Important calendar events
The dollar index climbed above 98 on Friday, closing near 98.8, boosted by hawkish Fed rhetoric and rising US treasury yields. In a recent speech, Fed Chair Jerome Powell stated that the Fed must move "expeditiously" to bring inflation under control and his speech pointed to a more aggressive monetary policy. He hinted that the Fed may perform a steeper rate hike in the future, going above the expected 25 base points and his speech has provided support for the dollar. Other Fed members last week, showed 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 are climbing as rate hike odds rise, providing support for the dollar. The 10-year Treasury yields rose to a two-year high of 2.5% on Friday, as investors anticipate a more aggressively hawkish Fed policy.
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. Fed officials have also raised inflation forecasts for 2022 to 4.3. The 25-base point rate hike though was widely expected and had already been priced in by markets.
Diplomatic negotiations between Russia and Ukraine continue and efforts to defuse the crisis have added pressure to the price of the dollar. The dollar is considered a safe-haven currency and rises when a risk-aversion sentiment prevails, as investors turn towards safer assets.
Several indicators are set to be released this coming week for the dollar, such as JOLTS Job Openings, CB Consumer Confidence, ADP Non-Farm Employment Change, Quarterly Final GDP, ADP Non-Farm Employment Change, Quarterly Final GDP, Average Hourly Earnings, Non-Farm Employment Change, Unemployment Rate, ISM Manufacturing PMI. These are economic, inflation, and employment indicators and may cause some volatility in the dollar.
The EUR/USD rate traded sideways last week, close to the 1.100 level, closing near 1.098 on Friday. If the currency pair goes up it may encounter resistance at 1.139 and further up at 1.148, while if it declines, support may be found at the 1.079 level.
Hawkish Fed statements buoyed the dollar last week and supported US Treasury bond yields, putting pressure on the Euro. German Flash Manufacturing PMI and German Flash Services PMI were released last week which are key indicators of economic health for the Eurozone’s leading economy. Overall, the PMI data were higher than expected, showing signs of recovery for the German economy, and providing some support for the Euro.
This week, important economic indicators scheduled to be released for the Euro, include French, German, Italian, and Spanish Manufacturing PMI, Annual CPI Flash Estimate, and Annual Core CPI Flash Estimate. The PMI data are key indicators of economic health for some of the Eurozone’s leading economies and may cause some volatility for the Euro. The CPI data are key indicators of inflation and may affect the ECB’s future direction. Inflation data this week are expected to show price pressures continuing to rise in the Eurozone, with German headline inflation rising to 6.1% from 5.1% in February.
ECB President Christine Lagarde stated last week that inflation is expected to rise in the Eurozone, but will drop again in the long run. Lagarde further pointed out that ECB monetary policies will not be in sync with Fed policy, reiterating the ECB’s commitment to a more dovish policy than other central banks. Lagarde has also stressed that the ECB needs to remain flexible and may alter its monetary policy in response to unforeseen inflationary pressures arising from the war in Ukraine, but stated that the EU Central Bank is in no hurry to raise its interest rate.
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 recently announced its decision to wind down its bond-purchasing program sooner than expected, placing the end of the bond-buying program at the third quarter of 2022, if financial conditions in the Eurozone allow it. The ECB is trying to avert a dangerous economic effect known as stagflation, the mix of economic stagnation and high inflation rates.
In addition, the European Central Bank has recently 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.
The sterling was outperformed by the dollar last week, with the GBP/USD rate falling as low as 1.315, before closing near 1.318 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.
The sterling was boosted early last week, amid expectations that key inflation indicators were going to be higher than previously expected. Annual CPI and Core CPI data were released on Wednesday and exceeded expectations, indicating that inflation is on the rise in the UK. The CPI index reached 6.2% and the core CPI rose to 5.2 percent year-on-year in February. These are indicators of consumer inflation and showed the fastest pace of price growth in 30 years. Although high inflation tends to boost the currency, high inflation rates were anticipated and had already been priced in by markets and the sterling dropped after the release of the CPI data.
UK finance minister Rishi Sunak announced his half-yearly budget update last Wednesday, amid pressure to increase government spending to mitigate the impact of the growing cost of living. The Office for Budget Responsibility 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. Sunak also announced tax reductions, although his statements were seen as cautious and failed to provide support for the pound.
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. Rising commodity prices and import costs in the UK, and especially the high costs of imported energy, are driving inflation rates even higher. Inflationary pressures are expected to culminate in April and the BOE has upped its forecast for inflation to a 7.25% peak in April. 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.
The sterling remains weak, despite a hawkish BOE policy. 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 in rising inflation rates that are driving its turn to a tighter fiscal policy. The BOE’s raise of its benchmark interest rate was highly anticipated though and had already been priced in by markets.
BOE Governor Andrew Bailey is due to deliver a speech on macroeconomics and financial stability at an online event hosted by Bruegel. His speech and the question-and-answer session following the speech are expected to draw investors’ attention to gain insight into the BOE’s future direction.
The Yen continued underperforming against the dollar last week, with the USD/JPY rate climbing to 122.4, before closing near the 122 level on Friday. The USD/JPY is currently trading in an uptrend and is at its highest level since 2016. If the USD/JPY declines, support might be found at 114.8 and further down at 113.4.
Annual Bank of Japan Core CPI data released last week, climbed to 1%, indicating that inflation in Japan is rising, mainly due to the higher cost of energy. The release of the CPI data boosted the Yen temporarily, as rising inflation might eventually push the BOJ to scale down its extremely dovish fiscal policy.
Near the end of last week, rising Japanese bond yields bolstered the currency a little. Japan’s treasury yields rose sharply last week, 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.
The Yen is depreciating against other currencies, causing concern in the government of Japan. The rising price of oil is of particular concern, with oil imports accounting for 80% of the country’s oil consumption.
In its latest monetary policy meeting in March, the Bank of Japan maintained its ultra-accommodating monetary policy, with unlimited bond purchases. The BOJ also did not raise its negative interest rate from -0.10%, with Bank of Japan Governor Haruhiko Kuroda stating that there is no need for Japan to raise interest rates at all. 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.
Low inflation rates in Japan and a weakening economy are steering the BOJ towards maintaining its dovish monetary policy. Inflation in Japan is far below the BOJ’s 2% goal, although as prices of imported goods and energy continue to increase, inflation may rise, while overall economic health declines. 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.
Rising hopes of a resolution to the Ukraine crisis are also putting pressure on the Yen. The Yen is considered a safe-haven currency and is supported by the war in Ukraine. The Yen, however, has not picked up pace as much as other safe-haven assets, as the BOJ’s fiscal policy is keeping the currency down.
Important indicators scheduled to be released this week for the Yen, include the Unemployment Rate, BOJ Summary of Opinions, Tankan Manufacturing Index, Tankan Non-Manufacturing Index, and Final Manufacturing PMI. These indicators may affect the JPY a little, although high volatility is not expected from the release of this data.
Gold prices started recovering this past week, after retreating the week before. Gold traded as high as $1,966 per ounce last week, before dropping on Friday, closing near $1,958 per ounce. If the price of gold decreases, support may be found near 1,877 per ounce, while further resistance may be found around $2,000 per ounce. The price of gold is supported by global inflationary pressures, as well as by the conflict in Ukraine.
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 rose to a two-year high of 2.5% on Friday, as investors anticipate a more aggressively hawkish Fed policy. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.
The war in Ukraine 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. Diplomatic talks between Russia and Ukraine continue, sparking hopes of a de-escalation of the conflict although so far, a solution does not seem near and gold price benefits from the ongoing crisis.
Sanctions against Russia have 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. The effect of rising inflation on gold seems to be temporary though. Global inflationary pressures, increased by the war in Ukraine, are pushing major Central Banks toward a more hawkish fiscal policy. The Federal Reserve raised its benchmark interest rate by 25 base points in its latest policy meeting, bringing its benchmark interest rate to 0.50% and the BOE similarly raised its benchmark interest rate by 25 base points, to 0.75%.
Oil prices remained high last week, as fears of a disruption in the distribution of oil intensified. Over the past few months, oil prices have been going up, driven by increasing demand and limited supply. The war in Ukraine has further increased the risks of disruption in the supply of oil, pushing its price further up.
A Caspian pipeline was seriously damaged on Tuesday, adding to worries over tight global supplies. Russian and Kazakhstan oil exports via the Caspian Pipeline Consortium may fall by up to 1 million barrels per day or 1% of global oil production. Russian President Vladimir Putin also announced on Wednesday that “unfriendly” countries would have to pay for Russian gas in Roubles. The announcement sent energy prices skyrocketing, especially European gas prices.
Oil prices spiked on Thursday, with WTI reaching $118 per barrel, before retreating to about $114 per barrel on Friday. If the WTI price drops, support can be found at the $100 per barrel psychological level, while resistance can be found near $130 per barrel.
Oil prices climbed last week, amid reports that the EU is considering a ban on Russian oil. Talks between the EU and US governments are focused on imposing further sanctions on Ukraine. Suggestions that the EU should ban Russian oil imports are on the table, although Germany, the Eurozone’s leading economy opposes this plan. A potential EU oil and gas ban would create a severe energy crisis, driving oil prices further up. The EU has not imposed direct bans on Russian oil and gas imports so far, 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.
The US banned all oil and gas imports from Russia two weeks ago, catapulting oil prices to over $130 per barrel. The UK has similarly vowed to phase out its dependency on Russian oil and major British oil companies are already boycotting Russian oil. Already, 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. A potential EU embargo on Russian energy-related products would see oil prices skyrocketing.
Negotiations of an Iran oil deal over its nuclear program are rumored to be coming to fruition. If the deal goes through, Iran could add as many as 900,000 barrels a day to global supplies, which might provide some relief to the energy crisis, although this additional source of supply has likely already been priced in by markets.
This week, all eyes are going to be on the next Ministerial OPEC+ meeting, on Thursday, March 31st. Strong volatility in the price of oil is expected in the days leading up to the meeting, as well after the event, depending on its outcome. Increased supply concerns, combined with high demand, may encourage OPEC and its allies to retain their current output goal.
A bullish trend has prevailed over the past week, with Bitcoin price finally breaking through the $45,000 level resistance and rising above $46,500 during the weekend, its highest weekly close yet in 2022.
A bullish trend has prevailed over the past week, driving cryptocurrency prices up. Bitcoin price continued climbing last week, finally breaking through the $45,000 level resistance and rising above $46,500 over the weekend, its highest weekly close yet in 2022. If Bitcoin price falls, it may find support at $36,000 and $33,000, while resistance may be found near $44,300. Ethereum price also spiked during the weekend, reaching almost $3,300 level. Ethereum may find support at $2,489. In case its price goes up, it may find resistance at $3,400.
Most major cryptocurrencies have rallied over the past week, with Ethereum outperforming Bitcoin up until the weekend, as the release of a long-awaited software upgrade in Ethereum seems to be drawing near, boosting its price.
The shift of major central banks towards a more hawkish fiscal policy has been putting pressure on cryptocurrencies over the past few months. The Federal Reserve raised its benchmark interest rate by 25 base points, bringing its benchmark interest rate to 0.50% and the BOE also announced a 25-base points rate hike, raising its interest rate to 0.75%. Cryptocurrency prices climbed however after the announcement of the rate hikes, as the interest rate raise fell within market expectations and was already priced in by markets.
Cryptos have been under pressure since the beginning of the year, hit by a bout of risk-aversion. Mounting geopolitical tensions have been driving the price of cryptos down, as investors shy away from risk assetsDiplomatic talks between Russia and Ukraine have sparked hope of a de-escalation of the crisis, providing relief to crypto markets.
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
ETH/USD 1h Chart
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