Risk appetite is returning as more and more investors believe that central banks will change their minds and begin to ease the pace of interest rate hikes by summer of this year. They are also anticipating the meeting of finance ministers and heads of key central banks this week for fresh clues on the outlook for interest rates, banking stability, debt forgiveness and oil prices. Equally important is the future prospects for the strained relationship between the US and China.
More recently, major central banks including the Federal Reserve and the European Central Bank have signaled that curbing inflation remains their priority despite banking problems that nearly escalated into a new global banking crisis. This has increased economic risks, as well as the risk of a recession.
The meeting organized by the International Monetary Fund and the World Bank this April will include many speeches by G20 finance chiefs, one of which is a joint statement about the forecast for the global economy. It was not said during the meeting last February because of the disagreements over what is happening in Ukraine. Another topic that is likely to be mentioned is the problems in the banking sector, as well as the worsening economic outlook. Just last week, IMF Managing Director Kristalina Georgieva warned of a gloomier outlook.
It is also unclear whether or not there will be any face-to-face meetings between senior officials in the US and China. A number of experts say a lot will depend on how the representatives of the world's two biggest economies, which have been voicing quite a lot of complaints about each other lately, behave. If there is no dialogue, which is likely to happen, risk appetite will fall as restrictive and capping measures could support and keep inflation at a high level.
For now, euro bulls have a chance to continue a rally and update of the March highs. But in order to do so, the quote has to stay above 1.0870 and regain control of 1.0930. This will allow a rise beyond 1.0970 and towards 1.1000 to 1.1035. In case of a decline and the lack of bullish activity around 1.0870, the pair is likely to fall further to 1.0830 and 1.0790.
Pound bulls also continue to have control over the market. However, the quote has to return to 1.2430 and consolidate above 1.2480 in order to trigger a much larger rise to 1.2520 and 1.2560. In case there is a decline, bears will try to take control of 1.2390, which could lead to a further fall to 1.2340 and 1.2310.
