Last week saw a decline in USD price following Fed Chair Jerome Powell’s testimony on Tuesday before the Senate Banking committee on the subject of his renomination as the head of Fed. The yearly US CPI rate announced on Wednesday registered the biggest annual gain since 1982, but the USD sank even further, after US inflation rates rose but still came in line with expectations.
EUR/USD rose to 1.1482, taking advantage of the dollar’s decline, but couldn’t sustain its upward course and closed at 1.1415 on Friday. USD/JPY moved on a downtrend last week, as the JPY gained strength, even as the dollar slumped. The GBP/USD continued moving on an uptrend last week, benefitting both from the dollar’s fall and by the GBP’s rise, closing at 1.367 on Friday.
Gold price rose at the beginning of the week, but couldn’t sustain its upward course and traded sideways for the remainder of the week, closing around $1,817 per ounce. Oil on the other hand, was one of the biggest gainers last week and continued trading on an uptrend, as demand for the commodity increased.
After declining for the first week of the year, most major cryptocurrencies caught a breather at the beginning of last week and their descent was halted for the time being. Bitcoin and Ethereum could not gain an upwards momentum though, and traded sideways for the remainder of the week, barely holding on to their gains.
Important calendar events
In his testimony before the Senate Banking committee last Tuesday, Fed Chair Powell emphasized the need to combat rising inflation rates in the US and hinted at a tightening in the US Central Bank’s monetary policy. The Fed’s hawkish stance had been largely priced in by investors though, and the dollar index fell as low as 95.65 after Powel’s speech. Defying soaring inflation rates, the dollar index slumped further to 94.66 on Thursday, a decline of over 0.2%, but recouped some of its losses on Friday and closed at 95.17.
The number of people filing unemployment claims increased to an eight-week high last week, as a surge in Omicron cases in the US led to layoffs. The release of US Retail Sales data on Friday showed a 1.9% drop, as Americans struggled with shortages of goods and an explosion of COVID-19 infections.
US policymakers acknowledge the impact of the recent Omicron wave in the economy, but expect its effect to be transitory and the US economy to grow up to 3.5% this year, according to New York Federal Reserve Bank President Williams.
Federal reserve officials reaffirmed the US Central Bank’s commitment to combat rising inflation rates, ahead of the FOMC January two-day meeting on January 25-26. While US policymakers acknowledged the impact of the recent Omicron wave in the economy, they expect its effect to be transitory and the US economy to grow up to 3.5% this year, according to New York Federal Reserve Bank President John Williams.
Monday is Martin Luther King Day, which is a Bank Holiday in the US. Important US calendar events this week include the release of the Philly Fed Manufacturing Index, and the Unemployment Claims on Thursday. Unemployment claims are particularly important and their release might cause some volatility in the currency, as they provide an indication of the country’s economic state and may influence future monetary policy.
Inflation in the Eurozone hit 5% in December, the highest rate on record, and more than twice the 2% target, as rising energy costs and supply constraints pushed up prices for a range of goods and services. ECB President Christine Lagarde stated on Friday that Eurozone inflation will fall this year and the European Central Bank is ready to take any measures necessary to get it down to its 2% target. Lagarde’s comments show a slight shift from the ECB’s dovish monetary policy and may signal a future tightening of the ECB’s purse strings.
EUR/USD climbed to 1.1482 last week, its highest level in over a month, but failed to maintain its upward momentum and closed at 1.1415 on Friday. If the currency rate goes up again this week, it might encounter resistance at the 1.1482 level, while the 1.1272 level might provide support if the EUR/USD rate declines.
On Tuesday, the ZEW Economic Sentiment and the German ZEW Economic Sentiment are scheduled to be released and may cause some volatility in the Euro. This is a survey of institutional investors and analysts and is a leading indicator of economic health and of future economic activity.
The GBP has been gaining strength as fears over the Omicron strain ease and the British economy seems to be set on the path to recovery. Coronavirus measures in the UK are being relaxed, which raises hopes for a quicker economic recovery. The pound is considered a risk-sensitive asset and rising risk-appetite the past couple of weeks has boosted the currency.
The Bank of England’s announcement of a future rate hike in December also boosts the currency as the BoE seems to be committed to normalizing its monetary policy as soon as possible. UK Prime Minister Boris Johnson is still in the hot seat though, after last week’s revelations that he attended a “bring your own bottle” party during a coronavirus lockdown in May 2020.
The GBP/USD pair was moving on an uptrend last week and broke through its 1.36 resistance level. The pair rose to 1.375 within the week, before retreating slightly and closing at 1.367 on Friday. The outlook for GBP/USD this week is bullish, and the pair may test its 1.375 resistance if it continues its uptrend. If the uptrend is reversed, support points may be found around the 1.335 and 1.316 levels.
This week, there are important calendar events scheduled for Wednesday for the GBP. The yearly Consumer Price Index will be released on Wednesday morning, which is considered the UK's most important inflation indicator, because it is used as the central bank's inflation target. Later on Wednesday, BOE Governor Bailey is due to testify on the Bank of England Financial Stability Report before the Treasury Select Committee. Traders will follow his speech closely to gain insight into the BOE’s future monetary policy.
The JPY has been underperforming for the past few months, as the divergence in monetary policy between the Bank of Japan and other major banks is putting the currency at a disadvantage. This week however, all eyes are on the Bank of Japan and Analysts at JPMorgan on Friday posed the question “what if the BoJ blinks?”. In November, Japanese policymakers reaffirmed the Bank of Japan's commitment to its 2% inflation target and BoJ governor Haruhiko Kuroda is expected to continue along this path. Even though the possibility of a shift in the dovish monetary policy of the BoJ is very remote, investors will follow closely this week’s announcements, for signs that Japan’s Central Bank may tighten its accommodating policy in the future.
The USD/JPY pair continued its downtrend this week, going as low as 113.46 and testing its 113.87 support, before going up again and closing at 114.19 on Friday. If the downtrend continues, the currency pair may find support at 112.55, but if the rate goes up again, it may find resistance around the 115.5 and 116 levels.
Traders may expect increased volatility on Tuesday for the Yen. The Bank of Japan will release its Outlook Report on Tuesday, which outlines economic activity and prices in Japan, and will also issue a Monetary Policy Statement and a Press Conference. These statements provide insight into the bank's view of economic conditions and inflation. With the BOJ maintaining a dovish attitude in contrast to other major banks, traders will scan the report for hints of the BOJ’s future monetary policy.
The past week saw gold trading sideways against the dollar with rather limited volatility, even as the dollar slumped.
Gold is considered a safe-haven asset and the potential of a resurgence of the pandemic is keeping the price of gold from plummeting, as this week saw record-high new Omicron cases in the US and other countries. However, it is gradually becoming clear that the Omicron variance is less disruptive to economic activity as previously anticipated and traders turn once more to riskier investments. Most central banks seem determined to start withdrawing economic stimulus, signalling a return to pre-pandemic interest rates. In addition, rising real yields compete with gold and may offer a more attractive alternative to investors, keeping the price of gold down as gold doesn’t pay dividends or interest.
Gold has been moving within the $1,780-$1.830/ounce range for the past month now, and has been underperforming compared to other assets for the past couple of months. The metal moved closer to its $1,830 per ounce resistance as the dollar declined, but failed to break through this level and closed at $1,817 per ounce on Friday. If the price of gold goes up, it may find resistance at the $1,830 per ounce level, while if it declines it may find support at $1,780 per ounce.
Last week, Crude Oil and WTI prices reached a 2-month high and are near the highest levels recorded since the outbreak of the Covid pandemic. WTI broke through the $80.5 per barrel resistance on Tuesday and closed at $84.27 per barrel on Friday, gaining approximately 5 dollars from around $79 per barrel at the start of the week.
WTI price has been on an uptrend since last month and does not show sings of slowing down just yet. Growing tensions between Russia and Ukraine have created an energy crisis, as a potential invasion of Ukraine by neighbouring Russia, may create a problem in natural gas supply, keeping the price of oil up. Russia has amassed around 100,000 troops on Ukraine’s border, and if the situation escalates, oil prices might go further up.
Oil price has also been kept up by limited supply and growing demand. Oil demand was not affected by the spread of the Omicron strain and is expected to reach pre-pandemic levels this year. Even though OPEC has recently agreed to increase output by 400,000 barrels per day, supply is still not enough to meet the growing demand. US producers have also been trying to increase their output, but after having to severely limit output during the height of the pandemic they are facing infrastructure and capacity constraints, so it is not easy to ramp up production again so quickly. China on the other hand, has recently reached an agreement with the US to release crude oil from its national strategic stockpiles next month, in an attempt to tame soaring oil prices.
This week, oil is expected to continue its bullish run, although geopolitical factors, such as the Russia-Ukraine crisis might affect oil price. Also, US Crude Oil Inventories are scheduled to be released on Thursday, which gauge supply and demand imbalances in the market and may cause some volatility in the price of oil. If the uptrend continues, WTI price may find resistance at 85.75 per barrel, while if the trend is reversed and the price of the commodity goes down, it may find support at $74.32 per barrel.
Most major cryptocurrencies were on a downtrend since the beginning of the year, with Bitcoin and Ethereum hovering precariously close to their $40,000 and 3,000 levels respectively. Fed Chair Jerome Powel’s testimony last week proved to be less bullish than some investors expected, giving cryptocurrencies a breather. Bitcoin price reached $44,000 and Ethereum rose to $3,400 following Powel’s testimony. The rise in the price of cryptos was short-lived though, and for the remainder of the week, Bitcoin and Ethereum traded sideways, struggling to hold on to their gains.
A big gainer these past few days was Dogecoin, which leapt 25% after Elon Musk announced that Tesla would start accepting it as payment for merchandise. Musk had previously endorsed Bitcoin, but then withdrew his support, sending the price of DOGE up, as Bitcoin struggles. Bitcoin is still holding on though, as miners seem to be reluctant to sell at current prices and opt instead to accumulate the cryptocurrency.
There was little volatility in BTC price over the weekend, which traded sideways, testing the resistance at $43,000. If the price of Bitcoin goes up, it may find further resistance at $52,000, while support may be found at the $40,000 level. Similarly, Ethereum traded a little over its 3,220 resistance over the weekend. In case its price goes up, it may find resistance around $3,880, while the psychological level of $3,000 may provide support if it falls.
The future trend of most major cryptocurrencies looks uncertain right now, with investors arguing over the trend that is going to prevail in the crypto market in the following days. With fears over Omicron abating, risk-appetite increases, which favours cryptos. The Fed’s hawkish monetary policy, though, puts pressure on risky-assets and makes traders hesitant to invest in cryptocurrencies, while their price is still high.
BTC/USD 1h Chart
ETH/USD 1h Chart
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