Weekly market report – 14 Mar 2022

Forex

Throughout the week, the EUR/USD traded on sentiment, finishing near $1.09. While the mood was gloomy for most of the week it improved on Friday, 11 March 2022, after Russian President Vladimir Putin stated that "certain positive shifts" had occurred in negotiations with Ukraine. President Volodymyr Zelenskyy, on the other hand, stated that victory would require time and patience.  

On Thursday, 10 March 2022, the US released its February Consumer Price Index, which rose by 7.9% YoY, as expected, but remained at a multi-decade high. The headline figure was released one week before the US Federal Reserve's monetary policy meeting. It is important to note, the central bank is expected to raise interest rates for the first time since 2018, and policymakers are expected to hint at a faster pace of increases in 2022. According to the monthly data, an immediate support level is around $1.0953, where the pair intersects the 23.6% retracement of the aforementioned slump. The next possible bearish target below the latter is $1.0817. Bulls may gain confidence if the pair surpasses $1.1036 at the 38.2% retracement level, followed by $1.1104 at the 50% retracement level.

Aside from the Eastern European crisis, the European Central Bank announced its monetary policy this week. As expected, the ECB kept its rates unchanged but announced that the Asset Purchase Program (APP) would be phased out earlier than expected, in the third quarter of this year. The APP will be worth 40 billion euros in April, 30 billion in May, and 20 billion in June. President Christine Lagarde stated that inflation is likely to stabilise with the central bank's target to bring it down to 2% in the medium term and that Moscow's invasion of Ukraine is a watershed moment for Europe, with a material impact on economic activity and inflation. As a result, the central bank revised its growth forecast downward and predicted rising inflationary pressures.

The US dollar, on the other hand, resumed gains against the British Pound. Last week, the GBP/USD set a new 2022 low, closing at the lowest level since November 2020. The war between Russia and Ukraine has weighed heavily on the pound, pushing the GBP/USD to $1.30.

USD/JPY raced past its 2022 high of ¥116.35 touching a four-year high on Friday, 11 March 2022. This momentum was caused due to a confluence of factors. Normally, during times of geopolitical uncertainty, the Japanese Yen appreciates due to its 'safe-haven' appeal. However, since the invasion of Ukraine, the Japanese Yen has been a rather frustrating pair to watch due to its tendency to trade sideways.

With Japan importing roughly 80% of its oil consumption, rising oil prices will increase import costs, putting downward pressure on the Yen. In contrast, the US dollar is receiving a safe-haven bid and has remained elevated since the FOMC began talking up the likelihood of a March 2022 rate hike in response to multi-decade inflation.

Commodities

Gold is trading around the $1,975 level, ahead of Sunday's trading session. There is a possibility that the yellow metal's initial decline was due to developments in the Ukraine-Russia peace talks. However, weekend comments from Moscow and Kyiv suggest that the policymakers are far from ready to step back. A firmer US Treasury yield, as well as pessimism surrounding China's Coronavirus situation, may also weigh on market sentiment, as well as gold prices.

Even though talks surround a halt in the production of gold, India's ramping gold demand, as well as inflation fears, keep the yellow metal on the bull's radar.

Gold prices remained over 4% higher on the month. The yellow metal is also benefiting from higher volatility across equity markets, driving its appeal as a haven asset. While traders will closely watch the Fed's rate decisions, the ongoing and rapidly changing situation in Ukraine could overshadow the FOMC meeting. A large part of that results from the economic uncertainty that has affected the global economy.

The chart above shows that gold is currently trading below the 50 SMA and 100 SMA at $1,978.48 and $1,986.30, respectively. The recent decline could be a technical correction in response to the sharp uptrend that began early in February.

Oil prices fell on the morning of Sunday, 13 March 2022, extending last week's decline, as a US official said Russia might be willing to engage in substantive talks over Ukraine.

As of the last session on Sunday, 13 March 2022, WTI crude oil prices remain pressured at around $105.00 following a recent 14-year high. The black gold reacted to the market's increased optimism over Russia-Ukraine’s peace talks and hoped that the US and China may resolve their differences.

Cryptocurrencies

Last week, cryptocurrency markets couldn't sustain gains as concerns over global inflation and the Russia-Ukraine geopolitical crisis-affected sentiment. Barring Avalanche, nearly all the leading altcoins were trading lower on Friday, 11 March 2022. Bitcoin and BNB each fell by 6%, whilst Ether, the number two cryptocurrency, fell by 5%.

Bitcoin has traded sideways for over a month without any major breakout. It has increasingly tested the strong demand zones of $34,200 – $34,400 and the important supply zones of $45,500 – $45,800. Based on the listed support and resistance levels, traders should watch for major breakouts.

The world's largest cryptocurrency is currently trading at around $39,190. On the technical chart above, Bitcoin finds its primary support level at about $38,536 at the 38.2% retracement level. Below this, the secondary support for Bitcoin is $37,050, at 23.6% retracement. On the upside, the first resistance level is located at around 39,740 at 50% retracement, followed by $40,945 at 61.8% retracement.

On a weekly timeframe, Bitcoin's performance represented a 7.8% decline. Yet another late selloff unfolded as traders chose to secure their positions early, considering the risk of heightened tensions and additional weekend volatility for the crypto markets.

The global cryptocurrency market capitalisation dipped to $1.72 trillion on Friday, 11 March 2022, representing a loss of nearly 5% within 24 hours. Meanwhile, the total cryptocurrency trading volumes dropped as much as 9% to around $88.9 billion.

US Indices 

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Stocks ended a volatile week mixed after late gains turned into losses on Friday, 11 March 2022, following diplomatic progress between Russia and Ukraine.

The Dow Jones Industrial Average gained 126.8 points last week, seeing a 0.39% increase. Meanwhile, the S&P 500 Index traded flat at around 4,204 whilst the Nasdaq Composite tumbled to -17.55%. All three major indices led the week with gains but ended with a sell-off. 

Global markets continued to struggle with the economic and financial implications of the Russia-Ukraine conflict. However, market sentiment does appear to have shifted from extreme fear to something resembling concern.

The US 10-year Treasury prices fell on Friday, 11 March 2022, pushing the yield above 2% from its March low of 1.73%. As traders moved into bonds during Russia's invasion and out again after headlines began to ease, the rise in yields was a blow to tech stocks and the Nasdaq Composite. 

The benchmark US Treasury yield is close to its pandemic-era high, and any break above this level could signal a sustainable path higher. Moreover, this would serve as a hit for the high-growth tech companies, as higher long-dated bond yields eat into the value of future profits.

This week's focus will also shift back to the Federal Reserve, which is widely expected to raise its benchmark overnight interest rate by a quarter of a percentage point following its two-day policy meeting on Wednesday, 16 March 2022. More importantly, the markets will closely watch policymakers' projections of how far rates may rise this year and across 2023 and 2024 to tame inflationary pressures.

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