EUR/JPY Price Analysis: Correction lower could extend to 134.30

• EUR/JPY comes under pressure and approaches 137.00.
• The April lows around 134.30 emerge as the next support of note.

EUR/JPY adds to Friday’s retracement and revisits the vicinity of the 137.00 mark at the beginning of the week.

Further weakness should not be ruled out in the very near term. That said, the corrective move in the cross could extend further and retest the monthly lows around 134.30.

In the meantime, while above the 200-day SMA at 130.56, the outlook for the cross is expected to remain constructive.

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Russian companies, banks could reap windfall from depositary receipt delisting

Russian companies and global banks including BNY Mellon (NYSE:BK), Deutsche Bank (ETR:DBKGn), Citigroup (NYSE:C) and JPMorgan (NYSE:JPM) could profit if Moscow moves to de-list Russian companies' depositary receipts from foreign exchanges, according to two people familiar with the matter.

The potential windfall is due to the fees that bank issuers of depositary receipts can contractually charge investors when they cancel the product.

It is unclear how much companies and banks could make or if banks will charge the fees and risk angering investors who say it would be unfair given the extraordinary circumstances which have been triggered by Russia's invasion of Ukraine.

However, the fees could potentially translate into hundreds of millions of dollars according to Reuters' calculations based on fee data provided by the sources.

Assailed by Western sanctions, Moscow is preparing to de-list Russian company depositary receipts from foreign exchanges and convert them into local Russian securities in a bid to reduce foreigners' control over these companies.

Depositary receipts are certificates issued by a bank representing shares in a foreign company traded on a local stock exchange. They allow investors to dabble in overseas stocks in their own geography and time zone.

There are more than 30 depositary receipts on Russian companies including Gazprom (MCX:GAZP), Rosneft, Lukoil and Norilsk Nickel issued by BNY Mellon, Deutsche Bank, Citigroup, JPMorgan, among others, trading on U.S. and European markets.

Under standard agreements, depositary receipts can be canceled by the issuer or the investor. When that happens, the investor typically gets cash from the sale of the underlying shares, although they have the right to take custody of the shares instead.

Banks charge an administration fee, typically around $0.05 per receipt, which may be shared with the companies, two sources said.

If Moscow de-lists Russian depositary receipts, banks will have to cancel the products. Banks could still charge the fees, even though their hand was forced, according to three sources.

For example, an investor in Rosneft with 150 million depositary receipts representing the same number of shares in the company could be on the hook for $7.5 million in cancellation fees, according to Reuters' calculations.

Sweeping Western sanctions could make it challenging for banks to transfer the cash to some companies.

Regardless, some investors say the fees should not apply. One global asset manager told Reuters that if Russia passes the de-listing law there should be no fees as investors would have no choice in the matter. The other two sources, however, say banks still have to cover their costs.

BNY Mellon, Deutsche Bank, JPMorgan and Citigroup declined to comment. Russian companies did not respond to a Reuters emails seeking comment.

MARKET FREEZE

As Western sanctions pummeled Russian stocks from late February, the Moscow exchange closed and the Russian central bank banned foreigners from transferring shares out of their custody accounts. It also barred foreigners from selling Russian shares.

The restrictions made it nearly impossible for banks to cancel receipts when asked by investors anxious to slash their Russia exposure.

With curbs on custodians recently lifted, BNY Mellon, Citi and JPMorgan have resumed processing cancellations. But because the foreign banks still can't sell the shares, investors have to take custody of them instead. To do that, investors need an account in Russia, which many don't have.

As a result, a lot of investors are likely to hold onto the receipts for the time being, according to three people.

Many investors are worried, however, about the de-listing bill which Russia is preparing.

Aside from the potential cancellation fees, investors are worried about what will happen if they can't open a local custody account.

In a note to clients, JPMorgan said clients may be able to open a Russian account under some unspecified circumstances if the new law is passed.

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GBP/USD supported above 1.3000 ahead of key US CPI release

GBP/USD continues to trade support to the north of the 1.3000 level in the run-up to the release of key US March Consumer Price Inflation data at 1330BST. Mixed UK jobs data released earlier in the session didn’t give cable traders much to go off of, hence the indecisive trading conditions that have prevailed thus far this session.

On the one hand, the UK jobless rate fell to a fresh post-pandemic low of 3.8% as expected in February, taking it even further below its pre-Covid levels. On the other hand, British earnings growth, when adjusted for inflation, slumped the most since 2013, highlighting the cost-of-living crisis faced in the UK even before the start of the Russo-Ukraine war and tax/energy price hikes as of Q2.

According to ING, "for the time being, this kind of data can probably support market expectations of a Bank of England Bank Rate above 2.00% by year-end (versus 0.75% currently)”. But the bank cautioned that any sterling strength as a result of BoE tightening expectations would likely play out versus the euro or yen, not the US dollar.

Indeed, the US dollar continues to trade on the front foot on Tuesday ahead of the release of US CPI data that should further reinforce expectations for Fed tightening. The DXY currently trades above 100 and just below its highest levels since May 2020 and more gains may be in store if the recent trend of higher US yields and lower US (and global) equities continues. ING think that in a continued strong dollar environment, GBP/USD is at risk of slipping towards 1.2850.

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 Euro gains respite from Macron's French election lead

The euro looked set to snap a seven-day losing streak versus the dollar on Monday, as the single currency rallied after French leader Emmanuel Macron beat far right challenger Marine Le Pen in the country's first round of presidential voting.

Investor concerns about the future direction of the euro zone's second-biggest economy have weighed on the euro and added to worries over the economic costs of war in Ukraine.

Meanwhile, the dollar has been pushed higher by rising U.S. yields and expectations the Federal Reserve will act quickly to stem inflation. One of the big fallers has been the Japanese yen, which fell to a fresh seven-year low versus the dollar.

Macron will face Le Pen in what promises to be a tightly fought French presidential election runoff on April 24.

Nonetheless, Macron's lead in the first round provided some respite for the euro - lifting it by as much as three quarters of a percent in Asian trading hours to $1.0955. It was last up 0.3% at $1.09080.

Currency analysts said the contest remained on a knife-edge with negative implications for the euro.

"The narrower than expected victory for President Macron will keep alive fears that there is an outside chance that Le Pen can become president," analysts at MUFG said in a note.

"The first-round results and the opinion polls pointing towards a close result in the second round will remain a modest weight on the euro in the coming weeks."

The dollar index - which tracks the greenback against a basket of six peers - was broadly flat on the day, just shy of the 100 mark hit last week for the first time in nearly two years.

As the dollar has gained ground, investors have seen little reason to exit bets against the yen while the Bank of Japan holds yields near zero.

The yen fell as much as 1% on the day to 125.55 yen per dollar, its lowest level since 2015.

"There's nothing there to frighten people out of dollar/yen positions," said National Australia Bank (OTC:NABZY)'s head of foreign exchange Ray Attrill. "So onwards and upwards for dollar/yen."

Sterling was broadly flat versus the dollar at $1.30380.

The Russian rouble weakened in jittery trade, reversing some of the previous week's gains, after the central bank decided to relax temporary capital control measures.

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 Dollar Edges Lower Ahead of Fed Minutes; Aussie Dollar Soars

The U.S. dollar traded in a tight range Tuesday, while the euro edged lower on talk of additional sanctions on Russia and the Australian dollar received a boost from a hawkish central bank.

At 3:00 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally lower at 98.955, just below the one-week high of 99.083 reached overnight. 

The dollar has been drifting this week so far as investors await the arrival of the minutes from last month’s Federal Reserve policy meeting, due on Wednesday. 

Expectations are building that the central bank will move more aggressively at its meeting in May, especially after a jobs report that showed nonfarm payrolls increasing by 431,000 jobs last month while the unemployment rate fell to a new two-year low of 3.6%.

Ahead of the Fed minutes, Tuesday sees the release of ISM’s non-manufacturing PMI data for March, at 10:00 AM EST (1400 GMT), which is expected to show increased momentum in March, while speeches from Fed policymakers Neel Kashkari, Lael Brainard and John Williams will also be closely studied.

Elsewhere, AUD/USD rose 0.9% to 0.7607, jumping to a nine-month high, after the Reserve Bank of Australia left its benchmark interest rate unchanged at 0.1% at its latest policy setting meeting, but indicated that rate hikes were coming.

Australia’s central bank dropped its pledge to be "patient" on tightening policy in its statement following the decision, a phrase that has featured in every post-meeting release since November 2021, suggesting that it is going to hike sometime soon.

EUR/USD was largely unchanged at 1.0972, hovering above a one-week low, on talk of fresh sanctions on Moscow following alleged atrocities on civilians by Russian forces in the Ukrainian town of Bucha.

German Chancellor Olaf Scholz said that Putin and his supporters would "feel the consequences" of events in Bucha, while Biden's national security advisor, Jake Sullivan, stated that new U.S. sanctions against Moscow would be announced this week.

“It still seems that the EU is some way from weaning itself off Russian oil,” said analysts at ING, in a note. “Presumably, any moves from the EU toward a Russian oil embargo would see crude prices spike higher again and the euro come under pressure.”

USD/JPY fell 0.2% to 122.58, dropping back further from the multi-year high of 125.10 reached in late March after Bank of Japan Governor Haruhiko Kuroda stated that the recent pace of appreciation was "somewhat rapid," and policymakers are watching moves "carefully."

GBP/USD rose 0.1% to 1.3133, USD/CNY was flat at 6.3638, while USD/TRY rose 0.1% to 14.7092 the day after Turkey’s inflation jumped to a fresh 20-year high in March, with consumer prices rising an annual 61.1% through last month.

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GBP/USD eyes break below 1.3100 and towards key support amid buoyant buck

• GBP/USD is trading with a downside bias as the euro underperforms and 21DMA continues to act as a ceiling.
• A break lower to test last week’s 1.3050 lows looks on the cards, with bears also eyeing 1.3000 annual lows.
• Following hawkish Fed commentary over the weekend and ahead of possibly more this week, USD risks are tilted higher.

In a relatively tame start to the week for currency markets, GBP/USD is trading with a downside bias and is currently threatening a downside break of the 1.3100 level. Sterling is likely weighed by underperformance in its cross-English Channel peer the euro, which is underperforming ahead of the resumption of Russo-Ukraine peace talks later in the session and amid further chatter about a possible EU embargo on Russian energy imports. Commentary from BoE policymakers on Monday did not stray into the territory of monetary policy and thus hasn’t impacted cable, which probed last Friday’s lows in the 1.3080s earlier in the session and is eyeing a break lower towards last week’s lows around 1.3050.

“Despite much focus on the heaviest cost of living rise since British records began (1950s), the market still prices the BoE Bank Rate at 2.20% at the December meeting later this year,” noted analysts at ING. “That pricing of the BoE cycle is likely keeping GBP relatively well bid, although we do think the risks are growing of Cable breaking down to the $1.25/28 area over coming months,” they warn. Amid a light UK data schedule this week, the risks posed to GBP from fears of a weakening UK economy likely won’t be the major market focus.

Rather, the outlook for Fed policy is likely to be a much more important topic. Already over the weekend, there has been fresh hawkish commentary. Fed’s John Williams warned that balance sheet reduction could start as soon as May and Fed’s Mary Daly said the case for a 50 bps rate hike in May has grown. Various Fed policymakers will be making public appearances and talking policy throughout the week and the minutes of the Fed’s most recent, hawkish meeting will be published on Wednesday.

Risks seem tilted towards the upside for the US dollar amid the risk of further hawkish Fed vibes. GBP/USD’s 21-Day Moving Average in the 1.3120s, which has been providing solid resistance over the past few weeks, looks likely to continue acting as a ceiling for the time being.

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Euro dips amid caution over Ukraine, Norwegian crown plunges

The euro edged lower on Thursday on caution about developments in Ukraine and limited progress in peace talks, while the Norwegian crown fell sharply after the central bank decided to buy foreign currency. Russian forces prepared for new attacks, Ukrainian President Volodymyr Zelenskiy said, while no quick resolution is expected from peace talks that will resume on Friday. The euro dropped 0.3% to $1.1118 after hitting its highest since March 1 at $1.1184. "The single currency is always around $1.11, with investors still cautious about future developments in Ukraine," Roberto Mialich, forex analyst at Unicredit (MI:CRDI), said. "The market wants to believe in a peace deal or at least in a truce in Ukraine. This is why rouble remains not far from its pre-war levels against the dollar, and the greenback is struggling to appreciate," he added.The dollar index, which tracks the U.S. currency against six peers, rose 0.2% to 98.074.

The rouble was down 3% versus the greenback at 78.55

Investors also focused on the next European Central Bank's moves after robust inflation data. ECB chief economist Philip Lane said on Thursday euro zone inflation was increasingly likely to stabilise around 2% but the ECB should be ready to change course if the outlook deteriorates due to Russia's war in Ukraine. [nL5N2VY2NL]

“Until the risk of an energy crisis and considerable economic effects resulting from the Ukraine war have been banished, the ECB is likely to hesitate to make a clear commitment,” Antje Praefcke, forex analyst at Commerzbank (DE:CBKG), said in a note to clients.

“And as a result, it will also be a while before the euro can appreciate on a sustainable basis,” she added.

Money markets are currently pricing in an around 85% chance of 20 basis points (bps) of ECB rate hikes by July 2022 and 60 bps by year-end. [IRPR]

The Norwegian crown plunged after oil prices dived and the central bank said it would buy foreign currency for its sovereign wealth fund in April.

Norges Bank plans to exchange 2 billion crowns ($231.9 million) per day into foreign currency, which will in turn be invested abroad by the wealth fund, already the world's largest with assets of $1.3 trillion.

The Norwegian currency fell 1.6% against the euro hitting its lowest level since March 18 of 9.7111, and 1.9% versus the dollar at 8.7255.

However, it is not far from its highest since October 2018 against the euro at 9.4424 and its highest since November 2021 versus the dollar at 8.5675, which it hit last week on the back of a rally in Brent crude oil futures.

"The central bank move might curb the currency, but we think the Norwegian crown still has room for further appreciation, thanks to expectations of more rises in energy prices," Unicredit's Mialich argued.

Other commodity currencies, such as the Australian and New Zealand dollar, dropped by around 0.5%.

The Swedish crown was slightly lower against the euro, just off its highest since January of 10.3059 hit on Wednesday as the central bank said it would have to tighten monetary policy this year.

Bitcoin was down 0.2% at $47,191, while Ether, the world's second-largest cryptocurrency, was up 0.45% at $3,402. 

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 GBP/USD rebounds from near two-week low, flat-lined below 1.3100 amid risk-on mood

• GBP/USD witnessed some intraday selling on Tuesday amid renewed USD buying interest.
• Hawkish Fed expectations, rising US bond yields continued acting as a tailwind for the buck.
• A positive risk tone capped gains for the safe-haven USD and helped limit losses for the pair.

The GBP/USD pair quickly recovered a few pips from a near two-week low touched in the last hour and was last seen trading around the 1.3175-1.3180 region, nearly unchanged for the day.

The pair struggled to preserve its modest intraday gains to the 1.3115 region and turned lower for the fifth successive day on Tuesday amid the emergence of fresh US dollar buying. Rising bets for a 50 bps rate hike at the next two FOMC meetings turned out to be a key factor that continued acting as a tailwind for the buck.

The market expectations for a more aggressive policy response by the Fed to combat high inflation was reinforced by elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond moved back above the 2.5% threshold, or back closer to a nearly three-year peak and underpinned the greenback.

The British pound was further pressured by the overnight dovish sounding remarks by the Bank of England Governor Andrew Bailey, saying that they are seeing evidence of an economic slowdown. Bailey stuck to the tone from this monthly policy decision, wherein officials softened their language on the need for further interest rate hikes.

This was seen as another factor that exerted additional pressure on the GBP/USD pair. That said, a generally positive risk tone, bolstered by hopes for progress in the Russia-Ukraine peace talks, capped the safe-haven USD and helped limit the downside for the GBP/USD pair. This, in turn, warrants some caution for bearish traders.

Hence, the market focus will remain glued to fresh developments surrounding the Russia-Ukraine saga. The incoming geopolitical headlines will influence the broader market risk sentiment. This, along with the US bond yields, will drive demand for the USD and produce some short-term trading opportunities around the GBP/USD pair.

Later during the early North American session, traders will take cues from the US economic docket - featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index.

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