Forex News from InstaForex

Stock markets up as China lowers interest rate

On Monday, global stock indices posted robust growth on positive news form China. It was reported that the People's Bank of China lowered its key interest rate in an effort to support the country's struggling economy. Today, the US stock market is closed for Martin Luther King Jr. Day. Therefore, trading activity in Europe and China was rather low. Despite this fact, major stock indices still managed to reach local highs and lows.

Thus, China's stock market closed the session with notable gains: the Shanghai Composite Index jumped by 0.6% to 3,541.7.

Dalian Haosen Equipment Manufacturing Co Ltd and Beijing Baolande Software Corp. topped the list of best performing shares.

The shares of Jiangsu Bioperfectus Technologies Co Ltd and Beijing Hotgen Biotech Co Ltd. Were among the losing ones.

A confident rise in the SSE Composite Index is attributed to higher-than-expected growth of the country's economy in the last quarter of 2021. At the same time, according to the National Bureau of Statistics of China, its GDP in Q4 was the lowest since mid-2020 (+4%).

In the third quarter of 2021, China's economy expanded by 4.9% compared to the same period in 2020. This was the reason why the central bank of China has unexpectedly cut its interest rate. Market analysts expect that in 2022 the measures taken by the central bank will help protect the economy against a significant slowdown.

As a reminder, at the beginning of 2021, the Chinese economy showed a steady rise after the coronavirus crisis. Yet, falling consumption in the last quarter of 2021 limited the pace of recovery.

Meanwhile, European stock markets opened another trading week in positive territory. Again, the data from China served as the main growth catalyst.

At the time of writing, the STOXX Europe 600 index increased by 0.35% to 482.8, the French CAC 40 added 0.42%, the German DAX rose by 0.22%, and the British FTSE 100 Index gained 0.61 %.

The worst result was posted by the largest food manufacturer - Unilever: its shares lost 6.7%. Meanwhile, the Swiss financial conglomerate Credit Suisse Group AG also showed a noticeable decline in share prices (-2.1%).

Among the leaders were Spanish bank Banco Bilbao Vizcaya Argentaria, S.A., with a rise of 0.5%, and European airline group Air France-KLM, whose shares added 0.8%.

According to analysts, the policy of China's central bank and its effect on the global economy will remain the main driver for markets this week.

Meanwhile, investors are looking ahead to earnings reports from the largest US corporations. Goldman Sachs will publish its data on Tuesday, Bank of America, Procter & Gamble – on Wednesday, and American Airlines and Netflix – on Thursday.

News are provided by InstaForex
 
Will the euro sharply rise again?

The Euro continues to compete with the US dollar, trying to leave the outsider levels. However, these attempts are most often unsuccessful. The euro's short-term growth does not have a significant impact on its overall pessimistic mood.

Over the past year, the price of the EUR/USD pair has declined by 6.9%. The weakest link of the pair, which is the Euro currency, got the most blow. Experts said that the euro should not count on major achievements this year. Its weakness contributes to the excessive caution of the European regulator.

Currently, the Fed and other central banks have expressed their readiness to normalize monetary policy as soon as possible. Experts stressed that this contrasts sharply with the ECB's inaction. This strategy of the European regulator contributes to the further decline of the euro and increased inflation.

Markets have high hopes for the upcoming changes in the Fed's strategy, which include cutting stimulus and raising the key rate. The currency market is now under pressure from the growth of the USD and the increase in the yield of US Treasury bonds. The US dollar's strengthening prevents the euro from rising, but the latter does not give up.

Moreover, the growth of the yield of US government bonds supports the US currency before the Fed meeting. On Wednesday, it strengthened its position after a sharp rise in the yield of US government bonds. Markets are waiting nervously for the Fed to raise interest rates, and this sends the EUR/USD pair to new frontiers.

In the current situation, the pair found itself under bearish pressure, while the US currency strengthened amid the rising treasury yields. On Tuesday, the EUR/USD pair managed to reach the level of 1.1400, but further gains stalled. Experts said that the pair failed to develop an upward movement. On Wednesday morning, the EUR/USD pair was trading at the level of 1.1331, trying to rise higher, but failed.

News are provided by InstaForex
 
Pound's growth contains a downward reversal

Experts found signs of a downward movement in the dynamics of the British currency, which rapidly increased after the publication of economic data in the country. Analysts say that a potential reversal to low values will create a price fluctuation for the pound.

At the end of 2021, the pound rose intensely after the Bank of England's interest rate hike. This year, the British currency tried to stay in an upward trend, acting with varying success. Analysts are afraid of negative changes in the dynamics of the pound, which the British regulator is able to influence. The revision of the current monetary policy is possible after the release of disappointing macro data on the UK economy.

News are provided by InstaForex
 
Employment reports do not meet the expectations of the Fed and the markets

According to the reports, the total number of Americans who applied for unemployment benefits exceeded a three-month maximum. Experts believe that the latest wave of COVID-19 infections is to blame, which has disrupted only the revived business activity, signs of revival of which are showing job growth.

Employment reports do not meet the expectations of the Fed and the markets.

Despite increased labor demand, initial jobless claims rose 55,000 to a seasonally adjusted 286,000 for the week ended January 15. This is the maximum since mid-October, which was reported on Thursday by representatives of the Ministry of Labor. The overall increase was the largest since July last year.

analytics61e983219c9d1_source!.jpg


"Even with the usual buzz in the numbers, they seem to reflect the record increase in COVID-19 cases from Omicron," said Robert Frick, corporate economist at the Navy Federal Credit Union of Virginia.

"Fortunately, Omicron is at its peak, and if past models persist, applications should decline rapidly in the next two to three weeks," he said.

In the meantime, economists are disappointed, as the median forecast fluctuated at the figure of 220,000 applications for the last week.

Unadjusted benefit applications declined last week. However, this decrease was less than expected (taking into account seasonal factors that the government uses to exclude seasonal fluctuations from the data).

Applications increased by 6,075 in California. But they fell by 14,011 in New York. There were also big drops in Missouri and Texas.

The United States reports an average of 732,245 new cases of omicron coronavirus infection per day, according to official government data. However, there are signs that in some regions, including hard-hit New York, the number of cases is beginning to decrease.

Applications may begin to decline as the number of cases of infection decreases.

And yet it may not just be a seasonal outbreak.

Thus, conditions in the labor market are tightening. Employers are in desperate need of workers: 10.6 million vacancies were opened at the end of November.

But what if some of these vacancies have unadjusted wages for inflation? It is known that wage growth always lags behind inflation. Taking into account the huge migration of employees noticed in December last year, it is possible that the most "delicious" vacancies were dismantled, leaving former employers with empty jobs. How competitive are these 10 million vacancies? This hidden factor does not allow us to estimate the actual capacity of the employment market.

Currently, the unemployment rate is at a 22-month low of 3.9%, which is a sign that the labor market is at or close to maximum employment. The question remains, where do 10 million vacancies come from if the real sector is going through hard times due to supply disruptions and the rise in the cost of components?

Recall that in December, the economy added 199,000 jobs, which is the lowest figure for the year. This shows that the economy has slowed down the recovery. At the same time, the last two years have "taken away" 2.2 million able-bodied residents from the United States. Given the weak reflation, it is not entirely clear why there is such a stir around the search for labor?

The application data covers the period during which the government surveyed businesses for the non-agricultural component of wages in the employment report for January. At first glance, applications significantly exceed their level in mid-December. However, the actual conditions may differ from those described in the application.

Along with this obvious discrepancy between the two indicators, experts note that the shortage of workers and disruptions caused by Omicron due to absenteeism, reduction of operations, or temporary closure of enterprises may lead to wage growth remaining moderate this month. If this happens, at the end of January, we will see a new surge in applications for unemployment benefits, which will offset the gains from the effect of the weakening of the coronavirus.

The report on secondary applications showed that the number of people receiving benefits after the first week of assistance increased from 84,000 to 1.635 million in the week ending January 8. These so-called continuing applications remained below 2 million for the eighth week in a row. However, the growth of extended benefits is impressive.

These figures suggest that the reports are lying: there are much fewer jobs that are competitive and ready to accept people today, otherwise, we would have seen an impressive increase in production and sales, which contradicts the data. My opinion remains the same: the government is wishful thinking to quickly introduce an upward regime of interest rates, putting a barrier to rampant inflation.

In the meantime, the latest reports on applications will hit the indices, although they are still growing. The yield of 10-year benchmark bonds is also rising, and the spot dollar rose by 0.03%. The euro/dollar pair is falling, the indices are also likely to turn around during the American session.
 
European stock markets ended trading on Friday in the red

Stock indices of the countries of the Asia-Pacific region closed in the red on Friday, a similar trend has developed in the US stock market. Analysts attribute the fall in world markets to the prospects for a more aggressive than expected increase in rates by the Federal Reserve System.

Meanwhile, retail sales in the UK fell 3.7% in December from the previous month, showing the biggest drop since January, according to data from the National Statistics Office (ONS). Analysts on average had forecast a decline of just 0.6%. In annual terms, sales decreased by 0.9% instead of the expected growth of 3.4%.

Despite the decline in December, retail sales this month were up 2.6% compared to pre-pandemic February 2020. For 2021 as a whole, sales jumped 5.1%, the fastest pace since 2004.

The composite index of the largest enterprises in the Stoxx Europe 600 region fell by 1.8% to 474.44 points as a result of trading. At the same time, all sectoral sub-indices declined, the financial and technology sectors the most.

Losses of the indicator for the entire past week amounted to 1.5% on fears of tightening the monetary policy of the world's central banks and increased tensions between Russia and the United States.

The German DAX index fell by 1.9% during the day, the French CAC 40 - by 1.75%, the British FTSE 100 - by 1.2%. Spain's IBEX 35 shed 1.4% and Italy's FTSE MIB shed 1.9%.

German Siemens Energy AG shares plunged 16.6% on Friday after Siemens Gamesa subsidiary Renewable Energy SA released preliminary financial results for the first quarter.

The price of Siemens Gamesa fell 14%. The company posted an adjusted EBIT loss of €309m against a profit of €121m in the same period a year earlier, while its revenue fell to €1.8bn from €2.3bn. Siemens Gamesa also downgraded its forecasts for the main financial indicators for the 2022 financial year.

The fall leader in the Stoxx Europe 600 index, in addition to Siemens and Siemens Gamesa, was the Danish wind turbine manufacturer Vestas Wind Systems A/S (-9%). Also, steel ThyssenKrupp AG (-7.2%) and e-commerce platform InPost S.A. (-8.6%).

The energy sector went into the red zone following the fall in oil prices, including the value of Royal Dutch Shell Plc decreased by 1.7% and BP Plc - by 1.8%.

TotalEnergies on Friday announced its decision to pull out of a natural gas project in Myanmar and stop doing business in the country, which suffered a military coup in February 2021. The company will not receive financial compensation, its share in the Yadana field and the MGTC gas pipeline will be distributed among project partners. Capitalization of TotalEnergies for the day fell by 2.1%.

In addition, securities of the semiconductor industry, including ASML Holding (-1.7%) and AMS (-3.6%), as well as software developer SAP (-1.2%), fell in price.

Meanwhile, the shares of the German developer of software for remote connection TeamViewer AG (+4.3%) and the Polish retailer Dino Polska (+3.6%) grew most significantly

News are provided by InstaForex
 
EUR/USD: the euro suffers from uncertainty about the Fed's future steps, and the dollar wonders when the central bank will present it with a gift in the form of an interest rate hike

Less than two weeks ago, the words of Federal Reserve Chairman Jerome Powell that the central bank's plans to raise interest rates would not lead to a slowdown in the growth of the national economy, allowed market participants to consider the issue of tightening monetary policy in the United States resolved.

Fears that the Fed could throw the stock market under the bus to eradicate high inflation led to the strongest weekly drop in the S&P 500 index since the beginning of the pandemic in March 2020 (by 5.7%).

The shares suffered due to investors' concern for the fate of the corporate sector, which will lose cheap money during the deterioration of macro statistics in the country.

Thus, retail sales in the United States in December decreased by 1.9% compared to the previous month, although experts did not expect a change in the indicator.

Last month, the volume of industrial production in the country decreased by 0.1% with an expected growth of 0.3%.

The consumer confidence index from the University of Michigan in January sank to 68.8 points from 70.6 points recorded in December, which was the second lowest level in a decade.

The number of initial applications of Americans for unemployment benefits for the week ending January 15 increased by 55,000, reaching 286,000, which is the highest since mid-October.

News are provided by InstaForex
 
Most Asian stock markets are trading in the red

The Federal Reserve may signal to markets that it is ready to start raising interest rates in March following its January meeting, which ends on Wednesday, analysts say. This will be the first rate hike since 2018.

The easing of monetary policy was caused by the COVID-19 pandemic. But now the Fed may also say that it is considering other options for tightening monetary policy to combat rising inflation, CNBC notes.

A growing number of Fed officials and Wall Street economists see the possibility of more than three hikes in the base interest rate by the US Central Bank this year against the backdrop of a significant rise in consumer prices. They explain these forecasts as signals that inflation in the US, which is at a maximum for almost 40 years, affects all segments of the economy, while the labor market is growing rapidly.

The Japanese Nikkei fell by 0.4% by 8:36 GMT+2.

Among the components of the index, the shares of Idemitsu Kosan Co. are the leaders of decline. Ltd. (-8.8%), Shionogi & Co. Ltd. (-5.9%) and Ricoh Co. Ltd. (-4.9%).

Shares of the metallurgical company Japan Steel Works Ltd. lose 2.5%, shares of IT company Rakuten Group Inc. grow by 0.7%, investment SoftBank Group Corp. add 1.8%.

The Hong Kong Hang Seng fell by 0.1% by 8:45 GMT+2, while the Shanghai Shanghai Composite rose by 0.3%.

Shenzhou International Group Holdings Ltd (-7.4%), Wuxi Biologics (Cayman) Inc. are the decline leaders in Hang Seng. (-6.5%) and Li Ning Co. Ltd.(-3.08%).

Shares of automaker Geely Automobile Holdings Ltd. are cheaper by 2.3%, technology company JD.com Inc. - grow by 1.4%.

South Korean Kospi lost 0.15% by 8:45 GMT+2.

Shares of automaker Kia Corp. (KS:000270) up 1.8%, shares of Hyundai Motor Co. decrease by 2.1%.

The cost of chip and electronics manufacturer Samsung Electronics Co. is down 0.8%, its rival LG Corp. grows by 0.1%.

Australian stock exchanges are closed due to the holiday (Australia Day).

News are provided by InstaForex
 
US stock indices ended trading without a single dynamics

The Dow Jones Industrial Average fell 129.64 points (0.38%) by the close of trading to 34,168.09 points.

The Standard & Poor's 500 lost 6.52 points (0.15%) to 4349.93 points.

The Nasdaq Composite increased 2.82 points (0.02%) to 13542.12.

The Fed kept the interest rate on federal funds (federal funds rate) in the range from 0% to 0.25% per annum. The decision coincided with the forecasts of economists and market participants.

The Federal Open Market Committee (FOMC) of the Fed aims to achieve maximum employment and inflation at 2% in the long term. To support this goal, the committee decided to maintain the target range for the federal funds rate at 0-0.25%.

At the same time, since inflation is well above 2% per annum with a strong labor market situation, committee members expect that it will soon be appropriate to raise the target rate range. At the same time, the head of the Fed, Jerome Powell, during a press conference following the meeting, noted that FOMC members intend to raise interest rates already at the March meeting.

The American Central Bank also announced that it plans to continue reducing the volume of the asset buyback program and intends to curtail it in March.

Meanwhile, traders followed the ongoing reporting season of US companies.

Boeing Co. shares lost 4.8% in price on the news that the company's revenue fell by 3.3% and turned out to be worse than the market forecast, which was waiting for its growth.

Exchange operator Nasdaq Inc. in October-December increased profit by 16%, revenue - by 12%, and the latter figure and adjusted profit were higher than experts' expectations. Nasdaq shares fell 3.1%.

Telecommunications and media company AT&T Inc. returned to profitability last quarter, with adjusted earnings and revenue above forecasts. Capitalization of AT&T, however, decreased by 8.4%.

Freeport-McMoRan Inc. share price fell by 3%, although the producer of copper and gold in the last quarter of 2021 increased its net profit by 57%, revenue by 37%.

Automatic Data Processing lost 9% despite the HR software and services provider posting better-than-expected earnings and revenue in the second quarter of fiscal 2022.

Consumer goods manufacturer Kimberly-Clark Corp. in October-December of the year reduced net profit by a third, despite the growth in revenue, due to increased costs. The value of the company fell by 3.4%.

Meanwhile, US new home sales jumped 11.9% in December from the previous month to 811,000 annualized, the country's Commerce Department said. According to the revised data, 725,000 houses were sold in November (an increase of 11.7% MoM), while previously the figure was 744,000 (a jump of 12.4%).

Analysts, on average, expected a 1.8% increase in new home sales last month from the previously announced November level to 757,000.

Stock quotes of large American construction companies Lennar Corp. and KB Home were down 4.5% and 4.8%, respectively.

News are provided by InstaForex
 
US stocks closed lower, Dow Jones down 0.02%

At the close on the New York Stock Exchange, the Dow Jones fell 0.02% to a one-month low, the S&P 500 index fell 0.54%, and the NASDAQ Composite index fell 1.40%. Dow Inc was the top performer among the components of the

Dow Jones index today, up 2.96 points or 5.17% to close at 60.18. Chevron Corp rose 2.68 points or 2.02% to close at 135.37. Merck & Company Inc rose 1.44 points or 1.82% to close at 80.58.

The losers were shares of Intel Corporation, which lost 3.64 points or 7.04% to end the session at 48.05. Boeing Co was up 2.33% or 4.52 points to close at 189.75 while American Express Company was down 1.95% or 3.42 points to close at 171. 90.

Among the S&P 500 index components gainers today were ServiceNow Inc, which rose 9.14% to hit 528.69, Ball Corporation, which gained 8.57% to close at 93.99, and Seagate Technology PLC, which gained 7.65% to end the session at 103.68.

The biggest losers were Teradyne Inc, which shed 22.41% to close at 111.24. Shares of Tesla Inc lost 11.55% and ended the session at 829.10. Quotes of Advanced Micro Devices Inc decreased in price by 7.33% to 102.60.

The leading gainers among the components of the NASDAQ Composite in today's trading were National Security Group Inc, which rose 69.65% to 15.65, Sidus Space Inc, which gained 31.55% to close at 10.80. as well as shares of Galapagos NV ADR, which rose 22.47% to close the session at 65.30.

The biggest losers were Epizyme Inc, which shed 44.21% to close at 1.060. Shares of TG Therapeutics Inc shed 40.65% to end the session at 8.25. Quotes of Cyngn Inc decreased in price by 36.47% to 1.62.

On the New York Stock Exchange, the number of securities that fell in price (2349) exceeded the number of those that closed in positive territory (941), while quotes of 143 shares remained virtually unchanged. On the NASDAQ stock exchange, 3,122 companies fell in price, 838 rose, and 174 remained at the level of the previous close.

Chevron Corp shares rose to an all-time high, up 2.02%, 2.68 points, to close at 135.37. Shares in National Security Group Inc surged to a 52-week high, up 69.65% or 6.43 points to close at 15.65. Epizyme Inc shares fell to all-time lows, down 44.21% or 0.840 to close at 1.060. TG Therapeutics Inc shares fell to a 52-week low, falling 40.65%, 5.65 points, to close at 8.25. Cyngn Inc shares tumbled to all-time lows, dropping 36.47% or 0.93 points to close at 1.62.

The CBOE Volatility Index, which is based on S&P 500 options trading, fell 4.60% to 30.49.

Gold futures for February delivery lost 1.81%, or 33.15, to $1,796.55 a troy ounce. In other commodities, WTI crude for March delivery fell 0.08%, or 0.07, to $87.28 a barrel. Brent oil futures for April delivery rose 0.24%, or 0.21, to $88.90 a barrel.

Meanwhile, in the Forex market, EUR/USD fell 0.02% to hit 1.1141, while USD/JPY shed 0.01% to hit 115.32.

Futures on the USD index rose 0.87% to 97.235.

News are provided by InstaForex
 
US stock market closes higher, Dow Jones gains 1.17%

At the close in the New York Stock Exchange, the Dow Jones was up 1.17%, the S&P 500 was up 1.89% and the NASDAQ Composite was up 3.41%.

The leading gainer among the components of the Dow Jones index today was Boeing Co, which gained 9.67 points or 5.07% to close at 200.24. Salesforce.com Inc rose 10.50 points or 4.73% to close at 232.63. The Walt Disney Company rose 4.34 points or 3.13% to close at 142.97.

The biggest losers were Walgreens Boots Alliance Inc, which shed 0.70 points or 1.39% to end the session at 49.76. Amgen Inc was up 0.87% or 2.00 points to close at 227.14, while Visa Inc Class A was down 0.80% or 1.83 points to close at 226. ,17.

Leading gainers among the S&P 500 index components in today's trading were Enphase Energy Inc, which rose 13.41% to 140.47, SolarEdge Technologies Inc, which gained 12.33% to close at 238.22, and also shares of Netflix Inc, which rose 11.13% to end the session at 427.14.

L3Harris Technologies Inc led the decline, shedding 4.29% to close at 209.29. Shares of Kellogg Company shed 3.46% to end the session at 63.00. Quotes of Citrix Systems Inc decreased in price by 3.42% to 101.94.

Leading gainers among the components of the NASDAQ Composite in today's trading were Calithera Biosciences Inc, which rose 55.65% to hit 0.650, Inspira Technologies Oxy BHN Ltd, which gained 36.52% to close at 3.14, and also shares of Vaccinex Inc, which rose 33.63% to close the session at 1.510.

The drop leaders were shares of Imperial Petroleum Inc, which lost 55.05% to close at 0.98. Shares of Appharvest Inc lost 12.06% to end the session at 2.99. Quotes of Vigil Neuroscience Inc decreased in price by 11.95% to 12.90.

On the New York Stock Exchange, the number of securities that rose in price (2,680) exceeded the number of those that closed in the red (574), while quotes of 106 shares remained virtually unchanged. On the NASDAQ stock exchange, 3323 companies rose in price, 582 fell, and 154 remained at the level of the previous close.

Imperial Petroleum Inc shares tumbled to historic lows, down 55.05% or 1.20 points to close at 0.98. Shares in Appharvest Inc plunged to all-time lows, shedding 12.06% or 0.41 points to close at 2.99.

The CBOE Volatility Index, which is based on S&P 500 options trading, fell 10.23% to 24.83.

Gold Futures for February delivery added 0.76%, or 13.60, to $1,798.50 a troy ounce. In other commodities, WTI crude for March delivery rose 1.49%, or 1.29, to $88.11 a barrel. Brent oil futures for April delivery rose 0.07%, or 0.06, to $89.28 a barrel.

Meanwhile, in the Forex market, EUR/USD was down 0.00% to hit 1.1233, while USD/JPY was up 0.03% to hit 115.14.

Futures on the USD index fell 0.65% to 96.632.

News are provided by InstaForex
 
US dollar is torn between recession and attempts to rise

This week has not been set for the US currency. It fell due to the probability of disappointing macro statistics and the short-term strengthening of the euro. However, it does not give up, trying to leave the price hole.

On Tuesday, the US dollar collapsed from a 19-week high. It is declining for the second session in a row, unsuccessfully trying to stay above. There are several reasons for the decline – the expectation of the Fed's rate hike, increased cash flows at the end of January, due to which investors have to sell dollars and an increase in risk appetite. At the end of last month, the risk appetite in the markets increased significantly. The catalyst for this was the rebalancing of investors' portfolios and their move into protective assets.

American macro statistics provided temporary support for the US dollar. Last month, the index of business activity in the industry of the country declined to 57.6% from the previous 58.7% and analysts' expected fall of 57.5%. Currently, markets are waiting for signals from the European regulator, as the US has already did an action, marking the course for tougher monetary policy.

According to experts, the US dollar's decline was facilitated by market fears about a possible reduction in the gap between the ECB and the Fed. Some analysts suggest that the European regulator will raise rates before the American one. At the same time, the markets are not confident that the Fed will raise rates five times this year. It can be recalled that the US regulator has repeatedly had to change its plans. Nevertheless, the market is still counting on a five-fold increase in the Fed's rates, the first of which is expected in March. As for the ECB, it is still adhering to the ultra-soft monetary policy, refusing to raise rates this year.

The current situation helped the EUR/USD pair to rise, while the US currency remained under pressure. The strengthening of the euro became a powerful driver of trading, which was facilitated by Inspiring reports on consumer prices in Germany. Experts admit a reversal in the direction of 1.1300-1.1350. According to currency strategists, the next target of the EUR/USD pair will be the level of 1.1300. The formation of the bullish pattern "Morning Star", fixed on the chart on Tuesday, contributed to this. On Wednesday morning, the EUR/USD pair was hovering around 1.1274, approaching the specified level.

Currency strategists cite the flattening of the yield curve as among the reasons for the US dollar's current weakness. A flat curve is a sign of an impending recession, while an inverted curve indicates a recession in the economy. Economists estimate that the US yield curve is gradually flattening, while the yield spread between 2-year and 10-year bonds is narrowing (to a minimum since October 2020). This worries experts who see an analogy with December 2018, when the Fed completed its cycle of raising rates, increasing the rate to 2.5%. At this time, the regulator began to reduce the balance sheet, and it now aims to take similar actions. However, the result may not meet market expectations.

According to analysts, the flattening yield curve indicates that the debt market is counting on a solution to supply chain problems. If the issue is resolved, the Fed will not need an aggressive series of rate hikes. However, the market is worried that the rate hike will not allow the Fed to contain price pressure. It is possible that the "hawkish" position of the US regulator, faced with a similar position to the European one, will strike a spark in their relationship. This week's positivity will be the strengthening of the euro against the US dollar, which market participants expect.

News are provided by InstaForex
 
Eurozone inflation hits record fueling bets ECB could raise interest rates

The euro may continue its rally. On Wednesday, the currency broke through 1.1300. Despite the dovish ECB, macroeconomic data indicate a possible shift towards a more aggressive stance. Record inflation may force the European regulator and Christine Lagarde to consider tightening. Consumer prices in the eurozone continue to increase rapidly, in line with analysts' expectations.

The annual inflation rate in the eurozone edged higher to a fresh record high of 5.1% in January from 5% in December. The market had not expected such an outcome. Neither of Bloomberg's respondents had anticipated another inflation rike. On the contrary, investors had projected a 4.4% slowdown in the rate.

The data came out before the ECB's Governing Council meeting. Therefore, a disagreement may arise over the pace of QE tapering among the council members. There has been speculation that another unexpected inflation hike will be a kind of test for the European regulator.

The euro's reaction to the inflation report was brief. The currency is unlikely to rise solely on these data. However, if the ECB adopts a hawkish stance, the euro will show steady growth.

Market participants expect the regulator to announce the first rate hike by the end of the year. Meanwhile, the ECB fiercely denies such a possibility. Let's see what the regulator says on Thursday.

Anyway, activity in markets increased after the release of the inflation report and the euro's reaction to it. Analysts started to revise their forecasts for EUR/USD. Scotiabank assumes the quote will head towards 1.1400 and break above the mark.

The euro has potential for growth despite the current corrective move. If buyers show willingness to extend the uptrend, the target levels will stand at 1.1369 (the high of January 20) and 1.1430 where the 100-day EMA and the 4-month resistance line intersect.

Meanwhile, the long-term forecast is likely to remain bearish as long as the price trades below the key 200-day SMA.

News are provided by InstaForex
 
Pound aims to reach new highs

The pound gathered strength for the next breakthrough, which occurred after the results of the Bank of England's meeting on the rate was announced. Its nearest goals are to consolidate in the reached positions and conquer the next highs.

On Thursday, the Bank of England discussed the current monetary policy. The key issue was to raise the interest rate. The markets expect five rate hikes from the regulator this year, the cumulative increase of which will be 125 bps. Following the announcement of the results of the meeting, the pound noticeably declined against the US dollar. On Thursday evening, it was trading at the level of 1.3577 and then made a short-term breakthrough to 1.3628. However, it lacked the strength to hold on to the gained positions. On Friday morning, the GBP/USD pair was near the round level of 1.3600, trying not to further fall.

Experts consider the Bank of England one of the most "hawkish" among the world's regulators. The actions of the monetary authority confirm this definition. It can be recalled that the British regulator is expected to increase the interest rate from 0.25% per annum to 0.5% while maintaining the volume of asset repurchases for 895 billion pounds. Along with this, the Bank of England revised the forecast of the country's economic growth downward to 3.75% from the previous 5% calculated in November 2021. The Central Bank of England considers a reduction in aggregate demand as the reason for the slow growth rates of the national economy. At the same time, the regulator raised the forecast for UK inflation for this year to 5.75% from the previous 3.5%.

The current situation had a vague effect on the pound's dynamics. On the one hand, the rate increase gave impulse to it, helping it to increase, but on the other hand, it keeps it in a state of uncertainty. This condition prevents the pound from reversing and it has to be content with short-term growth.

In relation to the Euro currency, the British currency also showed growth. Analysts noted that it surged to a 2-year high against the euro amid the interest rate hike by the Bank of England. The regulator expectedly raised the key rate to 0.5%, and this is not the limit. According to Jane Foley, Head of Foreign Exchange at Rabobank, the Bank of England will raise rates again in May 2022.

"Against the backdrop of falling household incomes due to rising energy and food prices, market expectations for a rate hike by the Bank of England are exaggerated. However, another rate hike is expected in May," J. Foley believes.

The British regulator has increased the interest rate to curb rampant price pressure. According to the estimates of the Central Bank of England, the inflation rate in the country will soon exceed 7%. The off-the-scale indicators not only concern inflation. According to BoE's representatives, consumer price growth in April 2022 will reach its peak values over the past 30 years and will amount to 7.25%. Based on the preliminary forecasts, the UK inflation will remain above 5% in a year. However, the ministry believes that inflation will be below 2% in three years and will amount to 1.6%. At the same time, the British regulator believes that investors have put too many rate increases in prices this year.

Because of this, the pound remains at risk but does not give up. It is slightly imbalanced against the US dollar due to a decline in global risk appetite and a drop in the stock market, but it strives to overcome price barriers, despite inflationary pressure and several negative economic factors.

News are provided by InstaForex
 
Euro and US dollar's main concern is to reach new highs

The price highs that the euro reached last Friday are not the limit for it. It aims to break through new barriers. At the same time, the US dollar is set up in a similar way, which is waiting for the Fed's help.

The Euro currency started the new week with the high reached over the past three weeks, but there is one problem – a small correction. Last Friday, the single currency approached a three-week high and is trying to hold on to its gained positions. The reason for the surge was a hawkish reversal in ECB policy. However, experts believe that the euro's further growth is unlikely amid the impending tightening of the Fed's monetary policy. In such a situation, the US dollar will take the lead. Analysts are sure that the US currency will need the Fed's tightening of monetary policy to further rise.

Experts believe that the EUR/USD pair is in for serious changes. The first step along this path was the change in ECB's monetary policy. Earlier, the European regulator confidently defended its position, planning to maintain the current interest rate until the end of 2022. However, the situation has changed dramatically now as the ECB revised its strategy during its last meeting. According to analysts, the regulator will update the previous inflation forecast and abandon the current dovish position at the March meeting. Experts allow similar actions by the ECB following the results of the June meeting.

The current situation contributed to the euro's sharp growth across the entire market. The US dollar followed suit, although its results were more modest. Against the backdrop of impressive US macroeconomic data, the market's expectations regarding the tightening of the monetary policy have intensified. Analysts said that the Fed can immediately raise the rate by 50 basis points (bp) next month. In such a situation, the US currency will get a head start and can bypass the euro.

The general upswing that swept the markets contributed to the growth of the EUR/USD pair. At the end of last week, the pair was steadily gaining momentum. Its vector is still directed up, despite the short-term decline. On Monday morning, the EUR/USD pair was around the level of 1.1432. Some instability was caused by the euro's downward correction, recorded after a 2% increase against the US dollar.

The US currency is gaining momentum amid a noticeable strengthening of the US labor market and the upcoming Fed rate hike. The sharp rise in the euro did not prevent the dollar from strengthening its position and adding 0.4%. According to experts, the US dollar's growth will continue soon.

According to the US Department of Labor report, the US labor market has risen. The increase in jobs in the country last year amounted to 467 thousand against the projected 150 thousand. The data for December 2021 was also revised upwards. As a result, the increase in the number of employees amounted to 510 thousand against the previously forecasted 211 thousand.

The publication of impressive data contributed to the growth of market expectations regarding the Fed rate hike by 50 bps at once in March. In such a situation, the US dollar will sharply increase, although experts fear a negative impact on it from the debt market. It can be recalled that the EUR/USD pair collapsed to 1.1411 after the release of reports on the US labor market, and then returned to 1.1450. According to preliminary estimates, the pair will stabilize "sideways" from the range of 1.1400 - 1.1600 in the upcoming weeks.

The market's paradoxical reaction to the impressive US data confused experts. Experts explain this by the difficult situation that has developed in the American debt market. The increased expectation of tightening the monetary policy brought down the price of state bonds.
The untwisted spring of these expectations hit the yield of 10-year bonds. As a result, their cost soared to 1.93%, updating the high since December 2019. At the same time, analysts are sure that the US Treasury will not allow the collapse of the USD and the debt market. The agency needs to place an additional $350 billion to maintain the balance in the system and stabilize the US dollar.

News are provided by InstaForex
 
EUR/USD pair's new target is the level of 1.1500

The American and European currencies are trying to reverse the previous trend in the EUR/USD pair, which mainly showed a downward trend. The new target of this classic pair was the level of 1.1500, which can be achieved with massive strength.

For several days, the EUR/USD pair has been trying to break through the upper border, but the level of 1.1500 was mesmerizing. When the situation develops favorably and there is the confidence that the desired level is about to be reached, luck slips away. The pair returns to the starting point, disappointing the markets.

The situation is repeating itself. The EUR/USD pair is marking time, although there are plenty of chances to increase. Among them, experts include the "hawkish" actions of the ECB and the Fed. The pair's growth is hampered by the euro's confusion, which cannot decide on the direction.

The multi-directional dynamics of the euro are confusing the market. It showed a steady rise on Monday, which was replaced by a gradual decline. The upward trend of the single currency slowed down amid expectations of US inflation data. According to analysts, positive macro-statistical reports will provoke an increase in the US dollar's price. Currently, the bulls are defending the level of 1.1400, not letting the bears to the level of 1.1500. On this wave, the pair retains temporary growth potential. On Tuesday morning, the EUR/USD pair was trading at the level of 1.1423, which is a noticeable decline from the previous day.

There are not too many new reasons for the EUR/USD pair to grow soon. It may remain in the current range, waiting for a favorable moment. On a positive background, the pair can surge to the level of 1.1580, and then adjust again to 1.1400. If such a scenario is implemented, the EUR/USD pair will stabilize in the range of 1.1400 - 1.1600 by the end of February.

Positive reports on annual US inflation will be one of the catalysts for the growth of the US currency and, as a result, the classic pair. According to preliminary estimates, inflation accelerated to 7.3% in January compared to 7% in December. This is the highest level recorded since February 1982.

Information on US inflation is mainly important for the dynamics of the US currency since the Fed's further strategy depends on them. Summing up the results of the January meeting, the regulator drew attention to suitable conditions for an early increase in rates. This is due to the rapid growth of inflation and the strengthening of the labor market in the United States. The majority said that the decision to increase the rate will be made next month.

Currently, the euro looks restless, having difficulty choosing a further direction. The specialists believe that its short-term increase was not only due to changes in the ECB's policy but also due to the US dollar being overbought. The overvaluation of the USD played into the hands of the EUR. According to analysts' calculations, the fair exchange rate of the euro is 1.2200 based on the difference between two-year rates in the US and Germany. The revaluation in favor of the US dollar occurred amid a sharp increase in 2-year US government bonds.

Assessing the prospects of the European currency, experts believe that it will not stop when it reaches the level of 1.2200. Experts pay attention to the "overlap" effect recorded in its dynamics, due to which it can surge over 10 figures. The implementation of such a scenario in 2022 will lead the EUR/USD pair to the level of 1.3000.

Markets are focusing on US inflation and the results of the Fed's January meeting. According to Credit Agricole's analysts, another round of inflation or "hawkish" signals from the Fed is needed to resume the dollar rally in the near future and sharp rise in the EUR/USD pair. The current attempts of the dollar to beat the euro are quite successful, but they lead to distortions in the pair or slow down the dynamics of the EUR/USD pair.

News are provided by InstaForex
 
Clash of the Titans: The dollar king goes backstage, shining gold on the main stage. Bull trap or sustainable trend?

The markets are finding it difficult to decide due to the lack of a strong catalyst, the major currency pairs continue to trade within recent levels. The dollar never managed to regain its status as the king of growth, despite strong data on the labor market, the expected record inflation, the hawkish position of the Federal Reserve and the growth in the yield of treasuries. It would seem, well, what else is needed to return to the upward dynamics?

At the end of last week, the dollar index lost 1.8% of its value, now it continues to trade around the 95.60 mark.

Nevertheless, economists and traders do not lose hope for the growth of the dollar, believing that it will still manifest itself. The current decline is just a correction that will be short-lived, market players comment on the situation.

At least the US currency has fundamental reasons for growth. Judging by the rhetoric, the Fed plans to overtake other major world central banks in tightening monetary policy. Moreover, the divergence of the curves reflecting the dynamics of monetary policies will begin to increase over time. This is one of the biggest factors in favor of further strengthening of the dollar, but with a caveat. As a result of these actions, the Fed needs to quickly cope with rising inflation.

There is another scenario. First, the Fed may eventually lag behind in the process of curbing accelerating inflation. Secondly, the central bank may set itself the task of not harming the recovery process of the US economy. The balance between economic growth and the cycle of monetary policy tightening will be disrupted, and the dollar will be under pressure again.

The USD/JPY pair feels quite comfortable now, climbing and staying above the 115.00 mark. The prospects for further short-term increases are supported by the fundamental background. Investors are considering the possibility of a 50bp rate hike in March. The pair's growth was also supported by the fact that there was demand for the dollar and a rally in the yield of treasuries.

Meanwhile, traders are reluctant to make trading decisions ahead of the publication of US inflation data on Thursday, and this affects the dynamics of the USD/JPY pair as well. So far, this is the only factor that can really limit the growth potential of the quote.

Analysts of Societe Generale demonstrate a confident bullish attitude towards USD/JPY, expecting a sharp increase in the quote in the coming weeks. The yield of 10-year Treasury bonds is about to exceed 2%, which means that the pair will quickly approach the 116.00 mark. Then the path to 120.00 will be opened. However, such volatility is likely to be temporary.

If not the dollar, then what? In which direction is it most profitable for the investor to direct their gaze? Experts advise to take a closer look at gold. Although the precious metal does not bring investment income, it is a popular protective asset, especially in conditions of record inflation.

Yes, gold is sensitive to the tightening of monetary policy, this puts pressure on prices. Much will depend on whether the inflation situation worsens and whether interest rates will rise faster. Here we also need to take into account the technical component. Judging by the charts, gold is not going to fall. At the moment, long positions on the XAU/USD pair look preferable. At the same time, the approach of the Fed's March meeting, at which a rate hike is expected, will increase fluctuations in gold and the dollar.

The crucial area is $1,810 per ounce. Its penetration will send the price to $1825, and then to the area of $1830-$1832. A decisive breakdown of this barrier will be seen as a new trigger for bulls. The XAU/USD pair may accelerate growth towards the January peak of $1853.

A convincing breakdown below the $1810 mark will make gold vulnerable to further sales below $1800 dollars, testing support at $ 1790.

News are provided by InstaForex
 
EUR/USD: USD bears will take the lead if the US dollar fails to rise

Many analysts believe that the expected US macro statistics will only slightly change the dynamics of the US dollar. There is growing confidence in the markets that the price of US currency will decline. In such a situation, USD "bears" will benefit.

This week, the US dollar resisted pressure from risk appetite and expectations of the upcoming Fed rate hike. On Wednesday evening, it entered a downward spiral. Its decline against the euro took place amid a reduction in the yield of US government bonds. At present, the 10-year US Treasury yield has fallen to 1.94% (from the previous 1.95%), while remaining at a high level for the last two years.

Currency markets are waiting for new reports on US annual inflation. According to preliminary forecasts, the inflationary spiral in January 2022 unwound to its maximum values (7.3%). It is worth noting that this has not been recorded since February 1982. Experts believe that the confirmation of these data will force the Fed to reconsider the current monetary policy. It is possible that the regulator will speed up the process of raising the key rate.

The current situation turned out to be in the hands of the dollar bears. According to experts, they may take the lead as the markets are not sure about the strengthening of the US dollar. Moreover, strengthening risk sentiment and instability in the Treasury bond market amid falling energy prices hinder the growth of the US dollar. Such a decline is facilitated by "marking time" on the Fed's part, as the market won back the upcoming rate hike. Further action by the Fed will determine US consumer price reports.

The current situation contributes to the slowdown in the dynamics of the EUR/USD pair. The pair is trading in the same range, stagnating while expecting the US macro statistics. On Thursday morning, the EUR/USD pair was near the level of 1.1425.

Analysts said that the EUR/USD pair has hardly moved since the beginning of this week, remaining in a narrow range. At the same time, it corrected below the level of 1.1400, reaching 1.1397, and then returned to 1.1420-1.1425. This was facilitated by the US dollar's weakening, which experts believe will last for some time.

In addition to the Fed's intervention, the dynamics of the EUR/USD pair are influenced by the comments of the European regulator. ECB's "hawkish" statements may send the pair to the range of 1.1460-1.1480.

Many analysts expect the US dollar to further plunge against the euro and other world currencies this year. Specialists believe that the USD is overbought, so its price turned out to be "inflated" at the end of 2021. However, some market participants do not agree with this position and are waiting for the US dollar to grow amid the tightening of the Fed's monetary policy, but a fourfold rate hike is unlikely to strengthen the US currency. The regulator will not increase the number of rate hikes (up to seven times, as previously reported) in 2022, as this will lead to a collapse in the US stock market.

The majority of analysts are betting on the euro's appreciation this year. However, there are pitfalls here. Economists predict the euro to decline by the end of 2022, although it is currently strengthening against the US dollar. An interest rate increase by the ECB does not cancel out the negative scenario for the euro, the further growth of which remains in question. The difference in approaches to the monetary policy of the ECB and the Fed also adds pressure. Experts concluded that the current situation is in favor of the US dollar.

News are provided by InstaForex
 
USD soars following inflation data

Many analysts note the strange behavior of the US dollar. After a sharp rise, it has slid into a short-term decline. Yet, the greenback will have to pick up a trajectory soon. '

There are two possible scenarios. It may resume a steady rise and enter a narrow range. At the same time, flat trading is unlikely to undermine the Us dollar's bullish bias. A short-term downward movement will also hardly last long. Currently, the greenback is trading without a clear-cut trend. Before that, it incurred significant losses. Economists assumed that the US currency would climb higher after the publication of US macro statistics.

The US dollar performed a dizzying rise after the release of the Consumer Price Index (CPI) and NFP reports. Annual inflation accelerated to 7.5% from the previous figure of 7%, notching the highest reading in four decades. As for the weekly number of initial jobless claims, the reading decreased by 16,000, amounting to 223,000. Analysts had expected the indicator to drop to 230,000.

So, it is not surprising that the US dollar has soared. However, it ran out of steam quite fast. As a result, it retreated. Some forex strategists believe that the greenback may resume a downward movement. Following the publication of the report, the euro was supposed to assert strength against the US currency, rising to 1.1100. However, it did not happen. Before the release of inflation data, the EUR/USD pair sank by 0.2% to 1.1406. Shortly after, it managed to stabilize. On Friday morning, February 11, the EUR/USD pair was trading in the range of 1.1386-1.1387. It rolled back from the target levels after the publication of inflation data.

Analysts reckon that the euro failed to rally due to the aggressive behavior of large market players who increased their long positions on USD futures. Last week, the volume of long positions de3clined slightly. The price was hovering near two-year highs. The greenback is unable to advance now although it has made attempts to rise.

The US inflation report boosted the growth of the US dollar. At the same time, it triggered a drop in futures on the main stock indices. The Fed is sure to take notice of a new increase in inflation figures when making a monetary policy decision. US Treasury yields increased significantly. The Germany 2 Years / United States 2 Years Government Bond spread grew to 1.87%. This indicator tracks the short-term trend of the EUR/USD pair.

Apparently, it is getting really difficult for the central bank to curb soaring inflation. It was expected to slow down. However, those predictions turned out to be incorrect. So, the Fed is likely to resort to additional tools to cap inflation. The regulator plans to hike the key rate in March. According to Bank of America (BofA) analysts, the Federal Reserve may raise the interest rate 7 times this year thanks to steady wage growth. BofA also expects 4 rate hikes by 0.25% in 2023.

The revised inflation report could also facilitate the US's dollar rally. It is likely to gain momentum provided that inflation figures are high. It may also enable the Fed to raise the key rate immediately by 50 percentage points (pp). The current situation requires the regulator to take decisive action on monetary policy.

News are provided by InstaForex
 
If there is war tomorrow? Fear of an attack on Ukraine drove up the price of gold

Every day the Russian-Ukrainian conflict flares up with greater force.

On Friday, the White House statement added fuel to the fire that Moscow could attack Ukraine any day On the evening of February 11, American officials recommended that US citizens urgently leave the territory of Ukraine. According to the West, there is now a high probability of Russia's invasion of the Black Sea Republic at any moment.

The alarming comment immediately raised the quotes of protective assets, including gold. Late on Friday evening, precious metal prices soared sharply, ramming through the key resistance at $1,850.

Bullion also met the new working week with steady growth. At the time of preparation of the material, gold futures were trading at $1,859. They rose 0.9% compared to Friday's close, when they rose 0.26%.

In general, over the past week, the value of the precious metal has risen by 1.9%. Expectations of January inflation data in the United States contributed to the positive dynamics.

As for the beginning of the current seven-day period, the main price-forming factor in the gold market remains geopolitical risks.

On Sunday, the United States said that Russia could create an unexpected pretext for invading Ukraine. In turn, the Kremlin denied this possibility and accused the American side of hysteria.

Nevertheless, another escalation of the conflict led to strong volatility on the Asian stock market on Monday morning. The drop in demand for risky assets caused an increase in appetite for gold.

At the beginning of the day, the yellow asset approached the highest value for three months. Analyst Philip Nova believes that its further dynamics depends on two upcoming meetings.

Today, German Chancellor Olaf Scholz will discuss the situation with Ukrainian President Vladimir Zelensky, and his talks with Russian President Vladimir Putin are scheduled for tomorrow.

If, following the results of the meetings, the German politician does not signal a reduction in tension, this will serve as another impetus for the growth of prices for precious metals. According to the expert, in the near future, the quotes may jump to $1,900.

News are provided by InstaForex
 
Protected Gold protects. Investors are greedily buying gold in search of protection from geopolitical risks

Gold rose sharply in price on Monday. This was facilitated by increased geopolitical tensions. The whole world is watching how the protracted conflict between Russia and Ukraine will be resolved.

Last week, some Western media reported insider information that Moscow could launch an attack on February 16.

In response, yesterday the President of Ukraine Volodymyr Zelensky declared this date a day of unity. He called on Ukrainians to hang the country's flags on buildings on Wednesday and sing the national anthem together.

Many interpreted his statement as a bold hint. It seems that the head of Ukraine has been officially informed that February 16 will be the day of the invasion.

Also on Monday, a comment by British Prime Minister Boris Johnson added fuel to the fire. He called the situation in Ukraine "very, very dangerous."

All these factors led to panic and a major sell-off on the world stock markets. Yesterday, the shares of many companies fell sharply.

Now investors are moving away from risky instruments to protective assets. One of the best shelters is considered to be gold.

At the beginning of the new working week, bullion showed impressive dynamics. During the day, they rose by 1.5% (for comparison: over the past seven days, the quotes rose by 1.9%).

In monetary terms, the difference from the previous close was more than $27. Gold finished trading on Monday at the highest mark in three months at $1,869.40, and $1,872.80 became the daily high.

Analyst David Russell believes that a close above $1,870 will stimulate gold bulls to reach a new goal faster. The next psychologically important mark for a yellow asset is $1,900.

The expert warns that in the near future, the movement of quotes will strongly depend on the news background. Even a slight heating up of the conflict and the growing uncertainty around the situation in Ukraine will contribute to an increase in prices for the precious metal.

At the same time, any sign of a thaw in relations between Russia and the West could trigger a fall in the yellow asset.

Yesterday, by the way, UN Secretary-General Antonio Guterres called on world leaders to step up diplomacy in order to calm the situation as soon as possible. He said he was deeply concerned about the "growing speculation" regarding the military conflict.

Another negative factor for gold now is the hawkish rate of the US Federal Reserve. On Monday, the central bank held an unscheduled meeting at which officials continued to argue about how aggressively to approach an interest rate hike in March.

The president of the Federal Reserve Bank of St. Louis, James Bullard, who is entitled to vote at FOMC meetings this year, advocates speeding up the process. He intends to convince his colleagues to raise rates by 100 bps by the beginning of July.

Meanwhile, Commerzbank analysts consider this unrealistic. In their opinion, further escalation of the Russian-Ukrainian conflict will keep the Fed from raising interest rates by 50 bps in March, as this may cause excessive turmoil in financial markets.

News are provided by InstaForex
 
You must log in or register to reply here.
Back
Top