Important calendar events
The dollar was volatile last week, dipping mid-week but rallying towards the end of the week. The dollar index dropped to 105.5 mid-week but recovered on Friday, closing near 106.0. US treasury yields gained strength last week, with the US 10-year bond yielding approximately 4.67% at the end of the week.
This coming week's main event is the Fed monetary policy decision on May 1st. The US Federal Reserve kept interest rates unchanged at its policy meeting in March, within a target range of 5.25% to 5.50%. The US Federal Reserve has held interest rates steady since last July. We expect interest rates to remain steady this week and traders will focus on Fed chair Jerome Powell’s forward guidance.
The Fed is under a lot of pressure right now, however. On one hand, economic growth in the US is decelerating. The US economy needs extra stimulus and that means that interest rates need to go down. On the other hand, though, price pressures remain high, preventing the Fed from cutting interest rates.
For months now, markets have been speculating as to the timeline of the Fed’s pivot to a more dovish policy. A rate cut is not priced in before July and even then, the odds of a July rate cut are down to 40%. The first Fed rate cut is not fully priced in before August. More importantly, only 50 basis points of rate cuts are priced in within the year. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly. Diminishing rate cut expectations are boosting US treasury yields, providing support for the dollar.
Weak US economic data put pressure on the dollar last week, but sticky price pressures bolstered the dollar at the end of the week. The Fed is carefully monitoring the progress of disinflation in the US, which is linked to the central bank’s monetary policy.
Core PCE Price Index, which is the Fed’s preferred inflation gauge, rose by 0.3% in March, which was in line with expectations. On an annual basis, Core PCE rose by 2.7% in March, dropping marginally from February’s 2.8% print but coming above expectations of 2.6%. Core PCE Price Index data showed that US disinflation is progressing, albeit slowly.
US Headline inflation rose by 3.5% year-on-year in March exceeding February’s 3.2% print and rising above expectations of a 3.4% print. Monthly CPI rose by 0.4% in March, against expectations of 0.3% growth. Inflation in the US has proven to be sticky, resisting the Federal Reserve’s efforts to bring it down to its 2% target.
US GDP data for the first quarter of 2024 released on Thursday were disappointing, indicating that US economic growth is slowing down. The US economy expanded by only 1.6% in the first quarter of the year, missing expectations of 2.5% and falling considerably below the 3.4% expansion registered in the final quarter of 2023. The US economy is expanding at an increasingly slower pace, as GDP data have shown expansion by 4.9% in the third quarter of 2023.
Flash Manufacturing PMI dropped to 49.9 in April from 51.9 in March against expectations of a 52.0 print. US manufacturing data for April dropped below the level of 50, indicating that the manufacturing sector is beginning to contract. The US Services sector also showed signs of deterioration, with a PMI print of 50.9 in April versus 51.7 in March and 52.0 expected. The services sector continued to expand in April, but the rate of expansion slowed down.
Increased demand for safe-haven assets due to rising tensions in the Middle East is boosting the dollar. The conflict between Israel and Iran is expected to influence Forex markets in the weeks to come. The crisis between Israel and Iran seems to have been diffused for the time being, although risk aversion sentiment remains high as markets anticipate future developments in the region.
The economic calendar is full this week with major releases that are likely to affect the dollar. On top of the Fed rate decision on Wednesday, we have strong data due throughout the week. ADP Non-Farm Employment Change data are due on Wednesday, as well as US Manufacturing PMI data. US Unemployment Claims are due on Thursday and on Friday the monthly US Jobs Report and especially Non-Farm Payrolls (NFPs).
The EUR/USD pair traded in an uptrend last week. The currency pair rose to the 1.074 level on Thursday but pared gains on Friday, dropping to the 1.069 level. If the EUR/USD pair declines, it may find support at 1.060, while resistance may be encountered near 1.088.
Economic activity data released last week for the Eurozone were overall optimistic, boosting the Euro. EU Consumer sentiment rose to a two-year high in April as shown by the German GfK Consumer Climate index released on Thursday. The index rose to -24.2 in April from a slightly revised -27.3 in March, beating expectations of -26.0. Consumer sentiment in the Euro area remains low, however, as indicated by a print below zero.
German IFO Business Climate data on Wednesday showed that German business morale improved more than expected in April. The German business climate index rose to 89.4 in April compared with the 88.8 forecast and an 87.9 reading in March.
Business activity in the eurozone expanded at its fastest pace in nearly a year as demonstrated by Flash Services PMI data, which rose to 52.9 in April from 51.5 in March against expectations of 51.8. A print above 50 denotes industry expansion and April’s higher print indicates that the EU services sector is expanding at a faster rate. The manufacturing sector in the Eurozone, however, sank deeper into contractionary territory in April with a PMI value of 45.6 from 46.1 in March and against expectations of a higher print of 45.6.
The ECB left all policy settings unchanged at its latest monetary policy meeting. The European Central Bank kept interest rates unchanged at 4.50% but hinted at a dovish shift in the future. In their statement after the meeting, policymakers stressed that if Euro area inflation remains on a path to achieve the central bank’s 2% target, it would be appropriate to reduce the current level of monetary policy restriction.
The EU central bank has revised its inflation projections down to an average of 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. In addition, the ECB has revised its growth projection for 2024 to 0.6%. Expectations of cooling inflationary pressures coupled with increased economic fragility, may induce the central bank to start cutting interest rates sooner than anticipated.
The ECB is expected to start cutting interest rates later this year since inflationary pressures in the Euro area are easing. ECB President Christine Lagarde stated that ECB policymakers wish to see more evidence of inflation dropping to the central bank’s 2% target before cutting interest rates. Lagarde hinted that they expect to have sufficient data in three months, pointing to a rate cut in June. Market odds of a rate cut in June rose after the ECB meeting, while most market analysts forecast around 75 basis points of cuts this year.
The Euro is under pressure by expectations that the ECB will start lowering interest rates by June. The Fed is not likely to start cutting interest rates before July, putting the Euro at a disadvantage against the dollar. In addition, markets are currently pricing in only 50 basis points of Fed rate cuts within 2024, compared to 75 bps of ECB rate cuts.
Preliminary Flash GDP data for the first quarter of 2024 are due on Tuesday for Germany and for the Euro area as a whole. This week’s GDP data are expected to show that the Eurozone economy expanded marginally by 0.1% in the first quarter of the year. GDP data for Q4 of 2023 showed that the Euro area economy was stagnant with a GDP print of zero. The Eurozone economy does not show sufficient signs of recovery and is on the brink of recession. The EU economy contracted by 0.1% in the third quarter of 2023 and barely expanded in the second quarter by 0.1%, after contracting by 0.1% in Q1.
This coming week Flash inflation data are due on Tuesday and are expected to show that Euro area inflation remained steady at 2.4% in April. Headline inflation in the EU cooled to 2.4% in March from 2.6% in February. Core CPI, which excludes food and energy, dropped to 2.9% from 3.1% the previous month. Easing price pressures in the Eurozone may encourage the ECB to start lowering borrowing costs as early as June.
The GBP/USD currency pair moved in an upward trajectory last week, ending the week at the 1.249 level. If the GBP/USD rate goes up, it may encounter resistance near 1.270, while support may be found near 1.229.
The BOE maintained its official rate at 5.25% at its policy meeting in March but showed signs of preparing for a dovish pivot. BOE Governor Andrew Bailey’s statement after the meeting had dovish undertones, stating that cooling inflationary pressures in the UK support potential interest rate cuts and hinting at two or three rate cuts within the year.
On the data front, the British services sector jumped in April with a Flash PMI reading of 54.9 up from 53.1 in March and exceeding expectations of 53.0. The British service sector expanded at an advanced pace in April, as indicated by a higher print above 50. The UK manufacturing sector unexpectedly contracted in April, however, with manufacturing PMI dropping to 48.7 from 50.3 in March versus 50.3 anticipated.
British headline inflation eased to 3.2% year-on-year in March from 3.4% in February, surpassing expectations of a drop to 3.1%, however. Annual Core CPI, which excludes food and energy, fell to 4.2% in March from 4.5% in February, against 4.1% forecast. Inflationary pressures in the UK remain high and inflation may take a while to drop to the BOE’s 2% target.
The BOE recently updated its inflation outlook, predicting that inflation will drop to the BOE’s 2% target in the second quarter of the year. If the BOE’s forecasts are not realized, however, policymakers may be forced to keep interest rates at restrictive levels for longer.
Markets are currently giving a high probability of BOE rate cuts starting in August, while a rate cut by September is fully priced in. Rate cut expectations have become more moderate in the past months, with less than 50 basis points of rate cuts expected this year.
The British economy slipped into recession last year, contracting by 0.3% in the final quarter of 2023. Monthly GDP data for February released last week, however, revealed that the British economy has narrowly avoided slipping into recession and has expanded by 0.1%. More importantly, January’s GDP was revised upwards to show an expansion of 0.3%. The British economy is fragile and may force the BOE to pivot to a more dovish policy.
USD/JPY continued trading in an uptrend last week, breaking through successive resistance levels. The currency pair breached the key 155.0 level last week, which some analysts identified as the line in the sand for a government intervention to support the Yen. USD/JPY skyrocketed on Friday, touching 158.5, its highest level since May 1990. If the USD/JPY pair declines, it may find support near 153.6. If the pair climbs, it may find resistance near a multi-decade high of 160.5.
One of the key events last week was the BOJ monetary policy decision on the 26th. The BOJ kept all policy settings unchanged last week, despite the Yen’s recent weakness. The BOJ had pivoted to a more hawkish policy at its previous meeting in March, ending its negative interest rate policy and raising the benchmark interest rate into the 0% - 0.1% range. The Yen continues to weaken as there is still a significant disparity between interest rates offered by the BOJ and those from other major central banks.
BOJ Governor Kazuo Ueda did not deliver clear forward guidance at his press conference after last week’s meeting. Ueda underplayed the Yen’s weakness stating that the impact of the weak yen on underlying inflation is “not big”.
Ueda’s comments on Thursday pushed the Yen further down to fresh 34-year lows, reminding of the event in 2022, when dovish BOJ commentary had caused the Yen to plummet forcing the central bank to stage an intervention to support the currency. Ueda then stated on Friday that excessive volatility in forex markets could significantly impact the Japanese economy.
Yen intervention concerns are high, as Japanese authorities have been warning repeatedly that an intervention to support the currency might be imminent. The Yen’s weakness is causing concern to Japanese officials who have been warning traders against speculative short selling of the Yen.
Japanese authorities have intervened to support the currency in the past and may do so again if the Yen continues to decline. Concerns about an imminent intervention have been keeping Yen short sellers in check, providing some support for the currency.
On the data front, inflation in Japan remains low but is slowly rising. Headline inflation dropped to 2.6% year-on-year in March from 2.8% in February against expectations of a 2.7% print.
Final GDP data for the final quarter of 2023 showed that Japan's economy expanded by 0.1% against expectations of 0.3% expansion. The Japanese economy contracted by 0.7% in the third quarter and expanded by 1.2% in the second quarter of 2023, showing that the country’s economy is shrinking. Recession concerns limit the odds of a BOJ hawkish pivot in the coming months.
Gold prices edged lower last week, dropping to $2,290 per ounce mid-week before paring some of the week’s losses and rising to $2,330 per ounce on Friday. If gold prices rise, resistance may be encountered at $2,431 per ounce, while if gold prices decline, support may be encountered near $2,230 per ounce.
Gold prices have been typically 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, dipping mid-week but rallying towards the end of the week. The dollar index dropped to 105.5 mid-week but recovered on Friday, closing near 106.0. US treasury yields gained strength last week, with the US 10-year bond yielding approximately 4.67% at the end of the week. Gold prices remain near record highs, propped up by a strong safety bid, which counterbalances the strength of the US dollar and treasury yields.
Gold prices have experienced a meteoric rise recently and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high. The crisis between Israel and Iran seems to have been diffused for the time being, causing a decline in safe-haven demand and putting pressure on gold prices.
Fed rate cut expectations are propping up gold prices. The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. Rate cut expectations have shifted repeatedly in the past few months and markets are not anticipating a rate cut before July. More importantly, a few months ago markets were pricing in over 100 basis points of rate cuts in 2024 markets, which have now dropped to 50 basis points. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.
This coming week, the highly-anticipated Fed rate decision on May 1st is expected to cause volatility in gold prices. If Fed officials indicate that interest rates will remain at high levels for longer, gold prices might deflate.
Oil prices exhibited high volatility last week but settled higher on Friday, with WTI prices rising above $84.0 per barrel. If WTI price declines, it may encounter support near $80.7 per barrel, while resistance may be found near $87.8 per barrel.
Oil prices were under pressure last week, as weak US economic data fueled demand worries. US GDP data for the first quarter of 2024 released on Thursday were disappointing, indicating that US economic growth is slowing down. The US economy expanded by only 1.6% in the first quarter of the year, missing expectations of 2.5% and falling considerably below the 3.4% expansion registered in the final quarter of 2023. Slow economic growth is reducing the oil demand outlook putting pressure on oil prices.
Geopolitical tensions are boosting oil prices, however. Supply concerns provide support for oil prices, as the crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution. The crisis between Israel and Iran seems to have been diffused for the time being, putting pressure on oil prices.
US crude oil inventories released on Wednesday showed that US crude stockpiles fell short of expectations. The US Energy Information Administration reported a weekly crude stockpile draw of 6.4M barrels for the week to April 19th, against expectations of a 1.6M barrel raise and following a build by 2.7M barrels the week before.
OPEC+ kept existing output cuts in place at its latest meeting, boosting oil prices. OPEC kept its output policy steady in April, maintaining its voluntary production cuts of 2.2 million barrels per day. In addition, Russia may be forced to reduce its oil output even further, as a result of lower refinery runs due to Ukrainian drone strikes. Iraq will continue to reduce its crude exports by another 130K barrels per day to compensate for exceeding its OPEC+ quota in January.
Oil prices are also kept in check by high Fed interest rates. The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. Market expectations of rate cuts dropped sharply after the release of the US inflation report last week. Odds of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly. This week the Fed monetary policy decision on May 1st may cause some volatility in oil prices.
Bitcoin price was volatile last week, sinking below the $62,500 level but paring some losses over the weekend and reclaiming the $63,000 level. If the BTC price declines, support can be found at $60,000, while resistance may be encountered near $72,800.
Ethereum price also exhibited high volatility last week, dropping below $3,100 mid-week but rallying to $3,300 over the weekend. If Ethereum's price declines, it may encounter support near $2,800, while if it increases, resistance may be encountered near $3,720.
Bitcoin recently reached a new all-time high of $73,800. Bitcoin’s bullish run has renewed interest in crypto markets, boosting other cryptocurrencies as well. Bitcoin has encountered significant selling pressure, however, causing increased volatility in the past weeks as bulls wrestle with bears.
Bitcoin underwent ‘halving’ the previous weekend. Every halving event cuts the rate at which new bitcoins are released into circulation in half, increasing the scarcity value of Bitcoin. This was the fourth halving event in the history of Bitcoin and markets have been anticipating the event for some time. The Bitcoin halving event, however, had already been priced in weeks ago, boosting the value of the cryptocurrency to an all-time high. As a result, the markets’ reaction to the event was somewhat muted and Bitcoin price has been dropping since. Bitcoin bulls have been attempting to restore the cryptocurrency to its recent all-time high, but bears are fighting back resulting in high volatility.
Crypto markets have been under pressure by the escalation of hostilities between Israel and Iran. Fears that the war will spread in the Middle East are promoting a risk aversion sentiment putting pressure on risk assets such as cryptocurrencies. The crisis between Israel and Iran seems to have been diffused for the time being and renewed risk sentiment propped up crypto markets this week.
Cryptocurrency prices are also affected by central banks’ interest rates. High-interest rates are putting pressure on risk assets, while the promise of rate cuts boosts crypto markets. The US Federal Reserve kept interest rates unchanged at its latest policy meeting in March, within a target range of 5.25% to 5.50%. Odds of rate cuts are becoming more moderate, boosting crypto markets, as policymakers have stated that they intend to start reducing interest rates slowly. The Fed rate decision this week on May 1st is likely to affect crypto markets. If Fed officials indicate that interest rates will remain at high levels for longer, cryptocurrency prices might decline further.
BTC/USD 1h Chart
ETH/USD 1h Chart
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