade deficit of the 19 countries sharing the euro was 7.6 billion euros compared with a 23.6 billion euro surplus a year earlier in February 2021. The BoJ boosted efforts to defend its yield target, making a fresh offer to buy an unlimited amount of the 10-year bonds for four consecutive sessions. The move comes as the yield on the 10-year JGB remained at 0.25%, the upper limit of its target of around zero percent, throughout Wednesday, despite the central bank's offer to buy an unlimited amount of the 10-year bonds at that rate. USD/INR movement The USDINR pair made a gapped-down opening at 76.3950 levels and traded in the range of 76.17 - 76.5050. The pair closed the day at 76.21. The USDINR pair ended down tracking the pullback in the US dollar from a 2-year high and also due to the inflows into the domestic equity market. As per market participants, inflows related to SBI raising $500 million via syndicated loans too supported the demand for the rupee. However, Brent crude continued to trade at an elevated price that capped further gains for the rupee. Global currency updates The pound edged higher against the US dollar on the pullback in the dollar index and signs of stability in the equity markets. Today due to the absence of any major market-moving economic releases from the UK, the USD price dynamics played a key role in influencing the GBPUSD pair. Euro traded slightly higher against the US dollar due to a pullback in the dollar index. Meanwhile, investors are also focusing on the appearance of the European Central Bank's Christine Lagarde, which is due on Thursday. This will provide guidance to the market participants above the likely monetary policy announcement by the ECB. Along with this, the appearance of Federal Reserve's Jerome Powell will also hold significant importance for the Euro currency. Bond market The 10-year U.S. Treasury yield fell, retreating from levels not seen in more than three years. The yield on the benchmark 10-year Treasury note dipped more than 5 basis points to 2.865%. The yield on the 30-year Treasury bond moved 6 basis points lower to 2.927%. India's 10-year yield slipped today as it closed the day at 7.105%. This could be majorly due to expected inflows in the domestic market seeing lucrative levels. The overall movement across the sovereign bond curve remained within 5 basis points. Equity market Indian equity benchmarks halted a five-day losing streak led by strength in IT, auto, consumer durable and pharma stocks, shrugging off mixed moves across global markets. Broader markets were a mixed bag at the close, as the Nifty midcap 100 rose 0.8% but its smallcap counterpart declined 0.2%. Indian stocks indices ended higher with the Sensex ended 1.02% higher at 57,037.50 while the Nifty rose 1.05% to settle at 17,136.55. Investors awaited more earnings reports from India Inc for cues. Evening sunshine Focus to be on the US Existing Home Sales data due later today. European stocks saw some positive gains after opening around the flat line as investors monitor developments in Ukraine. U.S. index futures were steady, reversing earlier losses, as a rally in Treasuries signaled calming nerves over inflation and Federal Reserve rate-hike bets. Investors are also digesting the latest gloomy global economic forecasts from the IMF and World Bank. The market would closely watch out for US Existing Home Sales data and FOMC members’ speech due later today.

Outlook: US economic data remains feisty but existing home sales today look gimmer. The Bloomberg forecast is a drop of 4.1% after a bigger drop in Feb, a whopping 7%. Trading Economics forecasts 5.9%. The commentary points out a handful of exceptional data points: “Existing-home sales in the US sank 7.% mom to a seasonally adjusted annualized rate of 6.02 million in February of 2022, below market forecasts of 6.1 million. It is the lowest reading in six months. The inventory of unsold existing homes slightly increased to 870,000, equivalent to 1.7 months of supply at the current monthly sales pace. The median sales price rose to $357,300, up 15% YoY. This marks 120 consecutive months of year-over-year price increases, the longest-running streak on record.” Housing is not usually a mover in the FX market but can contribute to the reversal of fortunes in the dollar today. As journalists like to say, not having a clue, “it fell because of” or “it fell despite of” Factor X. The downward correction in the too-strong, overbought dollar is appearing in every major currency and some not so major. The dollar/yen broke its nearly two-week trendlet and is down about 100 points from the high yesterday at 129.405. The inexperienced are sure to say it was the approach to the round number 130 that did the trick, but that’s not, in all likelihood, the case. A Fed study years ago did show that round numbers in FX get hit more than chance would allow, but this time it was a universal correction and little to do directly with the yen. In fact, the BoJ repeated support for curve control today and offered to buy an unlimited amount of 10-year bonds at 0.25%--and will keep the offer open for the next four days. This is affirmation of the policy that is sending the yen lower, not a pushback against it, despite the widening trade deficit. And it’s not intervention, even of the jaw-boning variety, which so far is pretty tame. We expect more fiery rhetoric before the BoJ would actually act. That doesn’t mean the dollar/yen can’t keep falling, depending on whether a bandwagon gets rolling and traders pile on. After all, a 50-year record is notjhing to sneeze at. The B band bottom on the 480-minute chart lies at 124.52. Fibonacci retracement levels are ridiculous but so many traders observe them that we have to accept their view, and there the 50% retracement is 122.08. Or consider the top of the ichimoku cloud at 127.42 on May 2. Bottom line, there is a wide range of possible retracements and any of them might get hit–or none of them, if the yield-divergence crowd prevails and we return to test the 130 level. We get the Beige Book later today, although it’s not likely to deliver any more information about the Fed’s mindset, which is being amply transmitted by individual speakers (and we get three today). Yesterday we had Chicago Fed Evans expecting Fed funds at 2.25-2.50% by year0end. Atlanta Fed Bostic wants expediency and sees the neutral rate at 2-2.5% and sees 1.75% by year-end. Never mind–neither of these two is a voter this time. The market is not giving much attention, either, and delivered a historic moment–Investors in 10-year Treasuries can expect to earn real returns on their money for the first time in more than two years. The yield on 10-year inflation-protected Treasuries rose as high as three basis points in Asia trading Wednesday, with the turnaround driven by the Federal Reserve’s hawkish stance.” Corrections as we are seeing now are terribly tricky. It’s all but impossible to judge between a true breakout and a false one. Technical analysts debate endlessly whether you use different techniques to determine a trend resumption over what you use to determine a new trend. We say they are different–a move contrary to an existing, established trend needs to be seen in perspective of that existing trend. Technical analysis God Perry Kaufman says no, a trend is a trend if the same criteria are used to identify and we are not mathematically capable of differentiating between them. We see the problem is commentators making up stories to justify a reversal and then all too many traders buying into it, delivering that wicked thing, momentum. When a trend resumes later, as it will this time on the yield divergence, we forget all those justifications for the trend to have stopped and reversed. In other words, it’s the human tendency to love and believe stories at fault. But hanging on to basic principles and debunking stories can lose you your shirt. Retreat is the brave stance. Tidbit: The IMF’s WEO economic forecast say, according to Reuters, global growth will fade to 3.6% in 2022, down from 4.4% projected last...