Weekly Trading Update 08.04.2022

Week ahead of April 11

The first round of the French Presidential election kicks off a busy week of central bank decisions, including the ECB - while rising bond yields and war uncertainty remain in focus. 

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Week in review

In the stock market, the news of the week was Elon Musk taking a stake in Twitter. (look out for our full report next week!).

Fed minutes revealed a hawkish outlook, with policymakers planning for multiple 50bps rate hikes and $95B/month in balance sheet unwinding. USD/JP’s break of 124 would see major resistance at 125. 122.60 is support. 

The rising cost of credit is starting to have real-world consequences. There was unrest in Sri Lanka due to payment issues. Some speculate the island nation could be the first in a series of developing nations facing financial issues as the cost of debt increases across the developing world. 

Bond yield spreads with Japan continued to widen, pushing JPY currency pairs to multi-year highs. AUD and CAD pairs registered a 7-year high at 94.250 and 100 – respectively-- as differentials in outlook from BOJ and other central banks revives carry trades. 

The war in Ukraine is moving into a new phase, with Western countries applying new sanctions as Russia is seen repositioning forces from the capital of Kyiv to pressure the East. WTI fell below the $100/bbl barrier as traders reacted to the record Special Petroleum Reserve (SPR) release in the US and from other countries.

The week ahead 

Before the week gets started, there is the first round of the French presidential election on Sunday. If Le Pen were to poll first place over Macron, some disruption could be expected in the CAC / France 40 index.

The ECB, BoC & RBNZ

Key interest rate decisions are expected this week. First on Wednesday is the Bank of Canada, which is expected to hike rates again, both to stave off increasing inflation and to keep pace with its largest trade partner. USD/CAD faces resistance at 1.2622, while supports lie at 1.25 and 1.24. 

On Thursday is the ECB decision, although a rate decision isn't expected yet, there is considerable speculation after the minutes showed that the guidance conditions for a rate hike have been met. EUR/USD could slide to 1.08, then 1.07, with any upside possibly limited to 1.09. 

The RBNZ is also expected to hike again. Trading to be cut short as some markets close early on Thursday ahead of the Easter holiday on Friday. NZD/USD has resistance at 0.6950; support at 0.68.

Inflation data

Data releases that are more likely to drive the markets include March CPI from the two largest economies in the world. US inflation expected to tick higher, strengthening case for Fed tightening. 

The UK also releases CPI change from last month. Recent reports from major firms indicate they are continuing to see higher prices, and passing them on to consumers. GBP/USD is poised to flirt with 1.30. A bounce could see a short-term upside to 1.31, but 1.2920 comes into the gameplan should the round support breaks. 

Other data and events

Monday sees China PPI, and UK monthly GDP. Tuesday has Germany CPI and ZEW Economic Sentiment. Wednesday starts with Japan Machinery Orders and ends with US PPI. The equity front next week sees the unofficial start of first quarter earnings session with reports from major US banks Wells Fargo, Goldman Sachs, Morgan Stanley and Citi all on Thursday.