The fundamentals of the euro area economy are strong EUR/USD

• The yen remained under pressure today in the Asian trading session and the euro edged higher
• The U.S. Federal Reserve is set to raise rates for the first time since the pandemic
• Markets anticipate a 25 basis point rise at this meeting, according to the CME's Fed watch tool
• Russian and Ukrainian delegations held the fourth round of talks but no new progress was announced

The yen remained under pressure on Tuesday and the euro edged higher as talks between Russian and Ukrainian negotiators continued, but moves were more muted than in recent days as the market's attention turned to this week's Fed meeting.

The U.S. Federal Reserve is set to raise rates for the first time since the pandemic at its meeting which concludes Wednesday, with traders looking for indications about the pace of future rate hikes. Markets anticipate a 25 basis point rise at this meeting, according to the CME's Fed watch tool, but pricing has risen to indicate a 70% chance of a larger 50 basis point hike at its subsequent meeting in May, due to concerns about inflation. 

Economic Calendar

We think the statement and Chair Powell's press conference after the meeting will be influential in terms of market pricing for a 50 basis point rise in May and beyond, and that will impact the U.S dollar intraday. The dollar index, which measures the greenback against six major peers was at 98.881, down 0.23% on the day mainly due to losses against the euro, but still in sight of the 99.415 touched a week ago, its highest level since May 2020. 

The yen fell as low as 118.44 per dollar on Tuesday, a new five-year low, as its recent slide showed no signs of stopping. The contrast between rising benchmark rates in the United States and low rates in Japan is becoming ever more apparent as the Fed begins to tighten, particularly with both the Fed and the Bank of Japan meeting this week. 

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Analysts at Bank of America raised their forecast for the dollar-yen to 123 by the third quarter of this year. The return of risk sentiment to markets, partly on the back of hints of a negotiated end to the war in Ukraine, has also taken away some of the support for the safe-haven Japanese currency. Russian and Ukrainian delegations held the fourth round of talks but no new progress was announced.

Euro

The single currency gained as Eurozone finance ministers agreed to tighten fiscal policy next year after pumping billions into the economy due to the coronavirus pandemic, but also to be ready with more cash should the war in Ukraine make it necessary. "The fundamentals of the euro area economy are strong," the ministers from the Euro Zone said. Overall, the EUR/USD traded with a low of 1.0884 and a high of 1.0665 before closing the day around 1.0934 in the New York session.

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Yen

The Japanese Yen remained under pressure and the euro edged higher as talks between Russian and Ukrainian negotiators continued, but moves were more muted than in recent days as the market's attention turned to this week's Fed meeting. The U.S Fed is set to raise rates for the first time since the pandemic at its meeting which concludes Wednesday. Overall, the USD/JPY traded with a low of 114.63 and a high of 115.53 before closing the day around 114.83 in the U.S session.

British Pound

The British Pound eked out gains against the U.S dollar yesterday, recovering after falling to a 16-month low, as tentative hopes for progress in talks between Russia and Ukraine dampened demand for U.S currency and other safe assets. The market was also looking to policy announcements from the Bank of England and the U.S Federal Reserve later this week. Overall, the GBP/USD traded with a low of 1.3200 and a high of 1.3353 before closing the day at 1.3238 in the New York session.

Canadian Dollar

The Canadian Dollar weakened against its U.S counterpart yesterday as signs of progress in peace talks between Russia and Ukraine reduced investor worries that commodity supplies will be in short supply. Canada is a major producer of commodities, including oil. It is primarily a macro story as markets are repricing the Russian premium. Overall, USD/CAD traded with a low of 1.2667 and a high of 1.2789 before closing the day at 1.2735 in the New York session.

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Australian Dollar

The Australian Dollar slipped yesterday as hints of progress in Russian-Ukraine talks saw global commodity prices come off the boil, while the U.S dollar looked forward to the start of an extended cycle of rate hikes this week. The Aussie fared better on the yen as the Bank of Japan is keeping bond yields near zero and high resource prices are weakening Japan's trade account. Overall, AUD/USD traded with a low of 0.7138 and a high of 0.7235 before closing the day at 0.7231 in the New York session.

Euro-Yen

EUR/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 40 and lies below the neutral zone. In general, the pair has lost 1.70%.

Sterling-Yen

Currently, GBP/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 42 reading and lies below the neutral zone. On the whole, the pair has lost 1.35%.

Aussie-Yen

Currently, the cross is trading above 14, 50 and below 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 54 reading and lies above the neutral region. In general, the pair has gained 0.06%.

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Euro-Sterling

This cross is currently trading above 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 46 and lies below the neutral region. Overall, the pair has lost 0.35%.

Sterling-Swiss

This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 40 and lies below the neutral region. In general, the pair has lost 0.86%.

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