Important calendar events
The dollar lost strength last week on diminished rate hike expectations with the dollar index ending the week just above the 102 level. US Treasury yields were volatile last week, with the US 10-year bond dipping from 3.54% to 3.27% mid-week, before paring some losses at the end of the week, closing near 3.40% on Friday.
Labor data were especially important last week and caused volatility in dollar prices. Non-farm payrolls on Friday showed that U.S. employers added 236K workers in March versus 326K in February and expectations of a gain of 228K jobs. The unemployment rate dropped to 3.5% in March from 3.6% in February. Average hourly earnings showed that US pay growth is slowing down. This is a strong inflation gauge and declined to 4.2% on an annual basis in March from 4.6% in February. US unemployment claims on Thursday exceeded expectations, rising to 228K this week against the 200K predicted.
ADP Non-Farm Employment data on Wednesday, which is an early estimate of the Non-Farm Payrolls, fell below expectations. ADP employment change dropped to 148K in March from 242K in February, indicating decelerating employment growth. ISM Services PMI dropped to 51,2 in March from 55.1 in February, against expectations of a 54.3 PRINT. The ISM Services index remained just below the threshold of 50, indicating growth in the sector, but at a decelerating pace.
The precarious state of the banking sector has derailed the Federal Reserve’s plans for fighting inflation. The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%.
There is a lot of uncertainty and speculation on what the Fed is going to do at its next meeting in May as concerns about a banking sector meltdown remain high. Market odds are currently split between another 25-basis point rate hike and a complete pause in rate hikes. The Fed has already slowed the pace of rate hikes and may have to discontinue its tightening policy to prioritize financial stability over its fight against inflation.
US inflation data have shown that price pressures are decelerating, but at a slower pace than anticipated. US CPI rose by 0.4% in February, which showed that inflation cooled slightly from January’s 0.5% print. Inflation fell for the eighth consecutive month in February, as US headline inflation in February dropped to 6.0% year-on-year from 6.4% in January. The pace of core CPI, on the other hand, accelerated in February. Core CPI, which excludes food and energy, rose by 0.5% in February from a 0.4% growth in January. PPI data was more encouraging, indicating that the process of disinflation is underway. The increase in oil prices this week, however, has re-ignited recession concerns, as the high cost of fuel is likely to increase price pressures.
Final GDP data for the final quarter of 2022 were disappointing, showing that the US economy expanded by 2.6% against expectations of a 2.7% growth.
High volatility in dollar price is expected this week as the much-anticipated US inflation data are coming up. Consumer Price Index on the 12th is forecast to decrease to 5.2% year-on-year in March from 6.0% in February. Core CPI is seen little change around 5.5% year-on-year. PPI data on the 13th will provide a more complete picture of the direction of US inflation. Any signs of cooling price pressures may tip the odds in favor of a pause in rate hikes.
US Retail Sales and Consumer Sentiment data are also due this week on the 14th. These are strong indicators of economic activity and health and may affect the dollar.
FOMC members’ speeches this week will be closely followed by traders for hints into the Fed’s future policy direction and are likely to affect the dollar. The minutes of the latest Fed meeting will be released this week on the 12th and may provide further insight into the Fed’s policy direction.
The Euro lost strength against the dollar last week, with EUR/USD declining to the 1.090 level. If the currency pair goes up, it may encounter resistance near 1.097. If the EUR/USD pair declines, it may find support at 1.078.
Economic activity data released last week for the Eurozone were mixed overall. Final Manufacturing PMI remained at approximately the same level, rising to 47.3 in March from 47.1 in April. The PMI manufacturing data remained below the threshold of 50, showing a contraction in the sector.
German Factory orders rose by 4.8% in February from 0.5% in January, against expectations of a 0.2% growth. EU Final Services PMI dropped to 55.0 in March from 55.6 in February, indicating decreased growth in the Services sector. The indicator remained above the threshold of 50.0 however, which denotes industry expansion.
Headline inflation in the Eurozone eased to 6.9% year-on-year in March from 8.5 % in February, against expectations of a 7.1% print. Core CPI, which excludes food and energy, went up slightly to 5.7% on an annual basis in March from 5.6% in February, hitting a record high.
The ECB raised interest rates by another 50 bp at its monetary policy meeting in March, bringing its main refinancing rate to 3.5%. The ECB stressed the importance of a data-driven approach to monetary policy moving forward. The ECB is likely to scale back future interest rate increases as EU inflation is showing signs of cooling and the state of the banking sector remains critical.
Recent GDP 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.
On the data front, only minor indicators are scheduled to be released this week for the EU. Overall, this is expected to be a slow week for the Euro after the Easter holiday.
The GBP/USD pair gained strength last week, rising to the 1.241 level. If the GBP/USD rate goes up, it may encounter resistance near 1.252, while support may be found near 1.218.
Economic activity data released on Thursday for the UK were overall mixed. UK Construction PMI dropped to 50.7 in March from 54.6 in February, against expectations of a 53.4 print. The indicator remained above 50, denoting industry expansion, but at a reduced rate.
UK Final Services PMI data released on Wednesday fell within expectations, with a 52.9 point in March from 52.8 in February, against the 52.8 predicted. The indicator remained above the threshold of 50.0, which denotes industry expansion.
The BOE raised interest rates by 25 bp at its meeting in March, bringing the official bank rate to 4.25%. The decision was not unanimous, as 7 MPC members voted in favor of raising interest rates, while two members voted for a pause in rate hikes.
The recent global banking crisis has reduced interest raise expectations, as most governments are concerned that further tightening may result in a meltdown in the troubled sector. The BOE is expected to continue hiking rates by 25 bp at its next policy meeting in May, although some analysts predict a pause in rate hikes.
UK headline inflation rose to 10.5% year-on-year in February from 10.1% in January, versus expectations of a drop to 9.9%. Price pressures remain high in the UK, forcing the BOE to continue its policy of economic tightening at the risk of economic recession.
The UK economy expanded by 0.1% in the final quarter of 2022, against a preliminary estimate of economic stagnation. 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.
The most important fundamentals coming up this week for the Sterling are UK GDP data on the 13th. Monthly GDP is expected to expand by only 0.1% in February from 0.3% in January.
USD/JPY edged lower this week, closing near 132.1 on Friday. If the USD/JPY pair declines, it may find support near 129.6. If the pair climbs, it may find resistance at 133.7.
The Bank of Japan maintained an ultra-easy policy at its monetary policy meeting in March, 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 ended on April 9th, after remaining at the helm of the BOJ for a decade.
Economist Kazuo Ueda replaced Haruhiko Kuroda over the weekend, becoming the BOJ's 32nd governor. Ueda will be faced with the challenge of normalizing Japan’s monetary policy after prolonged easing. 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 poor economic outlook raises 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.
National Core CPI was at 3.1% year-on-year in February. Tokyo Core CPI for March was hotter than expected, at 3.2% on an annual basis, against expectations of a 3.1% print. Japan's inflation has exceeded the BOJ’s 2% target, 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.
On the data front, several economic activities and health indicators are due this week for Japan and may affect the Yen. These include Current Accounts, Consumer Confidence, and Economy Watchers' Sentiment.
Volatility in Yen price is expected this week as the new BOJ governor takes up his duties. Ueda will hold a press conference on Monday, which is expected to attract the attention of market participants. Traders will be following Ueda’s speeches closely in the next few weeks, ahead of the BOJ policy meeting at the end of the month.
Gold prices rose to multi-month highs this week, touching $2,030 per ounce on diminished rate hike expectations. Gold prices pared some of their gains towards the end of the week, closing near $2,007 per ounce on Friday. If gold prices increase, resistance may be encountered near $2,032 per ounce, while if gold prices decline, support may be found near $1,934 per ounce. Gold prices soared this week, driven by decreasing US rate hike probabilities. The recent crisis in the banking sector caused risk sentiment to plummet, raising the appeal of safe-haven assets.
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 lost strength last week on diminished rate hike expectations with the dollar index ending the week just above the 102 level. US Treasury yields were volatile last week, with the US 10-year bond dipping from 3.54% to 3.27% mid-week, before paring some losses at the end of the week, closing near 3.40% on Friday.
The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. 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.
There is a lot of uncertainty and speculation on what the Fed is going to do at its next meeting in May as concerns about a banking sector meltdown remain high. Market odds are currently split between another 25-basis point rate hike and a complete pause in rate hikes. The Fed has already slowed the pace of rate hikes and may have to discontinue its tightening policy to prioritize financial stability over its fight against inflation.
US inflation data are coming up this week and will likely cause volatility in dollar prices, which may be transferred to gold prices. US CPI data on the 12th and PPI data on the 13th will provide information on the direction of the US inflation and may play a pivotal role in determining the Fed’s future policy.
Oil prices jumped last week after OPEC announced an output cut and remained high throughout the week, with WTI trading near $80.3 per barrel on Friday. If the WTI price declines, it may encounter support near $65 per barrel, while resistance may be found near $81.7 per barrel.
Oil prices surged on Monday after OPEC+ producers announced surprise cuts in oil production over the weekend. The organization decided to reduce output by 1.1 million barrels per day, to offset the drop in oil prices from the global banking crisis. According to OPEC representatives, the cuts will start in May and last through the end of the year. Increased supply concerns caused oil prices to skyrocket after OPEC’s announcement, with WTI touching $81.5 per barrel. The increase in oil prices has re-ignited recession concerns, as the high cost of fuel is likely to increase price pressures.
Supply concerns are propping oil prices this week. Reports of reduced US drilling activity provided support for oil prices on Thursday. The oil and gas rig count fell by four to 751 this week, with US oil rigs decreasing by 2 to 590. In addition, US crude oil inventories dropped by 3.7M barrels this week, exceeding expectations of a 1.6M barrel drop.
The recent banking crisis has driven oil prices down in the past few weeks. As recession concerns mount, the potential of a banking sector meltdown has reduced the oil demand outlook.
Fears of a slowdown in the U.S. economy also put pressure on oil prices. Recession concerns run high and aggressive rate hikes stifle economic activity, putting a lid on oil prices. The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%.
Market odds are currently split between another 25-basis point rate hike at the Fed’s next meeting in May, and a complete pause in rate hikes. The Fed has already slowed the pace of rate hikes and may have to discontinue its tightening policy to prioritize financial stability over its fight against inflation.
Concerns over China’s economic recovery also reduce the oil demand outlook. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. Hopes of economic recovery were revived after the Chinese abandoned its zero-Covid policy. China’s economy remains fragile however and may take longer than anticipated.
Crypto markets gained strength in the past couple of weeks, with Bitcoin price reaching a nine-month peak. The recent banking crisis drove risk sentiment down, as global recession concerns were re-ignited. As, however, the traditional banking system faced problems, the appeal of cryptocurrencies became more apparent. Many investors have turned towards cryptocurrencies in the past few weeks, fearing a globalized meltdown in the banking system.
Reduced rate hike expectations boosted risk sentiment this week, providing support for cryptocurrency prices. The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. Market odds are currently split between another 25-basis point rate hike at the Fed’s next meeting in May, and a complete pause in rate hikes.
News that the Commodity Futures Trading Commission (CFTC) is suing the largest crypto exchange in the world, Binance, halted the rally in cryptocurrency prices earlier this week though. The momentum driving the crypto market’s recent rally seems to have faded and cryptocurrency prices edged lower on Thursday.
Bitcoin price traded around the $28,400 level during the weekend. If the BTC price declines, support can be found near $26,500, while resistance may be encountered near $29,000.
Ethereum price gained strength during the week but declined towards the end of the week, dropping to $1,860. If Ethereum's price declines, it may encounter support near $1,760; if it increases, resistance may be encountered at $2,000.
Ethereum price has gone up this week as planned upgrades are due soon. The highly-anticipated Shanghai upgrade is going live on April 12th. This upgrade will enable the withdrawal of staked Ethereum from the blockchain network, effectively completing its transition to a proof of stake model.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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