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Weekly Market Outlook For March 6th To March 12th

Home >  Weekly Outlook >  Weekly Market Outlook For March 6th To March 12th

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Written by:
Myrsini Giannouli

06 March 2023
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Forex

Important calendar events

  • March 6, EUR: Sentix Investor Confidence, Retail Sales
  • March 6, GBP: Construction PMI
  • March 7, JPY: Average Cash Earnings
  • March 7, GBP: BRC Retail Sales Monitor, Halifax HPI
  • March 7, USD: Final Wholesale Inventories, IBD/TIPP Economic Optimism, Consumer Credit
  • March 8, JPY: Bank Lending, Current Account, Economy Watchers Sentiment, Leading Indicators
  • March 8, EUR: German Industrial Production, German and Italian Retail Sales, Final Employment Change, Revised quarterly GDP
  • March 8, USD: ADP Non-Farm Employment Change, Trade Balance, JOLTS Job Openings, Beige Book
  • March 9, JPY: Final Annual GDP Price Index, Final quarterly GDP, M2 Money Stock, Preliminary Machine Tool Orders
  • March 9, GBP: RICS House Price Balance
  • March 9, USD: Challenger Job Cuts, Unemployment Claims, FOMC Member Barr Speech
  • March 10, JPY: Household Spending, Annual PPI, BOJ Policy Rate, Monetary Policy Statement, BOJ Press Conference
  • March 10, EUR: German Final CPI, German WPI, German WPI
  • March 10, GBP: Monthly GDP, Construction Output, Goods Trade Balance, Index of Services, Industrial Production, Manufacturing Production, NIESR GDP Estimate
  • March 10, USD: Average Hourly Earnings, Non-Farm Employment Change, Unemployment Rate, Federal Budget Balance

USD

Fed rhetoric reinforced the notion that the US central bank may slow down the pace of rate hikes but a pause in the central bank’s tightening policy is not on the cards yet.

The dollar dipped last week, and the dollar index dropped from 105.3 to 104.5 by the end of the week. US Treasury yields were volatile, with the US 10-year bond yield rising above 4.08% mid-week but closing near 3.96% on Friday. 

The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Rate hikes have become less aggressive and may continue at their current pace, but the Fed might raise interest rates for longer than previously expected. This means that there are likely still a couple of rate hikes up ahead, which may provide support for the dollar. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%.

Fed rhetoric remained hawkish last week, providing support for the dollar. Overall, FOMC members’ speeches reinforced the notion that the US central bank may slow down the pace of rate hikes, but a pause in the central bank’s tightening policy is not on the cards just yet. FOMC member Kashkari stated that although a 25-bp rate hike was likely at the next policy meeting, a 50-bp increase was not off the table. Fed’s Raphael Bostic on the other hand thought that “slow and steady is going to be the appropriate course of action". 

US inflation data showed that price pressures in the US remain high and are not easing at the pace anticipated. Core PCE, which is the Fed’s primary inflation gauge, came in hotter than expected, rising by 0.6% in January against predictions of a 0.4% raise. 

US headline inflation in January dropped to 6.4% year-on-year versus the 6.2% expected. PPI data also surprised markets to the upside, rising by 0.7% in January against expectations of a 0.4% raise and a 0.2% drop in December. Recent US inflation data highlight the risk of inflation becoming entrenched. Sticky inflation may induce the Fed to rethink its recent dovish pivot.

Preliminary GDP for the final quarter of 2022 was disappointing, showing that the US economy expanded by 2.7% against expectations of a 2.9% growth. 

Fed rhetoric is expected to be one of the main drivers of the dollar this week. Traders are eagerly anticipating Fed Chair Powell’s testimony before the Senate Banking Committee on the 7th and 8th. Increased volatility in dollar price is expected, as market participants will scan Powell’s speeches for hints on the Fed’s future policy. Important labor data are also due this week and are expected to affect dollar prices. Primary among those are ADP Non-Farm Employment Change and JOLTS Job Openings on the 8th, Unemployment Claims on the 9th, and Non-Farm Employment Change on the 10th.

TRADE USD PAIRS

EUR 

ECB President Christine Lagarde stated that inflation is not showing signs of a stable decline and that the ECB would continue to hike rates to rein in persistent price pressures in the Eurozone.

The Euro gained strength last week on hotter-than-expected Eurozone inflation and hawkish ECB rhetoric. EUR/USD was volatile, rising to 1.067 mid-week, then dropping to 1.063 on Friday. If the currency pair goes up, it may encounter resistance near 1.070. If the EUR/USD pair declines, it may find support at 1.053. 

EU inflation data last week showed that price pressures in the Eurozone remain high. Flash CPI Estimates showed that headline inflation in the Eurozone eased to 8.5% on an annual basis in February from 8.65 in January. Markets were predicting that inflation would cool to 8.2%. Even though February’s inflation print was higher than expected, the Euro dropped on Thursday, as national readings in recent days pointed to an even higher print. Core CPI, which excludes food and energy, went up by 0.8% in February and core inflation hit a record high of 5.6% year-on-year.

Sticky price pressures in the Eurozone will likely affect ECB policy, forcing the EU Central Bank to continue raising interest rates. ECB President Christine Lagarde emphasized on Thursday that inflation is not showing signs of a stable decline and stated that the ECB would continue to hike rates to rein in persistent price pressures in the Eurozone.

ECB’s Pierre Wunsch warned on Friday that the central bank could raise its key interest rate as high as 4% if underlying inflation remains high. German Buba President Nagel also delivered a hawkish speech on Wednesday, boosting the Euro. Nagel stated that inflation in the Eurozone remains persistent, stressing that further rate hikes should be expected beyond March. 

EU Economic Forecasts indicate that the EU economic outlook is improving, with an upgraded growth forecast for 2023. The EC lifted their growth outlook for 2023 to 0.9%, indicating that the Eurozone will narrowly avoid entering recession and the economy is slowly expanding. Inflation expectations were also downgraded, with headline inflation now expected to fall to 5.6% in 2023. Flash EU GDP data for the final quarter of 2022 confirmed the EC’s forecast, showing that the Eurozone economy expanded by 0.1%. 

The ECB raised interest rates by another 50 bp at its February meeting, bringing its main refinancing rate to 3.0%. ECB President Christine Lagarde has emphasized that the central bank aims to bring inflation down to its 2% target. Lagarde confirmed that another 50-bp rate hike would follow at the next monetary policy meeting in March, after which the ECB would re-evaluate its policy. Market odds are currently favoring an increase of the ECB refinancing rate to 4.0% by June.

ECB rhetoric is expected to affect the Euro significantly this week. Market participants will pay special attention to ECB President Lagarde’s speech on the 8th for hints into the central bank’s future policy.

TRADE EUR PAIRS

GBP 

Bailey refused to commit to further rate hikes but did not rule out the possibility that further rate increases might be necessary.

The Sterling traded sideways against the dollar last week, with GBP/USD fluctuating around the 1.204 level. If the GBP/USD rate goes up, it may encounter resistance near 1.214, while support may be found near 1.192. 

European Commission President Ursula von der Leyen met with Prime Minister Rishi Sunak earlier in the week and managed to strike a new Brexit deal. The newest version of the Northern Ireland Protocol, known as the Windsor Framework, contains more favorable trading conditions for the UK, boosting the Sterling. 

BOE Governor Andrew Bailey delivered a speech on Wednesday that markets perceived as dovish, driving the Sterling down. Bailey’s stance was cautious and non-committal, stating that nothing has been decided as yet regarding BOE’s future policy. Bailey refused to commit to further rate hikes but did not rule out the possibility that further rate increases might be necessary.

BOE members continue to be divided on the central bank’s future policy direction and market expectations on the outcome of the next policy meeting fluctuate. The BOE raised interest rates by 50 bp at its February meeting, bringing the official bank rate to 4.0%. Markets are currently pricing in a 25-bp rate at the next BOE policy meeting. Several market participants though believe that the British central bank will pause rate hikes completely. 

UK headline inflation cooled at a higher pace than anticipated, dropping to 10.1% year-on-year in January from 10.5% in December. Cooling inflation rates remove some of the pressure on the BOE to continue its economic tightening. 

Recent GDP data showed that the British economy is slowing down. The British economy contracted by 0.5% in December, which was more pessimistic than the 0.3% expected. Preliminary GDP for the final quarter of 2022 showed stagnation, while GDP for 2022 came in at 4.1%. The IMF 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.

This week, UK GDP data on the 10th will be in focus and may affect the Sterling's price. If the GDP print is in the negative, recessionary fears for the UK will be intensified dragging the pound down. 

TRADE GBP PAIRS

JPY

BOJ Governor Haruhiko Kuroda’s term is ending on April 9th, and this is going to be the last policy meeting he is going to preside over after remaining at the helm of the BOJ for a decade.

The Yen traded sideways against the dollar last week and USD/JPY oscillated around the 136.2 level If the USD/JPY pair declines, it may find support near 134. If the pair climbs, it may find resistance at 138.2. 

This week all eyes are going to be on the Bank of Japan and the monetary policy meeting on March 10th. Incumbent BOJ Governor Haruhiko Kuroda’s term is ending on April 9th, and this is going to be the last policy meeting he is going to preside over after remaining at the helm of the BOJ for a decade. Departing BOJ Governor Kuroda has been persistently dovish throughout all this time and is expected to defend the central bank’s ultra-easy policy till the very end.

The Yen has been exhibiting high volatility over the past couple of weeks as developments on the succession of the BOJ Governor are front and center in the news. Incumbent BOJ Governor Kuroda is a staunch supporter of an ultra-loose monetary policy and his term in office expires in April. Japanese Prime Minister Fumio Kishida nominated former BOJ member Kazuo Ueda for the post of BOJ governor last week. Ueda is an academic economist, and his stance is seen as more pragmatic rather than ultra-dovish. 

Most market analysts consider that Ueda will likely not be in a hurry to unwind the BOJ’s ultra-easy policy, but as yet his intentions remain unclear. Ueda has already appeared twice before the Japanese government's lower house known as the Diet. Markets eagerly awaited his testimony for signs of a pivot in BOJ policy but as yet Ueda remains non-committal. Upcoming BOJ Governor Ueda hinted at the possibility of tweaking the central bank’s bond yield curve control in the future. However, he cautioned against sudden changes in monetary policy.

BOJ Deputy Governor Shinichi Uchida also reinforced the notion that drastic policy changes should not be expected any time soon. Uchida defended the central bank’s monetary policy stance and stated that the BOJ must maintain monetary easing. Market expectations of a departure from ‘Abenomics’ have been disappointing, driving the Yen down.

Japanese policymakers maintained ultra-low interest rates at the BOJ’s January meeting, keeping the central bank’s refinancing rate at -0.10%. Preliminary GDP data for the final quarter of 2022 showed a minimal economic expansion of 0.2%. Japan’s poor economic outlook raises recession concerns for the world’s third-biggest economy.

Headline inflation in Japan has gone above the BOJ’s 2% target, touching 40-year highs and 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. Tokyo Core CPI for February slowed for the first time since January 2022, dropping to 3.3% against expectations of a  4.5% print.

TRADE JPY PAIRS

Gold 

Gold prices rallied last week as US rate hike expectations dropped, dragging down the US dollar and bond yields.

Gold prices rallied last week on a weaker dollar and the price of gold rose to $1,856 per ounce. If gold prices increase, resistance may be encountered near $1,890 per ounce, while if gold prices decline, support may be found near $1,804 per ounce. 

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. Gold prices rallied last week as US rate hike expectations dropped, dragging down the US dollar and bond yields. 

The dollar dipped last week, and the dollar index dropped from 105.3 to 104.5 by the end of the week. US Treasury yields were volatile, with the US 10-year bond yield rising above 4.08% mid-week but closing near 3.96% on Friday.  

The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Rate hikes have become less aggressive and may continue at their current pace, but the Fed might raise interest rates for longer than previously expected. This means there are likely still a couple of rate hikes up ahead, which may support the dollar. 

Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%. 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. 

TRADE GOLD

Oil 

United Arab Emirates is reportedly considering leaving OPEC after a growing rift with Saudi Arabia caused high volatility in oil prices. 

Oil prices edged higher last week on signs of China’s economic recovery. WTI price rallied, touching $80 per barrel. If the WTI price declines, it may encounter support near $73 per barrel, while resistance may be found near $80.6 per barrel.

Reports of an imminent split in OPEC caused high volatility in oil prices on Friday. The United Arab Emirates is reportedly considering leaving the organization, after a growing rift with Saudi Arabia. 

Expectations of increased oil demand outlook in China boosted oil prices last week. Chinese manufacturing PMI data exceeded expectations, expanding at the fastest rate since 2012. Moreover, China’s factory activity rose in February for the first time in seven months, raising hopes for China’s economic recovery. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. The Chinese government has eased some of its strident Covid regulations, abandoning its zero-Covid policy, fuelling hopes of economic recovery. 

Oil prices are also supported by concerns that Russia will cut its oil exports more than previously announced. G7 leaders set a price cap on Russian oil exports on February 5th. Russia has announced plans to reduce oil output by 500,000 barrels per day as a retaliation for the price cap on the country's oil exports. Recent reports indicate that Russia may further cut oil production, boosting oil prices.

On the other hand, U.S. crude inventories rose by 1.2 million barrels last week to a total of 480.2 million barrels. Even though market expectations were higher, predicting a 1.7 million barrels raise, increased supply kept oil prices down. Moreover, the US sold an additional 26 million barrels of crude from its Strategic Petroleum Reserve in an attempt to offset the rise in oil prices.

In addition, recession concerns still run high, and aggressive rate hikes stifle economic activity, putting a lid on oil price gains. Current market odds lean towards further Fed tightening and an increase in interest rates up to 5.25%. US inflation data last week showed that price pressures in the US remain high and are not easing at the pace anticipated. ECB rate hike expectations also increased last week, as Eurozone CPI data showed that inflation is not cooling as fast as the ECB hoped.

TRADE WTI

Bitcoin and major Cryptocurrencies 

Bitcoin price dropped by 5% in a single hour on Friday night, as concerns about the future of Silvergate bank intensified.

Cryptocurrency prices were under pressure last week. Crypto bulls fought to bring cryptocurrency prices up early in the week but failed to gain upwards momentum and most major cryptocurrencies sank by the end of the week. 

Uncertainty over the future of Silvergate put pressure on crypto markets last week, driving many major cryptocurrency prices down. Bitcoin price dropped by 5% in a single hour on Friday night, as concerns about the future of Silvergate bank intensified. FTX fallout has been affecting Silvergate, with the bank facing liquidity problems. 

Prolonged rate hikes fuel global recession concerns, driving risk assets down. Robust US labor data and hawkish Fed rhetoric boosted Fed rate hike odds last week. Hotter-than-expected Eurozone inflation and hawkish ECB rhetoric also increased ECB rate hike odds.

US inflation data show that price pressures in the US remain high and are not easing at the pace anticipated, weighing cryptocurrency prices down. Market expectations of the Fed peak interest rate continue to rise on hotter-than-expected US price pressures, putting pressure on crypto markets. The Fed might raise interest rates for longer than previously expected, putting pressure on crypto markets. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%.

Bitcoin price plummeted to the $22,000 level towards the end of the week but recovered slightly over the weekend. If the BTC price declines, support can be found near $21,400, while resistance may be encountered near $24,600. 

Ethereum price also dipped last week, touching the $1,550 level. If Ethereum's price declines, it may encounter support near $1,460; if it increases, resistance may be near $1,680.

BTC/USD 1h Chart

 

ETH/USD 1h Chart

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Written by:
Myrsini Giannouli

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