Banks back at it

It has been nearly three weeks since the invasion began with the abundance of economic forecasts for growth and inflation has taken the back seat. Despite headlines concerning Ukraine will stick around for a while, this week, the focus will finally turn back to the calendar; particularly central banks and monetary policy.

German ZEW offers intraday opportunity

As widespread as it may have been since covid, let’s remind ourselves that one of the several fronts supply chain disruptions have an impact on is business confidence, and consequently growth and inflation. During the pandemic, European investors gyrated mainly to lockdowns to assess consumer expectations as the easing of restrictions would improve sentiment. Germany, as the leading economy, releases the ZEW economic index to gauge investor morale.

Last month Germany’s ZEW Economic Sentiment Index rose 2.6 points but missed expectations of 55. Analysts expect economic development to worsen in March from 54.3 to 24.6, suggesting more economists are turning pessimistic about the next six months. At first sight, investors envisioned the easing of restrictions would advance the economic recovery, but it seems sanctions against Russia have started to bite already.

EURUSD has been quite volatile to talk about short-term targets. Last week, it ranged between $1.0915 and $1.1124. Depending on where prices will be during the release, traders can expect the event to cause a 20 to 30-pip move in either direction. Large volumes and the weekly formation of an indecision bar hint at reversal technically speaking.

Fed hike priced in but dot-plot adds sensitivity

Moving on to Wednesday and we are finally going to see a 25-basis point rate hike from the Fed, as Fed Chair Powell communicated during his testimony. This will be the first interest rate increase in two years. With the event being well priced in, the market will mainly focus on the presser and any announcement on the Fed’s balance sheet.

Notably, the central bankers will update their dot-plot projections for the first time since December. The officials seem to have mainly expected interest rates at 2.5% in the long run. However, since December inflation has overshot forecasts and policymakers may be more hawkish now. However, each dot expires quickly as FOMC members change their forecast on incoming data.

Since the event is somewhat priced in, price action is not due to propagating as if the hike would be unexpected. Unless there is a major shift towards the Fed’s balance sheet, the SP500 could see a relief towards 4387 by week’s end. If, however, the signals are pro-shrinking, the SP500 could slump towards 4100 or lower.

Pound more sensitive to Russia than to BoE

On Thursday, the BoE reconvenes to likely announce its third back-on-back rate hike, now backed by February’s PMI data. However, renewed soaring in energy prices is not expected to just contain inflation due to the bank’s short-term interest rate increase. The risk of higher inflation because of the raise is high, and if UK’s growth starts to ease will place the MPC in its biggest dilemma. And too quick a fall in inflation, although unlikely, could falter growth and lead to unemployment. So, it seems that the BoE is taking a risky bet by trying to counter inflation. The UK will release its employment figures earlier in the week, on Tuesday.

GBPUSD experienced a huge drop last week, falling from $1.3225 to $1.3025, despite its economy improving from -0.2% to 0.8%. The plummeting most probably took effect due to Boris Johnson’s commitment to strain Russia’s energies market. If the rhetoric continues cable could easily head towards $1.29 regardless of the jobs data as policymaking seems ineffective. If not, a relief rally towards the 200-week average near $1.3115 could be seen, if not higher due to potentially upbeat data.

BoJ’s ‘unlimited’ policy could continue to weaken the yen

As if two banks are not enough with interest rate talk this week, the BoJ will do us the pleasure of announcing one of its customary dovish ‘hold’ once again on Friday. With the yield differential against a somewhat hawkish Fed increasing and coupled with higher import costs from rising energies, the Bank of Japan has no other option to continue boosting their economy. This will likely be a trend for a while as BoJ is the last dovish bank in the era of post-covid normalization.

Since the BoJ committed to controlling yields “without an upper limit” in February, USDJPY’s price action has hanged mainly on the dollar. With Fed almost probably hiking, the pair trades art a 5-year high. Above 118.00, where it currently lies, 118.70 makes a near-term resistance, and then there is pretty much no major level up until 120.00. On the flip side, 116.35 is the swing support high to expect a pullback to -if any.

Amega

Trade with an award-winning broker! Lowest spreads on the market for Forex, Precious Metals, Energies. No re-quotes, no rejection of orders & instant withdrawals.

Open account

www.amega.finance