London 18/3/2022
The US dollar turned bearish this week, after 5 bullish weeks in a row. During the last 1-2 days though, the US currency becomes strong again. This sequence of the dollar’s behavior shows exactly the risk mood and the sentiment of the markets: the beginning of the war sent the sentiment to a very negative area, from the end of the previous week and during the current week there hopes for a solution through the peace talks between Russia and Ukraine but during the last 1-2 days, things are getting worse again as the US officials see China moving closer to support Putin and President Biden warns that this could serious retaliation.
In full alignment with the above, the stock indices had a rally in the previous days but they’re in a corrective mode now. Gold, oil, and most of the commodities recover in the last days after heavy correction.
Besides the war and its consequences, there were other important economic-wise developments this week as well. The Fed decision on Wednesday was to hike the interest rates by 0.25% but this decision barely helped the US dollar because it was pretty sure that it would happen so the markets had already consumed and digested it. According to the CME FedWatch tool, in the next Fed session on May, 4th, there is a 70% probability for another 0.25% interest rate hike and a 30% probability for another 0.50%. In Europe, the inflation in February kept rising as it was announced at 5.9%, a bit higher than the 5.8% in January. It is another bell ringing for a tighter monetary policy and a quicker interest rates hike from the ECB.
EURUSD (current price 1.1015) is bullish this week, mostly helped by the early weekdays because during the last 1-2 days the downtrend has returned. There were hopes for a solution to the war in Ukraine but since the US has information that China may be involved by supporting Russia, things are getting more complicated and the concerns are back, signing a risk-off mood to the markets. The interest rates hike by the Fed and the higher inflation in Eurozone that may bring interest rates to hike as well, create a balance point so the war development weighs on the pair’s trend and direction. A possible deterioration from Ukraine may worsen the sentiment, even more, pushing the pair back below 1.10.
GBPUSD (current price 1.3121) is bullish this week, after the USD’s weakness until yesterday. From yesterday and onwards, the US dollar has become strong again and the pair is moving lower from its weekly high price at 1.3211. Bank of England has risen the interest rates from 0.50% to 0.75% (0.25% hike) but this fact neutralized by the same hike that took place on Wednesday by the Fed. The interest rates in the US are lower for the moment at 0.50% but the markets’ perception is that by the end of the current year, the US will have significantly higher rates than the UK and this impression, along with the negative sentiment caused by the war in Ukraine, may bring more bears to the GBPUSD. The price area of 1.30 is still the most obvious short-term target for the pair’s sellers.
USDJPY (current price 119.28) keeps on rising with a strong uptrend for the 2nd week in a row. The US dollar that has become stronger lately and the rising bond yields ( the US 10-year bond yield closed last week at 1.99% and is currently at 2.15%), help the pair to develop this bullish trend.  Earlier today, the Bank of Japan kept the interest rates unchanged at -0.1%. The low inflation rate in Japan (it was announced 0.9% in February) allows a loose monetary policy and a negative interest rates policy. Governor Haruhiko Kuroda said that the Bank of Japan will offer a new stimulus package to ease the Ukrainian war consequences, without hesitation as needed. The price area of 120, which is a milestone price, makes perfect sense for the pair’s buyers with such a strong uptrend.
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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