Important calendar events
The dollar edged higher last week, and the index rose above 106.1. US treasury yields also advanced, with the US 10-year bond yielding approximately 4.64%.
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 escalating and is expected to influence Forex markets in the weeks to come. Tensions in the Middle East have been high after the recent airstrike on Iran’s embassy in Syria. Iran accused Israel of the attack and launched a retaliative drone strike on Israeli ground. Israel launched an airstrike against Iran on Friday as retaliation for the drone strikes. Israel’s retaliatory attack came after weeks of soaring tensions in the region. The attack, however, was mostly interpreted as a show of force rather than an action intended to escalate matters. Irani officials have reportedly stated that Iran does not intend to retaliate anew against Israel. 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 US Federal Reserve kept interest rates unchanged at its policy meeting in March, within a target range of 5.25% to 5.50%, as expected. The FOMC statement was optimistic about the state of the US economy and emphasized that disinflation is underway, although inflationary pressures remain high.
For months now, markets have been speculating on the timeline of the Fed’s pivot to a more dovish policy. Fed Chair Jerome Powell has stated that policymakers wish to see more evidence of disinflation before cutting interest rates. The Fed is carefully monitoring the progress of disinflation in the US, which is linked with the central bank’s monetary policy.
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.
Speaking at a forum in Washington on Tuesday, Powell stated that the progress of disinflation is slower than originally anticipated and will likely affect the timeline of Fed rate cuts. Fed rate cut odds dropped further after Powell’s speech and US treasury yields surged, boosting the dollar.
Market expectations of rate cuts have shifted repeatedly in the past few months. At the beginning of the year, the first rate cut was expected in March, but currently, market odds of a rate cut in July have dropped below 50%. 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. Diminishing rate cut expectations are boosting US treasury yields, providing support for the dollar.
On the data front, housing data released on Tuesday were disappointing. Building permits in the US dropped to 1.46M in March from 1.52M in February, falling short of expectations of 1.51M. This is an indicator of future building activity and March’s data show that the US housing sector is shrinking. In addition, US Housing Starts, which shows the number of new residential buildings that began construction, also fell below expectations. Housing starts dropped to 1.32M in March from 1.55M in February, versus 1.48M expected.
Retail Sales rose by 0.7% in March against expectations of a 0.4% growth according to data released on Monday. Moreover, February’s print was revised upwards to reflect a monthly growth of 0.9%. Core Retail Sales, which exclude the sales of automobiles, rose by 1.1% in March exceeding expectations of 0.5%, and February’s Core Retail sales were also revised upwards to 0.6%.
Core PCE Price Index, which is the Fed’s preferred inflation gauge, rose by 0.3% in February compared to January’s 0.4% growth, which was in line with expectations. On an annual basis, Core PCE dropped just below 2.8% in February, registering a marginal drop from January’s almost 2.9% print. Core PCE Price Index data showed that US disinflation is progressing, albeit slowly. Core PCE Price Index data for March are due on Friday and are expected to cause volatility in the price of the dollar.
The US economy remains robust and expanded by 3.4% in the final quarter of 2023, exceeding previous estimates of 3.2% growth. The US economy is expanding at a slower pace, however, as GDP data have shown expansion by 4.9% in the third quarter of 2023. US GDP data for the first quarter of 2024 are scheduled to be released on Thursday and are amongst this week’s most highly-anticipated fundamentals.
EUR/USD traded sideways last week, closing near the 1.066 level on Friday. If the EUR/USD pair declines, it may find support at 1.060, while resistance may be encountered near 1.094.
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.
Final CPI data released on Wednesday for the Eurozone confirmed that inflationary pressures are easing, boosting the Euro. Headline inflation in the Euro area cooled to 2.4% in March from 2.6% in February, which was in line with preliminary estimates. Core CPI, which excludes food and energy, dropped to 2.9% from 3.1% the previous month, also confirming preliminary Core CPI data. Easing price pressures in the Eurozone may encourage the ECB to start lowering borrowing costs as early as June.
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.
In a speech at the International Monetary Fund meetings on Wednesday, Lagarde stated that it was too early for the ECB to review its 2% inflation target. Lagarde warned markets that the fight against inflation is not over yet, hinting that interest rates may have to remain at restrictive levels until inflation drops closer to the ECB’s target.
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.
On the data front, German investor morale reached its highest level in two years, as evidenced by German ZEW Economic Sentiment data released on Tuesday. The German ZEW index surged to 42.9 in April from 31.7 in March exceeding expectations of 35.9. ZEW Economic Sentiment for the entire Euro Area also exceeded expectations, rising to 43.9 in April from 33.5 in March against expectations of a 37.8 print.
Flash GDP data for Q4 of 2023 showed that the Euro area economy was stagnant with a GDP print of zero, as anticipated. 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.
GBP/USD edged lower last week and retreated to the 1.237 level on Friday. If the GBP/USD rate goes up, it may encounter resistance near 1.289, while support may be found near 1.203.
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.
UK inflation surprised on the upside on Wednesday, diminishing BOE rate cut expectations and boosting the Sterling. 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 the 4.1% forecast. British CPI data on Wednesday were disappointing, indicating that 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. Bailey admitted on Wednesday that high wage growth in the UK is pushing inflation higher but added that he expects inflation to cool further next month. BOE’s Megan Greene stated that significant progress has been made in disinflation but hinted that interest rates may remain at restrictive levels for longer if inflationary pressures remain high. BOE Deputy Governor Dave Ramsden stated on Friday that British inflation is dropping at a satisfactory pace and that there is no risk of inflationary pressures rising again soon.
Odds of a BOE rate cut in June dropped sharply after the release of the UK inflation report on Wednesday. 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.
Weak UK labor data on Tuesday put pressure on the Sterling. The UK unemployment rate in the three months to February rose to 4.2% from 3.9% the previous month, against expectations of a 4.0% print. For the same period, the Average Earnings Index grew by 5.6%, which was unchanged from last month’s reading, exceeding expectations of 5.5% growth. Claimant Count Change, which reflects the change in the number of people claiming unemployment benefits, rose to 10.9K in March from 4.1K in February, falling, however, short of the 17.2K print anticipated.
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 rose to a multi-decade high of 154.8 last week, its highest level since May 1990. The currency rate is trading close to the key 155.0 level, which some analysts identify as the point for intervention in support of the Yen. If the USD/JPY pair declines, it may find support near 151.3. If the pair climbs, it may find resistance near the psychological level of 155 and above that at a multi-decade high of 160.5.
One of the key events this coming week is the BOJ monetary policy decision on the 26th. The BOJ pivoted to a more hawkish policy in March, ending its negative interest rate policy. The BOJ has been keeping interest rates at a negative level, putting pressure on the Yen. Japanese policymakers voted to raise the benchmark interest rate into the 0% - 0.1% range.
The BOJ abandoned its ultra-easy monetary policy after almost eight years and performed its first rate hike in almost 17 years. The BOJ also abandoned bond yield curve control and dropped purchases of riskier assets.
BOJ Governor Kazuo Ueda did not deliver clear forward guidance at his press conference after the meeting, stating that accommodative financial conditions will be maintained for the time being and did not give any hints of future rate hikes.
Even though the BOJ voted to raise interest rates, 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. The Yen’s recent decline may force the BOJ to relinquish its accommodative policy further. Ueda stated on Thursday that Yen's recent decline might push inflation upwards and compel the central to raise interest rates again.
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.
Finance Minister Shunichi Suzuki and other Japanese officials have been issuing warnings to currency speculators repeatedly in the past couple of weeks, hinting at another intervention to support the weakening Yen. Suzuki stated on Monday that Japanese authorities were watching currency moves closely, and that they were fully prepared to act. Suzuki reiterated on Tuesday that the Japanese government will take a thorough response as needed.
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.
Last week, reports of a trilateral meeting between finance officials of the US, Japan, and South Korea, raised speculation of a Yen intervention. US Treasury Secretary, Janet Yellen, Japanese Finance Minister Shunichi Suzuki, and South Korean Finance Minister Choi Sang-mok, met to discuss excessive volatility in Forex markets. The three finance leaders agreed to consult closely on sudden moves in Forex markets. The currencies of both Japan and South Korea have declined sharply recently, raising concerns about a joint intervention by the two countries to support their respective currencies.
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 have been hitting new all-time highs in the past weeks and have recently reached a record high of $2,431 per ounce. Gold prices remained high last week, closing near $2,390 per ounce on Friday. If gold prices increase, resistance may be encountered at $2,431 per ounce, while if gold prices decline, support may be encountered near $2,145 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 edged higher last week, and the index rose above 106.1. US treasury yields also advanced, with the US 10-year bond yielding approximately 4.64%. Gold prices remain at 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. Tensions in the Middle East have been high after the recent airstrike on Iran’s embassy in Syria. Iran accused Israel of the attack and launched a retaliative drone strike on Israeli ground.
Israel launched an airstrike against Iran on Friday as retaliation for the drone strikes. Israel’s retaliatory attack came after weeks of soaring tensions in the region. Gold prices spiked briefly during Israel’s attack against Iran, coming close to the all-time high of $2,431 per ounce and touching $2,420 per ounce. The attack, however, was mostly interpreted as a show of force rather than an action intended to escalate matters. Irani officials have reportedly stated that Iran does not intend to retaliate anew against Israel. 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 US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. Fed rate cut expectations are affecting gold prices. Rate cut expectations have shifted repeatedly in the past few months and after last week's inflation data 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.
Oil prices exhibited high volatility last week and WTI price surged to $86.0 per barrel on Friday after Israel attacked Iran but dropped below $83.0 per barrel soon after. If WTI price declines, it may encounter support near $80.7 per barrel, while resistance may be found near $87.8 per barrel.
US crude oil inventories released on Wednesday showed a surprise build in US crude stockpiles, putting pressure on oil prices. The US Energy Information Administration reported that weekly crude stocks rose by 2.7M barrels for the week to April 12th, which exceeded expectations of a rise of 1.6M barrels.
Geopolitical tensions are boosting oil prices. 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. Tensions in the Middle East have been high after the recent airstrike on Iran’s embassy in Syria. Iran accused Israel of the attack and launched a retaliative drone strike on Israeli ground. The US has pledged to support Israel in the conflict, raising concerns of a wider regional conflict, which might see oil prices rising even higher.
Israel launched an airstrike against Iran on Friday as retaliation for the drone strikes. Israel’s retaliatory attack came after weeks of soaring tensions in the region. Oil prices spiked briefly during Israel’s attack against Iran, but deflated later on as it became clear that the situation would not escalate further. Irani officials have reportedly stated that Iran does not intend to retaliate anew against Israel. 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.
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.
Bitcoin price exhibited high volatility last week. Bitcoin dropped to $60,000 on Friday on increased risk aversion sentiment then rose to $65,000 after the BTC halving event on the weekend. If the BTC price declines, support can be found at $60,000 again, while resistance may be encountered near $72,800.
Ethereum prices were also volatile last week, dipping below the key $3,000 level mid-week and then rising to $3,150 over the weekend. If Ethereum's price declines, it may encounter support near $2,800, while if it increases, resistance may be encountered near $3,700.
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 as well, however, causing increased volatility in the past weeks as bulls wrestle with bears.
Bitcoin underwent a ‘halving’ during the weekend, boosting its price. 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, markets’ reaction to the event was somewhat muted and Bitcoin price rose only marginally after the event.
Crypto markets have been under pressure in the past week 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. Tensions in the Middle East have been high after the recent airstrike on Iran’s embassy in Syria. Iran accused Israel of the attack and launched a retaliative drone strike on Israeli ground. The US has pledged to support Israel in the conflict, raising concerns of a wider regional conflict.
Israel launched an airstrike against Iran on Friday as retaliation for the drone strikes. Israel’s retaliatory attack came after weeks of soaring tensions in the region. Irani officials have reportedly stated that Iran does not intend to retaliate anew against Israel. The crisis between Israel and Iran seems to have been diffused for the time being, although risk aversion sentiment remains high pushing risk assets down.
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.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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