THE CHAIN OF RISING INTEREST RATES BEGAN AS THE WAR RAGES
Military operations in Ukraine continue with the Russian blockade tightening more and more in Kyiv and other major Ukrainian cities. There have been rumors over the last week of China’s involvement in the Ukraine war, prompting a backlash from the United States, which, through Biden’s mouth, warned China that it would face heavy sanctions. This picture does not leave much room for optimism at the moment to find a solution and this is directly reflected in international markets. There are serious concerns that the economic consequences of the war could last for several years and lead not only to energy but also to a food crisis.
Beyond the war front, there were many important financial announcements and news last week. The United States raised interest rates by 0.25% as expected but this did little to benefit the dollar, partly because it had already been discounted by markets and partly because many analysts believed the increase could be higher. For the next Fed meeting next May, estimates point to a 70% chance of a new rate hike of 0.25% and a 30% chance of a 0.50% hike. The United Kingdom also raised interest rates by 0.25% through the Bank of England. Although interest rates in the US are currently up and after recent increases to 0.50% and in the UK to 0.75%, most analysts estimate that by the end of the year the US will have significantly higher interest rates than the UK.
In the Eurozone, inflation was announced for February at a particularly high price of 5.9% and combined with Christine Lagarde’s announcements last week for a tighter monetary policy, may lead the European Central Bank to decide to raise interest rates earlier in the year. We remind you that interest rates in the Eurozone are at 0% from 2016.
Most stock markets performed significant profits while gold and oil had corrective movements. All this happened mainly at the beginning of the week when there was a positive atmosphere for finding a solution to the war in Ukraine. The dollar weakened against major currencies, with the possible exception of the Japanese currency. Bond yields also followed an uptrend, with the US 10-year bond starting the week at 2% and closing it at 2.15%. Finally, Bitcoin and most cryptocurrencies had an upward trend.
This week is dominated by the developments of the war and is calmer in terms of financial announcements. The announcement of inflation in China and the United Kingdom, the announcements of the PMI indicators in the world’s major economies, and the business climate in Germany stand out.
The US SP500 index was strongly bullish last week, closing at 4,464 points and profits of 6.40%. The hopes that prevailed during the week for a solution to the issue of Ukraine, helped the index to recover much of its losses since the start of the war. The recent 0.25% rate hike by the Fed had already been “consumed” by the markets and thus did not have a negative impact on the SP500, on the contrary, because some were expecting an even bigger rise, it may have worked as a degree of relief. The SP500 probably had an overreaction that markets needed but the geopolitical reality is not so positive. The war continues unabated, many Ukrainian cities are under siege and there are no such optimistic messages at the diplomatic level. If this situation continues, it is possible to see corrective trends, especially below the support of 4,420 points so short positions is what we’ll open this week.
The German DAX40 index moved strongly up last week, closing at 14,478 points, with profits approaching 6.70%. The index performed strongly for the second week in a row, after the violent downward movement that had driven it below 12,500 points. Germany had positive economic announcements with the wholesale trade index exceeding expectations. The geopolitical field though is the main reason behind the market movements during this period, so the big rise is justified by the markets’ optimistic view of the outcome of the war. The recent news from Ukraine is not positive and if this is verified within the week, we will probably see the index correct to 14,000 points so we may try short positions this week.
The British FTSE100 index moved higher last week, closing at 7,394 points and profits close to 4.70%. The optimistic climate for the course of the negotiations between Russia and Ukraine also affected the British stock market, which reacted upwards and reached the levels it was before the start of the war. The rise in interest rates was more or less expected and so the uptrend was not stopped at all. In addition, the low unemployment rate announced for January in the United Kingdom added to the optimism. The index moved away from the critical zone of 7,000 points and is approaching pre-pandemic levels but the picture of the situation in Ukraine does not allow much optimism and if the week passes without visible diplomatic progress, we can see the index correct, to the support of 7,140 units. We may try short positions this week.
Last week was strongly bearish for gold, closing at $ 1,921 and losing more than 3.50%. Declining trends prevailed based on the positive climate that developed on the front of the Ukrainian crisis but also based on interest rate hikes in the US and the UK as they are considered moves to combat high inflationary pressures. Gold is a choice of investors as a hedge against high inflation since it is not inflated, by nature. The rise in bond yields, which are a competitive product for gold, also played a role. The fall was the largest in recent months on a weekly basis and this was due to the strong rise that had preceded that brought gold very close to the all-time highs and so many investors secured their profits by liquidating. Any continuation of the war in Ukraine without positive diplomatic news could strengthen the gold again, especially if the resistance breaks above $ 1,976 so long positions is our selection for the current week.
Last week was corrective for oil with futures for next month closing at $ 104.94, performing losses that approached 4%. The sharp downtrend stopped on Wednesday near $ 94 and in the next two days, oil recovered above $ 100 due to the deteriorating situation in Ukraine. According to the International Energy Agency (IEA) next month, about 3 million Russian barrels per day could be removed from the supply. However, the perception of the markets and analysts concerning the war in Ukraine will play a catalytic role for one more week. Above last week’s high of $ 106.23, we may see a new uptrend, while if positive news from the field of diplomacy prevails, we may see a de-escalation below $ 100. We may try long positions this week.
EURUSD (Euro vs US Dollar)
The EURUSD was bullish last week, opening at 1.0920 and closing at 1.1051. The development of the war in Ukraine has an important role in the movements and the trend of the pair. Any positive news to find a solution favors the uptrend but as long as operations continue without visible light at the end of the tunnel, safer investment options such as the US dollar are favored. The rise in interest rates in the United States last Wednesday did not have a catalytic effect on the dollar as it had already been discounted by the markets. Similarly, the higher inflation announced in the eurozone area did not create higher expectations than the existing ones for an increase in interest rates by the European Central Bank. Retail sales fell in the United States in February, and the picture in Europe was no different, with industrial output falling in the eurozone in February. If there is a solution in the war in Ukraine, we may see the pair climb higher and the next resistance is at 1.1140. On the contrary, if the situation remains as it is, we may see the pair being pushed lower, in the first phase towards 1.10 and maybe towards 1.09. We may try sell positions this week.
GBPUSD (Great Britain Pound – US Dollar)
Last week was bullish for GBPUSD, which opened at 1.3034 and closed at 1.3178. The pair reacted upwards after three sharply declining weeks that had led it to the price area of 1.30. The temporary weakness of the dollar and some hopes during the week to find a solution to the war in Ukraine also helped the pound to recover. The good picture of macroeconomic results in the United Kingdom also played a positive role, with the unemployment rate falling to 3.9% in February. The course of the war will be a barometer this week for the pair. Any improvement in the climate may lead it well above 1.32, but as long as the bombing and operations continue, we may see a turn to 1.30 again so we prefer sell positions this week.
USDJPY (US Dollar – Japanese Yen)
The USDJPY, which opened at 117.35 and closed at 119.15, moved strongly upwards last week. It was the second in a row strongly rising after the breakout of the very significant resistance at 116.35. The dollar may have weakened but the USDJPY had reasons to rise. Bond yields, which are related to the pair, increased significantly. The announcement by Japanese Prime Minister Fumio Kishida that he intends to approve a new stimulus package to deal with the effects of the war in Ukraine has further weakened the yen. Finally, an optimism that prevailed last week about the successful outcome of the negotiations between Ukraine and Russia, pushed some investors away from the safe investment haven that is the Japanese currency. The pair is very close to the milestone price of 120 but any negative news from Ukraine in combination with oversold levels of the yen may lead it to a correction so we may try sell positions this week.
EURJPY (Euro – Japanese Yen)
Last week was significantly bullish for the EURJPY, which opened at 128.12 and closed at 131.66. The euro, strengthened by the prospect of rising interest rates in the eurozone in 2022 and the continuing loose monetary policy of the Bank of Japan, created strong upward conditions for the pair. However, the risk mood of the investors plays a huge role at this time: aversion to risk and a negative investment sentiment push them to safe havens such as the yen traditionally. The current week does not start with positive geopolitical signs and so if an investment portion turns to certain solutions, we can see corrective trends in EURJPY. We may try sell positions this week.
EURGBP (Euro – Great Britain Pound)
Last week was slightly bullish for the EURGBP which opened at 0.8370 and closed at 0.8386. It was the second consecutive week of upward reaction after reaching the multi-year low of 0.82 on March 7. The euro has been stronger recently following the tighter monetary policy announced by the ECB and the perception of rising interest rates during the year. The UK has already raised interest rates three times in recent months, from a total of 0.1% to 0.75% but this has already been reflected in the price of sterling. Above 0.8460 the uptrend begins to consolidate and acquire trend characteristics but below 0.83, the long-term downtrend reappears and strengthens. By trusting more in the first case, we may try buy positions this week.
USDCAD (US Dollar – Canadian Dollar)
Last week was bearish for the USDCAD, which opened at 1.2722 and closed at 1.2603. The weak US currency offset the weakness of the Canadian dollar at the beginning of the week and so the fall accelerated when from Wednesday onwards, oil prices began to strengthen. Inflation in Canada for February was announced at 5.7%, well above 5.1% in January, and this strengthened the view that the Bank of Canada will take further measures after the recent rate hike. If oil continues to strengthen and the pair breaks out the support at 1.2585, which is a low price for about two months, then it can reach the critical area of 1.2450. However, if the US currency strengthens and the exchange rate exceeds 1.27, the USDCAD sideways scenario for the last months will be verified again. Sell positions is our selection for the current week.
USDCHF (US Dollar – Swiss Franc)
The USDCHF had a slight downtrend last week, as the opening was at 0.9336 and the closing at 0.9317. This came in the last three days of the week since before there was a strong upward trend to 0.9460, a price we had not seen for about a year. The higher producer price index prices announced for February in Switzerland, raise expectations for additional measures by the country’s central bank. The Swiss franc, which has a high correlation with gold, is considered a low-risk option and is thus favored in crises. This will probably be the barometer for the coming days: positive developments from Ukraine will strengthen the pair, while otherwise, the downward trend will continue. We prefer buy positions this week.
AUDUSD (Australian Dollar – US Dollar)
Last week was strongly bullish for the AUDUSD which opened at 0.7285 and closed at 0.7414. The pair has been on an upward rally for about two months when it had fallen below 0.70. Metals and other commodities have been boosted all this time but, in any case, the Australian currency is a high-risk choice. The macroeconomic results in the country, however, continue to be impressive with the unemployment rate falling to 4% in February from 4.2% in January. Even better is the picture of China (the economies of the two countries are strongly correlated): retail sales in February increased by 6.7% and foreign direct investment by 37.9%, compared to 2021. The uptrend could stop at the resistance of 0.7555 (a high price of about 8 months) but we’ll keep on trying buy positions for one more week.
Last week was bullish for Bitcoin, closing at $ 41,242 and performing more than 9%. We had not seen such an increase since the end of January and it seems that investors chose cryptocurrencies after a more positive climate for the markets appeared, especially at the beginning of the week. The deteriorating climate on the Ukrainian front in recent days, combined with the partial correction of Bitcoin over the weekend, confirms this scenario. However, the excessive estimates for the course of cryptocurrencies continue. Galaxy Digital CEO Mike Novogratz said he sees Bitcoin at $ 500,000 by 2025 but we need to be careful because many over-optimistic estimates have at times been refuted. Among the positives is the decision of the Russian Duma to adopt the crypto-ruble as a counterweight to Western sanctions. Above $ 42,500 it is possible to see an expansion of the upward reaction so long positions is our selection for the current week.
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