Daily Analysis Report 16 Mar ‘2022

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EnclaveFX
Mar 16, 2022
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EUR/USD  


During the Asian session, the euro rose slightly versus the dollar, creating a mild corrective momentum since the beginning of the week and attempting to recoup losses from the previous week’s conclusion. The single currency is reaching heavy resistance near 1.1000, but the “bulls” are still cautious. Traders are not in a rush to initiate fresh trading positions, preferring to wait for the release of the US Federal Reserve Meeting Minutes later today. Interest rates are expected to rise by 25 basis points in 2022, signaling the start of a full cycle of rate adjustments.

A more active tightening of monetary policy, as well as a 50-basis-point rate hike all at once, is not ruled out; but such risks have diminished significantly as commodity markets, particularly oil prices, have stabilized. The data released the day before by the ZEW Institute, in turn, exerts pressure on the euro’s holdings. In March, the German Economic Sentiment Index fell drastically from 54.3 to -39.3 points, despite economists expecting a fall of around 10 points. The Eurozone Economic Sentiment index declined from 48.6 to -38.7 points in March, while economists expected it to improve to 49.3 points.

GBP/USD

During the morning session, the British pound rose against the US dollar, building on an upside signal generated the day before as GBP/USD attempted to escape from its record lows since November 2020. The pound is underpinned by a positive macroeconomic backdrop in the United Kingdom, bolstered yesterday by good labor market data. The ILO Unemployment Rate declined from 4.1 percent to 3.9 percent in January, better than analysts’ expectations of 4 percent. The Claimant Count fell by 48.1 thousand in February after falling by 31.9 thousand the month before.

In January, average earnings excluding bonuses increased 3MoY from 3.7 percent to 3.8 percent. The indicator increased by 4.8 percent when a bonus was factored in, which was also higher than market projections of 4.6 percent. The positive dynamics of indicators lead traders to believe that when the Bank of England meets tomorrow, the interest rate will be raised to 0.75 percent for the third time in a row. The US Federal Reserve meets today, and current market expectations point to tightening monetary policy and a rate hike of 25 basis points.

AUD/USD

During the Asian session, the Australian dollar rose slightly versus the US dollar, testing 0.7200 for a breakout once more. Market players are waiting for the US Federal Reserve meeting minutes to be released, which are expected to show a 25 basis point rate hike and the start of a cycle of systematic tightening of monetary policy. Meanwhile, investors are assessing the likelihood of a Chinese economic downturn as the country is compelled to implement quarantine restrictions on more than 45 million people in two industrial districts in an attempt to prevent a surge in coronavirus cases caused by a new stealth omicron variety.

The PRC has a zero-tolerance policy for coronavirus. Thus it takes a severe stance even in isolated occurrences of infection. The situation’s stability on commodity markets, particularly the metal market, exerts pressure on the Australian currency’s position. Investors are anticipating the release of the February report on the Australian labor market tomorrow, which could lead the Reserve Bank of Australia (RBA) to take a more aggressive monetary policy stance in the future. The country’s employment change is expected to accelerate from 12.9 thousand to 37 thousand jobs, with the unemployment rate dropping from 4.2 percent to 4.1 percent.

USD/JPY

During Asian trading, the US dollar is fluctuating against the Japanese yen, settling at about 118.20. The US currency’s confident advance has been halted, although it has remained near record highs since January 2017. At the same time, the dollar’s “bulls” have a good chance of continuing their gains on Wednesday, when the US Federal Reserve publishes its interest rate decision, which is projected to be raised by 25 basis points. A larger correction is also possible, although, after the slump in the oil market, when prices once again went below $100 per barrel, this probability has significantly lessened.

Positive Japanese macroeconomic data are now supporting the yen. As a result, export volumes jumped by 34% in February, following a 38.7% increase the month before. Analysts had predicted a more modest growth of 28%. The volume of Industrial Production fell by 0.8 percent in January, which is significantly less than the 1.3 percent drop in the previous month. Production dynamics improved from -0.9 percent to -0.5 percent on an annual basis.

XAU/USD

After a robust two-day drop that drove the instrument to fresh local lows on March 1, gold prices stabilized near 1915.00. After a significant gain at the start of the month, when demand for the instrument was bolstered by a sharp deterioration in the geopolitical situation in Eastern Europe, investors are selling gold. Russian President Vladimir Putin ordered a special military operation in Ukraine at the end of February, widely criticized Western countries. Since then, massive sanctions have been put on Russia’s economy, and Europe’s energy position has deteriorated significantly as gas and oil prices have soared.

Although the Russian Federation’s military action continues, the situation has now considerably calmed. Investors believe that the negotiations between Russia and Ukraine will yield results soon, halting hostilities and lowering global tensions. Expectations about the US Federal Reserve’s monetary policy decision put additional pressure on the instrument’s quotations. The Federal Reserve will likely raise interest rates by 25 basis points today, beginning off a full cycle of rate hikes in 2022.