Daily Analysis Report 23 Mar '2022

EnclaveFX Ltd
Mar 23, 2022


During the Asian session, the European currency is rather stable against the US dollar. The euro had shown multidirectional dynamics the day before. However, it had updated local lows from March 16 during the day. Even though there were no obvious causes for this, the instrument managed to recover to the “green” zone by the end of the Tuesday afternoon session. The euro is still under substantial pressure due to the region’s economy’s dismal prospects. The EU countries’ aggressive sanctions against Russia at the start of the month have a devastating effect on the European economy, threatening to jeopardize its post-coronavirus rebound. High energy prices are a major source of concern for investors, as are huge risks of food supply disruptions (grain).

Furthermore, the European Union is drafting a new set of sanctions against Russia’s economy, which might include increased limitations on importing Russian oil and gas, among other things. Another issue hurting the euro is the US Federal Reserve’s strong position. Jerome Powell, the Fed’s Chair, spoke out in support of a more aggressive tightening of monetary policy at the regulator’s May meeting yesterday. The US Federal Reserve may raise the rate by 50 basis points all at once in May, in conjunction with its balance sheet reduction.


During the morning session, the British pound is uptrending against the US dollar, updating local highs from March 4. The European competitor’s seeming weakness boosts the British pound. Due to the escalating crisis in Ukraine, Eurozone countries have found themselves in a precarious position. The European Union is working on a new set of economic penalties on Russia, which may entail significant limits or a complete ban on energy imports. This will result in exponential inflation in commodity markets, putting the capacity to provide energy security in jeopardy.

High oil and gas prices will undoubtedly have a detrimental impact on the UK economy. However, London is now far less reliant on Russian Federation imports and, as a result, has joined the embargo imposed by the US earlier. The pound is also bolstered by the Bank of England’s aggressive monetary policy. For the third time in a row, the Bank of England hiked the rate by 25 basis points to 0.75 percent last week. The US Federal Reserve, which began a rate rise cycle last week, steadily tightened its language. At the same time, the European Central Bank (ECB) maintains its neutral posture for the time being. Investors are currently anticipating the release of a huge set of macroeconomic figures from the United Kingdom on the dynamics of consumer inflation in February. During the day, the Retail Price Index and the Budget Report will be released.


After a relatively active gain the day before, the Australian dollar is consolidating near 0.7460 and local highs for the first time since November 2021. At the same time, it should be remembered that trading on Tuesday was fairly unclear, and the US dollar had a chance to reverse the trend at one point, reacting to US Federal Reserve Chairman Jerome Powell’s “hawkish” speech. The official advocated for the regulator to take more immediate action to help the economy resist rising inflationary pressures. In addition to the early start of decreasing the department’s balance sheet, such moves could include hiking the rate by 0.50 percent at the May meeting.

Powell’s speech didn’t help the dollar much, but it did cause a noteworthy “bullish” movement in the bond market. Following the official’s speech, US 10-year bonds increased 15 basis points, then grew more slowly, stabilizing above 2.3 percent. Analysts expect US Federal Reserve Chairman Jerome Powell to deliver another speech today. In addition, during the day in the United States, February statistics on the dynamics of new home sales are likely to be released. Important data from Australia will be announced tomorrow when the Commonwealth Bank’s block of business activity numbers for March is released.


In Asian trade, the US dollar has maintained a solid “bullish” trend in USD/JPY, renewing record highs set in February 2016. Prospects for further tightening the US Federal Reserve’s monetary policies provide confident support for the US currency. Chairman of the US Federal Reserve Jerome Powell gave a blatantly “hawkish” speech on Tuesday, stating that the Fed might hike rates by 50 basis points all at once if the economy needed it. First and foremost, the regulator will analyze inflation rates, which continue to rise as commodity prices rise and the global economy slows due to events in Ukraine.

Furthermore, according to current estimates, the Fed has yet to begin shrinking its balance sheet, which stands at nearly $9 trillion. Given the US Federal Reserve’s rhetoric, the yen has little prospect of increasing as a “safe” asset. The thought of the dollar being phased out as a reserve currency could help the Japanese yen, but it’s still too early to speculate on this. There are no guarantees that the Bank of Japan will be able to implement monetary policy tightening shortly. As before, Haruhiko Kuroda, the regulator’s governor, is compelled to deal with low inflation rather than rapid growth. Simultaneously, the most recent published data describes that prices are drastically rising in Japan.


During the Asian session, gold prices consolidate near 1920.00, trading near zero. The precious metal’s quotes had shown a rather active decrease the day before, which was the market’s reaction to US Federal Reserve Chairman Jerome Powell’s speech, which was surprisingly “hawkish.” According to the official, the Fed is prepared to raise the rate by 50 basis points all at once at one or more next meetings and is also planning to undertake a balance sheet reduction program shortly, which, according to recent estimates, might total $9 trillion. Powell’s words took on a more aggressive tone, causing a rise in US debt securities and affecting the European bond market.

Although the demand for “safe” assets has remained high recently, gold has decreased as expected. The expectation of fresh EU sanctions against the Russian economy, in turn, provides support for the trading instrument. This week, EU members will gather to consider the fifth package of sanctions, including a larger restriction on Russian energy imports. The European Union has not yet reached a consensus on this topic, and Germany, for example, opposes a total ban while not ruling out the idea of finding alternatives.


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