Weekly Market Outlook: April 8th To April 14th
Forex
USD
The US labor market remains robust and may encourage the Fed to delay cutting interest rates until inflation drops closer to the central bank’s 2% target.
The dollar dipped last week, with the dollar index ending the week near the 104.3 level. On the other hand, US treasury yields gained strength with the US 10-year bond yielding approximately 4.40 by the end of the week.?
US economic activity data this week were overall mixed. The US jobs report on Friday revealed that average hourly earnings in the US rose by 0.3% on a monthly level and the US unemployment rate dropped to 3.8% in March from 3.9% in February. Non-farm payrolls (NFPs) showed that the US economy created 303K new jobs in March rising above expectations of 212K versus 270K jobs added in February. The US labor market remains robust and may encourage the Fed to delay cutting interest rates until inflation drops closer to the central bank’s 2% target.
US Unemployment claims on Thursday rose by 221K last week against expectations of 213K—US Services data released on Wednesday. ISM Services PMI data showed that US services sector activity has slowed down. The ISM index dropped to 51.4 in March from 52.6 in February, missing expectations of a 52.8 print. March’s print remained above the value of 50, indicating that the service sector continues to expand, but expansion has decelerated. ADP Non-Farm Employment Change data on Wednesday were optimistic, showing that 184K new workers were added to the US workforce in March against expectations of 148K.??
JOLTS job openings released on Tuesday were in line with expectations. The US economy added 8.76M new jobs in February after adding 8.75M jobs in January. US manufacturing data on Monday exceeded expectations, boosting the dollar. The ISM Manufacturing PMI index rose rapidly in March, with a print above zero, which is the threshold for sector expansion. March’s print of 50.3 far exceeded February’s value of 47.8 as well as expectations of just 48.5, indicating that the US manufacturing sector is growing at a rapid pace. ISM Manufacturing prices also rose in March, with a print of 55.8 against expectations of 53.3. This is also a measure of consumer inflation and a print above 50 denotes rising manufacturing prices.
The US Federal Reserve kept interest rates unchanged at its policy meeting in March, within a target range of 5.25% to 5.50%, as expected. In addition, policymakers made no adjustments to their ongoing quantitative tightening program, which was in line with expectations.?
The FOMC statement was optimistic about the state of the US economy. The central bank raised its previous forecast for US economic growth this year predicting expansion by 2.1% in 2024 compared to its previous forecast of 1.4%. The FOMC statement also emphasized that disinflation is underway, although inflationary pressures remain high.
The Fed’s forward guidance was overall dovish. The Fed’s dot plot, which outlines policymakers’ expectations for the trajectory of interest rates over several years, showed that the Fed intends to proceed with cutting interest rates this year. The Fed’s dot plot in January predicted 3 rate cuts within the year of 25 basis points each. This projection has remained unchanged, raising expectations of a dovish pivot in the following months.?
For months now, markets have been speculating as to the timeline of the Fed’s pivot to a more dovish policy. Fed Chair Jerome Powell has stated that inflation is higher than expected, forcing policymakers to proceed carefully with rate cuts. Fed officials wish to see more evidence of disinflation before moving ahead with cutting interest rates.?
Odds of a rate cut in May are practically nil. Rate cut odds in June are approximately 60% and only 25 basis points of rate cuts are priced in by June. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.?
The US economy remains robust and expanded by 3.4% in the final quarter of 2023, exceeding previous estimates of 3.2% growth. The US economy is expanding at a slower pace, however, as GDP data have shown expansion by 4.9% in the third quarter of 2023.
US Headline inflation rose by 3.2% year-on-year in February from a 3.1% print in January and against expectations of a steady print of 3.1%%. Monthly CPI rose by 0.4% in February, exceeding expectations of 0.3% growth. Core CPI, which excludes food and energy, also rose by 0.4% against the 0.3% raise anticipated.?
Core PCE Price Index, which is the Fed’s preferred inflation gauge, rose by 0.3% in February compared to January’s 0.4% growth, which was in line with expectations.? On an annual basis, Core PCE dropped just below 2.8% in February, registering a marginal drop from January’s almost 2.9% print. Core PCE Price Index data showed that US disinflation is progressing, albeit slowly.?
This coming week is packed with news that may cause increased volatility in Forex markets. The US inflation report on the 10th is in focus as it may affect the Fed’s policy outlook. Headline inflation rose by 3.2% year-on-year in February and markets are expecting just a minor drop in March. Inflation in the US has proven to be sticky, resisting the Federal Reserve’s efforts to bring it down to its 2% target.
EUR
EU CPI data showed that disinflation in the Eurozone is well underway, with headline inflation cooling to 2.4% in March from 2.6% in February.
EUR/USD surged above the 1.080 level last week as the dollar weakened. If the EUR/USD pair declines, it may find support at 1.072, while resistance may be encountered near 1.088.
The ECB kept interest rates unchanged at 4.50% at its latest monetary policy meeting. The EU central bank has revised its inflation projections down to an average of 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. In addition, the ECB has revised down its growth projection for 2024 to 0.6%. Expectations of cooling inflationary pressures coupled with increased economic fragility, may induce the central bank to start cutting interest rates sooner than anticipated.
This coming week, the ECB monetary policy meeting on the 11th is expected to attract considerable market attention. The European Central Bank is widely expected to keep interest rates steady this month and market participants will focus mostly on the ECB’s forward guidance.?
The ECB is expected to start cutting interest rates later this year since inflationary pressures in the Euro area are easing. ECB President Christine Lagarde has stated that policymakers wish to see more evidence of inflation dropping to the central bank’s 2% target. Lagarde said that they expect to have sufficient data in three months, pointing to a rate cut in June.?
ECB policymakers were dovish in the past couple of weeks, expressing satisfaction at the rate of disinflation in the Eurozone and raising expectations of rate cuts in the following months. Market odds of a rate cut in June are at approximately 60%, while most market analysts forecast around 90 basis points of cuts this year.?
On the data front, Final Services PMI data released on Thursday for the Eurozone were optimistic, boosting the Euro. The Services sector in the Eurozone is expanding, with a 51.5 point in March versus 51.1 in February and 51.1 anticipated. A value above 50 indicates industry growth and an increasing PMI index shows that the sector is expanding at an accelerated pace.?
EU CPI data on Wednesday showed that disinflation in the Eurozone is well underway. Headline inflation in the Euro area cooled to 2.4% in March from 2.6% in February against expectations of a 2.5% print. Core CPI, which excludes food and energy, dropped to 2.9% from 3.1% the previous month, versus 3.0% anticipated. Easing price pressures in the Eurozone may encourage the ECB to start lowering borrowing costs as early as June.
German inflation data on Tuesday showed that inflationary pressures in the Euro area’s largest economy are cooling. German CPI rose by only 0.4% in March according to preliminary estimates against the 0.5% growth forecasted. Manufacturing PMI data for some of the Eurozone’s leading economies and the EU as a whole were also optimistic. EU Manufacturing PMI rose to 46.1 in March from 45.7 in February against expectations of a 45.7 print. The EU manufacturing sector remains in contractionary territory as denoted by a print below 50 but the sector’s contraction is slowing down.
Headline inflation in the EU dropped to 2.6% year-on-year in February from 2.8% in January. Euro area inflation, however, missed expectations of a greater drop to 2.5% in February. Core inflation, which excludes food and energy, has dropped to its lowest level in two years. Core inflation cooled to 3.1% in February from 3.3% in January, but also disappointed expectations of a drop to 2.9%.
Flash GDP data for Q4 of 2023 showed that the Euro area economy was stagnant with a GDP print of zero, as anticipated. The Eurozone economy does not show sufficient signs of recovery and is on the brink of recession. The EU economy contracted by 0.1% in the third quarter of 2023 and barely expanded in the second quarter by 0.1%, after contracting by 0.1% in Q1.?
GBP
The British Manufacturing sector has finally moved away from the contractionary area and has started to expand.
The GBP/USD rate rose to the 1.264 level last week as the dollar dipped. If the GBP/USD rate goes up, it may encounter resistance near 1.270, while support may be found near 1.253.?
The BOE maintained its official rate at 5.25% at its policy meeting in March but showed signs of preparing for a dovish pivot. At the previous meeting in February, 2 out of 9 MPC members had voted for a rate hike, 6 voted to keep interest rates steady and one to reduce interest rates. In March’s meeting, 8 policymakers voted to keep interest rates steady and one voted in favor of a rate cut.??
BOE Governor Andrew Bailey’s statement after the meeting had dovish undertones, stating that cooling inflationary pressures in the UK support potential interest rate cuts and hinting at two or three rate cuts within the year.
Markets are pricing in the first BOE rate cut in June with approximately 60% probability, while a rate cut by August is considered almost certain. Rate cut expectations have become more moderate in the past months, with no more than 70 basis points of rate cuts priced in this year.?
On the data front, Final British Services PMI data released on Thursday were slightly disappointing. The Services sector in the UK continued to expand in March, with a 53.1 print, which is higher than the threshold of 50 that indicates sector expansion. Thursday’s value missed expectations of 53.4, however, and fell below February’s print of 53.4, indicating that the sector is expanding at a slightly decelerated pace.?
Final Manufacturing PMI data on Tuesday surprised on the upside boosting the Sterling. The British Manufacturing sector finally moved away from the contractionary area and started to expand. UK Manufacturing PMI rose to 50.3 in March from 47.8 in February against expectations of 49.9. A print above 50 denotes industry expansion and this was the first month since September 2022 that the British manufacturing sector registered expansion.?
The BOE has updated its inflation outlook, predicting that inflation will drop to the BOE’s 2% target in the second quarter of the year. If the BOE’s forecasts are realized, policymakers may be induced to cut interest rates sooner.??
British headline inflation dropped to 3.4% year-on-year in February from 4.0% in January, surpassing expectations of a 3.5% print. Annual Core CPI, which excludes food and energy, fell to 4.5% in February from 5.1% in January, against 4.6% forecast.?
Recent GDP data showed that the British economy has slipped into recession. Final GDP data confirmed previous estimates that the British economy contracted by 0.3% in the final quarter of 2023. The British economy is fragile and may force the BOE to pivot to a more dovish policy.
JPY
Japan’s Prime Minister, Fumio Kishida warned speculators that officials will take appropriate action if there are any further excessive forex moves.
The Yen touched a 34-year-low against the dollar last week, with USD/JPY trading close to the key 152 level before ending the week close to the 151.7 level. If the USD/JPY pair declines, it may find support near 150.8. If the pair climbs, it may find resistance near 151.9.
领英推荐
Yen intervention concerns are high, as Japanese authorities have been warning repeatedly that an intervention to support the currency might be imminent. The Yen’s weakness is causing concern to Japanese officials who have been warning traders against speculative short selling of the Yen.?
Finance Minister Shunichi Suzuki stated on Monday that the Japanese government does not rule out any options against excessive currency movement and is ready to take action to support the currency. Suzuki and other Japanese officials have been issuing warnings to currency speculators repeatedly in the past couple of weeks, hinting at another intervention to support the weakening Yen. Japanese Finance Minister Shunichi Suzuki reiterated his previous statement on Tuesday, that authorities were ready to take appropriate action against excessive exchange-rate volatility.
Japan’s Prime Minister, Fumio Kishida, stressed on Friday that excessive volatility in the Yen is threatening the country’s financial stability. Kishida warned speculators that officials will take appropriate action if there are any further excessive forex moves.
Japanese authorities have intervened to support the currency in the past and may do so again if the Yen continues to decline. Concerns about an imminent intervention have been keeping Yen short sellers in check, providing some support for the currency.
The BOJ pivoted to a more hawkish policy in March, ending its negative interest rate policy. The BOJ has been keeping interest rates at a negative level, putting pressure on the Yen. Japanese policymakers voted to raise the benchmark interest rate into the 0% - 0.1% range.?
The BOJ abandoned its ultra-easy monetary policy after almost eight years and performed its first rate hike in almost 17 years. The BOJ also abandoned bond yield curve control and dropped purchases of riskier assets.?
BOJ Governor Kazuo Ueda did not deliver clear forward guidance at his press conference after the meeting, stating that accommodative financial conditions will be maintained for the time being and did not give any hints of future rate hikes. In addition, Japanese policymakers are concerned about inflation not rising according to expectations. The BOJ’s 2% inflation target has not been met sustainably yet, which is likely to hinder policymakers from raising interest rates again soon.
Even though the BOJ voted to raise interest rates, the Yen continues to weaken as there is still a significant disparity between interest rates offered by the BOJ and those from other major central banks.?
On the data front, inflation in Japan remains low but is slowly rising. Tokyo Core CPI rose by 2.5% year-on-year in February from 1.6% in January. Headline inflation climbed to 2.8% year-on-year in February from 2.0% in January. BOJ Core CPI, on the other hand, retreated to 2.3% year-on-year in February from 2.6% in January against expectations of 2.5%.?
Final GDP data for the final quarter of 2023 showed that Japan's economy expanded by 0.1% against expectations of 0.3% expansion. The Japanese economy contracted by 0.7% in the third quarter and expanded by 1.2% in the second quarter of 2023, showing that the country’s economy is shrinking. Recession concerns limit the odds of a BOJ hawkish pivot in the coming months.
Gold
Gold prices rose above $2,300 per ounce for the first time last week, ending the week near $2,330 per ounce as gold’s bullish trend continues.
Gold prices have been hitting new all-time highs in the past couple of weeks. Gold prices rose above $2,300 per ounce for the first time last week, ending the week near $2,330 per ounce as gold’s bullish trend continues. If gold prices increase, resistance may be encountered at the psychological level of $2,400 per ounce again, while if gold prices decline, support may be encountered near $2,170 per ounce.?
Gold prices are propped up by rising geopolitical tensions, which raise the appeal of safe-haven assets. Tensions in the Middle East are rising after an airstrike on Iran’s embassy in Syria last Monday. Iran and Syria have accused Israel of the attack and Iran is threatening Israel with retaliation. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets, boosting gold prices. The war between Israel and Hamas is threatening to spill over the Middle East as tensions rise in the Red Sea area. The ongoing conflict between Russia and Ukraine is also propping up gold prices. Ukrainian drones have recently attacked one of Russia’s largest oil refineries, reportedly causing the loss of Russian refinery capacity.
Gold prices have experienced a meteoric rise recently and are trading in overbought territory. Gold prices have been benefiting from increased geopolitical risks, as well as from the rivaling dollar’s weakness. Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar dipped last week, with the dollar index ending the week near the 104.3 level. On the other hand, US treasury yields gained strength with the US 10-year bond yielding approximately 4.40 by the end of the week.?
The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. The Fed’s forward guidance was overall dovish, boosting gold prices. For months now, markets have been speculating as to the timeline of the Fed’s pivot to a more dovish policy. Fed officials wish to see more evidence of disinflation before moving ahead with cutting interest rates.?
Fed rate cut expectations are affecting gold prices. Odds of a rate cut in May are practically nil. Rate cut odds in June are approximately 60% and only 25 basis points of rate cuts are priced in by June. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.?
Oil
OPEC+ kept its output policy steady, maintaining its voluntary production cuts of 2.2 million barrels per day.
Oil prices surged last week, with WTI price rising above the $88 per barrel level, its highest price since October 2023. If WTI price declines, it may encounter support near $80.7 per barrel, while resistance may be found near $90 per barrel.
Supply concerns are pushing oil prices upwards. OPEC+ kept existing output cuts in place at its latest meeting on Wednesday, boosting oil prices. The organization announced that it will continue to closely assess market conditions as crude prices are on the rise, approaching $90 a barrel. OPEC kept its output policy steady in April, maintaining its voluntary production cuts of 2.2 million barrels per day. In addition, Russia may be forced to reduce its oil output even further, as a result of lower refinery runs due to Ukrainian drone strikes. Iraq will continue to reduce its crude exports by another 130K barrels per day to compensate for exceeding its OPEC+ quota in January.?
Escalating geopolitical tensions are boosting oil prices. Tensions in the Middle East are rising after an airstrike on Iran’s embassy in Syria on Monday. Iran and Syria have accused Israel of the attack and Iran is threatening Israel with retaliation. Supply concerns provide support for oil prices, as the crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution.?
Ongoing Ukrainian attacks on Russian energy infrastructure are also propping up oil prices. Ukrainian drones have recently attacked one of Russia’s largest oil refineries. Supply concerns are boosting oil prices on reports of the loss of Russian refinery capacity after the Ukrainian attacks.?
China’s poor economic outlook is increasing concerns about reduced oil demand, putting a lid on oil prices, however, despite increasing geopolitical risks. Weak economic growth in China raises concerns about future demand, pushing oil prices down.?
Oil prices are also kept in check by high Fed interest rates. The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. The Fed’s forward guidance was overall dovish, indicating that the Fed intends to proceed with cutting interest rates this year as planned, despite persistent inflationary pressures.?
Cryptocurrencies
A bearish trend prevailed early last week, pushing Bitcoin price down, but the cryptocurrency rallied towards the end of the week, regaining some of its bullish momenta.
Bitcoin price exhibited high volatility last week. A bearish trend prevailed early last week, pushing Bitcoin price down, but the cryptocurrency rallied towards the end of the week, regaining some of its bullish momentum. BTC price started above the $71,000 level on Monday but plummeted to $65,000 on Tuesday. Bulls fought back on Wednesday halting the Bitcoin selloff and raising its price to $66,000. Bitcoin rallied on Thursday and rose above $69,000 over the weekend. If BTC price declines, support can be found near $66,200, while resistance may be encountered near $71,400.?
Ethereum price also dipped earlier last week, but rallied towards the end of the week, rising above the $3,400 level over the weekend. If Ethereum's price declines, it may encounter support near $3,200, while if it increases, resistance may be encountered near $3,650.
Bitcoin price recently reached a new all-time high of $73,800. Bitcoin’s bullish run has renewed interest in crypto markets, boosting other cryptocurrencies as well. Bitcoin has encountered significant selling pressure as well, however, causing increased volatility as bulls wrestle with bears.?
Bitcoin is gaining strength as the Bitcoin halving event is approaching. Every halving event cuts the rate at which new bitcoins are released into circulation in half, increasing the scarcity value of Bitcoin. The halving is scheduled approximately every four years, and the next Bitcoin halving event is expected on April 17th raising the value of the cryptocurrency.
The approval of Bitcoin spot exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC) has caused cryptocurrency prices to surge over the past few months. The SEC has approved 11 applications boosting Bitcoin price. Spot Bitcoin ETF demand has been on the rise, boosting the cryptocurrency as well.
Cryptocurrency prices are affected by central banks’ interest rates. High interest rates are putting pressure on risk assets, while the promise of rate cuts boosts crypto markets. The US Federal Reserve kept interest rates unchanged at its latest policy meeting in March, within a target range of 5.25% to 5.50%. The Fed’s forward guidance was overall dovish, indicating that the Fed intends to proceed with cutting interest rates this year as planned, despite persistent inflationary pressures.
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