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UK CPI data for March: Inflationary pressures soared last month and headline CPI is now at a 30-year high

Market Focus

US equities have stopped trading due to the holidays while Asian stocks look set for a muted Monday before Chinese economic data that may shed light on the impact of Covid lockdowns. Equity futures slipped for Japan, while other markets including Australia, Hong Kong and many in Europe remain closed for Easter. Contracts for the S&P 500 and tech-heavy Nasdaq 100 dipped.

History suggests that the Federal Reserve will face a difficult task in tightening monetary policy enough to cool inflation without causing a U.S. recession, with the odds of a contraction at about 35% over the next two years, according to Goldman Sachs Group Inc. The Fed’s main challenge is to reduce the gap between jobs and workers, and to slow wage growth to a pace consistent with its 2% inflation goal by tightening financial conditions enough to reduce job openings without sharply raising unemployment, Chief Economist Jan Hatzius wrote in a research report on Sunday.

Achieving a so-called soft landing may be tough, because historically large declines in the gap in the U.S. have only occurred during recessions. “Taken at face value, these historical patterns suggest the Fed faces a hard path to a soft landing,” Hatzius said. A recession isn’t inevitable because post-Covid-19 normalizations in labor supply and durable goods prices will help the Fed, Hatzius said. There are more examples of other countries in the Group of 10 advanced economies — a group that also comprises Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland and the U.K. — that pulled off the soft landing, he said.

Main Pairs Movement:

This week’s U.S. economic data was led by the largest monthly increase in the Consumer Price Index (CPI) since September 2005. The squeeze on households from skyrocketing prices for necessities is very real and was evident in this week’s retail sales data. However, underneath the surface, there are signs that pandemic-related inflation is beginning to ease.

Recent economic data from the United Kingdom reflected the global trend of higher inflation and slowing growth. The U.K.’s March CPI data release showed inflation pressures surged even higher last month. Headline CPI is now at a 30-year high, quickening more than expected to 7% YoY.

The Greenback won over most of its major rivals last week. The Euro pair closed the week 0.62 % lower at 1.0808, while Cable managed to climb 0.68% at the same period of time, and was last seen at 1.3055. The Japanese Yen depreciated by 1.67%, at 126.35 against the US dollar, while its Chinese peer stayed almost sidelined in value. Commodity-linked currencies were also limp during last week’s trading, with USD/CAD up 0.40% to 1.2572, and  AUD/USD down 0.51% to 0.7458.

Technical Analysis:

GBPUSD (4- Hour Chart)

GBPUSD steadied in a tight range above 1.3050 after the ECB’s policy decision yesterday. From the technical view of point, GBPUSD bears seem to be facing corrective action on the four- hour chart. The currency pair has been corrected to a near 50-period Simple Moving Average and is now providing an optimal opportunity for the buyers as the MACD turns positive, lending some support to bulls. At the same time, the RSI indicator continues to hover around the midline, suggesting the directionlessness of the price. Failure to defend the current support level will turns the currency pair to the downside, heading further south toward 1.2974.

Resistance:  1.3120, 1.3165, 1.3211

Support:  1.3064, 1.2974

AUDUSD (4- Hour Chart)

AUDUSD has not moved significantly in a sleepy session on Friday. However, a downside looks to be coming as the demand of the safe-heaven dollar continues to gain traction. From the technical perspective, the outlook of AUDUSD has been on the downside since early April as the support level at 0.7471 was broken. Now, the bearish double top formation has reconfirmed AUDUSD’s bears. As the RSI has not reached the oversold territory and is within the negative area, AUDUSD has room to decline further south toward the next support at 0.7372. The bulls seem to lack of momentum unless the pair climbs back above 0.7471.

Resistance: 0.7432, 0.7471, 0.7536

Support: 0.7372, 0.7277

EURUSD (4- Hour Chart)

EURUSD has recovered above 1.0800 after suffering the heavy slump from Thursday. With the market moves subdued on Easter Friday, EURUSD has edged slightly higher. On the technical side, the intraday bias continues to be bearish for EURUSD as the pair is still trading below the 20 and 50 Simple Moving Averages. At the time of writing, despite EURUSD moving slightly higher on Friday, it faces immediate psychological support at 1.0758 and 1.0800. If case both levels turn into resistances, the pair can possibly test 6-month lows if the levels fail to defend.

Resistance: 1.0932, 1.1039, 1.1126

Support: 1.0758

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