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Weekly Market Outlook For March 13th To March 19th

Home >  Weekly Outlook >  Weekly Market Outlook For March 13th To March 19th

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Written by:
Myrsini Giannouli

13 March 2023
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Forex

Important calendar events

  • March 13, EUR: German WPI, Eurogroup Meetings, German Buba President Nagel Speech
  • March 14, GBP: Claimant Count Change, Average Earnings Index, Unemployment Rate, CB Leading Index
  • March 14, EUR: Italian Industrial Production, ECOFIN Meetings
  • March 14, USD: Monthly CPI and Core CPI, Annual CPI
  • March 15, JPY: Monetary Policy Meeting Minutes
  • March 15, EUR: French Final CPI, Italian Quarterly Unemployment Rate, Industrial Production
  • March 15, GBP: Annual Budget Release
  • March 15, USD: Monthly PPI and Core PPI, Retail Sales and Core Retail Sales, Empire State Manufacturing Index, Business Inventories, NAHB Housing Market Index, TIC Long-Term Purchases
  • March 16, JPY: Core Machinery Orders, Trade Balance, Revised Industrial Production
  • March 16, USD: Philly Fed Manufacturing Index, Unemployment Claims, Building Permits, Housing Starts, Import Prices
  • March 16, EUR: Main Refinancing Rate, Monetary Policy Statement, ECB Press Conference
  • March 17, JPY: Tertiary Industry Activity
  • March 17, GBP: FPC Meeting Minutes, FPC Statement, Consumer Inflation Expectations
  • March 17, EUR: Italian Trade Balance, Final CPI, and Core CPI
  • March 17, USD: Capacity Utilization Rate, Industrial Production, Preliminary UoM Consumer Sentiment, Preliminary UoM Inflation Expectations, CB Leading Index

USD

The collapse of Silicon Valley Bank may steer the Fed towards a less hawkish direction, in fear of contagion in the financial sector. 

The dollar was volatile last week after many unexpected economic events. The dollar was boosted by hawkish Fed rhetoric mid-week and the dollar index climbed to 105.7. The dollar dipped on Friday though after the collapse of the Silicon Valley Bank, with the dollar index dropping to 104.1. US Treasury yields were similarly affected, with the US 10-year bond yielding almost 4% mid-week and plunging to 3.7% on Friday. 

Fed rhetoric was one of the main drivers of the dollar last week. Fed Chair Powell testified before the Senate Banking Committee on Tuesday and his speech was more hawkish than anticipated, boosting the dollar. Powell stated that although inflation has cooled somewhat, the process of getting back to the Fed’s 2% target rate will “likely be bumpy”. Powell warned that the US central bank is prepared to accelerate the pace of tightening if price pressures remain high. Powell also indicated that the Fed’s terminal rate will likely be higher than initially anticipated. 

Powell’s second testimony on Wednesday was slightly less hawkish, emphasizing that, although inflation had been more resilient than anticipated, any decision to hike rates more aggressively will be data-based. 

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%. Future rate hikes, however, will likely depend heavily on US employment and inflation data. 

Last week market expectations of the Fed’s next rate hike bounced back and forth between 25-bp and 50-bp. Powel’s testimonies raised market odds of a 50-bp rate hike early in the week. Market expectations of the Fed’s peak rate have also increased, moving to a range of 5.5%-5.75%. The collapse of Silicon Valley Bank on Friday though brought market odds back down to 25-bp. The collapse of the bank may steer the Fed towards a less hawkish direction, in fear of contagion in the financial sector. 

Moreover, slowing wage gains on Friday indicated that inflationary pressures are starting to ease. Labor data last week has been mixed. The US economy added 311K jobs in February exceeding expectations of 224K according to NFP data released on Friday. Job openings remained elevated, with JOLTS job openings at 10.82M in January, beating expectations of 10.58M. Private payrolls increased, with rising to 242K in February from 119K in January. On the other hand, unemployment claims were less optimistic than expected, putting pressure on the dollar. Unemployment rates this week rose to 211K against expectations of 195K. The US unemployment rate climbed to 3.6% versus the 3.4% predicted. Average hourly earnings rose just 0.2% in February, falling below expectations of a 0.3% raise. Cooling wage gains ease some of the pressure on the Fed to hike interest rates.

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. 

The latest 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.

This week a lot is riding on US inflation data, as they may very well determine the pace of future rate hikes. Consumer inflation data (CPI) on the 14th and Producer price data (PPI) on the 15th are this week’s most highly anticipated fundamentals. Market participants are anxiously awaiting US inflation results, which may determine the dollar’s trajectory in the weeks to come. The Consumer Price Index is forecast to decline to 6% year-on-year in February from 6.4% in January. If inflation eases as much as forecast, it may be just enough to keep the Fed from returning to a 50-basis point rate hike. A hotter-than-expected inflation print, on the other hand, may drive the Fed to accelerate the pace of rate hikes once again.

TRADE USD PAIRS

EUR 

One of the key economic events of this week is the ECB monetary policy meeting on the 16th, with the EU central bank expected to hike rates by 50 bp.

The EUR/USD rate was mostly affected by the dollar’s direction last week. The currency pair exhibited high volatility, dropping to 1.053 mid-week and then climbing back to 1.069. 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. 

Revised GDP data last week 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.

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 are likely to affect ECB policy, forcing the EU Central Bank to continue raising interest rates. 

ECB’s Lane stated last week that the central bank is likely to increase rates further to rein in Eurozone inflation, even if there are some signs that price pressures are easing.

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. Market odds are currently favoring an increase of the ECB refinancing rate to 4.0% by June.

One of the key economic events of this week is the ECB monetary policy meeting on the 16th, with the EU central bank expected to hike rates by 50 bp. ECB President Christine Lagarde has stated that they will continue their aggressively hawkish policy to press down on inflation. The ECB Press Conference following the conclusion of the meeting is expected to attract a lot of market attention. Traders will follow Lagarde’s statements closely for hints into the ECB’s future policy direction.

TRADE EUR PAIRS

GBP 

GDP data released last week showed that the UK economy expanded by 0.3% in January, beating expectations of a 0.1% growth.

The GBP/USD rate was volatile last week, plummeting to the 1.080 level mid-week but rallying at the end of the week and closing near 1.206 on Friday. If the GBP/USD rate goes up, it may encounter resistance near 1.214, while support may be found near 1.180. 

GDP data released last week showed that the UK economy expanded by 0.3% in January, beating expectations of a 0.1% growth and December’s contraction by 0.5% in December. The IMF, however, 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.

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. MPC member Swati Dhingra warned against further tightening last week, stating that it " poses a more material risk at this point."

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. 

This week, UK Unemployment Claims on the 14th may cause some volatility in the Sterling price. British Chancellor Jeremy Hunt will release the UK Annual Budget on Wednesday the 15th, and the budget release is likely to affect the Sterling. The BOE will release the Statement and the Minutes of its Financial Policy Committee on the 17th, which may provide further insight into the BOE’s future policy direction.

TRADE GBP PAIRS

JPY

The Bank of Japan maintained an ultra-easy policy last week, keeping the central bank’s refinancing rate at -0.10%.

The Yen gained strength last week as the dollar retreated, and USD/JPY dropped to the 134.5 level. If the USD/JPY pair declines, it may find support near 134. If the pair climbs, it may find resistance at 138. 

The Bank of Japan maintained an ultra-easy policy at the monetary policy meeting last week, putting pressure on the Yen. Japanese policymakers maintained ultra-low interest rates at the BOJ’s January meeting, keeping the central bank’s refinancing rate at -0.10%. This was the last meeting for BOJ Governor Haruhiko Kuroda, whose term in office is ending on April 9th, after remaining at the helm of the BOJ for a decade. 

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. Kuroda’s successor, Kazuo Ueda, has attracted the market’s attention in the past couple of weeks.

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. Upcoming BOJ Governor Ueda has hinted at the possibility of tweaking the central bank’s bond yield curve control in the future. However, he has cautioned against sudden changes in monetary policy and stated that he intends to maintain its current ultra-easy policy for now.

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.

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 jumped on Friday as the collapse of the Silicon Valley bank raised recession concerns, driving investors towards safe-haven assets.

Gold prices mirrored dollar prices last week. Gold prices dropped mid-week as the dollar rose, but rallied towards the end of the week, benefitting from the dollar’s decline, rising to $1,867 per ounce. Gold prices jumped on Friday as the collapse of the Silicon Valley bank raised recession concerns, driving investors towards safe-haven assets. 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. The dollar was volatile last week, boosted by hawkish Fed rhetoric mid-week and the dollar index climbed to 105.7. The dollar dipped on Friday though after the collapse of the Silicon Valley Bank, with the dollar index dropping to 104.1. US Treasury yields were similarly affected, with the US 10-year bond yielding almost 4% mid-week and plunging to 3.7% on Friday. 

Fed rhetoric affected gold prices considerably last week. Fed Chair Powell's testimonies before the US Congress were more hawkish than anticipated, driving gold prices down. Powell warned that the US central bank is prepared to accelerate the pace of tightening if price pressures remain high. 

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%. 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. 

Last week market expectations of the Fed’s next rate hike bounced back and forth between 25-bp and 50-bp. Powel’s testimonies raised market odds of a 50-bp rate hike early in the week. Market expectations of the Fed’s peak rate have also increased, moving to a range of 5.5%-5.75%. The collapse of Silicon Valley Bank on Friday though brought market odds back down to 25-bp. The collapse of the bank may steer the Fed towards a less hawkish direction, in fear of contagion in the financial sector. 

This week US inflation data are expected to affect gold prices, as they may very well determine the pace of future rate hikes. CPI data on the 14th and PPI data on the 15th are this week’s most highly anticipated fundamentals. The US inflation data are likely to cause volatility in dollar prices, which may be transferred to gold prices as well.

TRADE GOLD

Oil 

Fears of a slowdown in the U.S. economy put pressure on oil prices last week, as rate hike expectations increased.

Oil prices retreated last week, with WTI price dropping to $76.6 per barrel on Friday. If the WTI price declines, it may encounter support near $74.7 per barrel, while resistance may be found near $80.8 per barrel.

Fears of a slowdown in the U.S. economy put pressure on oil prices last week, as rate hike expectations increased. Recession concerns run high and aggressive rate hikes stifle economic activity, putting a lid on oil prices.

Fed Chair Powell testified before the Senate Banking Committee last week and his speech was more hawkish than anticipated, putting pressure on oil prices. Powell’s second testimony on Wednesday was slightly less hawkish, emphasizing that, although inflation had been more resilient than anticipated, any decision to hike rates more aggressively will be data-based.

Last week market expectations of the Fed’s next rate hike bounced back and forth between 25-bp and 50-bp. Powel’s testimonies raised market odds of a 50-bp rate hike early in the week. Market expectations of the Fed’s peak rate have also increased, moving to a range of 5.5%-5.75%. The collapse of Silicon Valley Bank on Friday though brought market odds back down to 25-bp. 

The collapse of the Silicon Valley bank last week had a mixed effect on oil prices. On one hand, it raised recession concerns, which drive oil prices down. On the other hand, this event may steer the Fed toward a less hawkish direction, which will ultimately benefit oil prices. 

Concerns over China’s economic recovery also put pressure on oil prices last week. China set its GDP growth target at approximately 5% for 2023, which was lower than last year’s target of 2022. Oil prices pulled back as China’s economic growth appears to be slow. 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 supported by concerns that Russia will cut its oil exports. G7 leaders set a price cap on Russian oil exports on February 5th and Russia has announced plans to reduce oil output by at least 500,000 barrels per day as a retaliation for the price cap on the country's oil exports. 

This week US inflation data are expected to affect oil prices, as they may determine the pace of future rate hikes. CPI data on the 14th and PPI data on the 15th are this week’s most highly anticipated fundamentals. 

TRADE WTI

Bitcoin and major Cryptocurrencies 

The collapse of the Silicon Valley bank, following on the heels of the Silvergate collapse, raised panic in crypto markets over a potential banking crisis.

The collapse of Silvergate put pressure on crypto markets last week, driving many major cryptocurrency prices down. The collapse of the Silicon Valley bank, following on the heels of the Silvergate collapse, raised panic in crypto markets over a potential banking crisis. Cryptocurrency prices rallied over the weekend as markets began to stabilize after the initial panic.

Cryptocurrency prices sank last week on increased Fed rate hike expectations. Prolonged rate hikes increase global recession concerns and promote a risk-aversion sentiment. Market expectations of the Fed peak interest rate continue to rise on hotter-than-expected US price pressures, putting pressure on crypto markets. Fed Chair Powell testified before the Senate Banking Committee on Tuesday and his speech was more hawkish than anticipated. Powell warned that the US central bank is prepared to accelerate the pace of tightening if price pressures remain high. Powell’s second testimony on Wednesday was slightly less hawkish, emphasizing that, although inflation had been more resilient than anticipated, any decision to hike rates more aggressively will be data-based. 

Last week market expectations of the Fed’s next rate hike bounced back and forth between 25-bp and 50-bp. Powel’s testimonies raised market odds of a 50-bp rate hike early in the week. Market expectations of the Fed’s peak rate have also increased, moving to a range of 5.5%-5.75%. The collapse of Silicon Valley Bank on Friday though brought market odds back down to 25-bp. 

Bitcoin price edged lower last week, dropping below the key $20,000 level before paring some losses and going back above $21,000 over the weekend. If the BTC price declines, further support can be found near $19,500, while resistance may be encountered near $24,600. 

Ethereum price also plummeted, dropping as low as $1,370, but recovering to the $1,540 level during the weekend. If Ethereum's price declines, it may encounter support near $1,460; if it increases, resistance may be near $1,740.

BTC/USD 1h Chart

 

ETH/USD 1h Chart

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Written by:
Myrsini Giannouli

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