Last week, monetary policy was once again the focus of global finance once again, and it strengthened the USD. Read the review and learn more about it!
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Contents
Weekly Trends
Netflix ↓ -36.03%
Trading down with a $100 and a X20 multiplier could have been worth $720.60.
EUR/JPY ↑ +1.46%
Trading up with a $100 and a X500 multiplier could earn $730.00.
Chevron ↓ -4.09%
Selling with a $100 and a X20 multiplier could earn you $81.80.
Currency Markets
The Main Market Drivers
Last Wednesday, the USD was mostly declining against other currencies. The drop was only held on Thursday by the support. Then, the USD rebounded and gained back some value. That was an indication for sellers against shorting the USD.
This week, EUR/USD traded below 1.0900 in a mostly downward trend. The currency pair tried to move up above 1.0930 on Thursday but failed and eventually confirmed that the downtrend would likely continue. We believe EUR/USD will stay range-bound between 1.0932 and 1.0757 with fundamental factors pressing down on it. If the support level of 1.0757 doesn’t hold, the next profit target for a sell trade would be at 1.0668. That corresponds with the next Fibonacci level below the current triangle formation.
USD/JPY presented a similar layout. Before the pair could break the very precise and prolonged trendline, it recovered and continued along with the uptrend. Currently, there is a flag pattern forming. Therefore, as the price breaks above 128.20, the path of least resistance will be higher. The Bank of Japan’s dovish stance may fundamentally support such an outlook.
The short-term profit target for USD/JPY is 129.37. If the price breaks the uptrend that started forming in March, the nearest support level will be at 125.07. However, we do not believe that the price will drop this far in the short term. Therefore, opening Up trades along with the uptrend is advisable.
Recently, the US Federal Reserve Chairman, Jerome Powell, spoke at the IMF Global Economy meeting. Over there, he said he was fully on board with aggressively raising the key rate.
Also, he stated, “we need to move expeditiously” to a neutral rate, adding that they could transition to a “tight” monetary policy if appropriate.
Overall, that was an indication of an increasingly hawkish outlook in the Fed.
Federal Reserve’s Actions Risk Harming the Economy
During the interest rate decision meeting this week, the Federal Reserve may raise the rate by 50 basis points with an almost certain probability of 97.6%. The June meeting has a 99% probability of the same hike. Therefore, financial experts are already pricing in a strong US dollar, and this will likely affect the currency dynamics on the Forex market this week.
On the lower end, we expect the minimum interest rate to be 2.50%. On the upper end, with James Bullard being the top hawk, we expect 3.50%. Currently, we are at 0.50%, and that is below the lowest expectation. Therefore, the markets haven’t fully priced in the expected USD year-end value yet. Therefore, you can potentially use many profit-making opportunities on the stock market and on the Forex market by following the interest rate decision meetings and listening to what the policymakers are planning to do.
Very possibly, the markets are skeptical, and many investors do not believe that the US Fed will go all the way with their rate-hike plan. To put things into perspective, the interest rate rose to 2.40% during the Covid-19 pandemic, and it was 5.25% at the peak of the Great Financial Crisis. Previously, the US Fed members said they believed the markets have not fully priced in their rate-hike plan and that they would go on with it even if the stock market drops.
This week, on April 28, the US GDP data will be released. The forecast for the GDP growth rate is 1.0%. If the actual data is lower than the forecast, this may put additional downward pressure on an already pessimistic market.
Stock Markets
US Markets Were Declining During the Second Half of the Week
While the US Fed is tightening monetary policy, the growth of the Covid era may halt. The stock market and the rising interest rates have a negative correlation. As the US Fed hikes the rate, the effect of the stimulus that was enacted during the pandemic will be reversed.
The NASDAQ index broke the support level of the range that it has been trading in over the last week. Although the index gapped up on Thursday, the gap closed during the same trading day, and the picture quickly transformed into a downtrend that brought the index down to new weekly lows. Unlike NASDAQ, the S&P 500 traded within its range on Thursday without breaking out downwards.
While the effect of the stimulus is weakening, the S&P 500 and other US indices may continue to go down. The market may largely follow the downward momentum of NASDAQ. The index is trading below the 200-period Simple Moving Average, and the 2% drop on Thursday is the Bearish Engulfing candlestick formation. We expect the S&P 500 to retest the level of 4200.00 in the future.
Last week, investors went slightly risk-on. However, the upward market impulse seen at the start of the week did not continue into its second part as the investor confidence was largely gone. Primarily, investors seem to find few fundamental reasons to expect market growth. For example, Tesla reported its earnings last week. The report came out fantastic but neither the Tesla stock nor the market, in general, presented any meaningful upward reaction to that.
Tesla Reported Record-Breaking Earnings but Dropped Like Netflix
Tesla’s stock price gapped up after earnings and quickly reversed downwards. The company earned $3.7 billion against a significantly lower forecast of $2.6. It more than tripled the $1.1 billion earned a year ago and made a 30% increase to the previous record of $2.9 billion posted in the fourth quarter last year. Nevertheless, this impressive record-beating performance of the world’s sixth-largest company by market capitalization failed to boost its stock price. That may indicate a profound lack of confidence in the markets.
Netflix is another high-impact large-cap company that reported earnings last week. Its earnings were poor and pressed down on the rest of the market as traders largely went selling the stock. Its price fell more than 25% after the company reported losing 200,000 subscribers in the first quarter. It is the first reported drop in the company's subscriber base in over 10 years. The company leaders explained the declining dynamics by various factors from competition and password sharing to inflation and the Russia-Ukraine crisis.
Netflix stock price made an upward correction and reached the 50% mark of the Fibonacci Levels in January. After last week’s massive drop, it may correct to a similar level this week. Currently, the price is mostly below the 11-period SMA. That means, if you did not use the opportunity to buy the stock during the correction, you can open a Down trade on it at the level of 281.92.
Commodity Markets
Various Reasons for the Food Prices to Keep Rising
Agricultural commodity prices are going up. Particularly, wheat grains, sunflower oil, and corn prices are increasing. While Ukraine is the largest sunflower seed oil exporter and a major wheat exporter, Russia is also a major producer and exporter of grain as well. That’s why the Russia-Ukraine conflict is one of the primary factors boosting commodity prices.
When there are supply disruptions and certain agricultural products severely increase in price, people and economies look for alternatives. Corn is one of such alternatives currently sought by many. Hence, the increased demand for this commodity made its price go up. On Monday last week, its price hit a nine-year high of $8 per bushel.
Last week, Brent traded within a range of $104-114. Currently, it keeps following the uptrend line. Support and resistance targets remain. Taking into account Russian oil export sanctions and the yet unknown date of the supply cut-off, Its price will likely drop below $100 in the future.
On Monday last week, the gold price almost reached the previously indicated resistance level of $2,000. However, it eventually corrected downwards below the 38.2% Fibonacci level. This range remains intact.
Relation Between Weather, Supply Disruptions, and Natural Gas Price
Last week, Natural Gas rose to $8.061. On Monday, the price went up above $8 MMBTU! This is the highest in almost two decades. In 2005, the price skyrocketed to $15.780 due to increased demand for energies, partially boosted by the of hurricanes Rita and Katrina. In 2008, the price of Natural Gas remained high because of the financial crisis and the Great Recession that followed. We believe the prices will likely stay high, with the resistance targets near $8 and support around $6.5 MMBTU.
Uncommon weather conditions are another factor behind the price surge. While springtime usually lets people use less heating than in cold seasons and less air conditioning than in summer, unexpectedly cold weather in the US contributed to the increase in Natural Gas.
Cryptocurrency Markets
Cryptocurrencies and Global Macroeconomics
Sanctions impact cryptocurrencies. The cryptocurrency world is interesting and innovative even or especially in times of macroeconomic uncertainty. While the global prospects for the financial markets are unclear, Bitcoin and Ethereum are trading in a flat range with upside potential.
Sanctions on Russia make many observers believe that the Russian individuals and those affiliated with the government may turn to crypto as safe-haven assets. Partly, that is because many Russian banks have been sanctioned and effectively disconnected from SWIFT.
The unstable status of the major economies and financial markets affects the crypto world. On the one hand, before the Ukraine conflict, Russia was moving towards becoming a leading hotspot for crypto mining due to excessive energy resources. Now, although crypto assets could serve as tools to circumvent sanctions, preparing to use them requires time, and Russian financial institutions don’t seem to have used it in this manner. On top of that, the recent US sanctions target Russian crypto mining companies such as BitRiver.
The upside potential for cryptocurrencies is faster than the expected cryptocurrency government regulations. In the mid to long term, crypto can also become the global supremacy currency as inflation rises at an alarming pace.
The BTC Fear & Greed index has slightly increased to 26 but remains in the Fear range. The global crypto market capitalization stands at 1.88T similar to last week.
Bitcoin and Other Crypto Assets are Volatile
Bitcoin dropped below $40,000. On Monday last week, Bitcoin dropped below the key level of $40,000 and the uptrend line support that has been valid since January. However, later in the day, traders quickly took advantage of the price drop. On Thursday, the price reached the resistance target of $42,980. The new near-term support level will likely be at $40,000, the rising resistance targets will be near $43,000.
Risk warning: The content of the article does not constitute investment advice and you are solely responsible for your trading activity and/or trading results.
