Weekly market report – 07 Feb 2022

Forex

Last week, the US Dollar Index fell for 4 consecutive days, finally giving up its gains of the previous 2 weeks. However, it bounced back on Friday, 4 February 2022, following data showing the world's largest economy created far more jobs than expected. The same data suggests the Federal Reserve may raise interest rates by a larger amount at its March policy meeting. Despite its bounce back, the US Dollar Index was still down by 1.09% (close over close) for the week. As per the monthly charts, the US Dollar Index ended its week at around $95.48 and showed a 50 SMA support level at $95.34 and multiple resistance levels of 100 SMA and 200 SMA around $95.63 and $96.03, respectively. 

How did the other pairs react?

• The EUR/USD pair had its best week since March 2020, gaining around 350 pips to reach a new 2022 high of $1.148, and is now trading at around $1.144. Following the European Central Bank's monetary policy meeting, the shared currency rose as President Christine Lagarde startled market participants with her hawkish tone, despite the delivery of a modestly dovish statement. 

In contrast, US data for the week showed a -301k change in ADP Employment compared to the 207k that was forecasted, while Non-Farm Payrolls added 467k jobs, which was 3 times more than predicted. The unemployment rate increased to 4%; however, the participation rate increased to 62.2%, indicating a healthy recovery in the employment sector.

• The GBP/USD has had a mixed week due to the Bank of England's (BoE) varying signals and Non-Farm Payrolls. As expected, the BoE announced a 25 basis point rate hike, but 4 of the 9 members opted for a 50 basis point increase instead. As a result of this close call, Sterling rose, despite November's unexpected no-hike decision.

On the other hand, speculation about double the hike in rates also roiled the US dollar. Federal Reserve officials downplayed the possibility of a 50 basis point hike in borrowing costs when the bank meets in March, as opposed to comments made by Fed Chairman Jerome Powell, who hinted at the potential of such a move. This same message was repeated by 6 authorities, putting pressure on the US dollar.

• Following the release of the US employment report, which showed better-than-expected numbers, the USD/JPY jumped from ¥114.90 to ¥115.38. The pair reached its highest level since Monday, 31 January 2022, and is currently trading above ¥115.00, indicating that its bullish momentum is still intact.

This week ahead will be quiet on macroeconomic data, while the United States will disclose the final estimate of the January Consumer Price Index.

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Commodities

Following a significant drop in the previous week, gold recovered in the first half of the week as the US dollar struggled to find demand. On Thursday, 3 February 2022, rising US Treasury bond yields restrained gold's upside, while a strong US January jobs report couldn't help the pair gain bullish momentum. Gold ended the week at around $1,808. The RSI for 14 days on a 6-month chart is about 48 and is near the 200 SMA of $1,806 and above the 100 SMA of $1,797.

As traders anticipate the release of the US January Consumer Price Index (CPI) this week, gold is expected to be inversely correlated with the benchmark 10-year US Treasury bond yield. In particular, the January Consumer Price Index could influence expectations for a 50 basis point (bps) Fed rate hike in March.

Oil prices soared for the first time since 2014, surpassing the $90 per barrel mark, which drove the prices to seven-year highs and posted a seventh successive week of gains. WTI was up by 4.72% (close over close) for the week. 

Oil prices continued to rise due to factors such as a temperature drop caused by the winter storm that hit the US recently and geopolitical tensions between the US, Ukraine, and Russia. Recent statistics indicated Iraqi output in January was considerably below its allowed quota under the previous OPEC+ arrangement. Furthermore, market commentators suggested Kazakhstan wants to keep more of its supply at home to cut domestic prices and ease civil tensions.

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Cryptocurrencies

Following a turbulent week across global markets, Bitcoin rose the most in 4 months as traders showed signs of renewed risk appetite. The largest cryptocurrency by market capitalisation, which hadn’t risen above $40,000 for more than 2 weeks, increased by 10%. Technically speaking, Bitcoin is currently trading at around $41,600, above the 76.4% retracement level at $40,900, followed by the next support level of the 61.8% retracement level at around $39,400.

Furthermore, the price of Ether rose by 12%. Even SOL, the native currency of the Solana blockchain, posted similar gains. After hours of being lost to what some call the largest DeFi hack, the crypto was restored and increased by roughly 12%. Following suit, Polkadot rose 15.3%, bringing its seven-day gain to 20%, Terra was up 11.53% at the same period, and BNB, XRP, and Cardano all climbed 9-12%. 

In terms of market capitalisation, Dogecoin was up by 5.5%, while Avalanche was up by 14.5%. As of Friday, 4 February 2022, the worldwide crypto market capitalisation totalled $1.64 trillion, while the overall cryptocurrency market volume increased by nearly 63% to reach $106.29 billion.

US Indices

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*Net change and net change % are based on the weekly closing price change from Monday to Friday.

It's been a volatile week for the US Indices, with the markets being driven mainly by employment numbers, earnings reports, and the possibility of higher interest rates in the near future.

Regarding earnings reports, Facebook's stock price went down by around 26% and wiped out about $232 billion of its market capitalisation. On the other hand, Amazon's report was better than expected, as it was mostly driven by its web services division which helped the indexes jump back the next day.

In addition to this, the strong jobs report on Friday, 4 February 2022 weighed on government bond prices, sending the 10-year US Treasury yield above 1.93% – the highest level since December 2019, before the start of the pandemic. Other countries' yields rose as expectations of monetary policy tightening increased.

The focus for this week would be the Consumer Price Index (CPI) data, which is scheduled for Thursday, 10 February 2022. According to last month's CPI, prices increased by 7.0% for the 12 months ending in December – the highest level since 1982. The rate was 5.5% when the volatile food and energy categories were excluded. In comparison, the forecast for this week's CPI data is expected to be around 7.3% and excluding food and energy, it is forecasted to be approximately 5.9%.

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