AUD/JPY Faces Strong Psychological Resistance Level 100.000

Zi Cheng

Traders' Opinions

Forex

Summary:

The cautious outlook from the Bank of Japan (BoJ) and positive Australian data offer some backing to the currency pair.

Fundamental Analysis

During the early European session on Thursday, the AUD/JPY cross continues to climb, reaching two-week highs around 99.92. The dovish stance taken by the Bank of Japan (BoJ) in its March meeting, coupled with the absence of clear guidance on future policy actions, has exerted downward pressure on the Japanese Yen (JPY). Investors are now awaiting the release of Australia's Trade Balance for March on Friday, which could offer fresh momentum.

Despite the BoJ's first interest rate hike in 17 years, the JPY failed to gain traction, given that interest rates in Japan remain substantially lower compared to global rates. Additionally, concerns about the BoJ's cautious approach to further rate hikes, coupled with the lack of clarity on the pace of policy normalization, weigh on the safe-haven appeal of the JPY against the Australian Dollar (AUD), consequently favoring the AUD/JPY cross.

In Australia, business activity showed signs of improvement in March. The final reading of Australia's Judo Bank Services PMI increased to 54.4 from the previous 53.5, while the Composite PMI figure rose to 53.3 compared to 52.4 previously. This upbeat data lends support to the AUD, especially amid positive sentiment in equity markets on Thursday.

However, the upside potential of the AUD/JPY cross may be limited by the heightened likelihood of intervention by Japanese authorities in the foreign exchange (FX) market to prevent excessive depreciation of the JPY.

Technical Analysis

AUD/JPY has been bullish for the week with huge bullish candlesticks and fair value gaps as well. This means that the buyers are very aggressive and wants to push AUD/JPY to a higher price. I personally think it is too late to jump in for a long position now as the risk-reward ratio doesn't suit my risk appetite.

AUD/JPY is also at a key resistance level confluencing with psychological level 100.000. This level has previously rejected price with a huge long wick and huge bearish candlestick. This is one of the reason why it is not advisable to long currently.

Most of the traders might have the idea to sell but it is not recommended as well because the buying pressure is still very strong it could pierce through the resistance easily. Main goal in trading is to follow the trend, it increases the probability.

My outlook would be waiting for retracement back to around 50% of the Fibonnaci which we also a small support area there as well for confluence. If it does not retrace, I will wait for a clean breakout then look for long positions.

AUD/JPY Faces Strong Psychological Resistance Level 100.000_1

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Samantha Luan

Central Bank

Economic

Forex

Dollar was sold off overnight after weaker than expected ISM Services data, and the weakness persisted following comments from Fed Chair Jerome Powell. Powell downplayed the significance of recent robust labor and inflation figures, suggesting them as fluctuations in "bumpy road" of moderating demand and inflation. This narrative reinforces the market's anticipation that Fed is still leaning towards three rate cuts this year over just two. Though, the upcoming non-farm payroll data remains crucial for further adjustments in these expectations.

In the broader currency markets risk-on sentiment seems to prevail, more evident in the commodity markets than in equities. Australian dollar leads as the strongest currency for the week so far, fueled by significant rally in commodities like Copper. New Zealand dollar follows as the second strongest. Japanese Yen languishes as the weakest, with Swiss Franc and Dollar also underperforming.

Euro, Sterling, and Canadian Dollar occupy the middle ground in the currency spectrum, with Euro slightly edging out after surviving lower-than-expected Eurozone CPI data yesterday. Attention now shifts to release of ECB minutes today. But it is unlikely that they will offer any groundbreaking revelations given ECB officials' clear communication regarding the consensus for June first rate cut.

Technically, it now looks like EUR/USD's fall from 1.0980 has completed with three waves down to 1.0723, ahead of 1.0694 support. Further rally would be mildly in favor as long as 55 4H EMA (now at 1.0805) holds, for 1.0941/80 resistance zone. But sustained break of the EMA will argue that rise from 1.0723 is merely a brief recovery and bring retest of 1.0694/0723 support zone instead. Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_1

Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_1

In Asia, at the time of writing, Nikkei is up 1.27%. Japan 10-year JGB yield is up 0.0114 at 0.778. Singapore Strait Times is up 0.61%. Hong Kong and China are on holiday. Overnight, DOW fell -0.11%. S&P 500 rose 0.11%. NASDAQ rose 0.23%. 10-year yield fell -0.010 to 4.355.

Fed Powell downplays significance of recent strong labor market and inflation data

Fed Chair Jerome Powell downplayed the significance of recent labor market and inflation data that surpassed expectations, he noted that these developments do not significantly alter the Fed's overall economic outlook.

"Recent readings on both job gains and inflation have come in higher than expected," Powell said at a forum at Stanford University overnight. However, he was quick to clarify that these developments do not fundamentally shift the broader economic narrative, which he described as "one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path."

In discussing the Federal Reserve's approach to monetary policy easing, Powell affirmed the "meeting by meeting" decision-making process and acknowledged that rate cuts are "likely to be appropriate at some point this year."

Yet, he stressed the prerequisite of having "greater confidence" in inflation's downward path towards 2% target before any interest rate red reduction would be considered.

"Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," he remarked.

Fed's Kugler expects rate cut this year amid cooling demand

Fed Governor Adriana Kugler said overnight that if the disinflation process and labor market conditions evolve in line with her current expectations, a policy rate reduction within the year could be warranted.

"With demand growth cooling, given the backdrop of solid supply, my baseline expectation is that further disinflation can be accomplished without a significant rise in unemployment," Kugler stated

"If disinflation and labor market conditions proceed as I am currently expecting, then some lowering of the policy rate this year would be appropriate," she remarked.

Copper hits yearly high on global growth optimism

Copper soars to the highest levels in over a year this year, driven by renewed optimism regarding global economic growth and expectations of monetary easing from the world's major central banks. This surge reflects growing confidence among investors that the downturn in manufacturing, including even China, may have past its worst. The prospect of interest rate cuts this year further fuels this positive mood for commodities like copper.

Technically, Copper's rally from 3.5021 resumed this week and it's now on track to 161.8% projection of 3.5021 to 3.9346 from 3.6324 at 4.3322, which is close to 4.3556 (2023 high). In any case, outlook will stay bullish as long as 3.9380 support holds. The bigger question is whether Copper is indeed resuming the rise from 3.1314 (2022 low) too. Let's see. Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_2

Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_2

Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_3

Looking ahead

Swiss CPI, Eurozone PMI services final and PPI, UK PMI services final will be released in European session. But more focus would likely be on ECB minutes.

Later in the day, US and Canada will release trade balance while US will also publish jobless claims.

AUD/USD Daily Report

AUD/USD's strong break of 55 D EMA suggests that fail from 0.6666 has completed with three waves down to 0.6480. Rise from there is now seen as the third leg of the corrective pattern from 0.6442. Intraday bias is back on the upside for 0.6633 resistance first. Break there will target 0.6666 and above. On the downside, though, below 0.6559 minor support will turn intraday bias neutral first. Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_4

Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_4

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which might still be in progress. Overall, sideway trading could continue in range of 0.6169/7156 for some more time. But as long as 0.7156 holds, an eventual downside breakout would be mildly in favor. Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_5

Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_5

Source: ActionForex

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Alex

Economic

Commodity

Two senior US treasury officials are in India to urge New Delhi to maintain the implementation of the oil price cap aimed at limiting profits to Russia, while also promoting stable global energy markets, according to an official announcement.

Acting Assistant Secretary for Terrorist Financing Anna Morris and PDO Assistant Secretary for Economic Policy Eric Van Nostrand are travelling to New Delhi and Mumbai from April 2-5 to meet with government and private sector counterparts, the Treasury said in a statement on Wednesday.

"They will discuss key bilateral issues, including cooperation on anti-money laundering and countering the financing of terrorism, other illicit finance issues, and continued implementation of the price cap, which seeks to further limit the profits Russia receives to fund its illegal invasion while promoting stable global energy markets," it said.

Following Russia's February 2022 invasion of Ukraine, the G7 nations, the European Union, and Australia jointly implemented a price cap. This cap prohibits the utilisation of Western maritime services, including insurance, flagging, and transportation, for tankers transporting Russian oil priced at or above USD 60 per barrel.

In 2023, Russia had emerged as India's top oil supplier. India has strong economic and defence ties with Russia and has refrained from criticising Moscow over its war with Ukraine.

Morris and Nostrand will deliver remarks on the price cap and participate in a Q&A hosted by the Ananta Aspen Centre in New Delhi on Thursday.

As Morris and Nostrand noted in a blog post last month, the second phase of the price cap continues to achieve its twin goals: restricting Russia's oil profits, while supporting energy market stability, the statement said.

"The price at which Russia sells its oil has declined markedly since the second phase began; the shift reflects the effects of reduced oil prices globally over this period, but also a significant widening in the discount Russia earns relative to other global oil suppliers," it said.

Energy market participants, analysts, and even Russian President Vladimir Putin's own oil czar have linked the rising discount on Russian oil to the Coalition's increased enforcement activities reflected in the second phase of the price cap - clear evidence that this second phase is working, the statement said.

"The price cap is helping maintain a steady supply of energy to global consumers and businesses, and providing key importers like India with more leverage to drive steeper bargains. At the same time, the price cap, along with key sanctions enforcement measures, is reducing Putin's profits from selling that oil," it said.

Source：Reuters

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Thomas

Commodity

Market Overview

Oil prices have climbed to five-month peaks due to increasing geopolitical tensions in the Middle East, suggesting potential supply disruptions. The ongoing conflict between Israel and Hamas, coupled with threats of Iranian retaliation, has heightened market uncertainty.

Concurrently, disruptions in Russian oil supplies, resulting from Ukrainian drone strikes on refineries, exacerbate these concerns. The OPEC’s decision to maintain production cuts further tightens the crude market.

While Chinese economic recovery signals rising demand, mixed U.S. inventory reports and robust domestic production moderate these bullish factors, impacting both oil and natural gas forecasts.

Natural Gas Price Forecast

Natural Gas and Oil Forecast: Russian Cuts & Middle East Unrest Push Prices Higher_1

Natural Gas (NG) price slightly rose to $1.9270, a 0.26% increase. The technical outlook identifies a pivot point at $1.91280, with resistance levels at $1.94680, $1.98020, and $2.01250, suggesting potential upward momentum. Immediate support is found at $1.87970, with further levels at $1.85030 and $1.82140, indicating areas of buying interest.

The 50-day and 200-day EMAs at $1.8571 and $1.8834, respectively, imply a bullish trend. However, a drop below the pivot point could signal a shift to a bearish market. Natural Gas remains buoyant above $1.91280, but vulnerabilities persist below this threshold.

WTI Oil Price Forecast

Natural Gas and Oil Forecast: Russian Cuts & Middle East Unrest Push Prices Higher_2

The USOIL market on April 4 shows modest gains, trading at $85.62, a slight increase of 0.08%. The technical analysis reveals a pivot point at $85.01, indicating a bullish sentiment above this mark.

Resistance levels are identified at $86.10, $86.83, and $87.81, suggesting potential price ceilings. Support can be found at $84.09, $82.98, and $81.84, acting as critical junctures for potential downturns.

The 50-day and 200-day EMAs, at $83.28 and $80.26 respectively, reinforce the bullish outlook. However, falling below the pivot point of $85.01 could trigger a notable downtrend.

Brent Oil Price Forecast

Natural Gas and Oil Forecast: Russian Cuts & Middle East Unrest Push Prices Higher_3

On April 4, UKOIL edged higher to $89.57, marking a 0.11% increase. The pivot point is at $89.30, with resistance levels at $89.91, $90.65, and $91.26, suggesting upward pressure.

Support lies at $88.64, $88.08, and $87.31, marking potential retracement zones. The 50 EMA at $87.28 and the 200 EMA at $84.60 support a bullish trend, yet a breakout above the pivot suggests continued upside potential.

However, a drop below $89.30 could lead to a significant downtrend, placing UKOIL in a critical position for determining its next market phase.

Source: FX Empire

Risk Warnings and Disclaimers

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Zi Cheng

Traders' Opinions

Economic

At the outset of 2024, the UK witnessed a continued decline in its broad measure of money supply, prompting concerns among economists regarding the possibility of a rapid recovery from the recession experienced last year.

Recent data released by the Bank of England revealed a notable decrease in the M4 money supply during the initial two months of 2024, with a 1.1% decline observed in February compared to the previous year. Notably, this decline places the UK behind both the US and the eurozone in terms of money supply rebound.

These findings are disconcerting for monetarists, who had previously forecasted a double-digit surge in inflation along with the technical recession in the UK by closely monitoring money supply trends. While mainstream economists and the central bank are cautiously optimistic about a gradual economic improvement in the UK this year, monetarists remain more guarded in their outlook.

Source: Bank Of England

In recent months, numerous mainstream economic indicators have indicated a positive trend for the UK. However, the data on money supply has remained persistently lackluster, showing only a marginal uptick from the final months of 2023.

According to Bank of England data, M4 excluding intermediate other financial corporations – a closely monitored measure of money supply – declined by 1.6% year-on-year in January and by 1.1% in February. Although these figures represent an improvement compared to the previous year's declines, February marked the eighth consecutive month of contraction.

Source: Office for National Statistics

While central bankers have downplayed the significance of money supply data, the accurate forecasts made by unconventional monetarists have sparked calls for the Bank of England (BOE) to closely monitor these figures.

Money supply experienced a notable surge shortly before inflation escalated, peaking at over 11% in late 2022. Subsequently, it sharply declined, contracting for the first time in at least 13 years, prompting recession warnings, including from former BOE Governor Mervyn King. Official data has since confirmed that the UK endured a mild technical recession in the latter half of the previous year.

Recently, BOE Chief Economist Huw Pill acknowledged the necessity of adopting a "broader approach" to forecasting, which entails examining the money supply data. A review, led by former Federal Reserve chair Ben Bernanke, on the BOE's forecasting methods is scheduled for April 12 following criticism directed at the central bank for its failure to foresee the magnitude and duration of the inflationary shock.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Owen Li

Energy

There was no surprise that a top meeting of OPEC+ ministers opted to keep output policy unchanged since the global crude oil market is almost exactly where the exporter group wants it.

OPEC+'s ministerial committee on Wednesday kept the current output targets but did note that some countries had been over-producing and had undertaken to increase compliance.

This means that the voluntary production cuts of 2.2 million barrels per day (bpd) will remain in place until at least the end of June, joining the existing 3.66 million bpd of cuts agreed in 2022.

The voluntary production cuts are led by Saudi Arabia and Russia, the top exporters in the group which brings together the Organization of the Petroleum Exporting Countries (OPEC) and allies.

Crude oil prices have rallied in recent months, with benchmark Brent futures hitting a six-month high and coming within one cent of $90 a barrel during Wednesday's trade.

Lower production from OPEC+, tensions in the Middle East from the Israel-Hamas conflict, and signs of stronger demand have all contributed to Brent's rally from a low of $72.29 a barrel on Dec. 13 to the close of $89.35 on Wednesday.

OPEC+ doesn't formally target an oil price level, but it's believed that most of the member countries currently favour a price closer to $90 a barrel than the $70 levels from late last year.

With the price now at that level, the trick for OPEC+ is getting $90 to act as an anchor around which the price can trade with the usual daily volatility, which is often driven by news headlines on events that threaten supply or change anticipated demand.

The risk is that $90 a barrel is surpassed and crude heads back toward $100, which is likely to fuel a new round of inflation in importing countries, as well as hurting anticipated demand growth.

Brent averaged about $82.10 a barrel in 2023, so any level well in excess of that will add to inflationary pressures and make monetary easing by central banks all the harder to deliver.

Stronger oil prices may also crimp demand, especially in the price-sensitive developing economies in Asia, the world's top importing region.

Robust Asia

Asian demand has accelerated in recent months, with LSEG Oil Research data showing March imports of 27.33 million bpd, up from 26.68 million bpd in February and the highest since June last year.

China, the world's top crude importer, led the way with March arrivals of 11.68 million bpd, up from February's 11.16 million bpd.

India, Asia's second-largest crude buyer, saw imports of 5.07 million bpd in March, up from February's 4.55 million bpd as the South Asian nation bought more Russian oil, with imports from the Western-sanctioned nation coming in at an eight-month high of 1.53 million bpd.

While Asia's crude demand is robust, the same can't be said for its refinery margins, which have been squeezed by higher oil prices that haven't been matched by price increases for refined products.

The profit margin on turning a barrel of Dubai crude into products at a typical Singapore refinery dropped to a four-month low of $4.22 a barrel on April 2, before recovering slightly to end at $4.33 on Wednesday.

The margin has shrunk 56% since the high so far in 2024 of $9.91 a barrel, reached on Feb. 13.

The question for the market is whether higher crude prices and under pressure refining margins will result in Asian import demand growth weakening, or whether the economic recovery story in China and the ongoing strength in India will be enough to keep demand robust.

Certainly, recent history suggests that China tends to trim imports when its refiners believe prices have risen too high, too quickly, and they turn to inventories to keep throughput high if demand warrants it.

But any reduction in imports by China comes with a lag to movements in prices as it takes around two months from the time oil is bought for it to physically arrive at a Chinese port.

Source: Reuters

Risk Warnings and Disclaimers

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Samantha Luan

Economic

China’s real estate troubles are likely far from over and industry problems need to be addressed quickly if overall GDP growth is to pick up significantly, according to a report released Thursday by global investment firm KKR.

That’s one of the two key takeaways from a recent trip to China by the firm’s head of global and macro asset allocation, Henry H. McVey. It was his fourth visit in just over a year.

“A fundamentally overbuilt real estate industry needs to be addressed — and quickly,” he said in the report, which counts Changchun Hua, KKR’s chief economist for Greater China, among the co-authors.

“Second, confidence must be restored to drive savings back down,” McVey said, noting that would spur consumers and businesses to spend on upgrading to higher quality products, as Chinese authorities have promoted.

Real estate and related sectors once accounted for about one fifth or more of China’s economy, depending on the breadth of analysts’ calculations. The property industry has slumped in the last few years after Beijing’s crackdown on developers’ high reliance on debt for growth.

Based on comparisons to housing corrections in the U.S., Japan and Spain, China’s “housing market correction may be just halfway complete” in terms of its depth, the KKR report said.

“Both price and volume must come under pressure to finish the cleansing cycle,” the report said. “To date, though, it has largely been a contraction in volume.”

While KKR’s report didn’t provide much detail on expectations for specific real estate policy, the authors said more action by Beijing to improve China’s real estate sector “could materially shift investor perception.”

Amid geopolitical tensions, the country’s property market slump and drop in stocks have given many foreign institutional investors pause about China investing.

“According to some of our proprietary survey work, many allocators have considered reducing China exposure to 5-6%, down from 10-12% today at a time that we think fundamentals in the economy are likely bottoming,” the KKR report said.

Much of official Chinese data to start the year beat analysts’ expectations.

Chinese officials have said the real estate sector remains in a period of adjustment, while Beijing shifts its emphasis toward manufacturing and what it considers “high-quality development.”

Authorities have also released policies to promote financial support for select property developers, while many local governments — though not necessarily the largest cities — have significantly relaxed home purchase restrictions.

Real estate’s drag to moderate

KKR expects a modest slowdown in China’s GDP growth to 4.7% this year, and 4.5% next year, with real estate and Covid-related factors halving their drag on the economy from 1.4 percentage points in 2024 to a 0.7 percentage point drag in 2025.

“Our bottom line is that: with the ongoing [property] correction as well as some potential further policy support, we think the drag to [the] overall economy should moderate a bit over the next few years,” McVey said in a separate statement. He is also chief investment officer of KKR Balance Sheet.

Catering, accommodation and wholesale are set to modestly increase their contribution to growth in the next two years, while digitalization and the shift toward more carbon-neutral, green industry are expected to remain the largest drivers of growth, according to the report.

For investors, the report said a more important development than China’s GDP increase would be whether authorities could make it easier for businesses and households to tap capital markets.

“Repairing soft spots in [the] economy, especially around housing, will ultimately improve the cost of capital, and will also allow new consumer companies to access the capital markets likely at better prices if real estate and confidence are doing better,” McVey said in the statement.

Beijing in March announced a GDP target of around 5% for this year. Minister of Housing and Urban-Rural Development Ni Hong said last month that developers should go bankrupt if necessary and that authorities would promote the development of affordable housing.

Recent data have pointed to some stabilization in the property sector slowdown. The seven-day-moving average of new home sales in 21 major cities fell by 34.5% year-on-year as of Monday, better than the 45.3% drop recorded a week earlier, according to Nomura, citing Wind Information.

Compared with the same period in 2019, that sales average was only down by 27.8% as of Monday, versus a 47% drop a week earlier, Nomura said, noting most of the improvement was in China’s biggest cities.

Consumer outlook

KKR said most of its local portfolio is in consumer and services companies, whose business reflect how Chinese people in the middle to higher income range are spending modestly to upgrade their lifestyles.

“Top line growth is solid, margins are holding, and consumers are spending on less conspicuous items such as ‘smart homes,’ pets, and recreational activities,” the report said. “Domestic travel is also strong.”

Retail sales rose by a better-than-expected 5.5% year-on-year in January and February, boosted by significant growth in Lunar New Year holiday spending.

Longer term, KKR still expects that China can follow historical precedent in changing policy to be “more investor friendly.”

“While our message is not an all-clear signal to lean in,” the report said, “it is a reminder – using history as our guide – that, if China does adjust its domestic policies to be more investor friendly (especially as it relates to supply side reforms), this market could rebound significantly from current levels.”