Daily Analysis Report 25 Apr '2022
During the Asian session, the euro displayed a mild decline versus the US dollar, adding to the “bearish” momentum that emerged after last week, when the euro retreated from its local highs of April 7. The prior causes of a gradually strengthening dollar against deteriorating global economic prospects impose pressure on the instrument. Despite the enormous sanctions put on Russia’s economy by Western countries, the armed war in Ukraine is growing. Meanwhile, the EU is drafting a new round of sanctions, the sixth in a row, that will most likely be published on April 25-29 and will considerably decrease the potential of Russian energy supplies.
For European countries, the question of oil and gas imports continues to be excruciating. Nonetheless, obvious trends have emerged, and the EU is gradually reducing its energy dependence on Russian resources, despite pressure from the White House administration. This, in turn, leads to an upward correction in energy costs, pushing up the region’s already high inflation. Even though the data, in general, was not disappointing, the macroeconomic statistics from Europe released last Friday had no discernible impact on the instrument’s dynamics. In April, the eurozone Composite Manufacturing PMI increased from 54.9 to 55.8, exceeding expectations for a drop to 53.9 points. The Services PMI improved from 55.6 to 57.7 over the same period.
At the start of the week, the British pound was trading in a decline, testing the psychological level of 1.2800 for a break. The pound is forming a strong downward trend, which began at the end of last week in response to the release of poor macroeconomic data from the United Kingdom. After decreasing 0.5 percent in February, UK retail sales plunged 1.4 percent in March. Analysts predicted only a 0.3 percent drop. Sales volumes declined from 7.2 percent to 0.9 percent on an annual basis, despite market expectations of a 2.8 percent growth. Data from the GfK Consumer Confidence in the UK in April added to the instrument’s pressure.
The index dropped from -31 to -38 points, significantly worse than experts’ predictions of a drop to -33 points. Finally, the Markit Services PMI declined from 62.6 to 58.3 points in April, despite experts expecting a drop to 60 points. As a result of the UK’s extraordinarily bad macroeconomic data, investors have lowered their expectations for the Bank of England to further tighten macroeconomic policy.
During the morning session, the Australian dollar continued to fall, hitting local lows on February 28. Since last Thursday, when Fed Chairman Jerome Powell indicated the need to raise interest rates by 0.50 percent all at once at the May meeting, the instrument has been in a downward trend. Furthermore, the regulator may implement a quantitative tightening program, which its representatives have discussed extensively. The official’s comments were interpreted by investors as an additional signal to reduce risky positions, resulting in considerable strengthening of the US currency.
Although the data turned out to be rather good in general, the macroeconomic statistics issued on Friday from Australia failed to slow the development of the “bearish” dynamics for the instrument. The Commonwealth Bank Manufacturing PMI increased from 57.7 to 57.9 points in April, compared to experts’ expectations of 57.8 points. The Services PMI improved from 55.6 to 56.6 points simultaneously, although the market was expecting a significantly larger gain to 58.5 points. At the same time, the Composite PMI increased in April from 55.1 to 56.2.
In Asian trading, the US dollar remains flat versus the Japanese yen, stabilizing between 128.50 and new record highs set in the middle of last week. The US currency’s position is still supported by low-risk demand; however, the level of 130.00 appears to be a barrier for which there are few present market drivers. Japan’s macroeconomic numbers, issued at the end of last week, were confusing. Japan’s National Consumer Price Index increased by 1.2 percent in March after increasing by 0.9 percent the previous month. Analysts predicted a 1.3 percent increase. Simultaneously, the Jibun Bank Manufacturing PMI declined from 54.1 to 53.4 points in April, falling short of the predicted 55.7 points. The yen is bolstered modestly by today’s Japanese macroeconomic data. In February, the Coincident Index rose from 96.3 to 96.8 points, when analysts had predicted a drop to 95.5 points.
During the morning session, gold prices decrease, forming a confident short-term downtrend. The instrument is looking for a breakdown at the level of 1915.00, updating local lows from April 6. The potential of future monetary policy tightening by the US Federal Reserve continues to put pressure on the asset. Last week, Fed Chair Jerome Powell reiterated the regulator’s intention to raise the interest rate by 0.50 percent at its May meeting.
In addition, the US Federal Reserve may begin a quantitative tightening program in May, although the need for such a program has been debated for more than a month. As a result, the demand for gold is bolstered by investors’ general pessimism, stoked by the deterioration of global economic prospects. Inflation, which has reached new highs in several locations due to the rapid rise in energy prices, is still a serious issue.