27/03/2023

General Comment

The looming banking crisis that started in the United States and rocked the European continent due to the Credit Suisse issue appears to be changing central banks ‘ plans regarding monetary policy and interest rates. At the moment there has been no particular change: the Fed last Wednesday raised interest rates by 0.25% amid a climate of uncertainty after recently likely prices were from 0% up to 0.50%. It seemed to be a middle ground in order to harness inflation and not cause too much worry about the markets. This was achieved to some extent in the early hours after the Federal Open market committee (FOMC), with markets reacting in a bullish manner, but soon U.S. Treasury Secretary Janet Yellen’s statements raised concerns after she was unable to convince the investment community that the bank deposits are safe. It is hard to make estimations though regarding the future steps of Fed.

Europe clearly has a bigger problem of high inflation than the United States since rates are kept at higher levels, and it also seems that the European Central Bank is sticking to raising interest rates after its recent 50 basis point hike. Lagarde, however, has refused to commit to the further course of the bank’s interest rate policy, saying it is a data-driven case.

Decisions on interest rates were also made by other central banks such as the UK and Switzerland, as we will see in detail below. The situation is more or less the same: inflation requires a further rise in interest rates but the recent banking crisis and fears of possible recession act as a bridle.

The situation in the economies, however, remains positive, as at least the PMI announcements last Friday showed, which were above market expectations.

There was a significant resurgence of geopolitical concerns last week following rumors that Russia was considering deploying nuclear weapons on the territory of Belarus. Based on the reports so far, the United States does not seem to be seriously concerned, but the fact is that the temperature is starting to rise again.

To sum up, equity indices in the world’s main economies performed gains after sentiment clearly improved and investor sentiment returned to positive territory. On the same page, most commodities such as gold and oil moved upward. The dollar weakened slightly as investors preferred other higher-risk currencies such as the euro and sterling. Bond de-escalation continued with the U.S. 10-year closing the week near 3.37%. Finally, Bitcoin and most cryptocurrencies are stabilizing after the big rise that we saw recently.

The current week is calmer in relation to central bank decisions and macroeconomic announcements. The two dominant events are the announcements of inflation in the Eurozone and GDP in the United States. Secondarily, announcements of the PMI index in China, retail sales and unemployment in Germany, GDP in the United Kingdom, and personal consumption expenditures in the United States stand out.

SP500

With bullish trends, the US SP500 index closed last week, at 3,971 points, and profits close to 1.40%. It was the second in a row bullish reaction for SP500 which seems to be resilient to the latest storm of the banking crisis. The highest weekly volatility took place on Monday during and after the FOMC. Fed announced a 0.25% interest rate hike and along with Jerome Powell’s answers to the press conference developed a strong uptrend that brought SP500 above 4,000 points. It did not last much though as in another event U.S. Treasury Secretary Janet Yellen created new concerns regarding the banks and deposits and the trend changed sharply. Some good economic news, mostly about durable goods orders and PMIs caused a recovery for the index which finally had a profitable week. A possible return above 4,000 could be a strong bullish signal for SP500 and we may try long positions this week.

DAX30

The German DAX40 index was bullish last week, closing at 14,957 points, with losses approaching 1.30%. This was the first attempt for DAX40 to recover after two weeks of heavy losses. It seems that the sentiment was improved after the solution for the rescue of Credit Suisse occurred. A second reason is the perception of the markets regarding the ECB’s monetary policy and interest rates. ECB hiked the rates by 0.50% but the markets seriously doubt if there can be more hikes in the near future as the banking crisis and a probability of a recession may stop it. German PMIs that were announced last week were decent to good and this week we’re looking forward to seeing the results of inflation, retail sales, and unemployment. We may try long positions this week.

FTSE100

The British FTSE100 index moved upward last week, closing at 7,406 points, gaining 1%. FTSE100 followed the trend of the rest major indices in the US and Europe but it is clear that it underperformed them. The UK has raised interest rates a lot and did it one more on Thursday by 0.25. After this raise, the current rate is 4.25% but the inflation still stands in the 2-digit figures (10.4% in February). Most of the macroeconomic results are still in good shape: retail sales and PMI were decent to good but sooner or later the UK may face issues of recession, especially if the interest rates need to be raised further. Otherwise, the very high inflation will be a very difficult problem for both households and companies. Long positions is our selection for the current week.

Gold

The previous week was bearish for gold, with the next month’s futures closing at $1,981 and losses of 0.60%. Gold was favored a lot during the last month as it is considered to be a solution for safety in cases of a crisis, like the one that we witness with SVB and Credit Suisse lately. After a month of heavy profits, this was the first correctional week even if the correction was mild. The market sentiment improved after the solution from UBS in Switzerland and there was also a series of statements by many officials all over the world about the stability and resilience of the banking system. The relative weakness of the US dollar was also a factor that stopped gold prices to surpass $2,000. Also, a possible pause of the central banks’ interest rate hikes is another factor in the equation. If the climate and the sentiment stay positive without any serious worsening factors, we may see a deeper correction for the gold prices, given that the price area of $2,000 is also a strong resistance zone so we prefer short positions this week.

US Oil

Last week was bullish for oil with next month’s futures closing at $69.21, with profits exceeding 4%. Oil prices had dropped very much from the beginning of March with the lowest price of $64.36 which is a price zone that we had not seen since the November of 2021, before the Ukrainian war. Besides the concerns and the fears of a crisis and a recession which could potentially hurt the demand, there were also concerns about a possible oversupply in the market. These concerns occurred from U.S. Energy Secretary Jennifer Granholm, who mentioned that it may take several years to refill the Strategic Petroleum Reserve in the USA. We need to remind you that in October, the White House announced its plan to buy back oil for the Strategic Petroleum Reserve. As Reuters wrote: “This year, it will be difficult for us to take advantage of this low price,” Energy Secretary Jennifer Granholm told U.S. representatives in a congressional hearing. “But we will continue to look for that low price into the future because we intend to be able to save the taxpayer dollars”. Biden administration officials have said they want to refill the reserve, after last year’s historic sale of 180 million barrels, when the oil price consistently is around $70 a barrel. Oil from that sale sold at about $94 per barrel. If the price of oil is able to surpass and remain above $70 again it may gather momentum for further profits so we may try long positions this week.

EURUSD (Euro vs US Dollar)
Last week was a bullish one for EURUSD which opened at 1.0688 and closed at 1.0759. The Fed raised interest rates by 0.25%, but that didn’t help the U.S. dollar as it was already reflected in the markets. Instead, there is now a belief that the United States Central Bank will be forced to start cutting interest rates earlier than planned to avoid possible unpleasant consequences of a widespread banking crisis or recession. In Europe, after the recent 0.50% interest rate hike, there is no clear picture of the European Central Bank’s future moves, but the most likely scenario is two more increases of 0.25%. This is an important week for both economies because inflation is announced in the Eurozone and GDP in the United States, so our information will be better. If the uptrend continues then we may see prices at 1.10 for the pair but if the dollar starts strengthening again then the downtrend scenario would dominate, especially below 1.0520. We may try sell positions this week.

GBPUSD (Great Britain Pound – US Dollar)

Bullish was last week for GBPUSD, which opened at 1.2201 and closed at 1.2220. The dollar had a negative performance, but the exchange rate could not take advantage and develop a strong uptrend even if the Bank of England announced interest rate hikes of 0.25% last Thursday. On the one hand, this increase was small in relation to the magnitude of the inflation problem that the UK faces but on the other hand, the vote by policymakers continues to be not solid since the result was again 7-2. The unexpected rise in inflation in the UK announced on Tuesday raised strong concerns. Inflation last month was at 10.1%, markets were expecting a price for February at 9.8% and inflation was finally at 10.4%. The macroeconomic results, however, continue to have decent prices, as we saw in Friday’s announcements. The pair is not far from the significant resistance of 1.2450, which if exceeded can potentially move much higher and therefore we may try buy positions this week.

USDJPY (US Dollar – Japanese Yen)

USDJPY moved downward last week, opening at 131.71 and closing at 130.70. It was the fourth bearish week in a row for the exchange rate, reflecting the relative weakness of the dollar and the significant decline in bond yields. Another fact looming through the downward channel of the exchange rate over the past month is investors ‘ preference for the Japanese currency, which is considered a safe-haven selection in times of crisis. Fears of a banking crisis have energized this property of the yen. The Bank of Japan continues its loose monetary policy and this fact prevented the yen from breaking out significant support of 130 so we’re keen to try buy positions this week.

EURJPY (Euro – Japanese Yen)
Slightly bearish was last week for EURJPY which opened at 140.79 and closed at 140.62. The euro has strengthened due to the hawkish stance of the European Central Bank lately, but the Japanese currency is also in a favorable position due to the preference shown by many investors at this time when fears and concerns about a possible banking crisis have intensified. Below 138.80 outweighs the downward scenario while a dynamic comeback above 143.60 is needed for the pair to return to the upward channel that has been dominant since the beginning of the year. We prefer buy positions this week.

EURGBP (Euro – Great Britain Pound)

Last week was bullish for EURGBP which opened at 0.8748 and closed at 0.8797. In recent days, the European Central Bank has seemed more determined to raise interest rates than the Bank of England, even though inflation in the UK has had an unexpected rise in the past month. There is a discrepancy in the Bank of England’s policymakers as the recent votes show. However, for the past month and a half, a mini-downward trend has developed for the exchange rate and for all the exchange rates in which the Sterling is involved. It is not excluded that this trend will come back specifically under the support of 0.8715 and therefore we may try sell positions this week.

USDCAD (US Dollar – Canadian Dollar)

Mildly bullish was the last week for USDCAD, which opened at 1.3722 and closed at 1.3737. So, there was a balance between the currencies of the two countries that came from both the United States and the weakness of the dollar and the weakness of the Canadian currency. Inflation in Canada was announced for February at 5.2%, significantly lower than the previous month’s 5.9%. This development far cuts markets ‘ expectations of the Bank of Canada’s aggressive stance and thus makes the country’s dollar weaker. In relation to macroeconomic results, a positive impact was had by the jump in retail sales which increased by 1.4% last month. We prefer sell positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF had a downward course last week as the opening price was at 0.9243 and the closing price at 0.9198. In addition to the weakness of the dollar last week, the strengthening of the Swiss franc helped significantly in the decline of the exchange rate. The Swiss National Bank raised interest rates by 50 basis points from 1% to 1.5%. It was of course the decision that greatly favored the Swiss currency even though a 0.25% increase in interest rates was also seen by the Fed in the week. Based on the statements of officials from the Bank of Switzerland that inflation is not a pleasant topic, many analysts believe that the Swiss franc has room to strengthen further and so we may try sell positions this week too.

AUDUSD (Australian Dollar – US Dollar)

Bearish was the last week for AUDUSD, which opened at 0.6705 and closed at 0.6643. This downward move contrasted with the weakening of the US dollar and was mainly due to greater weakness in the Australian dollar. The announcement of the Australian bank’s (RBA) minutes played a big part in this weakness of the Australian dollar. The minutes showed that there is likely to be a pause in raising interest rates while stating that whatever is needed to reduce inflation will be done did little to help the AUD. On Monday, China left interest rates unchanged at 3.65% and that factor was eliminated from the investment community. If the same situation continues with a possible downward breakout of 0.6560, we may see a bigger drop so we may try sell positions this week.

Bitcoin

Last week, Bitcoin closed at $28,004 with no significant change compared to the previous week. After the heavy profits that we saw recently, it seems that the Bitcoin prices took a pause even if the traditional markets performed profits. Bitcoin and generally cryptocurrencies took advantage of the latest banking crisis. Investors feel that are not safe enough under the umbrella of the traditional banking system and so the major decentralized alternative which is the crypto world gathered their preferences. As the market sentiment improved though, the strong uptrend stopped and the volatility decreased. Especially for Bitcoin, the price could not surpass the milestone threshold of $30,000 and we may try short positions this week.

IMPORTANT DISCLAIMER

The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.