Top Market Opportunities 21.03.2022 – 27.03.2022

21 March 2022 Amega

Covid is back!

Following the conclusion of a rather busy week for banks the focus will shift to March’s Flash PMI. The latest release will reflect the economic impact of the war in Ukraine. Headlines around the war itself won’t dissipate, however, they’re unlikely to spook the markets as they did a month or even a week ago. What might do, is the increasing covid cases in China, after the 2nd anniversary of the virus last week.

Busy week for UK and Sunak

The UK releases several reports this week, starting with CPI data and the Spring Statement on Wednesday, going to PMIs on Thursday, and finally Consumer Confidence and Retail Sales on Friday. Undoubtedly, this is a very busy week for London traders and economists as the war is expected to push inflation higher, right after the BoE hiked once more.

CPI forecasts see year-on-year inflation coming out at 6.1%. This is 0.6% above the previous print. Aside from the actual March print, Sunak will probably have to increase inflation forecasts as gas and electricity prices have surged since the conflict sparked up. Will this change the government’s plans going forward, and how much will it squeeze household income? Answers to these questions will set the tone for the few weeks to come, unless PMIs, Gfk, or Retail Sales surprise massively to the upside. Some attention will be put towards wage growth and unemployment.

After a decent rally up to 1.8175 during last week’s trading session, GBP/AUD made a 180-degree turn down to 1.7772. If Sunak’s statement shows no good attempts to ease the cost of living, the pair could continue to fall towards 1.75. In a contrary scenario, 1.8175 makes a strong resistance.

Germany to get a glimpse of war’s impact

On Thursday Germany releases its own PMI figures. Despite the previous Manufacturing report has showed some improvement due to the omicron wave fading, March’s data will be impacted by the latest geopolitical environment that saw commodity and energy prices spike. The forecast is only 2.2 points below last month’s print, so, missing it will be easier than not. Interestingly, the forecast for Germany’s Ifo consumer sentiment data due on Friday is closer to reality as the expectation is for a decline to 92.2; from 98.9.

Along with risk assets experiencing some relief on somewhat positive developments between Ukraine and Russia last week, Germany’s DAX index saw a decent upside. However, despite its continuation hanging mainly on risk appetite, the two economic releases will have an intraday impact on the index.

Any upside will be met with resistance by the 50 and 200-day averages at 14887 and 15465, respectively. Inversely, a downward move could see rejection by 13842 and 13029 supports. Losing the latter psychological level will open up the door to 11500.

SNB undeterred by inflation

Following BoJ’s ultra-loose policy reiteration last week, SNB is expected to repeat the narrative. However, the Swiss bank expects inflation to be unchanged at 0.6% in 2023, which might be the reason they remain undeterred from maintaining the policy. Another one might be the expectation that GDP growth will be 0.5% above previous estimates in 2022, despite rising inflation from supply bottlenecks. In fact, on Tuesday trades must take a look at the SNB’s annual report and extract some figures to see how appropriate its policy decision will be on Thursday.

EUR/CHF has been moving up over the course of the past two weeks. A dovish bank will probably allow the pair to push higher towards the previous week’s high at 1.0406. But depending on how loose the rhetoric is following the decision, a spike up to 1.0598 would be no surprise. Only if the SNB is hawkish can we expect a slide down to the previous week’s low at 1.01917, which is unlikely unless the event is massively priced in already. Now if the euro turn bearish though, the dynamics could change, with major support observed down at 1.0012.

Although it’s not a busy week for the US, market participants will look forward to receiving US GDP revisions and several Fed members’ appearances throughout the week. The main speech would be Monday’s Powell speech. It’s not expected to move the markets drastically, however, traders will look for some confirmation of the Fed’s path to policy normalization, and whether FOMC members reiterate their intentions going forward. On a different note, the GDP revision will show how much the war in Ukraine is expected to dent growth, a somewhat important piece of data released on Thursday.

The monthly chart of USD/JPY shows that the next major resistance lies at 121.25. In the inter, the round level fog 120 and 121 could offer some rejection shorts, however, it’s unlikely to be a full-blown reversal given the current dollar strength against the Japanese counterpart. Down on the daily, trades can observe supports at 118.50, 117.32, and 116.34, with the latter being an unlikely option.

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