London 02/03/2022
The markets keep on moving in a highly volatile environment due to the war in Ukraine. Today is going to take place the second round of discussions between Russia and Ukraine officers in an attempt to find a solution while the Russian attack is in full development. The war has caused huge uncertainty in the markets with many side effects like extremely high prices in the energy assets.
Besides the war, earlier today the ECB released the inflation rate in the Eurozone and 5.8% which is much higher than the 5.1% of the previous month and even higher than the markets’ expectations of 5.4%. The higher inflation rate is pushing ECB to apply actions like tighter monetary policy and interest rates hike but this is in serious doubt because the consequences of the war may prevent such actions.
The head of Fed Jerome Powell will testify later today before the House Committee on Financial Services. In the pre-release of his testimony, Mr. Powell said that he expects it to be appropriate to raise interest rates at the upcoming March meeting. Mr. Powell also commented on the situation in Ukraine and the impact on the US economy as highly uncertain.
The US dollar as a risk-off option for many investors is very strong this week while most of the other major currencies are bearish. The bond yields also fell as the US 10-year bond yield is below 1.80%, starting the week from the price area of 2%.
EURUSD (current price 1.1098) has broken out a series of supports like 1.1180 and 1.1120 and dropped below 1.11. The weekly low price so far is 1.1058 which is the lowest price of the last 21 months. The US PMI announcement was positive but the US economy may be influenced by the war as well. The high inflation that was announced in the Eurozone area should trigger the euro’s strength under normal circumstances but during a war, it didn’t make much sense. The unemployment rate was announced at 5% in Germany and this was the only important scheduled news from the Eurozone’s area so far. The next support if the bearish course for the pair carries on is 1.10 and below that, it’s 1.0880. The US NFPs (Non-Farm Payrolls) on Friday is an important announcement as well.
GBPUSD (current price 1.3342) is bearish this week as it opened with a big gap (about 90 pips below) compared with the last week’s closing price. The strong US dollar is pushing the pair lower as the sterling seems weak after the dovish outlook of the recent speech of Andrew Bailey (Bank of England). The UK macros were positive this week but it seems that it is ignored by the markets. The most likely interest rates high in the US next month is already helping the USD which is certainly strong due to the very negative investing sentiment. Below 1.3270 we may say an acceleration of the downtrend, on a possible bearish course to 1.30. Another critical support is at 1.3170.
USDJPY (current price 115.50) is bullish this week as the US dollar is gathering many investors and traders. The uptrend could be stronger but the important drop in the bond yields does not allow it. The Japanese macros that have been announced during this week are mixed (some above and some below expectations) but the Japanese currency is strong enough because as a safe-haven asset is preferred by many investors too. The most visible target for the pair’s buyers is the price area of 116.35 which is a multi-year high price but in such abnormal periods, it may have no meaning at all.
DISCLAIMER: The information produced by a-Quant is of a general nature only. It is not personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

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