11/04/2022

THE DOMINANT ANNOUNCEMENTS OF THE WEEK:

INFLATION IN THE US – EUROZONE INTEREST RATES

General Comment

The Ukrainian war has caused great upheaval in markets and world economies. Not only has it affected the supply chain through the energy crisis, given the dependence of many economies on Russian energy, but it has also raised concerns about central banks’ plans for monetary policy and interest rates. The dominant economic event of the past week was undoubtedly the Fed meeting. The general conclusion that emerged from the announcement of the minutes was that the United States is prepared to pursue a very tight monetary policy and a series of interest rate hikes. According to the CME tool FedWatch, the probability of raising interest rates in the US by 0.50%, at the May meeting, is now over 80%.

In Europe, the problem is exacerbated as inflationary pressures intensify and the European Central Bank has not yet raised interest rates amid fears that growth and other macroeconomic variables in European economies will be affected by the crisis caused by the war. The French election is crucial, with President Emmanuel Macron ahead of the first round of the Marine Le Pen and everything will be cleared out on April 24. The French president is considered by analysts to be more market-friendly.

Most stock markets fell, except for the United Kingdom indices. Gold performed mild profits while oil fell further. The dollar strengthened significantly while the euro, sterling, and yen had losses. The week was declining for Bitcoin and most cryptocurrencies but the asset that performed the highest volatility was the bond yields. The US 10-year bond yield closed the week at 2.70%, having opened at 2.40%.

This week is very interesting because, in addition to the developments on the war front in Ukraine, there are many important economic announcements. The announcement of inflation in the US and the session of the European Central Bank on monetary policy and interest rates in the Eurozone are the issues that dominate. It is followed by inflation in Germany, the United Kingdom, and China, and retail sales in the United States. Towards the end of the week, there may be a decrease in volatility because we must not forget that we are already going through Holy Week.

SP500

The US SP500 index closed last week at 4,483 points with losses of more than 1.20%. The negative sentiment due to the developments in the war in Ukraine cut the upward momentum that had formed since mid-March and the index returned below 4,500 points. The stock market climate was generally negative because high bond yields and forthcoming bank interest rate hikes create an atmosphere of transferring some funds to safer solutions, with satisfactory returns, especially in the environment of fear and uncertainty that we experience. Some companies, such as Tesla and Pfizer, recovered towards the end of the week, holding back some further losses in the index. Many SP500 companies, especially banks, will soon start announcing the results of the first quarter of 2022 with analysts expecting average profit growth of 6.4% but the negative sentiment that has developed due to the war, may push the index to lower levels, especially if we see prices below 4,420 points so we may try short positions this week.

DAX30

The German DAX40 index moved lower last week, closing at 14,234 points, with losses of 1.80%. The negative mood returned to the European stock markets as there is currently no visible diplomatic solution to the Ukraine-Russia war. The European Union is gradually imposing more sanctions on Russia, and many of these measures are affecting European countries as well. Germany, which is heavily dependent on Russia for energy, in particular, has serious reasons to worry and is looking for alternatives. This creates nervousness among investors and in combination with the tight monetary policy and a possible increase in interest rates in the Eurozone during the year, the index seems to be under pressure. The 14,000 points are the most important price level that will define the course of the DAX40 next week, pending the announcement of inflation in Germany and the meeting of the ECB. We may try short positions this week.

FTSE100

The British FTSE100 index moved higher last week (5th consecutive bullish week), closing at 7,613 points and profits close to 1.20%. The index performed significantly better than the other major indices in Europe and the US and stopped at the significant resistance of 7,630 points, with this area being the highest value in about three years. Since the beginning of 2020, the FTSE100 has had a sharp decline, with total losses of 37% within 3 months and it took about 2 years to regain these levels. Statements by the Bank of England, which have somewhat cut the wings of a very tight monetary policy, also favor the index. Close to 7,885 points are the all-time highs but the international mood does not allow such optimistic scenarios and so it is possible to see corrective trends. Short positions is our selection for the current week.

Gold

Last week was bullish on gold, closing at $ 1,950 and performing near 1.20%. The rise in gold prices is particularly important because it took place in a week when bond yields (a competitive low-risk asset) rose sharply. It seems that the high inflationary pressures, combined with the uncertainty of the war, push most investors to all the safety solutions. The war is likely to continue for some time but the highlight of the week is the announcement of US inflation for March, with analysts forecasting a price close to 8.3%. Such a price is likely to accelerate developments in the Fed and so volatility in gold is expected to increase. Above $ 1,967, the gold direction is starting to gain an uptrend, while the correction scenario is gaining more points, below $ 1,917. We prefer long positions this week too.

US Oil

Last week was corrective for oil with futures for next month closing at $ 97.80, performing losses that approached 1.60%. The decision by US President Joe Biden to launch one million barrels a day for the next six months from US strategic reserves was followed by the International Energy Agency (IEA), which said it would release a total of 60 million barrels in the next semester. It is obvious that intense efforts are being made to control prices and there has already been a large de-escalation, but to continue, the very important support at $ 93.50, which is a low price of about 3 months, must be broken out. But if these measures do not quench the wild appetites of the markets, above $ 100, the upside scenarios come back more severe. Considering that there’s much room until $93.50, we may try short positions this week.

EURUSD (Euro vs US Dollar)
The EURUSD closed lower last week, opening at 1.1032 and closing at 1.075. The US dollar appeared particularly strong and it is indicative that the dollar index (USD Index) reached the highest price in the last two years. The announcements of macroeconomic figures in the Eurozone and Germany were positive, but this did little to help the euro because announcements about the pre-war period were almost ignored by the markets. The energy crisis is affecting the European continent, but the difference in interest rates that already exists between the two central banks and the market sense of how the United States will quickly raise interest rates again creates a divergence between the two currencies and the pair has reached low prices which we had to see since May 2020. Support in this price range is at 1.08 and below it, the next is one at 1.0635. We need a clear stance from the European Central Bank at this week’s session on a very tight monetary policy and possibly an increase in interest rates during the year to somewhat halt the downtrend in the pair. Any positive developments on the war front will also increase the risk appetite and likely provoke upward reactions in the EURUSD. We prefer buy positions this week.

GBPUSD (Great Britain Pound – US Dollar)

The previous week was bearish for the GBPUSD, which opened at 1.3090 and closed at 1.3034. The strong US dollar and the recent problems of the sterling brought the pair within the week, below the milestone price of 1.30. In the last hours of Friday, however, buyers appeared who managed to stabilize the GBPUSD again above 1.30. Recent statements by Bank of England officials have been in line with concerns about monetary policy and interest rates in the UK as the war in Ukraine has hit growth and other macroeconomic variables, leaving planning less stable. However, the United Kingdom has already made three interest rate hikes recently, and given the very low price levels of the pair, we may see bullish reactions. The trend has been strong down since mid-January and needs a clear uptrend above 1.33 to hope for a reversal. We may try sell positions this week.

USDJPY (US Dollar – Japanese Yen)

The USDJPY moved up last week (5th consecutive bullish week) as it opened at 122.59 and closed at 124.28. Most of the main factors influencing the pair, support its rise. The dollar is at a two-year high, bond yields are rising with the US 10-year-old has reached high levels in early 2019 and the Japanese currency is going through a period of great weakness. Recent statements by Asahi Noguchi, a member of the Bank of Japan, indicate that the country’s loose monetary policy will continue even if rising energy and fuel prices create additional inflationary pressures. Japan’s relatively low inflation allows for this policy. The next resistance is in the price range of 125.85, which is a high price for about 7 years and if there is a break in these levels, we may see the highest prices in the last twenty years. It is obvious how these prices create overbought conditions and therefore some sellers can take advantage and make corrections but we may try buy positions for one more week.

EURJPY (Euro – Japanese Yen)
Last week was bearish for the EURJPY which opened at 135.26 and closed at 135.14. It was the first corrective week, after four consecutive weeks of sharp rise that had yielded more than 1000 pips in the pair. The Japanese currency is going through a period of weakness as, unlike other central banks, the Bank of Japan continues its loose monetary policy and through recent statements, does not intend to change it soon, even if it creates additional inflationary pressures. It is therefore not excluded that the correction we saw will be of a technical type and the pair will continue its uptrend, with the big target of buyers being the price range of 137.50, an area that is high since February 2018 so buy positions is our selection for one more week.

EURGBP (Euro – Great Britain Pound)

Last week was bearish for the EURGBP which opened at 0.8420 and closed at 0.8342. The euro and sterling both weakened but it seems that the British currency prevailed because the UK is less affected by the war due to less energy dependence on Russia but also because interest rates have already been hiked three times in the UK, unlike Europe, which is still planning it for the end of the year. In order to be continuity in the fall, we must see a clear break out of 0.83 while the farther we go from these levels, the stronger the upward scenario. We may try sell positions this week.

USDCAD (US Dollar – Canadian Dollar)

Last week was bullish for the USDCAD, which opened at 1.2510 and closed at 1.2571. The US dollar strengthened significantly and in combination with the correction of oil prices that weakened the Canadian currency, the pair recovered from the 2022 low price, close to 1.24. The new jobs in Canada in March were announced a little lower than expected and although the unemployment rate fell to 5.3% from 5.5%, the country’s currency did not strengthen significantly. The strengthening of the US dollar seems to continue, the oil prices continue to fall and if this picture continues, we can see prices above 1.27. Below 1.2540, the bearish scenario returns to the forefront. The case of a 0.50% increase in interest rates in Canada, as expected by the markets, also supports the downward scenario so we may try sell positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF had a strong uptrend last week, as the opening price was at 0.9253 and the closing price at 0.9342. The US dollar, which has strengthened to its highest levels in two years, boosted the pair. The unemployment rate in Switzerland for March remained unchanged at 2.2% and due to the lack of other announcements from Switzerland, the US currency was the one that dominated the USDCHF, determining its trend and volatility. The scenarios for an increase in interest rates by the Fed in May are becoming more and more prevalent, so it is not ruled out that there may be a break of resistance at 0.9370, with the next target of buyers being at 0.9460. We may try buy positions this week.

AUDUSD (Australian Dollar – US Dollar)

Last week was bearish for the AUDUSD which opened at 0.7489 and closed at 0.7459. On Monday, the pair had exceeded 0.7660, reaching the highest level in the last 10 months, but then the strength of the US currency pushed the pair strongly lower. The decision of the Bank of Australia to keep interest rates unchanged at 0.10%, already creates an imbalance since in the US it is already at 0.50% and it is not ruled out that in May, they will be at 1%. Australia’s PMI also deteriorated in March and the trade balance fell sharply. The risk aversion sentiment also strengthens the downtrend and, combined with the announcement of US inflation, may put new pressure on the pair, even to 0.73 so sell positions is our selection for the current week.

Bitcoin

Last week was bearish for Bitcoin, which closed at $ 42,134 with losses approaching 10%. The Bitcoin 2022 event that took place in Miami was very interesting as it had about 25,000 visitors every day and many more online. The main show was created by PayPal founder Peter Thiel, who presented a list of Bitcoin “enemies”. At the top of his list is Warren Buffet, whom Thiel called a “sociopathic grandpa.” At the same event, one of Mexico’s richest men, Ricardo Salinas, revealed that more than 60% of his fortune is in Bitcoin. But Bitcoin, like most cryptocurrencies, has fallen sharply, well below the $ 45,000 critical level. On-chain analysis, however, continues to maintain the upward scenario, as well as some rumors that some “whales” (= large investors) are returning to the cryptocurrency markets so we may try long positions this week.

IMPORTANT DISCLAIMER

The information of this report is of a general nature only. It is not a 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.