Analytics

Furthermore, the fact that the common currency keeps struggling below the descending 20-DMA for more than a month suggests that the path of least resistance remains to the downside while below at least this moving average that arrives just below 1.0700.

The dollar is giving up gains across the market on Friday after another rally to fresh twenty-year highs earlier in the day. The USD index briefly surged above the 104.00 figure before correcting lower down towards the 103.30 immediate support, followed by the 103.00 mark. At this stage, the downside potential remains limited, with bullish risks persisting as long as the prices stay above the 98.00 mark last seen in late-March.

As the euro keeps clinging to the lower end of the extended trading range these days, retaining a bearish slope for nearly a year already, the strong downside momentum puts parity in spotlight. Now that the pair derailed the 1.0500 figure, the next target of 1.0340 comes into the market focus.

ECB-Fed divergence persists

The European currency will continue to struggle amid the diverging monetary policy between the Fed and the ECB. Earlier this week, the Federal Reserve raised interest rates by 50 basis points after a 0.25%-hike in the previous meeting. The central bank expressed a slightly more cautious tone in the accompanying statement, but the persistent inflationary pressures in the United States suggest the FOMC could have to proceed to an even more aggressive tightening at some point later this year.

Meanwhile, ECB policymaker Francois Villeroy said earlier on Friday that real rates in the Eurozone will stay significantly negative and below neutral for some time. At that, he noted that it’s reasonable to raise rates into positive territory by the year-end. Adding to euro’s bearishness, the energy crisis in Europe could hurt the already struggling region’s economy in the months ahead.

Oil surged decently on news that the EU has proposed a ban on Russian oil imports under a phased six-month plan. Brent crude jumped to the $109 the figure that has been capping further gains so far. Also on the positive side, the API report showed that US crude oil inventories fell by 3.5 million barrels last week versus an 800,000 decline expected.

Meanwhile, gold prices retain a slight bullish bias since Tuesday, challenging the $1,870 zone due to some weakness surrounding the US dollar. In a USD-negative scenario, the yellow metal could regain the key immediate target represented by the $1,900 figure.

What’s next for the dollar?

The buck could plunge across the market if the Fed delivers a less hawkish tone than expected. Cautious notes in the accompanying statement may trigger a major bearish correction, especially as the dollar stays overbought just below long-term peaks seen last week.

Depending on the central bank’s rhetoric, the USD index would either exceed the 104.00 mark, or would threaten the 100.00 figure last seen on April 21. Similarly, the euro may see a strong bounce from multi-year lows to regain the descending 20-DMA, followed by the 1.0950 barrier. Otherwise, the common currency will have to get back below 1.0500 amid ECB-Fed monetary policy divergence.

In the second half of the week, both equities and cryptos proceeded to recovery as risk aversion has abated somehow. As such, the BTCUSD pair is approaching the $40,000 handle again, holding just below this psychological level on Thursday. However, it looks like the most popular digital currency could struggle to witness a more robust bounce in the near term, especially as the 20- and 100-DMAs lie ahead, representing the immediate barrier on the way towards the $43,000 mark that capped the ascent earlier this month.

Buying the dip

As the latest drop in the cryptocurrency space shows, a “buy the dip” strategy persists in the market at this stage, suggesting long-term investors continue to bet on a major rally towards all-time highs in the longer run. As a reminder, last month the BTCUSD pair bounced strongly off the $37,000 level that represents a critical support zone for the time being while this year’s low was registered just below $33,000 in January.

In the short- and medium term, however, the coin could face headwinds from a cloudy macroeconomic environment due to its strengthening correlation with US stocks. As BTC follows the dynamics in the Nasdaq Composite, crypto traders should closely monitor technology stocks that remain volatile and risk-sensitive.

In this context, bitcoin has some room for a more pronounced recovery as the tech-heavy index looks set for a bounce during the upcoming North American session after a plunge by nearly 4% earlier in the week. In a wider picture, however, both bitcoin and Nasdaq remain vulnerable to deeper losses amid geopolitics coupled with Fed’s aggressive tightening plans. As such, BTCUSD could challenge 2022 lows around $33,000 and even plunge towards the $30,000 mark before attracting more whales that would push the prices back above $50,000 eventually.

The selling pressure surrounding the bullion has intensified amid the rallying dollar. The USD index climbed to fresh March 2020 highs just below the 102.00 mark earlier today and continued to stay elevated in recent trading, suggesting there is room for further gains in the near term as traders refrain from profit-taking despite the extremely overbought conditions.

Focus shifts to SMAs

Now that the yellow metal derailed the $1,900 figure for the first time since late-March, the market focus is shifting towards the 100- and 200-DMAs, currently at $1,873 and $1,832, respectively. So far, gold prices manage to cling to $1,900, but the pressure could remerge at any point as the greenback looks set to extend the ascent towards the 2020 peak of 103.00.

As the Federal Reserve meeting looms, the buck could at least stay elevated ahead of this major event as the central bank is widely expected to raise rates by 50 basis points next Wednesday. In the near term, the USD may derive some extra support from fresh economic data if the figures come in better than expected.

Against this backdrop, the yellow metal remains vulnerable to further losses that could be capped by the mentioned moving averages. On the upside, XAUUSD will retarget the $2,000 psychological barrier once the USD proceeds to a bearish correction. Of note, month-end flows could help ease the buying pressure surrounding the US currency, suggesting gold prices may have a chance to trim some of the recent losses.

The main reason behind the euro’s recovery is the weakening dollar. The US currency has been losing ground across the market these days, pressured by some improvement in risk sentiment, lower Treasury yields, and less hawkish signals from the Federal Reserve. Traders are also adjusting positions ahead of Powell’s speech, which is due in the New York session. The Governor’s rhetoric will set fresh the tone for the greenback considering that it is likely to be the last speech by Powell before the monetary policy decision in May which is widely expected to bring a 0.5% rate hike.

Volatility to pick up further

Adding to a more upbeat tone surrounding the euro, ECB officials have began to signal a more hawkish tone in the context of policy tightening. As such, the governing council member Kazaks hinted on Wednesday at a possible interest rate hike in July, citing significant inflation risks. Earlier today, the central bank’s Vice President de Guindos said that a rate hike is possible in July “but will depend on data.” Of note, Christine Lagarde will speak at the IMF Spring Meetings later today along with Powell, suggesting market volatility could pick up in the near term.

Elsewhere, fresh data out of the Eurozone showed that inflation arrived at 7.4% year-over-year in March, missing an estimate of 7.5%. The so-called core CPI came in lower than expected as well. Unsurprisingly, the largest contribution to the annual inflation rate came from energy. The euro was somehow disappointed by the figures as the report suggests the ECB could refrain from reiterating a more aggressive tone amid the emerging signs that inflation may be peaking already.

Anyway, the upside potential for the euro against the USD remains limited, with EURUSD staying within a solid bearish trend that could be derailed on the condition that a dramatic shift in the ECB policy takes place in the coming months, which looks unlikely.

Oil market remains strong amid persisting supply concerns globally. While Russia-Ukraine crisis escalates further these days, European authorities continue to discuss banning of Russian oil imports. Oil is set to become part of a sixth package of sanctions along with the Russian banking sector. As a reminder, the EU earlier this month banned Russian coal in a fifth package. On Monday, German unions opposed a ban on natural-gas imports from Russia, fearing the loss of jobs.

Libya adds to worries

Adding to supply worries, Libya shut down its largest oil field amid political protests over the weekend. The Al-Fil field produces about 70,000 barrels of oil per day. Furthermore, Libyan oil and gas Minister said on Monday that his country has no capacity to increase exports of oil and gas to Europe at the moment.

For now, the bullish momentum in the oil market has been capped by a strong dollar, with the USD index refreshing March 2020 highs amid a combination of Fed’s hawkishness and the risk-off tone that dominates the financial markets these days. In the near term, Brent crude needs to hold above the 20-DMA, currently at $108 a barrel, in order to avoid a deeper downside correction towards the $100 handle that was derailed earlier this month.

Later in the day, the API weekly report could somehow affect market sentiment ahead of the EIA official data due on Wednesday. Should the figures reveal another major rise in crude oil stockpiles, the futures may challenge the mentioned moving average. However, in a wider picture, the uptrend should stay intact as long as global supply disruptions remain in the market focus. As such, buyers continue to target the $120 barrier at this stage.

In a wider picture, XAUUSD looks set to finish the second bullish week in a row, extending its recovery from local lows hit below the $1,900 handle in late-March. The fact that the bullion refrained from a deeper retreat once the prices derailed the significant support zone suggests the path of least resistance is to the upside in the medium term.

Russia-Ukraine crisis worsens

The main reason behind resilience in gold prices is geopolitics. As Russia-Ukraine tensions keep heating up, the safe-haven demand dominates global financial markets, pressuring stocks and other high-yielding assets. Adding to a more cautious tone among investors, global central banks tend to express a more hawkish view on their monetary policy amid the elevated inflation that continues to rise due to high energy prices and supply chain disruptions.

In this context, the outlook for the bullion remains constructive as the situation surrounding Ukraine keeps deteriorating. According to the latest developments, Russia said that the scale of missile attacks on facilities in Kyiv will increase in response to Ukraine's forces committing sabotage on Russian territory. Earlier today, Moscow has warned the United States that there will be "unpredictable consequences" if Washington keeps arming Ukraine.

Elsewhere, after the unannounced visit by US lawmakers to Taiwan, China said it will conduct military drills around Taiwan. According to the Chinese military, the drills are targeted at the 'wrong signal' sent by Washington about Taiwan.

Against this backdrop, the precious metal could at least stay afloat both in short- and medium term. Furthermore, gold prices could retarget the $2,000 figure in the coming days if risk aversion intensifies amid a break up in Russia-Ukraine talks and rising geopolitical uncertainty globally.

On Tuesday, BTCUSD extended losses to $39,000 before bouncing back into positive territory. However, recovery attempts look too modest and shallow at this stage to bet on a more decisive recovery at this stage, with downside risks persisting as long as the prices stay below a slightly descending 20-DMA, currently at $44,600.

BTC falls along with stocks

The digital currency has been under pressure along with traditional stock markets these days amid the persistent geopolitical and economic uncertainty. Of note, bitcoin’s correlation with the Nasdaq 100 index is now back at record levels. Following solid losses on Monday, Wall Street stock index futures stay under pressure in early pre-market trading.

Meanwhile, the dollar keeps trending north for the ninth session in a row on Tuesday, capping recovery attempts in the cryptocurrency market as well. The buck remains on the offensive ahead of the US CPI report due later today. Strong figures could add to the dollar’s bullishness in the near term, thus pressuring both stocks and cryptocurrencies further.

Technically, there is room for deeper losses from here in the coming says, especially as the coin has derailed the $40,000 figure for the first time in nearly a month. Now, the market focus shifts to the $37,000 intermediate support, followed by the February low of $34,300. On the upside, the BTCUSD pair needs to regain the 100-DMA, currently at $41,400, on a daily closing basis in order to shrug off the bearish pressure.

The buck continues to derive support from the Fed’s hawkish plan that includes more aggressive rate hikes along with reduction in the central bank’s balance sheet in an effort to curb inflation that has been rising at the fastest rate in forty years. At the same time, the Federal Reserve’s aggressive plans fuel worries about a potential US economic recession, especially amid the inverted US yield curve. As investors express worries about the health of the country’s economy, the safe-haven USD demand persists.

ECB did little to help the currency

Against this backdrop, the common currency keeps trading around two year lows seen around 1.0800 one month ago. Should the selling pressure surrounding the euro intensify anytime soon, this figure may turn into support, adding to euro’s bearishness.

Of note, the euro failed to capitalize on from the minutes of the European Central Bank's March meeting that confirmed that the central bank has become more hawkish. ECB policymakers argued that conditions for lifting rates had either been met or were about to be met. In a knee-jerk reaction to the message, the euro staged a modest rally that faded quickly, however, as the surging dollar pushed EURUSD back under pressure.

Also, the euro struggles amid rising geopolitical tensions in Ukraine and the ongoing energy crisis in Europe. Of note, the European Council has decided to impose a fifth package of economic and individual sanctions against Russia on Friday, including a series of measures intended to reinforce pressure on the Russian government and economy.

Adding to a more cautious tone in the markets, Ukrainian President Volodymyr Zelensky said earlier today that it is possible that there might not be any meeting between himself and Russian President Vladimir Putin. As such, after a flat open, European stock markets turned mixed while US stock index futures look steady so far but could yet signal a downside correction after yesterday’s gains.

USD index needs extra drivers

The safe-haven dollar has been flirting with the 99.00 figure since Monday after bouncing from local lows seen around 97.70 last week. While the USD index looks bullish, it may need an extra driver to extend the ascent and turn 99.00 back into support in order to challenge two-year highs around 99.40.

Later in the day, the final services US PMI and the ISM non-manufacturing for the month of March could have some impact on the dollar’s short-term dynamics. However, it looks like the greenback could be more affected by the upcoming statements from FOMC’s Brainard, Kashkari and Williams. Should the Federal Reserve officials reiterate and strengthen a hawkish stance by the Fed, the USD may advance further beyond 99.00.

On the downside, rejection from this handle would bring the 98.60 zone back into the market focus while the ley support zone arrives at the 97.70 mentioned local lows. In the medium term, the buck will continue to derive support from monetary policy divergence as the Fed is now by far the most hawkish central bank globally.