The Week Ahead – Risk Mitigation

EURUSD recovers on narrowing rate gap

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Chart of EURUSD

The euro rallies as the pace of tightening across the Atlantic diverges. From sticky inflation on the one hand to fragility in the banking sector on the other, the Fed will need to thread the needle to not cause a panic. A hint at pausing rate rises has reassured the market that policymakers would not go overboard even if it remains conditional. While most of the burden seems to be on the Fed’s shoulders as investors are cautious about small US lenders, the ECB may pursue its tightening with relatively lesser impact. The euro would benefit from the narrowing rate differential. 1.0480 is the closest support and 1.1000 is the resistance ahead.

AUDUSD lowers in hopes of dovish RBA

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Chart of AUDUSD

The Australian dollar steadies as traders hope to see inflation peak. While RBA officials have downplayed the impact of the stress in the global banking system on domestic institutions, liquidity concerns may still influence monetary policy. The minutes from the March decision showed that the central bank would reconsider a pause in April to give rates time to filter through to the economy. This would put more weight on the upcoming retail and notably CPI readings. Another drop in February’s inflation momentum would cement expectations of a dovish turn. The pair is drifting towards 0.6500 with 0.6770 as a fresh resistance.

UKOIL struggles over recession fears

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Chart of UKOIL

Brent crude staged a limited bounce as the outlook took a gloomy turn. Recent shocks in the financial sector have shattered the hope of a sustained recovery, sending the oil price to its 15-month low. A credit crunch, reminiscent of the 2008 financial crisis, is feared to be the trigger of the anticipated recession. Even a solid recovery in demand from China has failed to offset the downward trajectory, which shows how traders are wary of a much harder landing for the global economy. Meanwhile, the EIA report of a large increase in US stockpiles only exacerbates the imbalance. 70.00 is the current floor and 83.00 is a fresh hurdle.

NAS 100 consolidates as mood stays fragile

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Chart of US100

The Nasdaq 100 struggles over investors’ unease about the Fed’s policy outlook. While Powell reiterated the possibility of further increasing rates, market participants remain hopeful that future data would show that aggressive hikes have indeed left a mark on consumption. Until then, Treasury Secretary Janet Yellen’s reassurances to guarantee bank deposits amid the banking crisis would also give the Fed a free hand to focus on inflation, namely pushing the rate even higher if necessary and tempering rate cut speculations for this year. The index is testing the supply zone around 13160 and 11800 remains a key support.

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