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Analysis, Education | April 1, 2022

The Week Ahead 📈 4th – 8th april: FED minutes & RBA

Welcome to the Key To Markets preview of the Week Ahead.

The euro jumped to a near one-month high and commodity prices eased in hopes that Russia and Ukraine are getting closer to a ceasefire agreement. Shares of Apple surged on talk of hardware subscriptions. In the week ahead, there are Fed minutes and the RBA meeting.

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Contents

  • Currency Pair Performance
  • 10 Big Stories Last Week
  • Chart of the Week
  • Economic Calendar Highlights
  • 5 Things to Watch this Week
  • Technical AnalysisEUR/USD | GBP/USD | USD/JPY | AUD/USD | USD/CAD | Gold | Oil | S&P 500

Currency Pair Performance

5-day performance as of March 31, 2022. 19:00 GMT

Source: finviz.com 


10 Big Stories Last Week

In case you missed it….

Euro heats up. EUR/USD broke to a 1-month high over 1.115 resistance before pulling back, while EUR/GBP briefly topped 0.85.

Yen rallies back. A suggestion the BOJ might do unlimited bond-buying to keep up its yield curve control policy saw USD/JPY spike to 125 before tanking back under 122.

Ruble recoups war-losses. USD/RUB is now right back where it started on Feb 24 on the day of the invasion.

Ruble pegged to gold? The Russian central bank set a fixed price for its gold reserve purchases from local producers in what some are speculating is a new gold standard for the currency.

Yield curve inverts. The 2-year Treasury yield is now higher than the 10-year. This signal does not guarantee a recession happens, but this signal did precede every recession.

Fed’s preferred inflation stat explodes. The Headline PCE Deflator surged to +6.4% YoY – the highest since 1982!

Shanghai lockdown. Chinese stocks rolled over alongside some commodities including oil as the spread of covid was met with more lockdowns.

End of the quarter. Q1 of 2022 was not great! The war in Ukraine sent markets that had already started to creak, tumbling into correction or bear territory.

Biden released SPR. The White House announced that it will release 1 million barrels per day of oil for the next six months from the Strategic Petroleum Reserve, the biggest release ever.

Apple up for 11 days straight. AAPL turned positive for the year after a massive win streak lasting 11 days on the trot.


Chart of the Week

Source: Centre for European Reform / Adam Tooze

The above chart demonstrates how much each currency is used in global payments.

43% of payments are made in dollars but more than 90% of all global payments are in countries allied to the USA & equipped with $ swap lines.

Triggered by the sanctions imposed on Russia’s central bank there is a lot of talk right now about the possibility of major holders of reserves diversifying away from the dollar. The above chart shows what a difficult task this will be.


Economic Calendar Highlights

Source: FX Street


5 Things to Watch This Week

1)     FOMC Minutes

This was the meeting when the Fed hiked for the first time since 2018, which puts extra focus on these minutes. More importantly than the rate hike though was the ‘dot plot’ signalling a rate hike at every meeting in 2022. The minutes are stale because data has since shown inflation rise even higher but if Fed minutes are hawkish, policymakers should be even more hawkish now, paving the way to a 50-basis point hike at the next meeting.

2)     Russia retreat?

Signs that Russia was withdrawing some of its forces from around Kyiv and other big cities were taken as a good sign for negotiations over the last week, helping stocks gain and commodities pull back. Whether this ‘retreat’ continues could be critical for risk sentiment while no actual peace deal is in place.

3)     RBA Meeting

The huge rally in commodities has helped the Aussie dollar over the past month but the currency edged back with commodities this week. High inflation in Australia coupled with high demand for Australia’s exported basic resources is bullish for the Aussie, but only if the RBA is prepared to act and tighten policy quicker than it has indicated so far, which is a rate hike to come later this year.

4)     Risk off to risk on?

The huge rally in stocks, rising bond yields and forex markets consolidating in sideways ranges (apart from the yen) has been partly symptomatic of a return to risk-on sentiment as markets price in a speedy end to the war in Ukraine. The risk is that the war drags on, with tougher sanctions on Russia that harm the global economy and inflame inflation even more.

5)     Economic data: PMIs, Eur retail sales

March Service sector PMIs will be some of the most forward-looking data available to judge the health of the global economy and demand for services following the invasion of Ukraine. Europe is the most exposed to the war via its closer ties to the Russian economy so Eurozone retail sales will be one to judge not just sentiment but also the direct effect of higher food and goods prices on consumption.


Technical Analysis

Here you can find an analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.

EUR/USD (H4 Candlestick Chart)

EUR/USD popped over 1.113 but immediately dropped back under it again in a reversal of short-term uptrend and what looks like a false breakout. The rise in the price, off the March 4 low, has also formed a rising channel- perhaps part of a bigger bear flag pattern. Both of these imply a continuation of the downtrend.

GBP/USD (H4 Candlestick Chart)

GBP/USD found a base at 1.305 but three attempts to break over 1.315 have been met with selling and long wick candles. A close over 1.315 could usher in a recovery to the 200 SMA, but while under it, the price could aim to re-test 1.30.

USD/JPY (H4 Candlestick Chart)

USD/JPY has formed what could be a head and shoulders pattern with 121.5 as the neckline and 122.5 as the shoulders. The objective of the pattern would neatly take the price back to its 200 SMA at 117.5. However, the overall trend is up and a false break of the neckline could be a buying opportunity.

AUD/USD (H4 Candlestick Chart)

AUD/USD is inside a 50-pip trading range around 0.75. The assumption is that it is a pause within the uptrend but a deeper correction towards the 200 SMA would be in keeping with the high volatile, wide-ranged uptrend over the past 6-weeks.

USD/CAD (H4 Candlestick Chart)

USD/CAD is down-trending under its 50 DMA but has paused 1.247 at, which saw a long-legged doji on the 4-hour chart with a spike under 1.245. A move over 1.26 would be needed to confirm a trend reversal.

Gold (H4 Candlestick Chart)

XAU/USD is trading in a $50 range between 1900 and 1950, where the moving averages have converged and are flattening. The 1900 level is major support going back over the past month, possibly the neckline to a head and shoulders pattern.

Brent Oil (H4 Candlestick Chart)

BRENT has flipped into a sideways range without a reliable trend in either direction. The most recent high happened at 120, down $10 from the peak at 130, implying a possible lower low, under the most recent significant low at 95, possibly near 85.

US 500 (H4 Candlestick Chart)

US500 made it over 4600, resistance from the dual highs in early February, but quickly dropped back under it. While the price is under 4600 there is a chance that the rapid uptrend off the March 15 low reverses or sees a correction back to the 200 SMA.


Thank you very much for reading – and have a great week trading!

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