Market Outlook for the Week of Mar. 28 – Apr. 1

It’s been a light
week for the FX market with USD/CAD moving as expected and USD/JPY unbothered
by the latest comments of Japanese officials and reaching new highs. 

The UK inflation rose
to 6.2%, the highest in 30 years, and is not showing signs of slowing down,
especially with higher commodity and energy prices. Analysts think that it will
continue to exceed expectations in the future. 

The week ahead is an
interesting one. Following J. Powell's hawkish comments last week, traders are
waiting for additional commentary from Fed speakers that could provide more
explanations about consecutive rate hikes of 50 basis points in May, but also
in June and going forward. Another thing to watch for will be ADP, Core PCE,
PMI, Nonfarm Payroll, month-end rebalancing and the OPEC-JMMC Meetings. 

In the euro area,
inflation is expected to rise again this week and exceed expectations for the
time being. 

Good data is expected
for the USD on Friday. Job growth has been good in recent months and it's
likely to continue on the same path. With constraints around COVID easing and
financial needs rising, the frequency of hiring has increased. February saw
hiring delays due to Omicron and stalling of the average hourly earnings
growth, but a rebound is expected this month. Expectations for NFP are 485K,
and the unemployment rate is expected to drop to 3.7% from the last print of
3.8%.

Analysts don't
anticipate a major shift from OPEC-JMMC meetings, with members likely to stick
to their plans of raising production as planned before the conflict in Ukraine.

For month-end
rebalancing, Wells Fargo strategists forecast a $12 billion pension
reallocation to fixed income, which would be the biggest inflow since March
2021. This would result in a -13% return for the US long credit index quarter
to date.

Other things to watch
for are Yen depreciation risk, the Australian pre-election budget and the
COVID-19 trends.

Analysts at Nomura
point out that when it comes to the rise in yen rates, the Bank of Japan is
likely to conduct a fixed rate of purchase operation to limit the rise in 10
years JGB yields. As for the yen depreciations, it is not the BOJ's
jurisdiction, but the Ministry of Finance's which, based on the latest comments,
is unlikely to intervene in the foreign exchange market to impact the USD/JPY.

Unfortunately, as the
war in Ukraine continues with no signs of reaching a conclusion in the near
future, there is a lot of uncertainty in the market, and this won't change for
a while.

USD/CAD expectations

On the H1 chart
USD/CAD looks good for selling opportunities. The price is near the 1.2455
level of support and the next target could be 1.2420 which is the next
important level of support on the daily chart. Until then, I expect a
correction in the 1.2520 area and, if the level is not broken and nothing
significant changes fundamentals, the downside trend will continue.

As expected, the CAD
was supported by firm commodity prices last week and this could continue. The
Canadian resource sector will benefit from the global focus on supply chains,
food and energy security.

The country is a
major supplier of hydrocarbons and will remain so for the foreseeable future as
it pledged to boost oil and natural gas exports to Europe in order to reduce
the continent's dependency on Russia. There is also a strong demand for nickel
and copper, of which Canada is the fifth largest global producer.

EUR/USD expectations

Nothing interesting
happened last week with the EUR/USD as the price entered a consolidation phase.
It's clear that the Russian invasion into Ukraine affected the Eurozone and the
euro is vulnerable to energy security risks. Analysts at Rabobank anticipate
that the next few weeks will be critical for Europe's energy policies, and it
remains to be seen if the market will continue to expect that blackouts and
stagflation can be avoided in Europe.

From a technical
perspective on the H1 chart the price didn't break the 1.1030 level of resistance
and the next level of support is 1.0915. If broken, the next one is at 1.0800.
On the upside, the major level of resistance is at 1.1135. 

This article
was written by Gina Constantin.