 Hi, my name is Leon Rowe, Covenancy Trader and Trading Coach at Trading180.com and welcome to this week's supply and demand for its gold, fundamental and technical analysis. If you're new, a warm welcome to you and if you're returning an equally warm welcome to you and don't forget to like, subscribe and share this video if you find it useful and helps you with your fundamental analysis and technical analysis. This week, I had a very interesting question from someone on YouTube who said, if the Fed is hawkish about raising interest rates, then why does the dollar depreciate? For example, Chairman Powell warned on March 7 that the Fed could switch back to higher rates. The pound strengthened against the dollar in the next four weeks. I noticed in those four weeks that the jobs report was fairly strong too. Why didn't the dollar strengthen? Thank you. The content is great. I'm going to answer that after the analysis that I do. It's a very good question. Let's get into this next week as well as some of the details. In the week ahead, 24th of April, we have and we're going to skip the US earnings. It says also in the spotlight will be taken by advanced estimate for Q1 GDP growth rate, personal income and spending, PCE price index, durable gazorders and new home sales elsewhere. GDP figures will be released for France, the Euro area, Germany, Italy, Spain and those ones that we look at. Finally, investors will closely follow inflation rates for France, Spain, Germany and Australia and monetary policy decision for Japan, which is Ueda. The new governor is expected to continue with the ultra-loose monetary policy. So that's what we've got going on this week. And so heading to the technicals and actually starting off on the dollar index. And the dollar index is really just a measure of dollar strength against the major currencies like the pound, the euro and the yen. And if you've been watching for any length of time, you've known that I've been bearish on the dollar for a while since put at the beginning of the year, end of last year. And so pretty much if you've got a fundamental bias, it makes things easier for you in terms of the direction and where the path of least resistance is. And for me, I've been saying that the path of resistance is to the downside and you can see what's been happening. So a pullback really technically should, in any of these areas, should be looked at as some confluence when it comes to shorting the dollar. So one of the things you've got is supply zones, but what I also do, or one of the things I also do when it comes to technical analysis is understand where support and resistance is in alignment with supply and demand zones. And so there's a nice interesting area around there and probably one right at these highs as well on the daily timeframe chart where you can see support and resistance within that supply zone. So I think any pullbacks into these zones in these areas, the 102 probably about a number just above that, and even just the highs of that supply zone, I think you start to see bearish price action. Then what you want to do is, as if you are, of course, bearish on the dollar, you don't have to be. But just from our fundamental perspective, I think these areas here are decent technical areas if you want to go short on any of the other dollar crosses. Now fundamentally, we've got the Fed officials on track to high crates and signal a potential pause. Some policy makers call for prudence amid banking stress, what officials do beyond May hinges on the economy. So the Federal Reserve are on track to raise interest rates a quarter percentage point next month and signal a potential pause from the steepest hiking campaign in decades. Policy makers across the hawkish and dovish ends of spectrum stress that inflation is still too high and the US central bank has more work to do. But there is also concern that the fallout from recent bank failures will slow the economy as well. So many caution on a tightening of lending standards spot by last month's banking stress could lead to a pullback in spending and weight on growth and prices, lessening the need for further rate increases because the more that you hike, it affects the economy, a borrowing and lending. And so central banks typically don't want to hike in a recession. And so, or if we're going into a recession, I say we but they already economy. So what officials do beyond May, the second and the third meeting will hinge on what happens with the economy, which so far has weathered higher borrowing costs. The Federal Open Market Committee, FMC may leave the door open to either holding borrowing costs steady or hiking again at this subsequent gathering in mid June as they assess the banking landscape. And so, you know, they say a inflation is still a bit too high. But the expectation actually from a lot of banks is that they are to pause rates. And one of the things that we're seeing as well is that the Fed's inflation expectation index falls to the lowest since 2021. So the index has fallen three straight quarters from a record high index compromises or more than 20 inflation expectation indicators. And so if inflation is naturally coming down, then the Fed are less likely to want to hike because the Fed don't really want to tinker with interest rates. If they don't have to, if they see inflation naturally coming down towards their 2% target, then that really is an indication that they may start to, or they're likely to actually pause interest rates because they don't have to do anything. They don't have to, they can just let inflation come down naturally. And so with that being said, my bias is still actually to the short side until obviously data proves. Otherwise, you know, data can change. But for now, as we see things, my bias is to the short side. And so any pullback, deeper pullbacks will be better shorting opportunities on the dollar index in my opinion, of course, is not financial advice. The dollar yen and the dollar yen saying this a couple of weeks ago, I wasn't around last week, but a couple of weeks ago, I was saying that potentially we could have prices come up, you know, to the upside. And we actually did to this 135 area. Now, it's interesting that you've come up to this area. For kind of two reasons, well, one main reason is more that the new governor for the Bank of Japan, Ueda is has been very sorry, dovish in terms of his in tone, right? Let me just go to Japan, right? He's been very quite dovish in his tone. And since he kind of taken over. And so with a dovish tone and the market expecting that yield curve control, which is a measure really to kind of devalue the currency is to be removed. And if it gets removed, it means that the market will have to reprice the Japanese yen actually higher, meaning that, you know, appreciate it. It will appreciate. But it's the timing of when that yield curve control is to be adjusted. And one of the factors in it being adjusted sooner, rather than later is inflation. So inflation, Japan inflation outpaces forecast again, as Bank of Japan prepares to meet. So just before the meeting, we've had, you know, the inflation release and the gauge of underlying price trend at strongest since 1981. Governor Kazuo Ueda holds first policy meeting next week. Now, it's not actually expected that he will change rates at the meeting. It's actually expected in June, but also the Bank of Japan have also said that they actually will surprise the market, interestingly enough. And historically, if you've been in forex and trading forex for any length of time, you'll know that the Bank of Japan is known for surprises. So they don't want to announce when they are going to or it may be a surprise and likely will be a surprise when it comes to announcing the end of yield curve control or any kind of adjustment. So the main thing to look for really is what the market is going to be looking for in the speech is any change to his language, how dovish or hawkish is he when the speech comes out. So there is the, this could be a turning point in the yen, but I wouldn't be surprised. I would not be surprised if you actually see price go higher if he is dovish because there is a lot of positioning actually to the downside because it's expected that yield curve control will actually end at some point this year. And so if anyone who is short here in the expectation pretty much is probably going to get stopped out, which the market is looking for liquidity, and it wouldn't surprise me if prices did come up to these one, three, eight, and even just above that and stop hunted the level. So in the short term, I think that may happen. Not too sure, of course, who knows, but if that does happen doesn't mean I'm going to be having long bias on the dollar or remove my short bias for the dollar. Yeah. And I think it's just a better shorting opportunity to get involved because once they do remove the yield curve control, the expectation is in fact that prices by the end of the year should actually fall to around the 120 area. So there's a lot of pips in this trade. So it doesn't matter if you lose a couple of times. If you understand that the trade idea behind it and why prices are likely to potentially come down to the 120s, we need is a decent win to cover any losses. And so that's where I am in terms of my bias on the dollar. Yen. Dollar Swiss, not really a pair I'm interested in trading. We can see from last week that in fact that supply zone didn't hold. The Swiss franc has been unbelievably strong recently. Not really too sure why because it's not like they're extra hawkish or their inflation is as high as somewhere like the UK over here. But maybe risk of sentiment as well is helping the Swiss franc. They are looking to hike rates one more time. And so as you made lower lows, lower highs, basically a pull back into this supply zone is going to be the best opportunity to look to buy the Swiss franc against the US dollar. From a buying the dollar perspective, though, I would probably refrain from trying to buy the dollar if I was going to buy the dollar. I probably want to see this price action make higher highs, higher lows before looking to buy the dollar if I was going to be a buyer of the dollar. That is so I want to see prices kind of make a higher high there, proof of demand and then a pull back into that area before looking at going long. But for now, yeah, I'm not really looking to take or trade this. If I was, then it would be actually to the downside and buy the Swiss franc over the US dollar in a risk off environment. But again, I'm not really looking to take that dollar CAD interesting one, right? So these were the two scenarios I was talking about in the previous video saying that price could even bounce off of here, right? That zone there, obviously that zone didn't play out. Again, this isn't really a pair that I'm looking to trade, but I can understand why traders were. And you had the CAD strengthening against the US dollar, but then you had some dollar strength come back in. In fact, there's probably more Canada weakness because I think there was some inflation data for the Canadian dollar that actually came out lower. So the Canadian dollar, the Bank of Japan and Bank of Canada were there was a bit of a thing where they were protected, they were on hold, but they were potentially looking to hide grace, depending on what happened with inflation. And so inflation came out lower than expected. And so you've seen basically the dollar being bought because the dollar actually is still, they are still hiking one more time, right? That's the expectation that Bank of Canada is still pausing rates. And the fact that inflation came out lower than expected reinforced that Bank of Canada hold. And so you've seen prices bounce off of this 133 area. Now we are actually in a supply zone right now. So if you did want to get involved in shorting the US dollar and buying the Canadian dollar for whatever reason, then this is a decent opportunity to do that nice level. But again, not really a pair that I would look to buy the Canadian dollar or the US dollar at the moment, not in that pair. But technically, we've got some nice levels. I think this level now has probably been touched several times. So if there was, if you were looking to buy this, I would probably look for just a fresher area of demand right at the one three two fifties, the low end of this demand zone before looking at getting long if it does come back down there. New Zealand dollar, US dollar and the New Zealand dollar has been struggling since they actually hiked rates. The expectation was that in fact the New Zealand economy actually might go into a recession towards the end of the year. And so we've had pretty much a bit of a pullback on this on the New Zealand dollar. Although I do think that price is made light is likely to auction, right? And I say auction, I'm talking about range within this level here. So we've got the one 0.61 cent area. So I do think that prices could probably be held up in and around this zone here. So if you were looking to buy the New Zealand dollar against the US dollar, then I think it's going to be a decent buy. But for me, not really again, not really a pair I'm looking to get involved in. There is if you want to kind of take supply all the way down here. I know it's not nice and people don't like having and seeing wide zones or anything like that. But when you get a wide zone like this on a daily timeframe chart, one of the things you can do is just break the zone down into support and resistance areas either on a daily or on an intraday timeframe chart. So going down to maybe like the one hour or two hour and seeing where obvious levels of support and resistance are within that supply zone. And then look for trades if you're looking for short trades in that area or if you're looking for long trades, you know, looking for that area there, it's going to be one of the most accurate areas within that area of demand. Now looking back and going to the pound dollar and the pound dollar. So I'm personally looking for any long trades on here, looking for a deeper pullback just haven't got one. One of the reasons why the pound has been actually quite strong is because recently you had the Bank of England, the expectation for them to raise interest rates again has increased because inflation only dipped to 10.1 percent rather than I think it was expected to come down to 9.8 percent. So UK inflation failed to drop into single digit levels last month as food prices kept soaring, meaning central bank expected to raise borrowing costs again. And so yeah, that's kept the pound supported with the expectation of the Bank of England to continue to raise interest rates to try and get inflation down. So there are potentially two more hikes coming. I think there was, in fact, let me go back to the article. I think there was, yeah, here. So I'll read this anyway. It says the city of London is anticipating that the UK interest rates could hit 5 percent before the end of the year. After prices across the economy rose faster than expected. UK inflation remained in double digits with annual prices of 10.1 percent last month, dashing hopes of a 9.8 percent fall. The data makes it almost certain that the Bank of England will increase interest rates next month from 4.25 to 4.5 with two more quarter point increases also being priced in by the money markets before the year is over. So that is what is potentially happening. So Ed Conway says, golly, the less than a month ago, investors were betting the Bank of England's worth rates would peak at 4.5 or even 4.25. Now they're betting that they'll hit 5 percent this year. Highest projected rate since mini budget fallout. Another consequence of unexpectedly higher and stubborn inflation. And so again, the fundamentals of what really drives markets and if you haven't got your finger on the pulse, then you're going to miss this stuff. And so going back to the pound dollar, this is basically what's being expected that has to be priced in. So I think any pullbacks into these demand zones, especially down into this 1, 2, 3 level or even just that 1, 2, 3, 50 area, I think is going to be decent for a buy trade. But the better the pullback or the deeper the pullback, I think the better in the short term. So let's see what happens with that. And was there anything else for the pound? I think with the pound, again, what's next for the UK recession or boom? And the still no signs that of a UK recession and the economy is still doing better than expected. And that really is supporting interest rate hikes and supporting the pound overall. So yeah, that's pretty much where we are with the pound. If you do want to get short on the pound and try and short the, because it's short the pound and buy the US dollar for whatever reason, I think there is going to be your earliest area to look for a short trade. I'll zoom out a little bit. Yeah, the nearest zone, you've got something up top as well, which is a zone from May 2022. So that level will probably be looked at. But let's see what happens for me. My bias is to the long side, Euro dollar and Euro dollar. The Euro is actually expecting again, like the pound, two to three more hikes expected and they are, they will, at the time I did this analysis a couple of weeks ago, they were the most hawkish central bank. They're probably on par now with the Bank of England being quite, well, maybe being quite hawkish in terms of the market pricing in two more rate hikes. But we've got ECBs, Matt Kaloof, I think that's how you pronounce it, warns it's too early to plan pause in rates. So rates will have to stay at a restrictive level to cut inflation. ECB is widely expected to hike again at next meeting in May. So it's too early for the central bank to start planning for a pause in its rapid rate tightening cycle, given the significant challenges to price stability, Europe's economy is facing according to central bank of Ireland, Governor Gabriel Matt Kaloof. So whereas you've got the US are considering pauses and the ECB are saying it's way too early for pauses. And so, you know, there's the divergence right there. So we've got, for me, any pullbacks into zones, I think are going to be nice opportunities to buy. Yeah, if it can get down back into these 108, 150 areas, I think that is going to be a very, very, very nice buy. And a cheap price for the euro as long as the data supports the narrative, right? So it doesn't mean that it's going to be an absolute buy and it gets down here. There's got to be reasons for why it is down here. And if prices come down, the fundamentals are still the same and they support euro buying and dollar selling, then this is going to be seen as a bargain price. And so, yeah, any pullbacks I think are decent for a buyer, my bias is still to buy euros over the dollars at the moment. Moving on to the Australian dollar, US dollar and the Australian dollar has been a bit of a tricky one. With China reopening and actually the data coming out better than expected, you would have thought that it would have supported the Australian dollar, but unfortunately not. But I do think that the 65 cent seems like a bit of a flaw, maybe even down into 65 round numbers right here. 65-50 has been a bit of a flaw, but I think if prices come down to the 65 area, that should be actually a very good bargain price because as China starts to reopen, more risk on. If it does, of course, the data has to support that. But if it does and prices are coming down, I think the Australian dollar is going to be a really nice buy. But again, Australia has been experiencing some issues, their central bank. I said one more hike expected and it was data dependent. I do think that recent data has come out where it's increased the chance of a one more hike because they did hold the last time and it was considered a hawkish hold. But again, I think the data has to support a rate hike before prices do actually go to the upside. If they don't, then you're probably likely to see, in fact, prices come lower and especially if, let's say for example, the US data comes out and supports more rate hikes, then you actually might see prices come down to the 65 area, even the 64-50. So the Australian dollar, although I do think it's a buy, just maybe not against the US dollar at the moment, and finally, gold. And so with gold, with the dollar potentially weakening, if you think the dollar is going to weaken, then any pullbacks on gold are nice buy and opportunities, especially down into the 1960s areas, 1940s, I think is going to be a really nice technical buy for gold. Again, providing that the US dollar is going to continue to weaken over the medium to long, so really nothing to say about that. We've approached the highs and there's been some profit taking here. So really, it's really about the pullbacks into even the 19s, if that can happen, then that'd be an even better buy for gold. But it depends on what will happen with the US dollar and also the recession fears as well should be supporting gold into the end of this year. And it depends on whether the US do go into a recession, but there is talk about it. So let's see what happens there. So that brings us to the end of the technical analysis. And I want to again, just ask the answer, the question, which was just to remind you guys, if the Fed is hawkish about raising interest rates, then why does the dollar depreciate? For example, Chairman Powell warned on March 7 that the Fed could switch back to higher rates. The parents strengthened against the dollar in the next four weeks. So I noticed that in those four weeks that the judge report was fairly strong too. Why didn't the dollar strengthen? Thank you. And the content is great. And so let me start off by indeed confirming that, no, don't switch. Indeed, the, and this is our, the Trading 180 Private Members Mentor in Group, and some of the analysis that we get from, you know, prominent banks in the industry. And just to confirm that indeed what was being said at the time was true, that the main trigger for the US dollar, and this was, let me just go back out again. So this was taken on the 28th of February. Yes, I'm heading into that March 7th meeting. The Federal Reserve was actually quite hawkish. So the main trigger for the US dollar rebound this month has been the hawkish repricing of Fed rate hike expectations in response to stronger US activity and inflation data and the start of the year. So the latest stronger PCE def data report, which is inflation report on Friday has prompted the US rate market to fully price in 75 basis points of further hikes and a higher probability, 62% of that the Fed could even revert back to delivering larger 50 basis point hikes at the next FMC meeting on the 22nd of March. So yes, there was some hawkishness surrounding the dollar, right around that time. But guess what happened? SVB Bank happened. So on Friday, on March 10th of March 23, Silicon Valley Bank failed after a bank run mark in the second largest bank failure in the United States history. And the largest since 2007-2008 financial crisis, it was one of the three March 23 United States bank failures, right? So there's two other banks. And so that put obviously a spanner in the works for the Federal Reserve because bank failures end up hurting the economy. And so this was a report from HSBC around, actually this was 27th of March, but it was talking about basically credit conditions, right? So one of the things that was an issue for the bank collapses was the fact that tighter credit, right? Credit crunch potentially coming because actually in fact to explain what a credit crunch is for anyone that doesn't know. So what happens during a credit crunch and how can you prepare for one is that a credit crunch is a significant tightening of lending standards among banks. So loans are harder to get and become more costly. The banking crisis triggered by the failures of Silicon Valley Bank and Signature Bank will likely lead small and mid-sized institutions to prioritize having healthy balance sheet, the prospect of recession net banks to call lending even prior to recent loans. And so again, if banks are in problems and they've got problems on their balance sheets, then they are going to charge more for lending and restrict lending practices. And then that actually hurts the economy because businesses find it hard to get loans. And when they do get loans, then they got to pay higher borrowing costs, right? And so that is pretty much what was affecting the dollar. And there was always talk basically about will the US economy face a deep recession. That was the question being asked since Silicon Valley Bank. And so the problem was, and that was pretty much what was happening. And so what was also being priced in as well is the fact that the Federal Reserve were looking to cut rates before other central banks, if you look the US, UK, Eurozone and you've got China at the bottom. One of the forecasts from ING Bank was that if there was going to be a recession sooner in the US, then the Federal Reserve will have to cut rates sooner. And so you can see that by January 2024, it looks like by the end of this year going into next year, it looks like the Fed are going to be cutting rates sooner, or that's based off of what is happening today. So the market is quite forward looking and future looking. So when this has to be priced in, the dollar will be the currency that is going to be most effective because the market isn't necessarily focused on what is happening today. Of course, they've got one eye on what's happening today, but they're very future forward thinking and looking. And so with that, by the end of the year rate cut, that has to be priced in. So you've seen that happen, recession fears going on in the US also as well. At the same time, the inflation rate has been coming down. So we've seen inflation come down recently from six to five, quite a big drop at the recent readings from March to April. So we've got March the 14th and then April the 12th. And so with that, that again, as I alluded to earlier in the video, with inflation coming down, it puts less pressure on the central bank to high crates. And so that has also had an effect on the dollar. So with the pound still having high inflation and sticky inflation, the pound dollar has been a story really about the, not only the dollar getting or devaluing and getting weaker, right, based off of recession fears, banking credit crunch fears and inflation coming down anyway. And with the pound, we've had actually better than expected economic data as well as sticky inflation and a repricing of the interest rate hikes or potential interest rate hikes. And so that brings us really back to the why, right? That's basically what's been happening over the past four weeks. And that's the reason why the dollar didn't strengthen. And so yeah, everything pretty much, I would say 99% of the time can be explained with fundamentals, not necessarily everything, because there are liquidity issues and things going on behind the scenes. But pretty much, I would say between 99% of the time, price over the medium to long term, can it be explained with fundamentals, if you look back at what was going on. And even at the time in the group, we've been actually been shorting that dollar for a while. And if you go back through my weekly videos, you've seen that my bias has been short dollars as well. So this isn't necessarily hindsight bias is something that I've been saying. So thank you for the question. Great question. And the best question of the week will get answered. And hopefully, you know, that answers everything and covers all bases. Anyways, guys, take care until the next video. Hope you'll have a great trading week and all the best.