The announcement of inflation in the United States was the most important event of the past week. Inflation in March de-escalated sharply and was reported at 5% against the 5.2% predicted by markets. Inflation in February was at 6% and so there was a decline of 1% in just one month. It was certainly positive news for markets that reacted upward after discounting that the Fed is about to stop raising interest rates. The positive mood, however, did not last long after the same day we had the announcement of the Fed’s minutes. From the minutes we learned that the policymakers proposed an increase of 0.25% at the next meeting in May. It was also stressed that the banking crisis that we saw a few weeks ago delayed the evolution of the interest rate increase and now that the crisis seems to be passing the increases will come back. The sentiment therefore turned and stock indexes in the United States turned into negative territory. The next day, however, the positive mood returned and finally the week ended with profits. The positive sentiment was somewhat muted after the announcement of retail sales moving into negative territory (-1% in March) but the announcement of the Michigan Consumer Confidence Index made things a bit better.
As far as Europe is concerned, things are different. Inflation is still at a very high level and is likely to force the European Central Bank to continue with aggressive rate hikes. An increase in interest rates of 0.25% or even 0.50% is a likely scenario. This perception strengthens the euro as it is preferred to the US dollar, which has been weak for some time. The rest of the world was singled out by the announcement of inflation in China, which was well below market expectations. In March inflation was at 0.7% while markets were expecting 1%.
To sum up, equity markets moved up in the past week, in Europe and the United States. In the commodities market, we saw mixed trends with gold falling slightly and oil strengthening. On the foreign exchange market, the dollar continued to fall and other higher-risk currencies such as the euro and Australian dollar strengthened. Bond yields tweaked upward with the U.S. 10-year closing marginally above the psychological threshold of 3.50%. Remarkable was the rise and gains in the cryptocurrency market with Bitcoin performing very well as we will see below.
The current week is also important in terms of economic announcements and news. On the front line stand out the announcements of inflation in the Eurozone and the UK. In China GDP and interest rates are announced. Christine Lagarde’s speech is also important, while the announcement is also crucial for PMI indicators in the world’s largest economies.
With bullish trends, the US SP500 index closed last week, at 4,138 points and profits of 0.80%. Until Wednesday volatility was relatively low, and the index had no significant changes. The inflation announcement, however, favored an uptick in the index, which moved to a much higher level after a sharp decline in inflation gave markets a sense that the Fed might halt interest rate hikes. The sentiment changed the same day after the Fed announced its minutes that showed the likelihood of a recession in 2023 is particularly high and that the next decision on interest rates will increase by 0.25%. The climate improved by the end of the week again mainly due to positive macroeconomic results. One other reason was the SP500’s company results. Based on which results have already been announced and analysts ‘ estimates there is an upward revision for the overall performance of companies in the index, which is better than recent estimates even if it continues to be in negative territory. We may try long positions for one more week.
The German DAX40 index was bearish last week, closing at 15,807 points, with profits approaching 1.35%. The index was influenced and favored by the generally positive sentiment that prevailed in equity markets last week. Approaching the summer period, the economic climate predicted by many analysts has not yet been confirmed, giving hopes that if there is a recession it will eventually be mild in intensity and duration. Also, the rapid drop in inflation in the Eurozone and Germany that we have seen lately gives the impression to investors that the European Central Bank will not be so aggressive in raising interest rates and tight monetary policy. An important announcement of inflation in the Eurozone will be released on Wednesday and if this sentiment is maintained then we may see a new uptrend for the index and therefore we may try long positions this week.
The British FTSE100 index moved upward last week, closing at 7,872 points, gaining more than 1.65%. The index thus completed four consecutive weeks of profits absorbing all the shocks and pressures it had received in March. Bank of England chief Andrew Bailey’s statements reassured markets after stressing that a banking crisis was not going to hit the UK and that the 2008 crisis scenario was not easy to repeat. A series of macroeconomic results were announced by the UK last Thursday. The country’s GDP was announced for February at 0%, well down on the previous month’s 0.4% but not at a negative price yet. The figures for industrial production and manufacturing were also reduced, but nothing particularly alarming. Finally, the trade balance was improved in relation to expectations. The current week contains even more important announcements: inflation, unemployment rate, retail sales, and PMI indicators. If the FTSE100 approaches 8,000 points the climate will remain excellent and, in this perspective, we will choose long positions this week.
The previous week was slightly bearish for gold, with the next month’s futures closing at $2,017 and losses close to 0.30%. The continued weakening of the U.S. dollar has helped the gold to remain above $2,000 but it makes sense at such high levels for corrective moves to occur as well. The negative performance for gold was due to Friday’s fall when the U.S. dollar regained some of its strength. By then gold had been at a 13-month high, at $2,063. Another inhibiting factor for the further rise in gold prices was a rebound in bond yields with the U.S. 10-year above the 3.50% threshold for the first time in about two weeks. Things are also starting to clear up with the Fed and interest rates, and the most likely scenario is another 0.25% increase and then a pause. The $2,063 has formed a resistance for gold prices and if there is an excess above that level, new upward trends may appear therefore we will prefer long positions this week.
Last week was bullish for oil with next month’s futures closing at $82.64, with profits approaching 2.80%. The recent announcement by OPEC+ to reduce oil production continues and affects prices even if there had been a slight pause. So, oil was able to find itself on top of the significant resistance of $82.64 which was also the highest price since the end of last year. The week started with a strong uptrend after most investors anticipated that the Fed would stop rate hikes and that demand would remain high. The Biden administration plans to refill the U.S. strategic oil reserve soon, hopefully at lower prices, according to U.S. Energy Secretary Jennifer Granholm. Prices climbed on Friday again mainly due to a monthly report by the International Energy Agency (IEA) forecasting record oil demand for 2023, mainly driven by increased demand from China. The IEA estimates 2 million barrels more than the previous year. That announcement, however, could not equalize Thursday’s losses, and so it appears that the price of oil is struggling to rise further. We may try short positions this week.
EURUSD (Euro vs US Dollar)
Last week was bullish for EURUSD which opened at 1.0896 and closed at 1.0994. The pair reached 1.1075 during the week, which is the highest for about a year. The weakness of the U.S. dollar following a sharp decline in U.S. inflation helped the exchange rate continue its upward rally that has been on the rise since last September. Also, the perception of the markets that new interest rate rises should be expected in the Eurozone strengthened the euro. There have also been positive reports on the Eurozone economy. Retail sales were announced in March down 3% but that figure was above market expectations. Industrial production increased by 1.5% in February. If the EURUSD manages to get above 1.10 again a continuation of the upward trend can be considered quite likely. However, ss long as it stays below 1.10, the bearish scenario prevails so we may try sell positions this week.
GBPUSD (Great Britain Pound – US Dollar)
Unchanged was the last week for GBPUSD, which opened and closed around 1.2415. The exchange rate was well above 1.25 during the week but the strengthening of the US dollar on Friday brought it back to about the point it had opened the week. This is a clear signal that the exchange rate remains vulnerable to dollar reactions and that the sterling does not yet have the strength to stand on its own and support a clear upward trend. Bank of England chief Andrew Bailey was reassuring in his speeches, stressing how the economy is not seriously at risk because of quantitative tightening and how the 2008 scenario in relation to a banking crisis is hard to repeat. It also left hints that rate hikes may continue. The trend since the beginning of March is upward but Friday’s big drop puzzled us. A clear breakout above 1.25 is needed to strengthen the trend. On the contrary, below 1.2340 there is a greater likelihood of a corrective move and by trusting more on this case, we prefer sell positions this week.
USDJPY (US Dollar – Japanese Yen)
USDJPY moved upward last week, opening at 132.10 and closing at 133.73. During the week there was a balance between the dollar and the yen after both currencies were weak. The dollar weakened after the announcement of reduced inflation in the United States, but the yen also came under intense pressure following the speech by the new head of the Bank of Japan Ueda. Ueda once again reiterated that loose monetary policy would continue. At the end of the week, however, the rise in bond yields combined with the strengthening of the dollar brought this upward effect on the exchange rate. The most important announcement of the week for the Japanese economy was that the producer price index appeared lower than the previous month, thus confirming the expectations of the markets for the continuation of loose monetary policy. Long positions is our selection for the current week.
EURJPY (Euro – Japanese Yen)
Strongly bullish was last week for EURJPY which opened at 143.99 and closed at 147.02. The euro is quite strong at this period due to the perception of markets towards the European Central Bank that will raise interest rates further as high inflationary pressures persist in the Eurozone. Moreover, Europe seems to have a good macroeconomic picture, which is far from the gloomy picture predicted by some analysts last summer and autumn. On the other hand, the yen is under a lot of pressure mainly due to continued loose monetary policy which it looks like it will carry on. The EURJPY, however, has come close to the critical resistance of 148.40, which is the highest price since late 2014. At these levels, downward reactions cannot be ruled out and so we prefer sell positions this week.
EURGBP (Euro – Great Britain Pound)
Last week was bullish for EURGBP, which opened at 0.8766 and closed at 0.8855. The euro has been particularly strong lately, mainly due to hawkish market perceptions of monetary policy and interest rates from the European Central Bank. There are analyses and articles from authoritative sources that speak of an interest rate increase of even 0.50% at the May meeting. The UK is also suffering from high inflation, but things are not so clear. The statements made don’t give a clear picture of new increases in interest rates. Based on the above we don’t exclude the upward trend from continuing for the pair and thus we may try buy positions this week.
USDCAD (US Dollar – Canadian Dollar)
Heavily bearish was the last week for USDCAD, which opened at 1.3514 and closed at 1.3353. The continued weakness of the U.S. dollar has pushed the exchange rate considerably lower, close enough to support 1.3260, which is a several-month low. The USDCAD was unable to rise even after the Bank of Canada’s decision on interest rates, which were unchanged at 4.50%. Bank chief Tiff Macklem’s statements about how much a new rate hike was discussed did not leave Canada’s currency under major pressure. But a decisive factor for the strengthening of the Canadian dollar was the big increase in oil prices because as we have said many times, oil is strongly correlated with the country’s economy. A bearish breakout below the support of 1.3260 opens the way for further decline and so we prefer sell positions this week too.
USDCHF (US Dollar – Swiss Franc)
The USDCHF had a downward course last week as the opening price was at 0.9038 and the closing price was at 0.8938. USDCHF was found below the milestone price of 0.90 for the first time since June 2021. The main reasons for this decline are two. First, the U.S. dollar is in a period of prolonged weakening as most analysts believe the Fed has almost finished its work on raising interest rates. The other reason is the strengthening of Switzerland’s currency as a low-risk option, as there are strong indications that the global economy will enter a recession in 2023. The exchange rate is difficult to recover unless there is a quick upward reaction above 0.90 and therefore, we prefer sell positions this week too.
AUDUSD (Australian Dollar – US Dollar)
Bullish was the last week for AUDUSD, which opened at 0.6654 and closed at 0.6708. The continued weakening of the U.S. dollar has helped the exchange rate move slightly higher, but in general, it has not yet developed a strong uptrend as at corresponding rates. The reason is that the Australian dollar has no grounds for support since interest rates were unchanged in the recent decision of the Reserve Bank of Australia. Reserve Bank of Australia (RBA) Deputy Governor, Michele Bullock said there would have been a pause in interest rates even if the banking crisis had not emerged. On the positive side of the Australian dollar are China’s economic results in terms of imports, exports, and trade balance. However, if the US dollar continues its weakness, we will see higher prices for the exchange rate, and therefore we may try buy positions this week.
Last week, Bitcoin closed at $30,330 with important profits of more than 7%. Obviously, a key reason for this rise was the overall positive sentiment prevailing in the markets following the rapid decline in inflation in the United States. This gave the impression that monetary policy would not be as tight and that there will be sufficient liquidity to support high-risk options such as cryptocurrencies. The launch of the long-opposed “Shapella” upgrade, which went live on Wednesday, was also a major factor for the bullish trend of the cryptos. “Shapella” jointly refers to two upgrades, Shanghai and Capella, which have unlocked withdrawals of Ethereum staked on the network at the execution layer and the consensus layer according to Yahoo finance. Having exceeded $30,000, Bitcoin can continue to rise further so we may try long positions for one more week.
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