Important calendar events
The dollar weakened last week, dropping the dollar index to 101.7 on Friday. US Treasury yields also declined, with the US 10-year bond yielding approximately 3.57%.
The dollar has been weakening in the past few weeks against rivaling currencies. Stability has been gradually returning to the Banking sector, removing some of the incentives to invest in safe-haven currencies, such as the dollar.
The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. The Federal Reserve is holding its next policy meeting in May and market odds are in favor of a 25-basis point rate hike rather than a pause in rate hikes.
Hawkish Fed speech last week reinforced the odds of a rise in interest rates in May. Amongst others, Fed’s Mester and Harker both spoke in favor of raising interest rates further last week. This, however, had already been priced in and did not provide much support for the dollar.
Recent US inflation data showed that price pressures are decelerating. US Consumer Price Index went down to 5.0% year-on-year in March from 6.0% in February. Monthly CPI rose by just 0.1% in March, indicating that inflation cooled significantly from February’s 0.4% print. Core CPI, which excludes food and energy, was in line with expectations, rising by 0.4% every month. PPI data last week fell below expectations, strengthening the notion that inflationary pressures are easing. PPI in March dropped by 0.5%, against expectations of remaining the same as in February.
Final GDP data for the final quarter of 2022 were disappointing, showing that the US economy expanded by 2.6% against expectations of a 2.7% growth.
As far as economic data are concerned, the week ahead is packed with news for the dollar. US Consumer Confidence on Tuesday and Durable Goods Orders on Wednesday are strong indicators of economic activity. Advance GDP for the first quarter of the year is due on Thursday, which is the primary gauge of the economy's health. Friday's core PCE Price Index is the Federal Reserve's primary inflation measure. As such, it has the potential to influence the Fed’s next rate decision and may cause volatility in dollar prices.
The Euro benefitted from the dollar’s weakness last week, with EUR/USD climbing to 1.099. If the currency pair goes up, it may encounter resistance near 1.107. If the EUR/USD pair declines, it may find support at 1.083.
Signs that the ECB will continue hiking interest rates aggressively boosted the Euro last week. ECB Vice President Luis de Guindos stated last week that the ECB is unlikely to return to providing forward guidance on its next policy moves given the uncertainty in the outlook. De Guindos further warned that this approach will likely be maintained until inflation's evolution and the effects of the ECB’s measures become clearer.
PMI data last week showed that the Services sector expanded significantly in April, with a 56.6 figure, against expectations of a 54.0 print. A value above 50 denotes industry growth, and the service sector reported its strongest expansion for a year in April. The manufacturing sector, on the other hand, continued to contract. Eurozone Manufacturing PMI dropped to 45.5 in April from 47.3 in March, against estimates of a 47.9 print.
The ECB raised interest rates by 50 bp at its monetary policy meeting in March, bringing its main refinancing rate to 3.5%. The ECB stressed the importance of a data-driven approach to monetary policy moving forward.
Headline inflation in the Eurozone eased to 6.9% year-on-year in March from 8.5 % in February, against expectations of a 7.1% print. Core CPI, which excludes food and energy, went up slightly to 5.7% on an annual basis in March from 5.6% in February, hitting a record high.
Recent GDP painted a grim picture of the Eurozone economy. The GDP print for the final quarter of 2022 was zero, indicating that the EU economy is stagnating and recession looms.
Important economic indicators are due on the 28th for some of the EU’s leading economies and for the Eurozone as a whole and may cause volatility in Euro price.
The Sterling rose against the dollar last week, with the GBP/USD pair climbing to the 1.244 level. If the GBP/USD rate goes up, it may encounter resistance near 1.254, while support may be found near 1.235.
UK jobs data boosted the Sterling last week. Britain’s unemployment rate rose by 3.8% in the three months to February, against expectations of a 3.7% rise. Pay growth for the three months to January was revised up to 5.9%, exceeding expectations of 5.1% growth.
PMI data last week showed that the Manufacturing sector continues to contract, remaining firmly below the 50 threshold that denotes industry expansion. Manufacturing PMI dropped to 46.6 in April from 47.7 in March. The Services sector on the other hand is flourishing, expanding to 54.9 in April from 52.9 in March.
CPI data last week showed that inflation in the UK remains high. Headline inflation remained above the 10% level for the 7th consecutive month, dropping to 10.1% year-on-year in March from 10.5% in February. Even though inflation showed signs of cooling, it exceeded expectations of a 9.8% print. Price pressures remain high in the UK, forcing the BOE to continue its policy of economic tightening at the risk of economic recession. British Chancellor Jeremy Hunt stated that the CPI figures show that efforts to drive inflation down must continue.
The BOE raised interest rates by 25 bp at its meeting in March, bringing the official bank rate to 4.25%. BOE is expected to continue hiking rates by 25-bp at its next policy meeting in May, although some analysts predict a pause in rate hikes.
The UK economy registered stagnation in March according to recent GDP data. Monthly GDP dropped to zero, falling below expectations of 0.1% expansion. In addition, the IMF has downgraded the UK’s growth forecast, predicting that the British economy will contract by 0.6% this year, which is also consistent with BOE forecasts.
The UK’s grim economic outlook limits policymakers’ ability to increase interest rates sufficiently to rein in inflation. The British economy is struggling, and policymakers will have to assess how much tightening it can withstand to bring inflation down.
USD/JPY traded sideways last week, oscillating around the 134.1 level. If the USD/JPY pair declines, it may find support near 132. If the pair climbs, it may find resistance at 135.1.
The BOJ interest rate decision this week is expected to attract considerable market attention. The BOJ Monetary policy meeting on the 28th will be the first meeting that newly-appointed Governor Kazuo Ueda will be called to preside over.
Kazuo Ueda has replaced Haruhiko Kuroda, whose term in office ended on April 9th, becoming the BOJ's 32nd governor. Ueda will be faced with the challenge of normalizing Japan’s monetary policy after prolonged easing. Ueda has so far vowed to continue the BOJ’s ultra-easy policy, stating that he will carry out the monetary policy of his predecessor.
Japanese policymakers maintained ultra-low interest rates at the BOJ policy meeting in March, keeping the central bank’s refinancing rate at -0.10%. The BOJ is likely to keep a dovish stance at its meeting this week. The BOJ is expected to maintain its ultra-easy monetary policy, including its interest rate targets. However, recent reports indicate that Ueda may be gearing up for a change in policy later in the year. The BOJ is planning to conduct a review of the impact of its easing policies during this week’s meeting. This might be the prelude to a shift in the BOJ’s monetary policy.
Final GDP data for Q4 of 2022 have shown that the Japanese economy has reached stagnation. Japan’s economic outlook is poor, raising recession concerns for the world’s third-biggest economy. The final GDP Price Index printed slightly higher than expected, with a 1.2% annual expansion, versus the 1.1% predicted.
National Core CPI remained unchanged at 3.1% year-on-year in March. Tokyo Core CPI for March was hotter than expected, at 3.2% on an annual basis, against expectations of a 3.1% print. Inflation in Japan remains steadily above the BOJ’s 2% target, putting pressure on businesses and households. Increased price pressures and wages, raise concerns of a wage-price spiral and may force the BOJ to pivot towards a more hawkish policy.
Gold prices edged lower last week, closing near $1,980 per ounce on Friday. Gold prices retreated last week, after climbing close to $2,050 per ounce, the week before. If gold prices increase, resistance may be encountered near $2,048 per ounce, while if gold prices decline, support may be found near $1,950 per ounce.
The recent crisis in the banking sector caused risk sentiment to plummet, raising the appeal of safe-haven assets. With stability returning to the banking sector, however, safe-haven assets are starting to lose their appeal as an investment.
Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar weakened last week, dropping the dollar index to 101.7 on Friday. US Treasury yields also declined, with the US 10-year bond yielding approximately 3.57%.
The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. There is a lot of uncertainty and speculation on what the Fed is going to do at its next meeting in May. Market odds are currently in favor of another 25-basis point rate hike rather than a pause in rate hikes. Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise.
Oil prices plummeted last week, with WTI price retreating to the $80 per barrel level on Friday. If the WTI price declines, it may encounter support near $76.7 per barrel, while resistance may be found near $83.4 per barrel.
Oil prices surged at the beginning of the month, after OPEC+ producers decided to reduce output by 1.1 million barrels per day, to offset the drop in oil prices from the global banking crisis. The cuts will start in May and last through the end of the year. Oil prices have been suffering a correction, however, declining over the past week despite OPEC’s production cuts. Weak demand is weighing down oil prices, even on reduced supply.
Increased US rate hike expectations counteracted upbeat data from China last week. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. China's GDP data last week showed that the country’s economy grew by 4.5% in the first quarter of 2023. China’s economy seems finally to start recovering post-Covid. IMF estimates that the country’s GDP will grow 5.2% this year and 5.1% in 2024.
The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. Market odds are currently in favor of another 25-basis point rate hike at the Fed’s next meeting in May.
The recent banking crisis has been driving oil prices down in the past few weeks. The potential of a banking sector meltdown has reduced the oil demand outlook, as recession concerns mount. Fears of a slowdown in the U.S. economy also put pressure on oil prices. Recession concerns run high and aggressive rate hikes stifle economic activity, putting a lid on oil prices.
Crypto markets have suffered heavy losses in the past week, with major cryptocurrency prices plummeting. Bitcoin price tumbled to its lowest level in April, after reaching its highest point since June 2022 the week before, touching $31,000. BTC’s recent bullish run seems to be over for now, although some investors believe it will soon regain the $30,000 mark.
The recent banking crisis has undermined trust in the banking system, raising the appeal of investing in less conventional assets, such as cryptocurrencies. Many investors have turned towards cryptocurrencies fearing a globalized meltdown in the banking system.
Increased rate hike expectations put pressure on cryptocurrency prices, however. The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. Market odds are currently in favor of another 25-basis point rate hike at the Fed’s next meeting in May.
Bitcoin price plummeted last week, dropping from the $30,000 level to $27,500. If the BTC price declines, support can be found near $27,100, while resistance may be encountered near $31,000.
Ethereum price also declined sharply last week, dropping from the $2,100 level to $1,840 over the weekend. If Ethereum's price declines, it may encounter support near $1,820, while if it increases, resistance may be encountered at $2,140.
Ethereum price went up in the past few weeks, as the highly-anticipated Shanghai upgrade took place on April 12th without incident. This upgrade allows Ethereum network validators to withdraw their staked Ethereum from the blockchain network, effectively completing its transition to a proof of stake model. The anticipation leading up to the upgrade boosted the currency considerably. Ethereum's price deflated in the past week as the news of the successful upgrade was no longer sufficient to sustain the market’s interest.
BTC/USD 1h Chart
ETH/USD 1h Chart
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