08/05/2023

General Comment

The week that passed by was particularly important for the financial markets. It contained many decisions, economic news, and announcements. Maybe there were no surprises in the related expectations of the markets but still, they are parameters that affect the global economy

The Fed raised interest rates by 0.25% as expected, leaving a glimpse that this increase might be the last after we saw that in the monetary policy statement, some phrases were removed related to future actions. In his speech, the head of the Fed Jerome Powell declared that the main target for inflation of 2% remains and that a rate cut isn’t yet on the table.

The next day, the European Central Bank also raised interest rates by 0.25% which was something that confirmed market expectations though some faint voices were speaking for a raise of 0.50%. Christine Lagarde in her speech repeated that inflation is too high and for too long and that the European Central Bank will continue its actions to combat it.

The next important news came on Friday with the announcement of the labour market in the United States (NFPs). Estimates were for 179K new jobs in April, but the result was visibly better. 253K new jobs were created in April and this news was enough to restore positive sentiment in the markets at the end of the week.

Despite the effort to recover on Friday most stock indices in Europe and the United States had a negative performance. Mixed was the picture in the commodity market with gold continuing the upward rally and oil suffering heavy losses. In the foreign exchange market, the American dollar continued to fall but its main competitors were not able to benefit significantly. In the bond market, there have been stabilizing trends with the U.S. 10-year closing the week in the region of 3.43%. Finally, as for cryptocurrencies, there was a mild correction that did not, however, change the general trend.

The current week is also important for markets with the most light falling on the United States inflation announcement on Wednesday. Also important is the inflation in China and the interest rates decision in the UK on Thursday. In the second row of importance are the GDP in the United Kingdom, the producer price index in the United States, the inflation in Germany, and the trade balance in China.

SP500

With bearish trends, the US SP500 index closed last week, at 4,136 points and losses of 0.80%. The index had a strong downward trend until Thursday since the Fed’s decision on interest rates and Jerome Powell’s speech in the press conference that followed had a negative impact on the markets. Until Thursday the rest of the economic announcements for the United States were positive. The manufacturing PMI indicator had a good result while well above estimates were announced was the number of jobs in the private sector (296K versus.148K). There was a slight deterioration with the initial jobless claims but the climate remained strongly negative in the equity in the United States. That changed on Friday though as the NFPs brought back a climate of optimism. By the end of the week, an upward rally followed, but it was not capable of reversing the negative sign for SP500. That bullish reaction was so strong on Friday that leads us to the conclusion that maybe it will continue into the current week, especially if the inflation announcement on Wednesday allows it. For this reason, we will prefer long positions this week.

DAX30

The German DAX40 index was slightly bullish last week, closing at 15,961 points, with profits approaching of 0.25%. The recent interest rate hike of 0.25% by the ECB was a kind of relief for the European markets as there were certain fears for a raise of 0.50%. This fact was also confirmed by Christine Lagarde who said that some policymakers supported 0.50%. Most likely, the recent banking crisis and all the created concerns and held back ECB from a 0.50% hike. The news from ECB overrode the negative picture of the German economy, expressed by the announcements of the past week. Retail sales dropped by 8.6% in March while factory orders dropped by 11% in the same month. Imports and exports were significantly reduced and only the trade balance has a relatively good performance. A possible bullish breakout above 16,000 points may create enthusiasm for the buyers although the all-time high price of 16.290 points is also close. We prefer long positions for one more week.

FTSE100

The British FTSE100 index moved downward last week, closing at 7,778 points, with losses close to 1.20%. It was the second in a row corrective week for FTSE100, after a mini rally of 5 very profitable weeks. As we’re getting close to the decision for interest rates in the UK and as long as the inflation remains extremely high, there are many analysts that estimate that the interest rate hikes will continue. This fact combined with the approaching of the FTSE100 to the all-time high area, creates corrective trends. The UK was in a partying mode after King Charles and Queen Camilla were crowned on a historic day of pageantry but the issues of the economy are still there. This week besides the interest rates decision, there are announcements for the GDP, manufacturing, industrial production, and trade balance. FTSE100 may be affected by the US markets and if the US indices have a good performance, we may see profits in the UK markets as well. We may try long positions this week.

Gold

The previous week was bullish for gold, with the next month’s futures closing at $2,024 and profits close to 1.30%. Gold had a strong upward rally until Thursday and the price reached the area of $2,084. The negative sentiment after the fears of a banking crisis and the hawkish Fed favored gold as many investors selected safe-haven assets. Since the bond yields did not have any particular raise, gold was a good option as well. Also, the continuous fall of the US dollar is another reason for gold prices rally. Technically speaking, the major resistance was close to the price area of $2,088 which is also the highest price of all time. Gold prices approached this level very much during the week but it seems that many sellers with profit-taking appear in this area. The investing sentiment was improved on Friday and the gold returned to the zone of $2,020 – $2,030 but the positive momentum is still active which is why we’re keen to try long positions for one more week.

US Oil

Last week was heavily bearish for oil with next month’s futures closing at $71.34, with losses that approached 7%. The week had started bearishly as the negative news from the Chinese manufacturing sector pressed the oil prices. Things got even worst during the week after the hawkish Fed, the hawkish ECB, and the strong concerns regarding the US economy and the banking system. This bad image of the major economies had a bad impact on the perception of the markets for the oil demand in the following months. The sentiment somehow recovered on Friday after the positive NFPs but the losses were already very big to be covered. The lowest price of the week was $63.50, the lowest price since the November of 2021. According to the Reuters survey, OPEC oil output declined by 190K barrels per day in April, with Iraq and Nigeria being the major contributors to the decrease. Output will decrease even further in May as a result of the implementation of the production cuts announced by OPEC in the last month. The recovery of last week ending continues in the current week too so we may try long positions.

EURUSD (Euro vs US Dollar)
Last week was neutral for EURUSD as it opened and closed around 1.1015 – 1.1020. The US dollar had another negative week but the euro was not able to take advantage. Many investors and analysts had hoped for a 0.50% hike by the ECB although the major scenario was for a 0.25% hike which was finally confirmed. Also, Christine Lagarde said that two or maybe three more hikes are on the table but she was not able to persuade the markets about the determination. Inflation is still very high as it was announced at 7% in April. The unemployment rate in the Eurozone dropped slightly in March to 6.5% from 6.6% in February but retail sales dropped by 3.8%. The US inflation announcement is the most critical event for the EURUSD this week. As long as the pair remains above 1.10, the bullish momentum is retained so buy positions is our selection for the current week.

GBPUSD (Great Britain Pound – US Dollar)

Bullish was the last week for GBPUSD, which opened at 1.2556 and closed at 1.2630. The GBPUSD is in a strong uptrend during the last 2 months. This is caused mainly by the weakness of the US dollar but the sterling also appears strong. The Bank of England is prepared for a new interest rate hike on Thursday and here’s a possible divergence that markets anticipate. The Fed’s hike last week may be the last one as the rate is already high and there are certain signs of inflation de-escalation in the USA. On the contrary, inflation in the UK remains very high (above 10%) and there may be more hikes by the Bank of England. A series of UK economic announcements in the current week will also have a critical role on the pair. The next technical resistance is at 1.2670 and above this level the road is open even for 1.30. As a result of the above, we may try buy positions this week.

USDJPY (US Dollar – Japanese Yen)

USDJPY moved downward last week, opening at 136.13 and closing at 134.82. The weakness of the US dollar was the main reason for this correction. This correction was the strongest one in the last 1.5 months. The stabilizing bond yields was rather a neutral factor that was, more or less, ignored by the markets. The Japanese currency was also favoured during the week as a safe option as there were fears and concerns for the global economy and the banking system. The positive NFPs balanced the situation but not at a level of reversing the trend. According to the latest release of the Japanese monetary policy meeting minutes, several members of the Bank of Japan said that must be vigilant to risk inflation may accelerate more than expected. It is a clear sign that the change of the Japanese loose monetary policy may approach. A possible de-escalation of the US inflation may cause an extra weakness for the dollar so we may try sell positions this week.

EURJPY (Euro – Japanese Yen)
Bearish was the last week for EURJPY which opened at 150.09 and closed at 148.56. Euro was neutral last week as the recent interest rate hike of 0.25% by the ECB retained the positive momentum for the shared currency but disproved some rumors which were active, regarding a 0.50% hike. Christine Lagarde mentioned 2 or 3 more hikes but generally failed to impress the markets. On the other hand, the yen had a very good week because many investors favored it as a secure selection in an environment of fear for the economies and the banks. Also, some analysts believe that the ultra-loose monetary policy will come to an end soon. We may try sell positions this week.

EURGBP (Euro – Great Britain Pound)

Last week was bearish for EURGBP, which opened at 0.8773 and closed at 0.8723. It was the third consecutive bearish week for the EURGBP as the market anticipate a different behavior between the Bank of England and the ECB. The hot inflation problem is more intense in the UK with the inflationary rate insisting above 10% while in Europe it was announced at 7%. It makes sense though for the Bank of England to become more aggressive and this perception strengthens the sterling. If there’s a confirmation from the Bank of England this week, through the interest rate decision and the press conference, this trend may continue so we prefer sell positions for one more week.

USDCAD (US Dollar – Canadian Dollar)

Heavily bearish was the last week for USDCAD, which opened at 1.3535 and closed at 1.3374. As the US dollar had another dropping week, the currency of Canada was strengthened mainly due to the speech of the head of the Bank of Canada, Tiff Maclem. Tiff Maclem said that “We’re forecasting inflation to fall quickly to about 3% this summer and to reach the 2% target near the end of 2024″ and that “we are prepared to raise interest rates further“. The Bank of Canada also decided to pause interest rate hikes in March. This hawkish stance of the BoC helped the Canadian dollar to recover although the oil prices did not help it at all. Canada has also had a very good performance in the jobs market: 41.4K was the next change in employment versus the 20K that markets anticipated. The unemployment rate remained unchanged at 5%. We may try sell positions this week too.

USDCHF (US Dollar – Swiss Franc)
The USDCHF had a downward course last week as the opening price was at 0.8930 and the closing price at 0.8906. The pair had a sharp downtrend on Wednesday as many investors and traders turned to the franc as a safe-haven asset because there was a lot of fear of a banking crisis and an economic recession. On Friday things changed a lot though. The positive performance of the US labor market (NFPs) was the first reason that helped the dollar and the pair to recover. The second reason was the inflation announcement in Switzerland. Inflation fell to 2.6% in April from 2.9% in March and as it is very close to the desired rate of 2%, the markets anticipate that no more interest rates are needed by the Swiss National Bank. In the current week, the major factor will be the US inflation announcement, and in the case of a new de-escalation, the dollar may be further weakened. We may try sell positions this week.

AUDUSD (Australian Dollar – US Dollar)

Bullish was the last week for AUDUSD, which opened at 0.6611 and closed at 0.6751. The US dollar continued its downtrend but the big boost for the pair came from Australia. The Reserve Bank of Australia surprisingly raised the interest rates by 0.25% on Tuesday. In the last decision session, rates remained unchanged and most of the analysts estimated the same for last week. So, it was a surprise that helped the AUD to recover. The monetary policy statement was also hawkish: further monetary policy tightening may be required. The macros in Australia had a good performance as the retail sales, the trade balance, and the PMIs exceeded the markets’ expectations. China was a factor in preventing AUDUSD from gaining more. Chinese manufacturing PMIs were below 50 and the estimations. With all eyes falling on the US inflation announcement on Wednesday, we may try buy positions this week.

Bitcoin

Last week, Bitcoin closed at $28,472 with losses of more than 2.60%. Obviously, Bitcoin is unable for the moment to remain above $30K. The sour investing sentiment that prevailed in the markets last week helped Bitcoin to recover. The major reason for this sentiment was the fears of a banking crisis and lately, any possible concerns for the banks, giving more credit to the cryptocurrency ecosystem, as an alternative. In any case, Bitcoin still was unable to surpass the threshold of $30K. The sentiment improved on Friday after the impressive NFPs in the USA and Bitcoin dropped for three days in a row. Extra concerns were created in the industry after the big cryptocurrency exchange Binance twice paused withdrawals of the largest digital asset, saying it was due to a large volume of pending transactions. So, the losses are extended during the current week and the Bitcoin is already below $28K. We prefer short positions this week.

IMPORTANT DISCLAIMER

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