The bid for safe-havens was firm in the early hours of the London session on Tuesday as market mood worsens. The dollar has rallied to its highest price in a month. Meanwhile, the RBA has maintained 10 basis point rate decisions ahead of Wednesday’s GDP data.
The market sentiment support risk-off in the early days of the week. The dollar index almost hit 90.4 as it enforced its current resurgence on the major currencies and commodity metals. Meanwhile, the stock market which covered some ground on Monday is now retreating as the S&P 500 fell below 3900. Gold has plunged to its lowest since June 2020 having fallen over 8% since the turn of the year. Also, the oil market has descended to its lowest WTD level. Save-haven Dollar, Yen, and Swissy have been the biggest gainers since last week as the Aussie and Kiwi pose for more fall in the Fx space.
Central Banks: RBA kept rates unchanged
The Reserve Bank of Australia has maintained the current policy status in its March meeting. This includes maintaining the 0.1% cash rate and its current bond-purchasing policy. The bank admitted that the economic recovery is stronger than expected as a result of successful vaccine roll-outs. Despite recent upbeat economic data from the country, the bank has decided to keep rates at the current level until its inflation target range of 2-3% is achieved. Aussie has seen little change since the event. The current bearish sentiment should drive the Aussie pairs further downside after the current bounce. Traders will look forward to the GDP data on Wednesday.
Macro-economics
The US PMI data on Monday was solid and exceeded expectations. However, CAD PMI was close to expectation and thus had little effect on the CAD. Also, the RBA kept the interest rate unchanged at 0.1% earlier on Tuesday after a bullish current account report. Later, Japan’s unemployment rate dropped to 2.9% as capital spending took a big hit. However, Spanish and German unemployment change data came appalling. Looking ahead, CAD monthly GDP revision, Eurozone flash PMIs and FOMC members speeches will be eyed.
Technical Forecast of major instruments
Dollar Index
The current risk sentiment supports a bullish dollar. The chart above shows the price resuming the bullish correction that started in January. A bullish double zigzag pattern is very much likely. The last leg of the minor wave Y (in black) should complete three legs and extend to 92 or slightly above. However, we might see a sharp rejection around the 91.6 resistance level. The dollar could therefore show short-term weakness across the board from Tuesday to Thursday ahead of Friday’s NFP.
S&P 500 (US 500)
The stock market is getting overbought as concerns about central banks’ eventual policy tightening is leading to profit-taking. The S&P 500 is close to completing a diagonal/wedge pattern around the 4000 psychological level. If the pattern completes the last leg around 4000, we might see the biggest decline since the turn of the year. The stock index has recovered over half of the late February decline. A surge above 3900 up to 4000 is next before the eventual decline if the top of the diagonal is strong enough to resist further rise.
WTI Oil (US Oil)
All eyes will be on Thursday’s OPEC+ meeting. The cartel is expected to hike output by 500,000 barrels per day as per the December agreement. However, its output policy going forward will be more scrutinized. If the group pauses further hike, we should see the oil price push further upside. Economies are re-opening and so will be demands for oil products. Oil prices have rallied to the pre-pandemic levels. However, last week’s risk-off is weighing on the black gold.
The WTI chart above shows the dip from $63.8 is corrective and further rally should ensue toward $66. However, traders should watch for an alternative complex corrective structure as the current dip looks shallow. A break above 62 should trigger fresh bid above the 63.8 high.
Gold
The yellow metal recorded its biggest monthly loss in February. March is also going bearish. However, the price is at or near a critical support base as the chart below shows.
The long-term bearish correction started in August 2020. The Gold long-term outlook remains bullish. However, we need a signal to indicate the end of this bearish phase. The correction is clearly completing a double zigzag pattern touching 38.2% of the pre-pandemic and pandemic rally. Traders should watch for bullish reactions around the 1700 psychological level.
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