A combination of factors prompted aggressive selling around EUR/USD on Thursday. Fading hopes for peace in Ukraine weighed heavily on the euro and exerted pressure. The risk-off impulse, Fed rate hike bets boosted the USD and added to the selling bias. Traders now seem to have moved on the sidelines ahead of the US monthly jobs data. The EUR/USD pair witnessed a dramatic turnaround on Thursday and plunged nearly 125 pips from the fresh monthly peak, around the 1.3185 region amid fading hopes for a de-escalation in the Ukraine war. In the latest developments, Russian President Vladimir Putin struck back at Western sanctions and threatened to halt contracts supplying natural gas unless they are paid in roubles. The EU gets about 40% of its gas and 30% of its oil from Russia and has no easy substitutes if supplies are disrupted. This, in turn, fueled worries that the European economy would suffer the most from the spillover effects of the Ukraine crisis and weighed heavily on the shared currency. The uncertainty over Ukraine took its toll on the global risk sentiment, which was evident from a sharp fall in the equity markets. The anti-risk flow boosted demand for traditional safe-haven assets, including the US dollar, which was seen as another factor that exerted additional downward pressure on the major. The greenback was further underpinned by expectations that the Fed would adopt a more aggressive policy stance to combat high inflation. In fact, the markets have been pricing in a 50 bps Fed rate hike move at the next two meetings. The bets were reaffirmed by Thursday's release of the US Core PCE Price Index, which rose to 5.4% YoY in February from the 5.2% previous. The pair finally settled near the lower end of its daily trading range and snapped two successive days of the winning streak. Spot prices oscillated in a narrow trading band through the Asian session on Friday as traders preferred to move on the sidelines ahead of the release of the closely-watched US monthly jobs data. The popularly known NFP report is expected to show that the US economy added 490K jobs in March, down from 678K in the previous month. Meanwhile, the unemployment rate is anticipated to edge lower to 3.7% from 3.8% in February. The data would influence the Fed's policy outlook and drive the USD demand, which, in turn, should provide a fresh directional impetus to the major. Technical outlook From a technical perspective, the pair, so far, has been struggling to find acceptance above the 50% Fibonacci level of the recent sharp pullback from the vicinity of the 1.1500 psychological mark and faced rejection near the 50-day SMA. The subsequent decline, however, stalled near the 38.2% Fibo. level. Adding to this, neutral technical indicators on the daily chart warrant caution for aggressive traders. Hence, it will be prudent to wait for some follow-through selling before positioning for the resumption of the downtrend witnessed since early February. In the meantime, any subsequent decline is likely to find some support near the 1.1030-1.1025 region ahead of the 1.1000 round figure and the 23.6% Fibo. level, around the 1.0970 area. A convincing break below will shift the bias back in favour of bearish traders and make the pair vulnerable to accelerate the fall towards the 1.0900 mark. The downward trajectory could further get extended and drag the pair towards the 1.0860 intermediate support en-route the YTD low, around the 1.0800 mark touched on March 7. On the flip side, the 1.1100 round-figure mark now seems to act as immediate strong resistance. Sustained strength beyond could allow bulls to aim back to test the 50% Fibo. level, around mid-1.1100s. This is followed by the overnight swing high, around the 1.1185 region and the 1.1200 mark, which if cleared decisively should pave the way for a move towards the 61.8% Fibo. level, around the 1.1230-1.1235 zone. The upward trajectory could further get extended and eventually push the pair towards the 1.1300 mark.

A ceasefire followed by a frozen conflict would embolden the dollar and oil bid, weighing on stocks. Ukrainian surrender would have similar implications, especially for oil. If both sides reach a deal, markets would surge, gold and oil would tumble. NATO involvement in the war would crash markets, boost all the others. An unlikely regime change in Russia would send oil tumbling down, boost stocks. How will the Russia-Ukraine war end? This is a question on everybody's minds, with no clear answer – it is hard to know what is going in the head of Vladimir Putin, Russia's President. However, these five scenarios offer potential scenarios for markets and the main assets: stocks, gold, oil, and the US dollar.  1) Ceasefire and frozen conflict Russian and Ukrainian officials have been in touch almost since the day Moscow ordered its troops to capture Kyiv, but talks have been fruitless so far. However, occasional reports of progress and the fact a dialogue exists, open the door to a ceasefire.  A halt to hostilities would be seen as the first step toward a long-term resolution, but it may turn into a frozen conflict, similar to the one in Ukraine's Donbas region, which is going on since 2015. Occasional skirmishes, the lack of a Russian retreat and would turn an initial cheer in markets to a gradual slump. Ongoing Western sanctions, the risk of an outburst of a fresh full-scale war and uncertainty would keep oil and gas prices bid. The dollar tends to benefit in times of uncertainty, and the Federal Reserve's likely tightening – related to higher energy prices but also to domestic pressures – would further boost the greenback.  Gold might suffer a blow from a ceasefire, and then gradually retreat, as Russia's Central Bank's vast reserves of the precious metal could be sold to finance the choked economy.  Probability: High – that is what happened not only in Donbas but also in parts Russia tore out of Georgia.  2) A deal is struck People around the world and markets would make a collective sigh of relief if hostilities ended with a long-term deal. While many would suspect that any accord would hold, markets react first and fast, ask questions later.  Stocks would soar and oil prices would tumble down, as Russia would return to global markets at some capacity. An agreement in Europe would also enable one with Iran, adding more capacity to markets. Food prices would calm down. The dollar would initially crash amid a sell-off of safe assets, but would later rise as the Fed remains at the forefront of tightening. It is essential to note that US core inflation is higher than in many other countries, and that is what matters to the central bank. Gold could surprisingly rise at first, as a drop in inflationary expectations would send US yields lower. However, the Fed's tightening path and a lack of safe-haven appeal would eventually weigh on the precious metal. Probability: Medium-high – a Ukrainian constitutional pledge to refrain from entering NATO while joining the EU and having Russia retreat from most of its land could be the basis for a deal.  3) Ukrainian surrender Most of the world would be devastated if the courageous Ukrainians raise the white flag, but their motivation could be outweighed by the scale of Russia's firepower. Such a scenario would keep Russia isolated and the West could move to ban imports of goods coming from occupied Ukraine. That would not only push oil and gas prices further up but also send food prices soaring, causing recessions in many countries, a potential upheaval that would also force the Federal Reserve to enact looser policy.  If central banks provide support, the dollar would lose some of its ground. The greenback would also tumble as a complete surrender would provide more certainty than a ceasefire that could be violated at any moment. Such certainty – of an isolated, yet larger Russia – would eventually be beneficial for US stocks. America's economy is less dependent on Russia than Europe or the Middle East.  Gold would be less of a safe haven, falling more than in the previous scenario.  Probability: Medium – it was the leading scenario before the war, but now Moscow understands regime change in Kyiv is hard.  4) NATO gets involved in the war It does not need to turn into a nuclear war – in that case, investments and money would not matter at all. However, if Russia uses chemical weapons and the West decides to act, or if a miscalculation by either side results in a direct clash between US and Russian aircraft, the conflict would widen dramatically.  It would cause shares to suffer a massive crash, perhaps resulting in a pause in trading. The safe-haven dollar would find even more demand,...

AUD/USD Current Price: 0.7490 Crude oil tumbles on US announcements oversupply of 180 million barrels from strategic reserve over the next six months. US core PCE inflation rises to 5.4% YoY in February. AUD/USD bears move in ahead of Nonfarm Payrolls.  The AUD/USD pair has been under pressure on Thursday as commodity prices take a raincheck. Hopes from earlier this week that peace talks would lead to a ceasefire in Ukraine five weeks after Russia's invasion have dwindled, yet, oil prices are under pressure due to the US announcing they will release up to 180 million barrels of oil from their strategic reserve over the next six months in an effort to combat the surge in oil prices.  As a result of the Russian invasion of Ukraine, oil spot prices had rallied from around $75/bbl at the start of 2022 to a peak of above $130/bbl, but in the wake of the US announcement, oil prices were down over 5% overnight, with WTI trading at USD99.69bbl the low on the day.  Additionally, US stocks were poised to end the biggest quarterly decline in two years on a down note on Thursday as worries about the continuing conflict in Ukraine. AUD is a high beta currency, correlated to equities that have been sensitive to any signs of progress toward a deal to resolve Russia's invasion of Ukraine.  Meanwhile, US personal spending rose, as expected, by 0.6% in February from 0.5% in the previous month, the Bureau of Economic Analysis said. The year-over-year rate jumped to 6.4%, the steepest in a month since 1982, from 6% in January. This is US Federal Reserve's favoured inflation measure, the PCE deflator, and it has lifted to 6.4% YoY in February (6.0% previously), in line with expectations. Core inflation rose to 5.4% YoY (5.2% previously). The PCE is the broadest measure of inflation and it is running at three times the Fed's target rate, feeding into US dollar bullishness ahead of Friday's Nonfarm Payrolls. Employment in the US likely continued to advance in March following two strong reports averaging +580k in Jan and Feb and a new drop in the unemployment rate to a post-COVID low would be expected to support the greenback further. AUD/USD short-term technical outlook The daily chart shows that the price is under pressure below a wall of resistance. This puts the focus on the downside and to the prior resistance that has a confluence with the 50% mean reversion target. The 21-day moving average is aligned in this area as well for additional confluence. 

Daily market outlook on major Update Time: 31 Mar 2022 03:00GMT EUR/USD - 1.1167 Euro's rally above previous resistance at 1.1137 to a 4-week high at 1.1170 in New York yesterday on broad-based retreat in usd suggests corrective upmove from March's fresh 22-month 1.0807 bottom remains in force and further gain to 1.1200/05 may be seen before prospect of decline later due to loss of upward momentum. On the downside, a daily close below 1.1100 signals a temporary top is made and risks stronger retracement to 1.1071/72, break, 1.1045. Data to be released on Thursday Japan industrial output, housing starts, construction orders, Australia building permits, China NBS non-manufacturing PMI, NBS manufacturing PMI. U.K. nationwide house price, Swiss retail sales, France producer prices, CPI, consumer spending, Germany retail sales, unemployment rate, unemployment change, Italy CPI, unemployment rate, EU unemployment rate. U.S. continuing jobless claims, initial jobless claims, PCE price index, personal spending, personal income, Chicago PMI and Canada GDP.

Annual Core PCE inflation is forecast to rise to 5.5% in February. A strong inflation print could revive expectations of a 50 bps rate hike in May. Technical outlook points to a bearish tilt in the US Dollar Index.   The dollar has failed to build on the previous week’s gains and instead has lost nearly 1% in the first half of the week. In the absence of high-tier data releases, the positive shift witnessed in risk sentiment seems to be making it difficult for the dollar to find demand. On Thursday, the US Bureau of Economic Analysis will release the Personal Consumption Expenditures (PCE) Price Index data for February. The Core PCE Price Index - the Fed’s preferred gauge of inflation that leaves out volatile food and energy prices - is expected to rise to 5.5% from 5.2% in January. Inflation and Fed rate outlook Following the FOMC’s March policy meeting, policymakers have adopted a hawkish tone by voicing their willingness to vote in favor of 50 basis points (bps) rate hikes in upcoming meetings to tame inflation. Chicago Fed President Charles Evans said that a 50 bps hike could help them move rates close to neutral. Cleveland Fed President Loretta Mester argued that it would be a good idea to “frontload” some of the rate hikes and added that double-dose rate increases will be needed this year. On a similar note, “if we need to raise the Fed funds rate by more than 25 bps, we will do so,” FOMC Chairman Jerome Powell said. Earlier this month, the US Bureau of Labor Statistics (BLS) reported that inflation in the US, as measured by the headline Consumer Price Index (CPI), jumped to a multi-decade high of 7.9% on a yearly basis in February, from 7.5% in January. The US Dollar Index (DXY) gained more than 1% in the next 48 hours after this data. The CME Group FedWatch Tool shows that markets are currently pricing in a 66% probability of a 50 bps rate hike in May. In case Thursday’s report reveals that the Core PCE Price Index rose at a stronger pace than expected in February, odds of a 50 bps rate hike in May could continue to increase. In that case, the US Treasury bond yields should gain traction and provide a boost to the dollar. The benchmark 10-year US T-bond yield reached a multi-year high above 2.5% early Monday but retreated to 2.4% mid-week. On the other hand, a soft PCE inflation print could have the opposite effect on US yields and force the greenback to stay on the back foot. It’s worth noting, however, that the February data will not reflect the impact of the Russia-Ukraine conflict on overall price pressures. Hence, investors might refrain from committing to a long-lasting dollar selloff. Moreover, the market reaction could remain muted due to the fact that the US Bureau of Labor Statistics will release the March jobs report on Friday. DXY Technical Outlook Following the sharp decline witnessed in the first half of the week, the Relative Strength Index (RSI) on the daily chart fell below 50 for the first time since mid-February. Confirming the bearish shift in the technical outlook, the DXY is now well below the 20-day SMA. 97.50 (Fibonacci 38.2% retracement level of the latest uptrend) aligns as key support. With a daily close below that level, the index could extend its slide toward 97.00 (psychological level, Fibonacci 50% retracement, 50-day SMA) and 96.50 (100-day SMA, Fibonacci 61.8% retracement). On the upside, the DXY needs to rise above 98.25 (Fibonacci 23.6% retracement) and start using that level as support in order to target new multi-year highs above 99.00. The 20-day SMA near 98.50 could act as interim resistance as well.   

The long end of the yield curve rallied strongly on Tuesday with the middle of the curve pricing in more hikes by the Fed. More inversions signal a recession sooner rather than later. Yield Curve data from the New York Fed as of 2022-03-29, yellow highlights mark Inversions, chart by Mish The highly watched 2-10 spread was positive 6 basis point (2.41 minus 2.35) as of the close on March 29 having briefly inverted (negative) intraday.  Yield Curve Spreads Since January 2021 Yield Curve Spreads Since January 2022 Yield Curve data from the New York Fed as of 2022-03-29, chart and calculations by Mish Six Inversions  20-Year to 30-Year: 15 Basis Points  7-Year to 10-Year: 9 Basis Points 5-Year to 10-Year: 8 Basis Points 5-Year to 3-Year: 5 Basis Points 3-Year to 10-Year: 13 Basis Points 3-Year to 30-Year: 1 Basis Point   Inversions (shorter-duration bonds yielding more than longer-duration bonds) are a sign of a weakening economy and a recession.  The most widely watched recession harbinger is the 2-10 spread which briefly inverted intraday on March 29 but finishing the day at a positive 6 basis points. Recession Coming A recession is on the way. The only question is whether it hits in 2022 or 2023.  The answer to the question "when?" depends on how fast the the Fed hikes and how resilient the housing and stock market bubbles are to Fed hikes.  2022 is looking increasingly likely.  Meanwhile the housing bubble keeps expanding while the stock market shrugs off the expected hikes.  For more on housing, please see 2021 Set New Annual Records for Home Prices. 2022 Continues the Trend.