THE FED IS TIGHTENING MONETARY POLICY. HOW ABOUT ECB?

Weekly Report: Indices, Commodities, Currencies, and Cryptos

General Comment
The Fed meeting to publish its minutes was the most important event for the markets last week. The quantitative easing program in the United States will be completed next March. This program was created against the effects of the pandemic but along with other factors had caused high inflation in the country, the highest in the last 40 years. In addition, interest rates are likely to hike in March, with Jerome Powell not ruling out a 50-basis point or 0.50% increase. The Fed is pursuing a tight monetary policy to deal with inflationary pressures at an insightful and timely time.
There are similarities and differences in Europe: The Pandemic Emergency Purchase Programme (PEPP) is also due to expire in March but there are currently no clear reports of interest rates rising in the eurozone, which are currently at 0%. Europe is still suffering from the pandemic, the energy crisis, and the geopolitical crisis, as any NATO / Ukraine conflict with Russia, could hit the economy hard.
The dollar strengthened significantly, especially after the Fed last Wednesday while the euro and sterling suffered losses. Yields on bonds remained practically unchanged, with the US 10-year bond yield closing at 1.78%. Gold corrected; the oil rally continued while we saw a slight recovery in Bitcoin as well as in most cryptocurrencies.
This week is full of major financial announcements and events: in Europe, January inflation is announced on Wednesday, and interest rates / monetary policy is announced on Thursday. The GDP and the unemployment rate are announced earlier in the week. In the US, the announcement of new jobs – Non-farm payrolls (NFPs) on Friday stands out. Also important are the announcements of interest rates in the United Kingdom and Australia, inflation in Germany, PMIs in many major economies of the world, retail sales in the eurozone and Germany, and the unemployment rate in Canada. High volatility is expected.

SP500
The US SP500 index closed slightly higher last week, at 4,419 points and profits approaching 0.80%. The week had started sharply declining and we saw prices ​​for the index that approached even 4,200 points. Many results of companies that were announced were positive such as e.g., Apple set a new record for sales of iPhones. There is a climate of optimism that the supply chain of the economy is normalizing after quarantine and that there are expectations for even greater profits. From another point of view, however, the tighter monetary policy by the Fed and the possible successive increases in interest rates in 2022, may hit the stock markets. A possible rise of the index above 4,500 points will give a tone of great optimism for its further course, but in any corrective move, the index supports the 4,270 points and the 4,210 points. We may try long positions this week.

DAX30
The German index DAX40 moved slightly downwards last week, closing at 15,416 points, with losses close to 0.30%. The week had high volatility and correction to 14,828 units but from Tuesday onwards we saw a recovery in the first phase over 15,000 units and finally, the closing was with marginal losses. The energy crisis and the possibility of a conflict in Ukraine have brought nervousness to investors. The PMI in Germany had a positive sign but GDP for the 4th quarter increased by 1.4%, below market expectations. The resistances for a possible course of the index to 16,000 points is at 15,575 and 15,840 points, while if the climate worsens, a possible new loss of 15,000 points will probably intensify the nervousness and worries. We may try long positions this week by trusting more in the first case.

FTSE100
The British FTSE100 index moved higher last week, closing at 7,439 points and profits over 0.90%. After Monday’s shock where the price reached 7,167 points, the index recovered and the sign of the week was positive. There is a mini-political crisis in the UK over the COVID-19 party that Boris Johnson allegedly took part in but he is currently retaining his position without major side effects. The Bank of England meeting on interest rates and monetary policy is expected with great interest next Thursday. The index is very close to the two-year high of 7,576 points and there is a relative optimism approaching these levels but if developments trigger a correction, critical levels are last week’s lows. We may open long positions this week.

Gold
Last week was strongly bearish for gold, closing at $ 1,791 and losses that exceeded 2.40%. The Fed moves with tighter monetary policy and possible interest rate hikes hit gold because it is doing so to counter inflationary pressures. Let us not forget that due to its nature, gold does not inflate and is, therefore, an investment option when inflation is galloping. Another reason for the correction is the rise of the dollar since gold is denominated in dollars. For about 3 months now, prices have been practically moving within the $ 1,750 and $ 1,850 channel with weeks of small rises and sharp falls. The most likely scenario argues that gold will continue to move at these levels until it finds “fuel” to exit the lateral movement. Short positions is our selection for the current week.

US Oil
Last week was bullish for oil (6th in a row) with next month’s futures closing at $ 87.28, with profits of 2.90%. Concerns about the war in Ukraine are fueling rising prices as tensions remain high, with Senator Bob Menendez saying the United States will impose sanctions on Russia. OPEC apparently will maintain the planned increases in production, considering that the demand will not be affected by the pandemic, but everything will be judged at the meeting next Wednesday. If the rise continues, it could cause prices even at $ 90, while in case of easing of the Ukrainian crisis, we will probably see a de-escalation of prices. By trusting more in the first scenario, we may open long positions this week.

EURUSD (Euro vs US Dollar)
The EURUSD was much bearish last week, opening at 1.1342 and closing at 1.1148. The dollar strengthened significantly after the Fed minutes, as we saw above, and reached its highest price since July 2020. The Fed’s tight monetary policy, possible interest rate hikes during the year, and the positive effects of the US economy fed this rally. US GDP recovered significantly in the 4th quarter of 2021 by 6.9%. There is nervousness in Europe over the events in Ukraine, with PMIs announcing below expectations and the economic climate along with investment sentiment also falling short of expectations. Many analysts see the scenario for prices close to 1.10, quite possible so we may try sell positions this week.

GBPUSD (Great Britain Pound – US Dollar)
The previous week was bearish for the GBPUSD, which opened at 1.3549 and closed at 1.3395. The strong dollar dominated the pair despite expectations for a new interest rate hike by the Bank of England at its meeting on Thursday. The PMI indicators in the UK were announced below expectations and these were the only important announcements for the country during the last week. The UK is also plagued by a political crisis and the possible resignation of Boris Johnson is likely to hit sterling. If there is a bearish breakout below 1.3350, we can see much lower levels, especially if the dollar continues to strengthen so sell positions is what we may try for this week.
USDJPY (US Dollar – Japanese Yen)
The USDJPY moved higher last week, opening at 113.65 and closing at 115.22. The strong dollar was able to dampen the mini corrective rally of the previous two weeks and restore the pair above 115. Bond yields remained unchanged and so this was rather a neutral factor but inflation in Japan announced at 0.5%, below market expectations, leaves room for the Bank of Japan to continue its loose monetary policy and this weakens the yen. Retail sales and industrial production in Japan were announced earlier this week with disappointing results. If this picture continues, we may see the five-year highs above 116.35 threatened so we may try buy positions this week.

EURJPY (Euro – Japanese Yen)
Last week was bearish for the EURJPY which opened at 128.89 and closed at 128.46. The euro was weak but the yen seemed to have more reasons for weakness as low inflation in Japan is unlikely to push the Bank of Japan into tight monetary policy. Many important announcements during the week can increase volatility and a possible risk aversion climate may push the pair lower, towards the significant support of 127.38 and this may turn us to open sell positions this week.

EURGBP (Euro – Great Britain Pound)
Last week was bearish for the EURGBP which opened at 0.8366 and closed at 0.8319. After the short bullish reaction, the pair returned to its steady downtrend that has begun about two years ago. Given that the Bank of England may raise interest rates again while this is not currently the case in the euro area, we can see the decline continue although caution is needed because the price range of 0.8275 is low for many years and could trigger upward reactions. We may try some low-risk sell positions during the current week.

USDCAD (US Dollar – Canadian Dollar)
Last week was bullish for the USDCAD, which opened at 1.2578 and closed at 1.2766. The strong US dollar has once again been able to overcome the continuing rise in oil prices that traditionally favors the Canadian dollar as oil is the country’s most important export product. The Bank of Canada kept interest rates unchanged at 0.25% while the Policy Report did not show tighter monetary policy conditions. The continued rise of the US dollar could potentially push the pair to 1.30, but if oil continues to rise and the Canadian currency strengthens, corrections to 1.25 are not ruled out so we may try sell positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF had a strong uptrend last week, as the opening was at 0.9115 and the closing at 0.9310. It was the biggest weekly rise since last summer, capturing the momentum and strength of last week’s dollar. Switzerland has not had good results, with imports, exports and the trade balance falling sharply. This rise was enough to balance all the downward movement that had started since the end of November and give a new impetus to the pair and so the resistance at 0.9375 could be threatened. However, there are also factors of gold and bond yields (factors strongly correlated with the Swiss franc) that could lead to corrections. We prefer buy positions this week.

AUDUSD (Australian Dollar – US Dollar)
Last week was strongly bearish for the AUDUSD which opened at 0.7173 and closed at 0.6991. The strong US currency caused a weekly drop that we had to see since the summer resulting in the loss of the milestone price of 0.70. Inflation in Australia, however, was announced at 3.5% (against expectations for 3.2%) and this seems to push the Bank of Australia to measures and tighter monetary policy. If this scenario prevails, we will see bullish reactions for AUDUSD. Conversely, if the Fed proves to be more hawkish (tighter monetary policy and higher interest rates) then the decline will continue. We may try buy positions this week.

Bitcoin
We saw a slight bullish reaction last week for Bitcoin, which closed at $ 37,942 and profits close to 4.50%. There was a proposal from the Central Bank of Russia to ban cryptocurrencies in the country but quickly this news was overcome and we saw upward movements. It remains to be seen if this reaction was more technical and therefore the decline will continue. If the uptrend expands, there should be a bullish breakout above $ 39,000 to consolidate, but if the risk aversion prevails and is combined with other factors (rising gold, rising interest rates, rising bond yields, etc.), perhaps Bitcoin is back in its downward channel so we may try short positions this week.