It was a relatively quiet week for financial markets, with major financial hubs out for the Lunar New Year holidays, and no major surprises from the significantly contracted economic calendar this week.
On Monday, ECB President Christine Lagarde said interest rates “need to rise significantly at a steady pace” and “remain at that level for as long as necessary”.
Lunar New Year holiday until Thursday in major Asian financial hubs including China, Hong Kong and Singapore
BoJ Core CPI in Dec: 3.1% y/y vs. 2.9% y/y
Flash PMI survey data released on Tuesday showed a possible improvement in net sentiment in January, but most companies are still on the downtrend.
- UK flash manufacturing PMI rises to 46.7 from 45.3 in January
- US Flash Manufacturing PMI for Jan 2022: improved to 46.8 from 46.2 in Dec. “Businesses continue to highlight the impact of weak customer demand and high inflation on customer spending.”
- Eurozone manufacturing PMI rose to 48.8 from 47.8 in January, while services PMI rose to 50.2 from 49.3.
- Japan’s manufacturing PMI unchanged at 48.9 in January, services PMI rose to 52.3 from 51.1
Argentina and Brazil, South America’s top two major economies, are discussing a common currency to reduce their dependence on the US dollar.
API reports private oil inventories of 3.4 million barrels higher than expected
Australian CPI rose from 1.8% to 1.9% in the first quarter, higher than popular estimates of 1.6%
As expected, the Bank of Canada raised its benchmark overnight rate to 4.5% from 4.25%, signaling a likely pause in rate hikes for now.
In a major change from previous positions, the US and Germany announced Wednesday that they would hand over dozens of tanks to Ukraine.
EU Considers Limiting Russian Diesel Prices To $100 A Barrel
Dec US Core PCE (Fed’s preferred inflation tool): +0.3% m/m as expected. +5% y/y (still above the Fed’s 2% y/y target)
Summary of BOJ opinion: No signs of BOJ shifting hawkish at January meeting
Dollar, Gold, S&P 500, Oil, US 10-Year Yield, Bitcoin Overlay Hourly TradingView
As you can see from the chart above, price action across financial markets has been volatile and mixed this week. The forex calendar had some top tier economic/sentiment updates to get traders moving, but most reports didn’t have any big surprises to fuel the volatility.
The quiet price action could also be attributed to many of the major financial hubs shutting down until Thursday due to Asian holidays (mainly Chinese New Year).
The same key themes continue to dominate sentiment, including current expectations that the Fed will slow the pace of rate hikes (thus reducing the likelihood of a deep US recession). Inline (but steadily declining) US Core PCE price index read on Thursday and read on Friday.
Aside from US economic data, the Flash PMI was released this week giving traders an update on business sentiment around the world. Online, optimism in January appears to have strengthened, but overall, as high prices remain a burden, demand for products falls and job growth in the manufacturing sector slows. , the company believes it is in contraction. The service sector was a bit on the other end of the spectrum in terms of hiring, with many still looking to expand their workforce.
On the monetary policy front, as European Central Bank officials’ rhetoric remained hawkish (including calls from ECB Governing Council member Klaas Knot that the ECB would raise by 50 bps in February and March). , in contrast to the latest summary. The Bank of Japan’s opinion reiterated its continued monetary stimulus. These stances are already known and have not changed from the previous week, which may have led to a lack of noticeable reaction from traders this week.
Again, there were no major catalysts this week. In terms of risk sentiment, there seems to have been a positive tilt as equities and cryptocurrencies spent a lot of time green. It may have benefited from a change in perception of the Fed’s prospects for rate hikes and the continued technical bounce from his 2022 beatdown.
USD pair
overlay of USD pair: 1 hour chart
Greenback sideways price action this week despite top-tier economic events such as business sentiment updates, pipeline GDP and inflation updates. Again, no big surprises this week, so traders seem relieved to expect his FOMC statement next week.
Australian dollar pair
overlay of Australian dollar pair: 1 hour chart
Aussie inflation has been one of the most anticipated events of the week for forex traders as the outcome is likely to guide the RBA’s decision at its next meeting. And based on price action, the trader seemed to have expected a hot CPI reading, higher than expected he got at 1.9% q/q (1.6% q/q forecast).
CAD pair
overlay of CAD Pairs: 1 Hour Forex Chart
Looney spent most of the week in chop mode compared to major currencies, but there was a brief burst of volatility thanks to the latest monetary policy statement from the Bank of Canada on Wednesday.
With a 25 bps hike to 4.50% expected and the BOC suggesting a moratorium on rate hikes to assess the impact of the hike on the economy, it’s no surprise that Looney fell after the event. It wasn’t. That drop was short-lived, however, as Looney is likely to rebound in positive global risk-on sentiment this week.
