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Weekly Market Outlook For April 4th To April 10th

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Written by:
Myrsini Giannouli

04 April 2022
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Important calendar events

  • April 5 USD: ISM Services PMI
  • April 5, EUR: French Industrial Production, Spanish Services PMI, Italian Services PMI, French Final Services PMI, German Final Services PMI, Final Services PMI, ECOFIN Meetings
  • April 6, USD: FOMC meeting minutes
  • April 8. JPY: Current Account, Consumer Confidence, Economy Watchers Sentiment

USD

The dollar was boosted by hawkish Fed rhetoric, increasing the odds of a 50 bp rate hike at the Central Bank’s next meeting, with markets anticipating total rate hikes of at least 175 base points within the year.

The USD started strong last week, with the dollar index reaching almost 100, but weakened towards the end of the week, with the dollar index closing near 98.5 on Friday, as peace talks curtailed safe-haven demand. Reports that diplomatic negotiations between Russia and Ukraine are progressing have put pressure on the currency. The dollar is considered a safe-haven asset and, in case the crisis in Ukraine de-escalates, it may fall even further.

Early last week, the dollar gained strength boosted by hawkish Fed rhetoric. In a recent speech, Fed Chair Jerome Powell hinted that the Fed may perform a steeper rate hike in the future, going above the expected 25 base points. Other Fed members have similarly shown signs of encouraging a more hawkish fiscal policy, increasing the odds of a 50 bp rate hike at the Central Bank’s next meeting in May. Markets are anticipating total rate hikes of 175 base points within the year to tackle soaring inflation rates.

US treasury yields also climbed on rising rate hike odds. The 10-year Treasury yields rose to a two-year high of 2.5% early last week, as investors anticipated a more aggressively hawkish Fed policy, but retreated later in the week amid rising expectations of a resolution of the crisis in Ukraine.

The dollar had dropped in the wake of the Federal Reserve's latest policy meeting in March, in which the Federal Reserve raised its benchmark interest rate by 25 base points, bringing its interest rate to 0.50%. The US Central bank is attempting to bring down inflation that has been rising at the fastest rate in 40 years. The 25-base point rate hike though was considered conservative and had already been priced in by markets. Recent statements by FOMC members though show a shift towards a more aggressively hawkish policy.

Non-Farm Employment data released last week were disappointing for the US jobs sector, although overall unemployment rates in the US were lower than expected. Other financial data released last week, such as quarterly GDP and ISM Manufacturing PMI were mostly negative, showing that the US economy is still struggling to recover from the pandemic. 

Several indicators are scheduled to be released this week for the dollar and may cause some volatility in the currency. In addition, the minutes of the Fed’s latest meeting are due to be released this week and may affect the dollar, as they may provide insight into the Fed’s future direction.

TRADE USD PAIRS

EUR

Russia’s demands for payments of energy imports in Rubles have increased concerns of an impending energy crisis in Europe, weakening the Euro, especially since Germany seems ready to implement an emergency gas law. 

The Euro gained strength against the dollar at the beginning of last week, with the EUR/USD rate climbing above 1.116 on Wednesday, breaking through the 1.113 level resistance, as peace talks sparked hopes of a resolution of the crisis in Ukraine. The safe-haven dollar retreated, while the Euro regained some of its lost ground. Later in the week though, the Euro started declining again, with EUR/USD closing near 1.104 on Friday. If the currency pair goes up, it may encounter resistance at 1.148, while if it declines, support may be found at the 1.080 level. 

The Euro fell late last week, as Russia’s demands for payments of energy imports in Rubles increased concerns of an impending energy crisis in Europe. Germany has already entered the initial phases of implementing an emergency gas law, preparing for rationing gas resources among its population. The Euro has benefited from reports of de-escalation of the crisis in Ukraine though, as the appeal of safe-haven currencies is reduced, riskier assets are boosted.

ECB President Lagarde stated last week that the growth of the Eurozone economy has been stalled by the war in Ukraine and that inflation will likely rise even further. Lagarde has also stressed that the ECB needs to remain flexible and may alter its monetary policy in response to unforeseen inflationary and economic pressures arising from the war in Ukraine, but stated that the ECB will move gradually towards normalizing its fiscal policy. 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, although it has recently turned towards a more hawkish direction. The ECB has announced its decision to wind down its bond-purchasing program sooner than expected, placing the end of the bond-buying program in the third quarter of 2022, if financial conditions in the Eurozone allow it. 

In addition, the European Central Bank has announced that it does not plan to raise its benchmark interest rate before the end of its bond-buying program in the third quarter of 2022. Many market analysts predict that the ECB will raise its interest rate by at least 30 base points in Q4 of 2022 and some predict a steeper rate hike of 50 bps, although so far, the ECB has been reluctant to move towards a rate hike. 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.

Several indicators are scheduled to be released for the Euro this week, including French Industrial Production, Spanish Services PMI, Italian Services PMI, French Final Services PMI, German Final Services PMI, and Final Services PMI. These indicators of economic health for some of the Eurozone’s leading economies and the Eurozone as a whole may affect the currency. In addition, the Eurozone’s ECOFIN Meetings are going to be held this week and the outcome of the meetings may affect the Euro.

EURUSD 1hr chart

TRADE EUR PAIRS

GBP

The BOE started the year with a strong hawkish policy, but there are signs that its stance may soften in the coming months, and the divergence in monetary policy between the Fed and the BOE is putting pressure on the pound.

The GBP/USD traded mostly sideways last week, closing near 1.311 on Friday. If the GBP/USD rate goes up, there may be resistance at the 1.341 level and further up near the 1.364 level, while if it declines, support may be found near the 1.300 level. 

Reported progress in peace talks between Russia and Ukraine has put pressure on the dollar while boosting the pound. The sterling had lost ground during the past few days though, due to the divergence in monetary policy between the Fed and the BOE. 

BOE Deputy Ben Broadbent stated last week that policymakers should provide forward guidance and need to communicate their intentions to the public, as expectations of future interest rates affect current demand.

BOE Governor Andrew Bailey delivered a speech on macroeconomics and financial stability at an online event last week. Bailey warned that the energy crisis in the UK is going to be stronger than in any year in the 1970s, stating that the energy shock to households was going to be ‘historic’. His speech was considered more dovish than expected, especially compared to the more hawkish Fed rhetoric of the past few days. 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 of the past few days is boosting the dollar against the pound.

In its latest meeting in March, the BOE announced that it would raise its benchmark interest rate by 25 base points, bringing its interest rate to 0.75%. The Bank of England is shifting to a more hawkish policy and a return to pre-pandemic interest rates this year in an attempt to tackle inflation. The BOE emphasized the role of the war in Ukraine to rising inflation rates that are driving its turn to a tighter fiscal policy. 

UK inflation is already at a 30-year high and expected to rise further, as the war in Ukraine raises the price of key commodities and energy. The Office for Budget Responsibility has set the 2022 GDP forecast to 3.8% from 6.0% and average inflation of 7.4% for the year with a peak rate of 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.

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY 

Japanese policymakers stated that inflationary pressures are building in Japan, but were skeptical about whether the rise was sustainable and concluded that the BOJ must continue its ultra-accommodating fiscal policy.

The Yen inched lower last week and the USD/JPY rate moved higher, reaching 125.1, its highest level since 2015, before closing near the 122.5 level on Friday. If the USD/JPY rises further, it may encounter resistance at the 2015 high of 125.8. If the USD/JPY declines, support might be found at 114.8 and further down at 113.4. 

The dollar lost ground at the end of last week, as reports of a potential de-escalation of the Russia – Ukraine crisis have put pressure on the safe-haven dollar. 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. 

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.

The BOJ Summary of Opinions was published last week, which includes the Central Bank’s projection for inflation and economic growth and is the primary tool the BOJ uses to communicate its economic and monetary projections to investors. In the report, Japanese policymakers stated that inflationary pressures are building in Japan, with inflation growing to 1%, which is still far from the BOJ’s 2% target. Bank of Japan board members seemed skeptical about the rise in inflation though, expressing doubts on whether the rise was sustainable. They stated that the rise in inflation rates would likely prove to be temporary, and was mainly due to the rising cost of imports, especially energy-related imports. Policymakers concluded that the BOJ must continue its ultra-accommodating fiscal policy, to support the economy.

Japan’s core CPI may climb around 2% in April, similar to other countries that are expected to see a peak in inflation rates near the same time, largely due to increased 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. 

The BOJ stated on Monday that it would buy an unlimited amount of Japanese Government Bonds with a maturity of up to ten years at 0.25% to stop rising global yields from pulling yields higher. Near the end of last week, Japan’s treasury yields rose sharply, with yields on 10-year Japanese government bonds climbing to a six-year high of 0.24%. Japanese bond yields had been on the decline for some time, and rising U.S. yields had taken the spread between the two markets to their widest since August 2019.

Several indicators are scheduled to be released this week for the Yen, including Current Account, Consumer Confidence, and Economy Watchers Sentiment, and may cause some volatility in the price of the currency.

USDJPY 1hr chart

TRADE JPY PAIRS

Gold

In case the crisis in Ukraine is resolved, 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. 

Gold price fell early last week, dropping as low as $1,889 per ounce, but recovered later in the week, buoyed by a weaker dollar and a pullback in U.S. bond yields, closing near $1,924 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. 

Real yields climbed across the US Treasury chest last week, boosted by reports of a shift in the Fed’s fiscal policy towards a more hawkish direction, putting downward pressure on the price of gold. The 10-year Treasury yields climbed to a two-year high of 2.5% at the beginning of the week but later fell to approximately 2.3%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.

Gold has been supported by the conflict in Ukraine, which has triggered a risk-aversion sentiment, driving investors towards safe-haven assets and propelling the price of gold to $2,050 per ounce at the beginning of the month. Sanctions against Russia have also 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. 

Diplomatic talks between Russia and Ukraine continue, with both sides stating they are ready to make compromises, sparking hopes of a resolution to the crisis. Reports of advancing peace negotiations between Russia and Ukraine have put pressure on the price of gold, as demand for safe-haven assets declines, although a de-escalation of the crisis still seems to be some way off and attacks against Ukrainian cities continue unabated. In case the crisis in Ukraine is resolved, 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. 

XAUUSD 1hr chart

TRADE GOLD

Oil

Oil prices dropped last week, with WTI falling almost to the $100 per barrel level, as the US announced a plan to release an unprecedented amount from its crude reserves, totaling over 180 million barrels. 

Oil prices dropped last week, with WTI trading lower on Friday, testing its $100 per barrel level resistance. In the past few days, concerns for a fall in demand and rising hopes of de-escalation of the crisis in Ukraine have put pressure on the price of oil, although it remains at high levels as the situation in Ukraine remains uncertain. If the WTI price drops further, 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. 

In its latest meeting last Thursday, OPEC+ decided to increase its output by 432,000 barrels per day, starting from May 1. This is a modest increase in the organization’s output goal, compared to the 400,000 barrel per day increase promised in previous months. Increased supply concerns, combined with high demand, have led OPEC+ to increase its output goal, but only marginally. OPEC’s Monthly Oil Market Report for March predicted that global oil demand is going to continue to grow, despite recent developments. 

Oil prices dropped last Thursday, with WTI falling almost to the $100 per barrel level, as the US announced a plan to release an unprecedented amount from its crude reserves. US President Joe Biden stated that he’s authorizing the release of 1 million barrels of oil per day for the next six months from the U.S. Strategic Petroleum Reserve, totaling over 180 million barrels. The US is trying to tame soaring oil prices, as Russian bans create energy shortages.

The US has banned all oil and gas imports from Russia and the International Energy Agency (IEA) estimates that as many as 3 million barrels per day of Russian crude oil could be removed from the market as a result of sanctions and of boycotting Russian oil. 

The EU has not imposed direct bans on Russian oil and gas imports yet, since the Eurozone relies heavily on Russian energy-related imports, with almost 30% of the crude oil imports, 47% of its coal, and over 40% percent of its gas imports coming from Russia. EU countries are considering such a ban as a last resort only, as it would plunge the Eurozone into an unprecedented energy crisis.

Diplomatic talks between Russia and Ukraine continue, with both sides stating they are ready to make compromises, sparking hopes of a resolution to the crisis. Reports of advancing peace negotiations between Russia and Ukraine have curtailed oil prices last week, although a de-escalation of the crisis still seems to be some way off and attacks against Ukrainian cities continue unabated. 

Oil prices are also under pressure by reports that China is initiating its biggest Covid lockdown in two years. A large wave of covid cases in China is forcing the country to enter lockdown once again. The financial hub of Shanghai is launching a lockdown to curb a surge in COVID-19 infections. China is the largest importer of crude oil and fears of a decrease in demand from lockdowns have sent oil prices plummeting. If the pandemic is re-ignited and countries start imposing new restrictions and re-entering lockdowns, it may signal another drop in the oil demand. 

WTI 1hr chart

TRADE WTI

Bitcoin and major cryptocurrencies

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.

Crypto markets have been following the overall trends of stock markets, experiencing heavy losses as the crisis in Ukraine turned investors’ interest towards safer assets.  A bullish trend has prevailed over the past couple of weeks though, driving cryptocurrency prices up. 

Bitcoin price traded above the $45,000 level resistance level for the past week, climbing as high as $48,000 for the first time since the beginning of the year. If Bitcoin's price falls, it may find support at $36,000 and $33,000, while resistance may be found at the psychological level of $50,000. 

Most major cryptocurrencies have rallied over the past couple of weeks, with Ethereum outperforming Bitcoin recently, as the release of a long-awaited software upgrade in Ethereum seems to be drawing near, boosting its price. Ethereum price also climbed last week, reaching above the $3,400 level resistance, to the $3,500 level. If Ethereum's price falls, it may find support at $2,489. In case its price goes further up, it may find resistance near $3,800.

Cryptocurrencies have been under pressure since the beginning of the year, hit by a bout of risk aversion. Geopolitical tensions have been driving the price of cryptos down, as investors shy away from risk assets. Diplomatic talks between Russia and Ukraine continue, with both sides stating they are ready to make compromises, sparking hopes of a resolution to the crisis. Reports of advancing peace negotiations between Russia and Ukraine have provided relief to crypto markets, as demand for risk assets grows, although a de-escalation of the crisis still seems to be some way off and attacks against Ukrainian cities continue unabated. 

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. 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 couple of weeks, 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

 

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Written by:
Myrsini Giannouli

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