GBP/JPY eases from daily high, still well bid around mid-163.00s amid the post-BoJ JPY selloff

The post-BoJ selling around the JPY provided strong boost to GBP/JPY on Thursday.

The risk-on impulse was seen as another factor that weighed on the safe-haven JPY.

Extremely overstretched conditions provided respite to the JPY and capped gains.

The GBP/JPY cross trimmed a part of its strong intraday gains to the three-day high and retreated below mid-163.00s during the first half of the European session.

The cross built on the previous day's goodish rebound from the 159.60 area, or the monthly low and caught aggressive bids on Thursday in reaction to a dovish Bank of Japan statement. As was expected, the Japanese central bank stuck to its ultra-loose policy setting and vowed to conduct daily operations to defend its “near-zero” target for 10-year bond yields.

In the post-meeting press conference, the BoJ Governor Haruhiko Kuroda said that risks to the economy are skewed to the downside for the time being and showed readiness to ease policy further if necessary. Apart from this, the risk-on impulse - as depicted by strong move up in the equity markets - weighed on the safe-haven Japanese yen and acted as a tailwind for the GBP/JPY cross.

That said, extremely overstretched conditions offered some support to the JPY amid speculations that the recent freefall in the domestic currency could trigger verbal intervention. Apart from this, the relentless US dollar buying weighed on the British pound. The combination of factors attracted some selling around the GBP/JPY cross and led to a sharp intraday pullback of nearly 100 pips.

In the absence of any major market-moving economic releases from the UK, the sentiment surrounding the Japanese currency will continue to play a key role in influencing the GBP/JPY cross. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

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Dollar Gains to Two-Year High on Safe Haven Flows

The U.S. dollar posted further gains in early European trade Wednesday, trading at two-year highs on safe haven flows as traders digested slowing global growth, raised geopolitical tensions, and the prospect of more tightening by the Federal Reserve.

At 3:15 AM ET (0715 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 102.532, the strongest it has been since March 2020 and on course for its best month since 2015.

Russia announced plans to halt gas flows to Poland and Bulgaria from Wednesday amid a standoff over fuel payments, to the benefit of the safe haven dollar.

Russian President Vladimir Putin has decreed that payment from “unfriendly” buyers should be in rubles, helping support his country’s beleaguered currency, while the European Union has responded that would be a breach of sanctions.

This escalation of tensions has added to the reasons traders have chosen to hold the dollar, with strict COVID-19 lockdown in China likely to hit economic growth in the world’s second largest economy while the Federal Reserve is expected to hike interest rates by 50 basis points in May as it seeks to combat inflation at a four-decade high.

EUR/USD fell 0.2% to 1.0618, dropping to a five-year low, amid fears for Europe's energy security, while the weak GfK German consumer confidence index, projected to plunge to a historic low in May, also weighed.

“April has been nasty for the euro, falling over 300 points. The Ukraine war and the hawkish Fed have been a toxic mix for the euro, as investors have dumped the currency and flocked to the safe-haven U.S. dollar,” said Kenny Fisher, an analyst at brokerage OANDA.

USD/JPY rose 0.5% to 127.81, not far removed from its recent 20-year low with the Bank of Japan set to meet overnight.

This central bank has maintained a very accommodative monetary stance, in direct contrast to the hawkish Federal Reserve, but traders see the risk of policy changes to try and arrest the currency's recent weakness.

GBP/USD edged higher to 1.2577, falling to a fresh 21-month low as last week’s weak retail sales data prompted a rethink of the Bank of England’s tightening cycle.

“Tightening expectations for the 5 May BoE meeting have dropped backed to 29bp from 38bp early last week,” said analysts at ING, in a note.

USD/CNY edged lower to 6.5555, with the yuan helped by data showing Chinese industrial profit growth quickened in March, while AUD/USD rose 0.5% to 0.7159 after Australian consumer prices surged at their fastest annual pace in two decades, spurring rate hike speculation.

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Gold Price Forecast: Battle lines well-mapped for XAUUSD ahead of key event risks – Confluence Detector

Gold Price consolidates the rebound, not out of the woods yet.

Markets remain risk-averse amid Beijing lockdown fears, Fed rate hikes.

US dollar index closes in on 102.00, holds near two-year highs.

Nothing much has changed fundamentally for Gold Price over the past 24 hours, although bulls are seeing some temporary reprieve. The bearish potential remains intact for XAUUSD, as the US dollar holds near two-year highs vs. its main rivals. Markets remain cautious and prefer to seek refuge in the US currency amid rising worries over the Fed’s aggressive tightening stance and Beijing's covid lockdown, which may temper the global economic recovery. Traders now await the US economic releases for fresh dollar valuations, eventually impacting Gold Price.

Gold Price: Key levels to watch

The Technical Confluences Detector shows that Gold Price is stuck in a narrow range despite the rebound, as the pivot point one-week S1 at $1,906 limits the immediate upside.

If that level is scaled, then bulls need to yield a decisive break above $1,909, the confluence of the Fibonacci 38.2% one-day and the previous high four-hour.

The next stop for XAUUSD bulls is envisioned at the SMA10 four-hour at $1,911. Further up, the convergence of the Fibonacci 61.8% one-day and SMA200 15-minutes at $1,918 will be eyed. 

On the downside, $1,900 acts as powerful support, where the Bollinger Band one-day Lower lies.

Should bears take out that downside cap, then a retest of the daily lows at $1,896 will be inevitable.

The previous day’s low of $1,892 will be next on the sellers’ radars. The line in the sand for Gold buyers is the previous month’s low at $1,890.

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Silver Price Analysis: XAG/USD slumps into mid-$23.00s amid broad commodity sell-off

Silver has slumped towards $23.50 this Monday amid a broader sell-off in risk assets and commodities and as USD strengthens.

Now XAG/USD is below its 200DMA, bears are eyeing an eventual drop towards Q4 2021 lows in the $21.00s.

Spot silver (XAG/USD) prices came under heavy selling pressure on Monday in tandem with a broader downturn in the market’s appetite for risk and downside in other key commodities such as across energy and metals. Traders cited risk aversion relating to the increased risk of lockdowns in China with a Covid-19 outbreak now reported in Beijing, continued pessimism about the prospects for a peace deal in the Russo-Ukraine war and, perhaps most importantly, recent hawkish chatter from central bank policymakers.

Either way, XAG/USD was last trading down nearly 2.5% on the day just above the $23.50 per troy ounce mark, having broken below key resistance in the form of the 200-Day Moving Average at $23.85 and the March lows at $23.97. That means spot silver prices are trading at their lowest since mid-February, prior to the start of Russia’s invasion of Ukraine, with a modest downturn in global yields on the day as a result of risk aversion likely the only thing stopping silver crashing further towards $23.00.

But the bears will be confident in wake of the recent breakout below the 200DMA, with many calling for a drop towards support in the form of the Q4 2021 lows in the $21.00s in the coming weeks as the US dollar continues to rise on hawkish Fed sentiment and risk-off flows. The key risk events for traders to monitor this week include the first estimate of US Q1 GDP growth on Thursday followed by March Core PCE inflation on Friday, with the latter likely to endorse Fed plans/market expectations for a 50 bps rate hike at next week’s meeting.

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Russia's Putin: Kyiv showing not ready to seek mutually acceptable solutions

Russian President Vladimir Putin held a call with European Council President Charles Michel earlier on Friday and, according to Russian news agency Tass (cited by Reuters).

Putin reportedly told Michel that the possibility of him holding direct talks with Ukrainian President Volodymyr Zelenskyy depends on concrete results of talks between the two sides' negotiating teams. Kyiv is showing it is not ready to seek a mutually acceptable solution, Putin told Michel. 

Michel on Wednesday visited Kyiv and pledged that the EU will give a further EUR 1.5B in military aid to Ukraine. 

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EUR/USD Price Analysis: Next target appears at 1.1000

EUR/USD extends the rebound to the 1.0940 region.

A move to the 1.1000 hurdle should not be ruled out.

EUR/USD’s upside momentum picks up extra pace beyond the 1.0900 yardstick on Thursday.

Further advance appears in store for the pair in the very near term with the immediate hurdle now at the psychological 1.0000 barrier. The surpass of the latter should put a test of the 55-day SMA, today at 1.1077, back on the radar.

While below the 200-day SMA, today at 1.1415, the outlook for the pair is expected to remain negative.

EUR/USD daily chart

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Yen to snap record losing streak on intervention worries; euro jumps

The Japanese yen briefly fell to a fresh two-decade low on Wednesday after the Bank of Japan stepped into the market again to defend its ultra-low interest-rate policy, drawing a sharp contrast with the United States where bond yields hit new highs.

But the Japanese unit bounced in London trading as increased nervousness around verbal intervention and growing speculation around an impending bilateral meeting between U.S. Treasury Secretary Yellen and her Japanese counterpart prompted traders to trim some short bets.

Still, positioning in the derivatives and currency futures suggest the yen weakness has more room to run.

The BOJ again offered to buy unlimited amounts of Japanese government bonds to check the rise in Japanese 10-year yields, which were butting against its 0.25% tolerance ceiling.

In contrast, Treasury yields marched to three-year highs while inflation-adjusted bond yields hit positive territory for the first time since March 2020 as hawkish comments by policymakers reinforced expectations of aggressive U.S. interest rate hikes.

The U.S. dollar reached 129.43 yen for the first time since April 2002 in Asian trading before easing to last trade 0.9% lower at 127.82.

"The 130 is a psychological level; if we break it (likely) then momentum will likely drive USDJPY even higher," said Vasileios Gkionakis, EMEA head of FX G10 Strategy at Citibank.

"This is a play on monetary policy divergence with the Fed in tightening mode and the BoJ still easing."

The dollar's rally against the yen has come as U.S. Treasury yields pushed higher, with 10-year yields touching 2.981% for the first time since December 2018 in Tokyo trading. Inflation-adjusted U.S. 10-year yields hit 0% overnight.

"The yen remains the loser of the monetary policy normalisation," Commerzbank (ETR:CBKG) strategists said.

Elsewhere, the euro was the other big gainer in London after media reports that some ECB policymakers were forecasting a first rate hike as early as July. The single currency was up as much as 0.6% at $1.0853.

The dollar index, which measures the currency against six major peers including the yen, early in the day matched Tuesday's high at 101.03 - a level not seen since March 2020 - before easing to 100.38, down 0.6% in the day.

An index of currency market volatility firmed above 8% but still well below 2022 highs of 10% hit in March.

The offshore Chinese currency was the other big loser with the unit declining 0.4% to 6.44 yuan per dollar.

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