POSITIVE ECONOMIC RESULTS IN THE US, POINT TO NEW INTEREST RATES HIKE
War operations in Ukraine continue unabated, with Europe threatening Moscow with new sanctions following allegations of war crimes in various Ukrainian cities. The sentiment of the markets is mixed and changeable because there is information about finding a diplomatic solution but there is also information about the increased intensity of conflicts and battles. The bottom line is that we have entered an era of uncertainty and that the potential economic consequences of the war, with strained Russia-West relations, could last for several years. The demand of Russian President Putin to accept payments only in rubles has alarmed many economies, especially the European ones.
Last week, however, contained many important financial announcements. New jobs in the US for March were announced at 431K, slightly below market expectations but the number is considered good enough in combination with the de-escalation of the unemployment rate to 3.6% compared to 3.8% in February. In Europe, Eurozone’s inflation was announced for March at 7.5%, a price that is significantly higher than 5.9% in February and even higher than the raised market expectations of 6.6%. News in the United States of the labor market paints a strong macroeconomic picture that allows for tighter monetary policy and the expected rise in interest rates by the Fed next month. Following the announcement of such high inflation in the Eurozone, the need for tight monetary policy and high interest rates is now imperative on the European continent as well, as the situation seems to be out of control.
Most stock markets in Europe and the Americas moved slightly higher last week while gold and oil performed a significant de-escalation. The dollar weakened slightly, in contrast to the euro, which had strengthening trends. This is a picture of hope from the markets for a diplomatic solution. Bitcoin and most cryptocurrencies were stabilizing, while it is worth noting that bond yields had slightly corrective trends after the frantic rally of the previous three weeks. The 10-year American bond yield opened the week at 2.48% and closed at 2.39%.
This week does not contain such important economic announcements but the war in Ukraine and possible developments are enough to create high volatility in the markets. There is a meeting of the Fed in the US on Wednesday (FOMC) but no decisions on interest rates are expected. The FedWatch tool gives a 70% chance of raising interest rates by 0.50% in May and 30% for a 0.25% increase. There is also the Eurogroup meeting on Monday while the retail sales in the Eurozone are announced on Thursday.
The US SP500 index closed last week with stabilizing trends, at 4,538 points and marginal profits. The index had two different profiles during the week, rising in the first days and falling towards the end. A key factor shaping the moves was the developments in Ukraine as some hopes for a diplomatic solution pushed the index higher while as long as this solution is not visible the index falls. Also, the positive macroeconomic data announced by the US (new jobs – unemployment rate), increase the chances of new interest rate hikes which are almost always negatively correlated with stock markets. In the near future, given the lack of financial news, developments in Ukraine will be in the spotlight, while the results of large companies will gradually begin to be announced. If the SP500 manages to exceed the 4,630 points which is the high price of the previous week, it has a strong chance to continue the rise. A bearish breakout of 4,500 points and a move away from these levels will probably favor the correction scenario. We prefer the bullish scenario for one more week so we may try long positions.
The German DAX40 was bullish last week, closing at 14,500 points, with profits of 0.70%. For about a month now, the index has been on the rise, having recovered much of its losses. Germany is one of the countries affected by the energy crisis as its dependence on Russia for gas is very high. President Putin issued an ultimatum that expired on April 1, according to which all payments to Russia should be made in rubles, but it seems that analysts believe that the tap will eventually remain open. Inflation in Germany was announced to be particularly high for March, at 7.6%, retail sales increased while the unemployment rate remained unchanged at 5%. If the index manages to reach 15,000 points, the upward scenario seems to prevail while as it approaches 14,000 points, the correction will deepen and intensify. We may try long positions for one more week.
The British FTSE100 index moved higher last week, closing at 7,525 points and profits close to 0.80%. The index followed the course of the other main indices with a slightly optimistic scenario for the outcome of the war. GDP in the United Kingdom increased in the fourth quarter of 2021 by 6.6%, which was above market expectations, while the other macroeconomic results announced were also positive. The markets are following the developments in Ukraine, which currently have the most central role in the decisions of investors. The FTSE100 is very close to the highs of about 2.5 years, before the start of the pandemic and the 7,630 points is the main resistance. Corrective trends will have an increased probability below 7,400 points and as we approach 7,000 points this probability will increase. Long positions is our selection for one more week.
Last week was strongly bearish for gold, which closed at $ 1,928 with losses close to 1.80%. Gold has had a sharp rise near all-time highs at the start of the war in Ukraine, but since then prices have fallen and since mid-March, there is a sideways trend in a channel between $ 1,893 and $ 1,967. A balance has been struck between pessimism about the outcome of the war and positive expectations for finding a diplomatic solution that is changing day by day. The high inflation announced in most economies (mainly in the US and Europe), of course, favors the rise of gold, but this is offset by the increase in central bank interest rates. Something more drastic is needed to get gold prices above or below this channel that has been formed but for the current week, we may try some low-risk short positions.
In the last week, we saw a strong correction for oil with next month’s futures closing at $ 99.33, performing losses that approached 12%. US President Joe Biden’s decision to release one million barrels a day for the next six months of US strategic reserves has helped drastically the de-escalation of the oil prices. The slightly optimistic tone for a diplomatic solution in Ukraine has also played an important role, as it seems that this war does not favor anyone. There will be a big problem if the rift between Russia and the western world reaches its extremes and Moscow closes the tap. In this case, we will see a bullish spike in oil prices. Technically speaking, above $ 116.60 the strong uptrend dominates again while a further de-escalation of prices requires a downward break of support at $ 93.50. We may try long positions this week.
EURUSD (Euro vs US Dollar)
The EURUSD was bullish last week, opening at 1.0984 and closing at 1.1049. Some hopes for a solution to the Ukrainian problem have strengthened the pair as the market has become less risk averse. Also due to the increased inflation announced in the Eurozone, the euro strengthened because the need for tight monetary policy and interest rate hikes has become imperative. The remaining macroeconomic data for the Eurozone and Germany are positive. The announcement of new jobs in the US and the very low unemployment rate have now consolidated the belief that the situation is ripe for a series of interest rate hikes by the Fed, but this is something that has been digested by the markets and thus slightly strengthens the dollar. The week that has just begun does not have many important announcements and most of the weight will fall on the risk posed by the war in Ukraine. If there is hope and optimism, the pair may continue to strengthen, especially if it exceeds 1.1185 which is the high price of the previous week. We may try buy positions this week.
GBPUSD (Great Britain Pound – US Dollar)
Last week was slightly bearish for the GBPUSD, which opened at 1.3125 and closed at 1.3113. The dollar may have weakened slightly but this was not exploited by the pound which was also weak. The Bank of England has raised interest rates three times recently and thus has higher interest rates than the United States, but markets expect that 2022 will end with a marked difference in interest rates in favor of the United States. This perception is pushing the pair lower. The economic results for the United Kingdom were not negative, with GDP in the fourth quarter of 2021 growing by 1.3%, significantly higher than market expectations. The war in Ukraine and the transitions of investors’ risk-taking will prevail again and if the pair falls below 1.3050 then there is a high probability of a downward price break out of the milestone price at 1.30. Signs of an upward reaction will begin to appear if 1.33 is approached and we may open buy positions this week.
USDJPY (US Dollar – Japanese Yen)
The USDJPY, which opened at 122.04 and closed at 122.55, moved slightly higher last week. At the beginning of the week, the pair had a strong uptrend, because of which we saw prices even above 125, but then corrective tendencies appeared that balanced things. The corrections are mainly due to the weakening of the dollar but also to the de-escalation of bond yields. The macroeconomic situation in Japan continues to be good, with the unemployment rate falling slightly to 2.7% in February. The Bank of Japan continues its loose monetary policy and negative interest rates but now there are several voices of analysts who argue that this cannot continue for long and that sooner or later, the BoJ will have to change its strategy. It is a fact that after the bullish breakout of the significant resistance of 116.35, the pair has developed a strong uptrend. This means that the trend is bullish but also that overbought conditions have emerged. If there is an approach and break of 125 there is a high chance that the uptrend will continue but the impending correction may intensify below 121.25. We will try buy positions for one more week.
EURJPY (Euro – Japanese Yen)
Last week was significantly bullish for the EURJPY, which opened at 134.08 and closed at 135.41. It was the fourth week in a row that the pair is strengthened amid market expectations for tighter monetary policy and higher interest rates in the eurozone towards the end of the year. On the contrary, the continuing loose monetary policy and the negative interest rates from the Bank of Japan are weakening the yen, although in recent days there have been analyzes that show the need for Japan to harmonize with the other central banks. The EURJPY stopped last week its frantic course in the price range of 137.50 which is a high price since February 2018. If these levels break, then we will see prices that we have seen since 2008 and therefore some corrective moves cannot be excluded so we may try sell positions this week.
EURGBP (Euro – Great Britain Pound)
Last week was bullish for the EURGBP which opened at 0.8323 and closed at 0.8424. The situation in the euro remains unchanged and the perception of the markets suggests that there will be an increase in interest rates by the end of the year. The UK has already raised interest rates three times, but Andrew Bailey, the head of the Bank of England, in a recent speech slashed hopes for a new rate hike in May, saying the situation was too volatile. The pair had prices above 0.85 but on Thursday, strong downward trends prevailed. If 0.85 is exceeded then the uptrend gains points but technically, the long-term downtrend has not yet changed and at prices close to 0.83 it will become apparent again. We prefer s this week.
USDCAD (US Dollar – Canadian Dollar)
Last week was slightly bullish for the USDCAD, which opened at 1.2485 and closed at 1.2511. The Canadian dollar was weakening due to high pressures on oil prices, but this was not reflected in the pair with a sharp rise because the US currency was also weak. Canada had little but positive economic news last week with January GDP growing by 0.2%, as markets expected, and the PMI also announced in positive territory. Since the beginning of March, there has been a strong downtrend in the pair which seems to have stopped last week. For this upward reaction to continue, we must see values above 1.26 because below 1.2430 it is obvious that the downtrend continues so we may try sell positions this week.
USDCHF (US Dollar – Swiss Franc)
The USDCHF had a downtrend last week, as the opening was at 0.9299 and the closing at 0.9255. The Swiss franc is one of the currencies that strengthened in times of crisis, and this is the case nowadays. It is worthy to mention that even the correction of gold prices could not drastically change the picture of the pair because the US currency was also weak. Retail sales in Switzerland in February increased dramatically by 12.8% while we also saw a small increase in inflation, which moved in March to 0.6% slightly above the 0.5% expected by the markets and this may raise some hopes for relevant actions by the Bank of Switzerland. If the US currency (which dominates the pair) strengthens, we may see upward reactions to the price range of 0.9380 so buy positions is our selection for the current week.
AUDUSD (Australian Dollar – US Dollar)
Last week was slightly bearish for the AUDUSD which opened at 0.7503 and closed at 0.7497. There has been a pause in the sharply bullish rally that has started in January with a big rise for the Australian currency, which, however, has high-risk characteristics and is therefore in divergence from the current situation. Australia, however, continues the series of impressive economic results: retail sales, new building permits, and the PMI were announced above market expectations. The price range around 0.7550 is strong resistance and a high price of about 9 months therefore corrective moves are expected. But if there is a breakout of these levels then the uptrend returns sharper. By trusting more in the first case, we may try sell positions this week.
Last week was slightly bearish for Bitcoin, which closed at $ 46,401 with losses approaching 0.90%. The strong upward movement of the previous two weeks did not continue and so Bitcoin could not reach $ 50,000 which was the high demand of many investors. Bitcoin has acquired the characteristics of a high-risk selection and hedging inflation and therefore it behaves like these categories of market assets. The times we are going through are characterized by fears and worries from the markets due to the war in Ukraine but also high inflation rates and thus a balance is reached. April, however, is traditionally a good month for cryptocurrencies, and in the event of a $ 48,200 breakout, the $ 50,000 hope will be revived so we may try long positions this week.
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