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The Market Week – March Week 3
The focus of attention once again this week is on the Central banks, but also on fears of a third wave hitting the Eurozone, with US treasuries yields nudging higher and stocks cautious as investors are clearly holding back ahead of the FOMC announcement today. The USDIndex is holding firm into near trend highs at 92.00.
The Fed, which is widely expected to leave policy settings in place, is sure to strike a less dovish tone than hitherto. The focus will be on the SEP and dot plot. Overall, markets will continue to harbour doubts that the overshoot in inflation the Fed is happy to tolerate may be surpassed, forcing the Fed into sooner than anticipated tightening. This in turn should keep the USD biased higher.
The BoE’s Monetary Policy Committee meets on policy tomorrow after BoE Governor Bailey already this week sounded more upbeat, downplaying recent yield gains by remarking that they have been in accordance with a brightening economic outlook. The GBP has posted a 13-month high against the Euro. The BoJ meets as well on Friday.
The Covid vaccine rollout has continued to be nothing but disappointing in most of the EU, underpinning hopes for a global recovery. The UK has vaccinated over 47% of adults — about 6 times more than EU nations, including all those in the most at risk groups — while new case and mortality rates have dropped precipitously, contrasting the picture in the EU.
In addition fears of a third wave hitting the Eurozone, and fresh scare stories on the safety of the AstraZeneca vaccine, are not helping an already behind vaccination program, in contrast with the UK, which is racing ahead with its program. No less than 12 EU nations have now suspended the vaccine. This state of affairs has found expression in currency markets by the selling of EURGBP.
Meanwhile many Eurozone nations, in contrast, are now tightening Covid restrictions. This, along with increasing Covid cases opening the possibility that economic reopening will be delayed, appears to be a driver of EUR softness. Interest rate differentials remain in the USD’s favor, which will likely limit EURUSD gains going forward.
This week, EURUSD breached its 1.1880 low. USDJPY holds below 109.30 and Cable steadied close to 1.3900.
Global stock markets are treading water as the USA100 retreated to the 20-day SMA, the USA500 corrected -0.05% and the USA30 steadied above 32,780 with key support at the 20-day SMA.
The Gold price failed to break $1,740 at the 20-day SMA again this week, and turned lower. The non-yielding asset continues to be pressured lower. Bitcoin has reversed some of Monday’s gains and has found support at $52,600.
USOil is under pressure and tests the $64,00 floor as the monthly IEA report highlighted that there is ample supply even against the background of a global recovery.
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Andria Pichidi
Market Analyst
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