London 09/03/2022
The war in Ukraine continues without pause as the Russians bombard all the big cities with air forces while at the same time, the infantry is approaching closer and closer. The markets react positively though because there are rumors for opening windows in diplomacy. The Jerusalem Post mentions that there are hidden conversations between Russia and Ukraine and that the differences are not very big anymore. Also, there are hopes for a solution at the peace talks that will take place in Turkey tomorrow.
Most of the major stock indices are in a rally (currently SP500 is performing +1.60%, NASDAQ100 is performing 1.87%, DAX40 is performing +5.96%). The commodities perform a pullback from the recent highest levels: the WTI (US oil) is at -4.99% and Gold is at -2.37%. This is an image of relief as there are expectations for a solution.
The US dollar opened the week, continuing the strong uptrend of the last days but soon enough it turned to bearish and only the today’s losses, approaching 1%. The other currencies such as the euro and the sterling are getting stronger. Finally, there is a strong recovery of the bond yields. The US 10-year bond yield opened the week at 1.70% and it moving currently at 1.91%.
Tomorrow is a very important day, fundamentally wise. In the US, the inflation for February is announced and the market consensus is 7.9%, significantly higher than the 7.5% that we see in January. Also, there is the ECB session for the interest rates and the monetary policy in Eurozone. It will be a big surprise any possible interest rates hiking but it seems that there is an advanced conversation for potentially massive bond sales to finance an energy and defense fund to help the European countries maintain their resolve as its financial sanctions against Russia hurt them as well. The inflation in China, as was announced earlier at 0.9% in February, is not very high and it was close to the estimations, so no further actions are expected by the People’s Bank of China shortly.
EURUSD (current price 1.1041) has managed to recover during the last two days and it has exceeded the milestone price of 1.10 for the first time this week. The rumors that the peace talks may conclude a solution have helped the euro and it has weakened the US dollar as a part of the risk appetite has returned to some investors. The US economic calendar is poor so far but the Eurozone and Germany had some announcements. The European GDP rose in Q4 2021 by 4.6% and the Employment Change in the same period rose by 2.2%. Also, in Germany, the factory orders were 7.3% higher in January (YoY), the retail sales 10.3% higher (YoY), and the industrial production 1.8% higher (YoY). This news gives a little help to the euro as well but the war news, the US inflation announcement, and tomorrow’s ECB session for interest rates & monetary policy are expected to dominate on the pair. As long as the EURUSD is above 1.10, the further recovery chances are bigger and the next resistance is at 1.1120.
GBPUSD (current price 1.3169) is recovering today but still is below the last week’s closing price of 1.3235. The weakness of the USD is helping the bullish reaction of the pair as well as the improved sentiment in the markets, creating a preference for less safe-haven assets. The UK economic calendar is relatively empty so far but the Like-For-Like retail sales that were announced on Tuesday at 2.7% in February were much below the expectations of 15.2% and this fact somehow stopped the sterling from a stronger uptrend. In the price area of 1.3170, there is an important resistance for GBPUSD but in the case of a solid breakout above this level, the pair can climb higher, even at 1.3360, pretty soon.
USDJPY (current price 115.72) is bullish this week although the US dollar is weak enough. The rise in bond yields and the weakness of the Japanese currency have helped a lot in this movement. The improved sentiment in the markets has pushed away some investors from the Japanese yen which is considered to be a risk-off investment solution. The annualized Japanese GDP was announced at 4.6%, much lower than the markets’ consensus of 5.6%. Nothing has changed significantly on the pair: there is a consolidation during the last months, between 112.50 and 116.35 with a clear trend or direction. The price area of 116.35 which is a multi-year high is a strong resistance for the pair. There is a double-top pattern as the USDJPY has touched this level twice during the last weeks (Jan., 4th, and Feb., 10th) and almost immediately there was a sharp bearish reaction. There’s room for more uptrend but it takes a lot of “fuel” to breakout 116.35.
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.
