EQUITIES: Estoxx Call Spread

A decline in oil prices overnight has allowed ESTR forward rates to stabilise, with the 1y1y rate now at 2.36% (vs 2.38% yesterday and 2.49% on March 13). Current levels still imply a significant probability of 2x25bp hikes over the next few years. However, the range of outcomes for ECB policy remains highly uncertain, and closely tied to the persistence of the Iran war. 

• If energy prices across the term structure continue to rise, the Governing Council may choose to deliver a string of rate hikes to contain inflation expectations and affirm credibility around the inflation target. Some analysts suggest this could come as early as April or June.
• However, an ECB rate hike is by no means a guarantee, because (i) long-term inflation expectations remain contained for now (5y5y EUR inflation swap is currently 2.15%) and  (ii) rate hikes and the energy shock itself are growth-negative.
• MNI’s ECB preview is here ahead of tomorrow’s decision
• We see two-sided risk to 7bp of hikes priced for April, although if pushed would lean slightly to the upside – there’s a chance a near-term hike could be painted as closer to a 50/50 decision depending on geopolitical developments although we expect near-term uncertainty to be emphasized. That said we see risks skewed more dovish for end-2026 pricing  (37bps of hikes) in terms of what Lagarde can actually deliver this meeting.

• RES 4: $121.654 - High Jan 30 and key resistance 
• RES 3: $108.071 - 76.4% retracement of the Jan 29 - Feb 6 sell-off
• RES 2: $99.668 - 61.8% retracement of the Jan 29 - Feb 6 sell-off
• RES 1: $90.015/97.804 - High Mar 10 / 2       
• PRICE: $79.50 @ 08:02 GMT Mar 18
• SUP 1: $77.092 - Low Mar 16
• SUP 2: $72.020 - Low Feb 17   
• SUP 3: $64.098 - Low Feb 6 and the bear trigger 
• SUP 4: $60.000 - Round number support

A short-term bull cycle in Silver remains intact and the latest pullback appears corrective - for now. A resumption of gains would pave the way for a climb towards $99.668, the 61.8% retracement of the sell-off between Jan 29 - Feb 6. Note that price has traded through support around the 50-day EMA, at $82.171. A continuation lower would instead expose $72.020, the Feb 17 low. Key support lies at $64.098, the Feb 6 low.

• RES 4: 1.3845 High Jan 22    
• RES 3: 1.3800 High Jan 23 
• RES 2: 1.3753 High Mar 03 and key resistance 
• RES 1: 1.3742 High Mar 13
• PRICE: 1.3711 @ 07:58 GMT Mar 18
• SUP 1: 1.3655/3526 20-day EMA / Low Mar 09
• SUP 2: 1.3482 Low Jan 30 and the bear trigger 
• SUP 3: 1.3420 Low Sep 25 ‘24
• SUP 4: 1.3400 50.0% retracement of the 2021 - 2025 uptrend

USDCAD is holding on to its recent gains but for now, continues to trade inside a  range. Resistance at the 50-day EMA, at 1.3691, has been breached. Attention is on key near-term resistance at 1.3753, where a break would highlight a stronger bull cycle and confirm a clear break of the 20- and 50-day EMAs. This would open 1.3800 initially, the Jan 23 high. For bears, a reversal would refocus attention on 1.3482, the Jan 30 low and bear trigger.