Forex
Source: Bloomberg. Click to see full size
EUR/USD
EUR/USD fell to $1.0472 during European trading hours, its lowest level since January 2017. Even though the major pair was able to recover from the mentioned level, it was unable to extend its recovery, hovering at a low note towards the end of the week.
Traders continue to flee from high-yielding assets in favour of the safe-haven US dollar and US Treasuries. European stocks are also rising as earnings reports are encouraging; however, news out of Eastern Europe has dampened the rally, as Moscow has cut off gas supplies to some EU states.
The US Dollar Index surged to near 20-year highs around the $103.60 level ahead of this week’s FOMC meeting, where rates are widely expected to increase 50 basis points despite a negative preliminary GDP report of -1.4% vs the forecast of 1.1% last week. The Fed’s main concern remains — the rise in inflation readings that are still near 40-year highs on CPI.
USD/JPY
USD/JPY, on the other hand, continued its upward trend, aided by a number of factors:
- The US dollar rose to its highest level since March 2020 in anticipation that the Federal Reserve will tighten monetary policy more quickly to combat rising inflation.
- The markets expect the Federal Reserve of the United States to hike interest rates by 50 basis points this week and in June, July, and September. In contrast, the Bank of Japan offered to buy an unlimited quantity of Japanese government bonds to protect the 0.25% yield cap.
- Japanese Prime Minister Fumio Kishida urged the Bank of Japan (BoJ) to maintain its ultra-loose monetary policy, excluding the idea of raising interest rates as a way to prevent further declines in the Japanese yen.
As per the monthly chart, we see a rising trend for this pair as it is currently above its 50 and 100 SMAs at ¥130.64 and ¥129.40, respectively, which are acting as support levels.
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Commodities
Source: Bloomberg. Click to see full size
Gold
Gold prices had a continued downward trend during the week. It dropped from over $1,930 to under $1,900 at the start of the week, followed by a stabilising period where it bounced back and forth around the $1,900 mark.
Midweek, the SMA 50 acted as a support level for gold, preventing further downfall. However, the yellow metal soon slipped free of that grip and fell further to a two-month low of $1,872. Currently, it’s trading marginally above the $1,900 mark, and the SMA 50 and SMA 100 are converging around the $1,890 level.
Oil
A strong decline at the onset of the week broke on oil as well. However, the asset quickly regained strength and climbed to the $102 mark, after the People’s Bank of China (PBOC) declared that it will tighten its prudent monetary policy to support the economy. The oil prices continue to consolidate from the early-week lows around $95 and are now comfortably around the $105 mark.
The threat of a possible blockade of oil/gas trade between Russia and Europe remains intact. In addition, the covid lockdown in China continues to have an impact on prices as the demand for ‘liquid gold’ continues to fall.
Silver
Silver has recently experienced a significant decline due to its inverse relationship with the dollar. Geopolitical concerns emanating from Russia and the global central bankers’ rush to normalise policy are also posing challenges to the metal.
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Cryptocurrencies
Source: Bloomberg. Click to see full size
Cryptocurrencies experienced a highly volatile week, with no specific trend during the course of the week and at the eye of the storm was Bitcoin.
Having traded sideways over the previous weekend, Bitcoin started the week showing signs of recovery and breached the $40,000 mark. However, the digital currency heavyweight plummeted by over $2,000 soon after, washing away all hopes of a recovery run. The correlation between Bitcoin price and Nasdaq has been striking this earning season.
Ever since its massive drop during the start of the week, Bitcoin has been recuperating and slowly making its way back to the $40,000 mark, as seen in the chart above.
Towards the end of the week, it was trading at around the $39,500 mark, nearly bisecting its SMA 50 and SMA 100, which were at $39,664.64 and $39,305.25, respectively. The 2 moving averages have switched roles, playing support and resistance at different times during the week.
Major altcoins such as Ethereum, Dogecoin, and Litecoin dovetailed with the master cryptocurrency and showed near-identical patterns as well. Although slowly making their way back to their level at the start of the week, Dogecoin is the biggest laggard, having seen the least recovery since the slump.
As a result, the total cryptocurrency market capitalisation saw a massive decline when most major cryptocurrencies plunged, in the first half of the week.
Crypto news
The Bank of Canada is working on its own central bank digital currency. The bank chief has confirmed that the Canadian dollar will stay at the foundation of the country’s financial system. In other developments, more workers in the United States will be able to park their 401(k) retirement savings in Bitcoin.
In the Middle East, Dubai has been attracting major cryptocurrency firms, following the announcement of the first law governing digital currency in March. Additionally, the Central African Republic lawfully accepted Bitcoin as its legal tender.
Since the beginning of April, Bitcoin has not seen massive gains. However, the continued receptivity from world regulators is indicative of its long-term stronghold.
US Indices
In response to a string of bad trading days this week, traders have stepped up, pushing stocks higher ahead of earnings reports ending the week with split sentiments.
Strong earnings from tech companies like Facebook (Meta) boosted overall market sentiment as it went up by around 14% despite a revenue miss, a result of traders and analysts digesting the company’s plans to cut spending. Moreover, Meta’s Facebook app has gained users once again, with daily active users rising by 4% to 1.96 billion after losing 1 million users in the previous quarter.
Elon Musk’s takeover of Twitter for $44 billion was another highlight of the week. Stock price rose by 5.9% to $51.79 with a reported $513.3 million increase in first-quarter net income, a remarkable jump from $68 million in the same period in 2021, just days after being sold.
The company reported a 16% increase in daily active users to 229 million. US users increased by 6.4% year on year to 39.6 million at the end of the first quarter, while international users increased by 18.1% to 189.4 million.
Indices market news
Treasury yields rose, with the 10-year yield rising to around 2.80%. The Q1 economic growth rate in the United States was -1.4%, lower than the consensus expectation of 1.1%. Despite this, several underlying trends continued to be strong.
Personal consumption increased by 2.7% for the quarter, indicating that the housing and business sectors of the US economy remained solid. Low net exports, a slower build-up of inventories, and less fiscal spending were the growth stumbling blocks.
The market mood is improving, but the macroeconomic backdrop remains tense, such as China’s lockdown due to a Coronavirus outbreak and the US central bank’s move to raise interest rates to fight rising inflation. Some tech stocks, which performed well during the expansionary monetary policy era caused by the pandemic, may still be vulnerable to rising interest rates.
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