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The Week Ahead – Investors look into earnings for clues

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GBPUSD awaits inflation catalyst

Chart of GBPUSD

The higher beta pound edged higher supported by improved global market sentiment. The rate differential has tilted in the pound’s favour after market participants bet on an end to the Fed’s tightening campaign soon. Meanwhile, the Bank of England is likely to hike by 25 basis points in May backed by its chief economist’s hawkish insistence on fighting stubbornly high inflation. The UK inflation rate was 10.4 percent in February and a high reading for March would cement those expectations and give the currency a nudge, especially if it compounds a lower jobless rate. 1.2660 is the next resistance and 1.2200 the closest support.

USDCAD weakens as BoC stays hawkish

Chart of USDCAD

The Canadian dollar bounces back as the Bank of Canada vows to keep interest rates high for the year. In its latest meeting, the central bank left its policy untouched but struck a hawkish tone, most likely in an attempt to nip hopes of rate cuts in the bud. The upcoming CPI reading will show how the eight previous rate hikes have settled. Further deceleration in consumer prices may prompt traders to raise bets of a policy easing, especially if the risk of a widespread credit crunch does not dissipate. Meanwhile, the loonie might continue to benefit from recovering oil prices. The pair is heading to 1.3260 with 1.3530 as a first resistance.

XAUUSD rides safe haven demand

Chart of XAUUSD

Gold advances as the market looks to hedge against the recession risk. Rising interest rates would normally dampen investors’ enthusiasm for non-yielding bullion, unless there is a fundamental change happening behind the scene that makes them look past usual allocation preferences. Even though cooling US inflation raises expectations that the Fed is reaching its end of its hiking cycle, lingering concerns about something systemic might be broken cannot be ignored. In that respect, demand for the safe haven metal stays firm with the price revisiting the all-time high at 2070. 1940 is the first support in case of a pullback.

SPX 500 rallies as tightening may end soon

Chart of US500

The S&P 500 recovers as the market prices in a 25 basis point hike in May, with rate cuts later in the year. Dissent within the Fed ranks lifted hopes of an end to monetary normalisation as several policymakers considered pausing rate hikes amid banking sector stress. Speaking of which, big financial names will report their results this week as the Q1 earnings season goes full swing. Investors are impatient to review the mark left by the recent turmoil. A limited impact would ease the fear of a systemic contagion and pop up appetite for risk assets alike. The index is reaching this year’s high of 4190 and 4000 is the closest support.

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