GOLD: Gold Reserves Challenge USD

The BBDXY has had a range today of 1198.12 - 1200.93 in the Asia-Pac session; it is currently trading around 1198, -0.15%. The BBDXY was rejected above the 1210 area and is now very quickly back to testing its support as the market pounces on any reason to sell USD’s again. The stock market continues to look at things through rose tinted glasses and is hoping a sale of global strategic reserves is able to cap Oil long enough for the conflict to end. I am not so optimistic but you can’t ignore the price action. On the day, I suspect the USD will remain under pressure initially as the market tries to be positive. I suspect though that we might see buyers fade this 1188-1195 area first up, so for now a messy 1187-1213 range will probably cover it as the world looks for more clarity around the conflict and its potential impact on supply lines.

• EUR/USD -  Asian range 1.1603-1.1632, Asia is currently trading 1.1630. The pair stalled above 1.1650 overnight, but risk is on the front foot in Asia as the market reacts to the potential Global Oil Reserve release. The pivotal 1.1400-1.1500 area proved to be solid first up and I suspect the USD will remain under pressure in the short-term. Going forward does this really change much unless we get a quick cessation in Iran and the Straits open up again, none of which look imminent. On the day, the first sell-zone is back toward 1.1670-1.1700 and then the 1.1750-1.1800 area, looking for another test of the pivotal 1.1400-1.1500 support at some point. 
• GBP/USD - Asian range 1.3410-1.3453, Asia is currently dealing around 1.3450. GBP could not sustain a break below 1.3300 and is now bouncing as the move in oil dominates markets. On the day, look for resistance toward 1.3480-1.3520 and then the more important 1.3600 to be faded as the USD comes back under pressure. Sellers will be looking for the 1.3300 area to give way at some point.
• Germany Feb. (F) CPI, ECB’s Guindos speaks, BOE’s Breeden speaks, US Feb. CPI, Fed’s Bowman speaks, ECB’s Schnabel speaks, US Feb. Federal Budget Balance, OPEC monthly oil market report

Fig 1: GBP/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

ACGBs (YM +1.0 & XM -0.5) are little changed after a relatively subdued data-light session. The market’s attention continues to focus on the US/Iran conflict and its resultant impact on the price of oil. 

• The WSJ reported that the IEA has proposed the largest release of oil reserves in its history to bring down crude prices that have soared during the U.S.-Israel war with Iran.
• Cash US tsys are 1-2bps richer in today's Asia-Pac session after yesterday's bear-steepener.
• Cash ACGBs are little changed with the AU-US 10-year yield differential at +71bps.
• Ahead of next Tuesday’s RBA meeting, Deputy Governor Hauser said yesterday further inflationary pressure from the war in Iran would be unhelpful. Hauser stated that inflation is headed "higher than the projection we published in February" and that it's "so important actually that we do take the steps needed to bring inflation back to target from its too high level at the moment".”
• The bills strip has twist-flattened, with pricing -7 to +4 across contracts.
• RBA-dated OIS pricing has firmed sharply, with the probability of a 25bp hike rising from 69% for March to 155% by June and 244% by December 2026.
• Tomorrow, the local calendar will see Consumer Inflation Expectations.

Bloomberg Finance LP

• During the Asian trading session gained for a second day, trading narrowly around the $5,190 – $5,210 range.
• Prices successfully retook the US$5,200 psychological level as investors awaited the release of critical US Consumer Price Index (CPI) data.
• 1M ATM Volatility has declined from the March highs though at 27 remains significantly above the 1-Yr and 5-Yr averages of 19.43 and 15.09 respectively. Short term momentum indicators for Gold VOL point to ongoing moderation.  
• The release of February's U.S. CPI data on March 11. Economists expect inflation to remain relatively steady compared to January's cooler-than-anticipated figures with headline CPI YoY forecast at +2.4% (prior +2.4%); CPI MoM expected to rise 0.3% (+0.2% prior) and Core CPI YoY forecast to hold steady at +2.5%.
• With the rise in oil prices in recent weeks, inflation expectations have repriced bond markets with the June FED meeting now only pricing in 29% probability of a cut and July 27%. July at its peak had a 71% probability of a cut.
• Whilst a very weak CPI print may bring forward rate cut expectations (and boost gold), in the current environment the February CPI is likely to be viewed as stale given expectations for sharp rise in inflation going forward on the back of oil's ascent.
• Look for gold to tread water in the near term, dictated by USD moves. Medium term however will depend on whether we face a stagflation environment, which is typically good for gold.