Daily Analysis Report 17 Mar ‘2022

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EnclaveFX
Mar 17, 2022
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EUR/USD


During the Asian session, the European currency showed mixed trading characteristics against the US dollar, consolidating at 1.1000 and local highs from March 10. Despite the release of the US Federal Reserve’s decision to raise interest rates by 25 basis points, the instrument managed to show a reasonably active growth the day before. The committee members decided almost unanimously in favor of the increase (8 individuals in attendance voted yes), kicking off the indicator adjustment cycle. This year, 6-7 0.25 percent increases are projected. In addition, in one of the upcoming sessions, the regulator plans to reduce its $8.9 trillion balance sheet.

At the same time, it should be emphasized that the regulator’s decision resulted in just a short-term increase in the dollar’s value, as traders have already managed to price this event into quotes. The euro is bolstered by prospects for a peaceful resolution to the Russian-Ukraine conflict. Traders are optimistic for progress in the talks, citing comments from officials from both countries as justifications. The emphasis of investors today is on the February consumer pricing statistics in the euro area and Christine Lagarde’s address as President of the European Central Bank (ECB).

GBP/USD

During the morning session, the British pound was uptrending versus the US dollar, testing 1.3150 for a breakout. The US Federal Reserve’s decision to raise interest rates by 25 basis points, announced the day before, did not affect the British currency’s ability to complete the day with consistent gains. This was partly since the market had already priced in such an American regulator’s decision. The Fed Chair, Jerome Powell, did not provide specifics on future steps to tighten monetary policy. It was simply mentioned that the regulator would begin reducing its balance sheet by 8.9 trillion dollars soon.

Investors are waiting for the Bank of England’s interest rate meeting minutes to be published today. Analysts believe the regulator will hike rates by 25 basis points, just as the US Federal Reserve has done. This will be the third consecutive increase, bringing the total to 0.75 percent. A more aggressive rate hike is also doubtful, given that commodities markets have displayed a corrective trend, receding from record highs, and the threat of rising global inflation has not increased considerably.

AUD/USD

During the Asian session, the Australian dollar shows strong rise against the US dollar, testing 0.7320 for a breakout and updating local highs from March 11. The instrument is bolstered by today’s release of an upbeat Australian job market report for February. After rising by 28.3 thousand jobs last month, employment increased by 77.4 thousand in February, compared to a forecasted growth of 37 thousand. The rise in the indicator is attributed to a 121.9 thousand increase in full-time employment, while part-time employment fell by 44.5 thousand in February. In February, Australia’s participation rate increased from 66.2 percent to 66.4 percent, exceeding market expectations of 66.3 percent. In February, the unemployment rate fell from 4.2 percent to 4.0 percent, also a positive sign.

USD/JPY

The US dollar was mixed against the Japanese yen in Asia, settling near 118.70. The dollar’s eight-day rise, which has pushed the instrument to fresh all-time highs since February 2016, is slowing. Low demand for riskier assets and the worsening geopolitical situation in Eastern Europe and worldwide sanctions implemented by Western countries against Russia continue to support the USD/JPY. The US Federal Reserve’s move to raise interest rates by 25 basis points the day before was also a “bullish” signal, triggering a rate adjustment cycle in 2022. A total of around 7 0.25 percent increases are expected.

In addition, the regulator’s Chair, Jerome Powell, stated that the US Federal Reserve will begin to lower its balance sheet by over 9 trillion dollars shortly. Dismal macroeconomic data from Japan influenced today’s yen positions. After increasing by 3.6 percent the month before, machinery orders fell by 2% in January. The indicator increased by 5.1 percent in terms of yearly growth, which was much lower than market expectations of 8.1 percent.

XAU/USD

During the Asian session, gold prices grew slowly, developing a weak corrective momentum from before and testing 1930.00 for a breakout. The instrument had updated the local lows of February 28 the day before, in response to the US Federal Reserve’s two-day meeting, but had swiftly recovered its daily losses and entered the “green” zone. The market’s reaction to the US regulator’s decision to raise the rate by 25 basis points was muted, as market players had already factored this tightening of monetary policy into the current quotes of the instruments.

Meanwhile, gold demand has remained consistently high despite the ongoing uncertainty surrounding the conflict between Russia and Ukraine. Despite a series of upbeat statements from those involved in the talks, there has been no discernible movement toward a peaceful resolution of the issue thus far. While the West tightens its rhetoric and imposes more sanctions against Russia’s economy, Russia continues to execute a specific military operation on Ukrainian soil.