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Weekly Market Outlook For April 11th To April 17th

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Written by:
Myrsini Giannouli

11 April 2022
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Forex

Important calendar events

  • Apr 10, EUR: French Presidential Election
  • Apr 11 and 13, JPY: Scheduled speeches by BOJ Governor Kuroda
  • Apr 12, USD: Monthly CPI and Core CPI, 10-y Bond Auction
  • Apr 13, GBP: Annual CPI and Core CPI, Annual HPI, Annual RPI, Monthly PPI Input and Output
  • Apr 13, USD: Monthly PPI and Core PPI, 30-y Bond Auction
  • Apr 14, EUR: Main Refinancing Rate, Monetary Policy Statement, ECB Press Conference
  • Apr 14, USD: Monthly Core Retail Sales and Retail Sales, Unemployment Claims, Preliminary UoM Consumer Sentiment

USD

FOMC minutes showed that several Fed officials were in favor of a rate hike of 50 base points last month, increasing the chances of a 50 bp increase in the Fed’s benchmark interest rate in May.

The dollar continued rising against other currencies last week, with the dollar index climbing above the 100 level. US treasury yields also continued rising, with the 10-year treasury yields climbing above 2.72% for the first time since 2019, as investors anticipate a more aggressively hawkish Fed policy.

Over the past couple of weeks, Fed rhetoric has been one of the primary drivers of USD price, as markets are beginning to price in a steep rate hike of 50 base points at the Fed’s next policy meeting in May. Markets have been pricing in a total of over 225 base points of additional interest rate hikes this year, boosting the dollar.

Last week, Fed rhetoric continued in even more hawkish tones. On Thursday, FOMC member James Bullard spoke in favor of a more aggressive tightening of the Fed’s monetary policy, stating that the US Central Bank needs to raise its benchmark short-term borrowing rate to about 3.5%. FOMC members Brainard and Williams delivered speeches on Tuesday, pointing to an increasingly hawkish fiscal policy, boosting the dollar. Brainard, who is known for her comparatively dovish stance, stated in her speech that the US central bank needs to act quickly to drive down inflation, with a rapid reduction in the balancing sheet and aggressive rate hikes. 

In addition, FOMC minutes released last Wednesday showed that several Fed officials were in favor of a rate hike of 50 base points last month, increasing the chances of a 50 bp increase in the Fed’s benchmark interest rate in May. FOMC minutes also signaled that the US Central Bank would reduce its bond holdings by as much as $95 billion per month. 

Reports of escalating violence against Ukraine and increased sanctions on Russia have also turned investors’ interest towards safe-haven assets. The Biden administration announced new sanctions on Wednesday, targeting Russia’s largest financial institutions to increase economic pressure on Russia. US sanctions are having a large impact on the Russian economy, with the country hovering at the edge of its first default since 1998. The US Treasury Department has blocked US banks from handling dollar payments from Russia, with JPMorgan having to deny on Wednesday a payment of $649mn of interest and principal. Russia instead has attempted to pay in Roubles, a move which amounts to a default of its debt.

Several important financial indicators are scheduled to be released this week for the Euro, including Monthly CPI and Core CPI, Monthly PPI and Core PPI, Monthly Core Retail Sales and Retail Sales, Unemployment Claims, Preliminary UoM Consumer Sentiment. The CPI and PPI data, in particular, are leading indicators of inflation, and their release may cause some volatility in the currency.

TRADE USD PAIRS

EUR 

A new round of sanctions on Russia was agreed upon by EU member states, targeting the energy sector for the first time, with a ban on coal imports from Russia worth €4bn a year.

The Euro retreated against the dollar last week, with the EUR/USD rate touching the 1.083 level, its lowest point since May 2020. If the currency pair goes up, it may encounter resistance at 1.113 and further up at 1.148, while if it declines, support may be found at the 1.080 level. 

Reports of escalating Russian attacks against Ukraine have boosted the safe-haven dollar last week, while the Euro retreated. A new round of sanctions on Russia was agreed upon by EU member states on Thursday, weighing down the Euro. According to European Commission President Ursula von der Leyen, the new ban includes the freezing of assets of several Russian banks as well as a ban on exports to Russia, including high-tech goods of up to €10 billion. More importantly, EU sanctions target the energy sector for the first time, with a ban on coal imports from Russia worth €4bn a year. 

Russia’s demands for payments of energy imports in Roubles have increased concerns of an impending energy crisis in Europe, putting pressure on the Euro. Germany has already entered the initial phases of implementing an emergency gas law, preparing for rationing gas resources among its population. 

The minutes of the latest ECB meeting were released last Thursday and were considered to be more hawkish than anticipated but failed to provide support for the Euro. ECB minutes indicated that many of the Central Bank’s members have expressed concern about the high inflation levels in the EU and were in favor of taking immediate steps towards monetary policy normalization. 

ECB President has Lagarde stated that the growth of the Eurozone economy has been stalled by the war in Ukraine and that inflation will likely rise even further, stressing that the ECB needs to remain flexible and may alter its monetary policy in response to unforeseen inflationary and economic pressures. Europe’s headline inflation has hit a record high of 7.5%, but the ECB is trying to avert a dangerous economic effect known as stagflation, the mix of economic stagnation and high inflation rates.

The ECB has been pursuing a more cautious fiscal policy than other major Central Banks and does not plan to raise its benchmark interest rate before the end of its bond-buying program in the third quarter of 2022. As the Fed and the BOE have already raised their benchmark interest rates, the Euro remains at a disadvantage from the difference in interest rates.

The first round of the French Presidential elections is on April 10th, and its outcome may affect the Euro at the start of the week. On Thursday, April 14th, all eyes are going to be on the ECB, which is going to announce its main refinancing rate. Even though the EU Central Bank is not expected to change its benchmark interest rate at this meeting, the ensuing Monetary Policy Statement is going to be scanned closely by traders and will likely cause some volatility for the Euro.

EURUSD 1hr chart

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GBP 

BOE Governor Andrew Bailey has stressed that the joint effects of COVID and the war in Ukraine on the global economy would take some time to manifest fully and that the BOE would need to remain cautious.

The GBP/USD rate fell last week, closing around the 1.303 level on Friday. If the GBP/USD rate goes up, it may encounter resistance at the 1.331 level and further up near the 1.341 level, while if it declines, support may be found near the 1.300 level. 

Reports of new western sanctions on Russia have bolstered the safe-haven dollar against riskier currencies last week. In addition, the sterling has lost ground against the dollar, due to the divergence in monetary policy between the Fed and the BOE. Although the BOE started the year with a strong hawkish policy, there are signs that its stance may soften in the coming months, weighed down by a fragile economy. In contrast, the increasingly hawkish Fed rhetoric is boosting the dollar against the pound.

BOE Governor Andrew Bailey has stressed the importance of delivering a clear message to the public regarding the BOE’s future policy. He pointed out that the joint effects of COVID and the war in Ukraine on the global economy would take some time to manifest fully and, in the meantime, the BOE would need to remain cautious. Bailey has also warned that the energy crisis in the UK was going to be ‘historic’, displaying a relatively dovish stance these past couple of weeks, especially compared to the more hawkish Fed rhetoric. 

UK inflation is already at a 30-year high and expected to rise further, with a peak rate close to 9% in Q4. Rising commodity prices and import costs in the UK, and especially the high costs of imported energy, are driving inflation rates even higher. A tighter fiscal policy and consecutive rate hikes though may stifle the country’s economy, forcing the BOE to perform a balancing act between bringing inflation under control and allowing for economic growth.

Several financial indicators are scheduled to be released this Wednesday, including Annual CPI and Core CPI, Annual HPI, Annual RPI, Monthly PPI Input, and Output. The CPI data, in particular, are leading indicators of consumer inflation and may affect the sterling considerably.

GBPUSD 1hr chart

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JPY

Bank of Japan Governor Haruhiko Kuroda expressed concern that recent yen moves have been somewhat rapid, but stressed the benefits of a weaker Yen, especially to Japan’s exports.

The Yen retreated against the dollar last week, with the USD/JPY rate climbing to the 124.6 level. The USD/JPY is following an uptrend and if it rises further, it may encounter resistance at the 2015 high of 125.1. If the USD/JPY declines, support might be found near the 118 level and further down at 114.8. 

The safe-haven dollar was boosted these past few days by reports of renewed hostilities in Ukraine and new sanctions on Russia. The Yen is also considered a safe-haven currency but has not been affected as much as other safe-haven assets by the crisis in Ukraine, and many investors have been doubting its safe-haven status. 

Bank of Japan Governor Haruhiko Kuroda, commented last week on the weakening Yen, expressing concern that recent yen moves have been somewhat rapid. Kuroda however, reiterated the benefits of a weaker Yen especially to Japan’s exports, although he acknowledged the added burden of the weak currency on households. Overall, his statements were considered to be in favor of the weak yen, although the BOJ will be monitoring the currency for sudden fluctuations.

In the past few months, the Yen has been affected primarily by the BOJ’s fiscal policy. In its latest monetary policy meeting in March, the Bank of Japan maintained its ultra-accommodating monetary policy and did not raise its negative interest rate from -0.10%. The difference in interest rates with other major Central Banks, especially with the Fed and the BOE, puts the Yen at a disadvantage driving its price down.

Japan’s core CPI may climb around 2% in April, similar to other countries that are expected to see a peak in inflation rates around the same time, largely due to the effect of the increase in oil prices. Japan is a net energy importer and the current energy crisis is damaging the country’s terms of trade and overall economic health. The rising cost of oil is causing goods prices to rise in Japan, with oil imports accounting for 80% of the country’s oil consumption. 

This coming week, Bank of Japan Governor Haruhiko Kuroda is due to deliver speeches on April 11th and 13th and his speeches may cause some volatility for the Yen.

USDJPY 1hr chart

TRADE JPY PAIRS

Gold 

The price of gold has been affected by conflicting market forces, supported by geopolitical tensions and new sanctions on Russia, but undermined by increasingly hawkish Fed policy, which boosts real yields.

Gold traded a little higher last week, closing around $1,947 per ounce on Friday. If the price of gold decreases, support may be found near 1,877 per ounce, while resistance may be found at around $2,000 per ounce.

The price of gold has been affected by conflicting market forces. On one hand, gold is supported by intensifying tensions between Russia and Ukraine, as well as by new western sanctions on Russia. On the other hand, the gold price is undermined by increasingly hawkish Fed policy, which boosts the dollar and real yields.

Gold’s safe-haven status supports its price, as reports of violent Russian attacks against Ukraine and new sanctions on Russia drive investors away from riskier assets. The conflict in Ukraine has triggered a risk-aversion sentiment, propelling the price of gold to $2,050 per ounce last month. 

The Biden administration announced new sanctions last week, targeting Russia’s largest financial institutions to increase economic pressure on Russia. The EU also announced a new round of sanctions targeting Russian banks, and oligarchs and even banned coal imports with an estimated total worth of €4bn a year. Sanctions against Russia have been driving commodities up, especially energy-related commodities, contributing to rising inflation. The price of gold benefits from rising inflation, since it is often used as an inflation hedge.

In case the crisis in Ukraine is resolved, however, sanctions against Russia will likely be lifted, reducing the disruption of global commodity and energy supply chains, decreasing global inflationary pressures, and driving the price of gold down. A de-escalation of the crisis still seems to be some way off, however, and attacks against Ukrainian cities were renewed this week.

The gold price has been weighed down by the rising dollar and strong US yields in the past couple of weeks. Increasingly hawkish Fed rhetoric has been driving USD price up, as investors scan Fed members’ statements to gain insight into the Fed’s future direction. The dollar has been climbing, with the dollar index rising above the 100 level, as markets are beginning to price in a steep rate hike of 50 base points at the Fed’s next policy meeting in May.

US treasury yields also continued rising, with the 10-year treasury yields climbing above 2.72% for the first time since 2019, as investors anticipate a more aggressively hawkish Fed policy. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.

XAUUSD 1hr chart

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Oil 

Oil prices have been pushed down as oil demand has decreased due to the Covid lockdown in China, while on the supply side, large releases from stockpiles are easing fears of an impending energy crisis.

Oil prices fell last week, with WTI trading as low as $94.4 per barrel, before closing near 98.4 per barrel on Friday. If the WTI price drops, support can be found at the $90 per barrel level, while resistance can be found near $118.3 per barrel and further up at $130 per barrel. Oil prices have been pushed down as oil demand has decreased due to the Covid lockdown in China, while on the supply side, increases in output and large releases from stockpiles are easing fears of an impending energy crisis.

Last week, the International Energy Agency announced plans to release 120 million barrels from their emergency oil reserves, half of which will be released from U.S. stockpiles. The announcement has eased oil supply concerns, pushing oil prices down. The Biden administration has already vowed to release 1 million barrels of oil per day for the next six months from the U.S. Strategic Petroleum Reserve, totaling over 180 million barrels. 

In addition, the Energy Information Administration (EIA) announced last week an increase in crude oil inventories by 2.4 million barrels this week, indicating increased US output. The unexpected increase in supply has pushed oil prices down.

Oil prices are also under pressure by a large wave of covid cases in China that has been forcing the country into lockdown. The zero-Covid plan in Shanghai has quarantined 26 million residents to their homes for the second week now, raising fears of a generalized lockdown in China. China is the largest importer of crude oil and fears of a decrease in demand from lockdowns have sent oil prices plummeting. 

On the other hand, the crisis between Russia and Ukraine is intensifying concerns of disruptions in oil distribution, supporting oil prices. The Biden administration announced new sanctions on Russia last week, targeting Russia’s largest financial institutions to increase economic pressure on Russia. The US has already banned all oil and gas imports from Russia, with as many as 3 million barrels per day of Russian crude oil potentially removed from the market as a result of sanctions and of boycotting of Russian oil. 

A new round of sanctions on Russia was also agreed upon by EU member states last week. According to European Commission President Ursula von der Leyen, EU sanctions will target the energy sector for the first time, with a ban on coal imports from Russia worth €4bn a year. Fears of an EU oil ban, which would result in an energy crisis, are propping up the price of oil.

WTI 1hr chart

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Bitcoin and major cryptocurrencies

Major Cryptocurrency prices declined last week, pushed down by increased risk-aversion sentiment, as well as by a shift of major central banks towards a more hawkish fiscal policy.

Crypto markets have been following the overall trends of stock markets, experiencing heavy losses as the crisis in Ukraine has turned investors’ interest towards safer assets. Major Cryptocurrency prices declined last week, pushed down by increased risk-aversion sentiment, as well as by a shift of major central banks towards a more hawkish fiscal policy.

Reports of renewed Russian attacks against Ukraine have dashed hopes for a diplomatic resolution to the conflict any time soon, putting pressure on risk assets. Diplomatic talks continue, although a de-escalation of the crisis still seems to be some way off, and tensions between Russia and Ukraine intensified. New western sanctions on Russia are also reducing demand for risk assets, with both the US and the EU announcing a new round of sanctions, targeting financial institutions, commodities and individuals. 

The US Treasury Secretary, Janet Yellen, addressed the issue of cryptocurrency regulation in a comprehensive speech on Thursday. Yellen stated that cryptos were a ‘transformative’ technology and highlighted both their benefits and risks, calling for crypto regulation to minimize fraud. 

Bitcoin price fell below $42,000 last week, as investors turned towards safe-haven assets. If Bitcoin price declines further, it may find support at $37,500 and $36,000, while resistance may be found near $48,200 and further up at the psychological level of $50,000. 

Ethereum's price has been boosted over the past couple of weeks, as the release of a long-awaited software upgrade is drawing near. Ethereum declined last week, however, falling below the $3,200 level. If Ethereum's price falls further, it may find support near $3,075. In case its price goes further up, it may find resistance near $3,800.

The shift of major central banks towards a more hawkish fiscal policy has also been putting pressure on cryptocurrencies over the past few months. Most major Central Banks are turning towards a tighter policy and a return to pre-pandemic interest rates, driving cryptocurrency prices down. Increasingly hawkish Fed rhetoric in the past couple of weeks is pointing to a steep rate hike of 50 base points at the Fed’s next policy meeting in May, putting pressure on cryptocurrencies. On the other hand, investors are starting to use cryptocurrencies as a hedge against inflation, which could provide a boost to crypto markets, as inflation is expected to peak in the following months.

In addition, most major cryptocurrencies have received a boost over the past month, as demand from Russian and Ukrainian markets increased. Bitcoin volume from Russian markets has increased considerably, as Russian investors aim to escape the plummeting Rouble and Russian sanctions. 

BTC/USD 1h Chart

BTCUSD 1hr chart

 

ETH/USD 1h Chart

ETHUSD 1hr chart

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

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