Weekly Trading Update 11.03.2022

Week ahead of March 14

Central banks will take centre stage as hope for a quick resolution of the Ukraine crisis fades and markets adjust to the new norm.

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Week in review

Risk sentiment fluctuated through the week as more sanctions were applied on Russia and high-level talks with Ukraine were scheduled. 

The ECB's policy meeting focused almost entirely on inflation concerns. Euro plummeted 1.20% to $1.08 against the dollar as Europe is the most affected economy by the sanctions. EUR/USD swiftly reversed to $1.11 only to return to its weekly open near $1.095. The potential economic impact of the Ukraine crisis appears to be overshadowed by the effect on prices and could be a sign that other central banks will tighten.

US CPI was inline, leaving the door open for the Fed to tighten at the next meeting. The DXY had a similar fate to EUR/USD. Importantly, it failed to recapture the 100 round level before retiring to its base.

In the middle of the week, Oil prices came down (including a $10+ flash crash) after the Biden Administration announced the US would cease buying Russian oil. WTI soared to a 14-year high at $130/bbl, and it then fell to $103/bbl, the quickest drop in a while. Its weekly bar looks quite bearish below its $115/bbl open.

Top 5 events next week

Russian default

For once, Ukraine isn't expected to be the main focus of the markets, but that doesn't mean unexpected events can't drive price action. Attention has shifted to Russia after Fitch warned that a default by Russia on its debt is "imminent" after the agency cut rates for a second time this month to C. All three major rating firms now list Russian debt as "junk."

Fed to hike

Next Wednesday, the FOMC's rate decision takes centre stage, as there is broad consensus that rates will be hiked for the first time since 2018. Focus is likely to be on projections as the market appears to be expecting at least seven rate hikes over the next year. A hike would be mostly bearish for the S&P 500, with a fall towards the 4k support on the cards. Upside could be limited by the 200-week average near 4400. 

Pound hangs on the BOE

The BOE is also expected to continue its rate hike path, with markets likely focusing on the vote split after the last meeting, where the dissenters favoured a more prominent rate hike. If it receives support from policymakers, Sterling could see a relief rally towards $1.32. Otherwise, the room to $1.29 will open up. GBPUSD fell to its 200-week average last week near $1.3050.

BOJ unlikely to make a move

Thursday sees Japanese CPI data ahead of the BOJ's interest rate decision later in the session, where policy is expected to remain unchanged. USDJPY rose to a 4-year high to 117.00 and remains bid based on Fed expectations. Support lies at 116.30, with a break of the multiyear high, making 118.00 the next resistance.

US Retail Sales a non-event?

On Wednesday, the US provides retail sales figures, which are expected to expand but slower than in the prior month. Last month the data showed the most significant increase in ten months. There’s a suspicion in some corners that consumers have been panic-buying because of inflation, meaning a sharp drop in the coming months. However, such a sudden change is not expected.