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US dollar is torn between recession and attempts to rise



This week has not been set for the US currency. It fell due to the probability of disappointing macro statistics and the short-term strengthening of the euro. However, it does not give up, trying to leave the price hole.

On Tuesday, the US dollar collapsed from a 19-week high. It is declining for the second session in a row, unsuccessfully trying to stay above. There are several reasons for the decline – the expectation of the Fed's rate hike, increased cash flows at the end of January, due to which investors have to sell dollars and an increase in risk appetite. At the end of last month, the risk appetite in the markets increased significantly. The catalyst for this was the rebalancing of investors' portfolios and their move into protective assets.

American macro statistics provided temporary support for the US dollar. Last month, the index of business activity in the industry of the country declined to 57.6% from the previous 58.7% and analysts' expected fall of 57.5%. Currently, markets are waiting for signals from the European regulator, as the US has already did an action, marking the course for tougher monetary policy.

According to experts, the US dollar's decline was facilitated by market fears about a possible reduction in the gap between the ECB and the Fed. Some analysts suggest that the European regulator will raise rates before the American one. At the same time, the markets are not confident that the Fed will raise rates five times this year. It can be recalled that the US regulator has repeatedly had to change its plans. Nevertheless, the market is still counting on a five-fold increase in the Fed's rates, the first of which is expected in March. As for the ECB, it is still adhering to the ultra-soft monetary policy, refusing to raise rates this year.

The current situation helped the EUR/USD pair to rise, while the US currency remained under pressure. The strengthening of the euro became a powerful driver of trading, which was facilitated by Inspiring reports on consumer prices in Germany. Experts admit a reversal in the direction of 1.1300-1.1350. According to currency strategists, the next target of the EUR/USD pair will be the level of 1.1300. The formation of the bullish pattern "Morning Star", fixed on the chart on Tuesday, contributed to this. On Wednesday morning, the EUR/USD pair was hovering around 1.1274, approaching the specified level.



Currency strategists cite the flattening of the yield curve as among the reasons for the US dollar's current weakness. A flat curve is a sign of an impending recession, while an inverted curve indicates a recession in the economy. Economists estimate that the US yield curve is gradually flattening, while the yield spread between 2-year and 10-year bonds is narrowing (to a minimum since October 2020). This worries experts who see an analogy with December 2018, when the Fed completed its cycle of raising rates, increasing the rate to 2.5%. At this time, the regulator began to reduce the balance sheet, and it now aims to take similar actions. However, the result may not meet market expectations.

According to analysts, the flattening yield curve indicates that the debt market is counting on a solution to supply chain problems. If the issue is resolved, the Fed will not need an aggressive series of rate hikes. However, the market is worried that the rate hike will not allow the Fed to contain price pressure. It is possible that the "hawkish" position of the US regulator, faced with a similar position to the European one, will strike a spark in their relationship. This week's positivity will be the strengthening of the euro against the US dollar, which market participants expect.

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Eurozone inflation hits record fueling bets ECB could raise interest rates



The euro may continue its rally. On Wednesday, the currency broke through 1.1300. Despite the dovish ECB, macroeconomic data indicate a possible shift towards a more aggressive stance. Record inflation may force the European regulator and Christine Lagarde to consider tightening. Consumer prices in the eurozone continue to increase rapidly, in line with analysts' expectations.

The annual inflation rate in the eurozone edged higher to a fresh record high of 5.1% in January from 5% in December. The market had not expected such an outcome. Neither of Bloomberg's respondents had anticipated another inflation rike. On the contrary, investors had projected a 4.4% slowdown in the rate.

The data came out before the ECB's Governing Council meeting. Therefore, a disagreement may arise over the pace of QE tapering among the council members. There has been speculation that another unexpected inflation hike will be a kind of test for the European regulator.

The euro's reaction to the inflation report was brief. The currency is unlikely to rise solely on these data. However, if the ECB adopts a hawkish stance, the euro will show steady growth.

Market participants expect the regulator to announce the first rate hike by the end of the year. Meanwhile, the ECB fiercely denies such a possibility. Let's see what the regulator says on Thursday.

Anyway, activity in markets increased after the release of the inflation report and the euro's reaction to it. Analysts started to revise their forecasts for EUR/USD. Scotiabank assumes the quote will head towards 1.1400 and break above the mark.

The euro has potential for growth despite the current corrective move. If buyers show willingness to extend the uptrend, the target levels will stand at 1.1369 (the high of January 20) and 1.1430 where the 100-day EMA and the 4-month resistance line intersect.

Meanwhile, the long-term forecast is likely to remain bearish as long as the price trades below the key 200-day SMA.

Read More: https://www.instaforex.eu/forex_analysis/301657

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Pound aims to reach new highs



The pound gathered strength for the next breakthrough, which occurred after the results of the Bank of England's meeting on the rate was announced. Its nearest goals are to consolidate in the reached positions and conquer the next highs.

On Thursday, the Bank of England discussed the current monetary policy. The key issue was to raise the interest rate. The markets expect five rate hikes from the regulator this year, the cumulative increase of which will be 125 bps. Following the announcement of the results of the meeting, the pound noticeably declined against the US dollar. On Thursday evening, it was trading at the level of 1.3577 and then made a short-term breakthrough to 1.3628. However, it lacked the strength to hold on to the gained positions. On Friday morning, the GBP/USD pair was near the round level of 1.3600, trying not to further fall.



Experts consider the Bank of England one of the most "hawkish" among the world's regulators. The actions of the monetary authority confirm this definition. It can be recalled that the British regulator is expected to increase the interest rate from 0.25% per annum to 0.5% while maintaining the volume of asset repurchases for 895 billion pounds. Along with this, the Bank of England revised the forecast of the country's economic growth downward to 3.75% from the previous 5% calculated in November 2021. The Central Bank of England considers a reduction in aggregate demand as the reason for the slow growth rates of the national economy. At the same time, the regulator raised the forecast for UK inflation for this year to 5.75% from the previous 3.5%.

The current situation had a vague effect on the pound's dynamics. On the one hand, the rate increase gave impulse to it, helping it to increase, but on the other hand, it keeps it in a state of uncertainty. This condition prevents the pound from reversing and it has to be content with short-term growth.

In relation to the Euro currency, the British currency also showed growth. Analysts noted that it surged to a 2-year high against the euro amid the interest rate hike by the Bank of England. The regulator expectedly raised the key rate to 0.5%, and this is not the limit. According to Jane Foley, Head of Foreign Exchange at Rabobank, the Bank of England will raise rates again in May 2022.

"Against the backdrop of falling household incomes due to rising energy and food prices, market expectations for a rate hike by the Bank of England are exaggerated. However, another rate hike is expected in May," J. Foley believes.

The British regulator has increased the interest rate to curb rampant price pressure. According to the estimates of the Central Bank of England, the inflation rate in the country will soon exceed 7%. The off-the-scale indicators not only concern inflation. According to BoE's representatives, consumer price growth in April 2022 will reach its peak values over the past 30 years and will amount to 7.25%. Based on the preliminary forecasts, the UK inflation will remain above 5% in a year. However, the ministry believes that inflation will be below 2% in three years and will amount to 1.6%. At the same time, the British regulator believes that investors have put too many rate increases in prices this year.

Because of this, the pound remains at risk but does not give up. It is slightly imbalanced against the US dollar due to a decline in global risk appetite and a drop in the stock market, but it strives to overcome price barriers, despite inflationary pressure and several negative economic factors.

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Euro and US dollar's main concern is to reach new highs



The price highs that the euro reached last Friday are not the limit for it. It aims to break through new barriers. At the same time, the US dollar is set up in a similar way, which is waiting for the Fed's help.

The Euro currency started the new week with the high reached over the past three weeks, but there is one problem – a small correction. Last Friday, the single currency approached a three-week high and is trying to hold on to its gained positions. The reason for the surge was a hawkish reversal in ECB policy. However, experts believe that the euro's further growth is unlikely amid the impending tightening of the Fed's monetary policy. In such a situation, the US dollar will take the lead. Analysts are sure that the US currency will need the Fed's tightening of monetary policy to further rise.

Experts believe that the EUR/USD pair is in for serious changes. The first step along this path was the change in ECB's monetary policy. Earlier, the European regulator confidently defended its position, planning to maintain the current interest rate until the end of 2022. However, the situation has changed dramatically now as the ECB revised its strategy during its last meeting. According to analysts, the regulator will update the previous inflation forecast and abandon the current dovish position at the March meeting. Experts allow similar actions by the ECB following the results of the June meeting.

The current situation contributed to the euro's sharp growth across the entire market. The US dollar followed suit, although its results were more modest. Against the backdrop of impressive US macroeconomic data, the market's expectations regarding the tightening of the monetary policy have intensified. Analysts said that the Fed can immediately raise the rate by 50 basis points (bp) next month. In such a situation, the US currency will get a head start and can bypass the euro.

The general upswing that swept the markets contributed to the growth of the EUR/USD pair. At the end of last week, the pair was steadily gaining momentum. Its vector is still directed up, despite the short-term decline. On Monday morning, the EUR/USD pair was around the level of 1.1432. Some instability was caused by the euro's downward correction, recorded after a 2% increase against the US dollar.



The US currency is gaining momentum amid a noticeable strengthening of the US labor market and the upcoming Fed rate hike. The sharp rise in the euro did not prevent the dollar from strengthening its position and adding 0.4%. According to experts, the US dollar's growth will continue soon.

According to the US Department of Labor report, the US labor market has risen. The increase in jobs in the country last year amounted to 467 thousand against the projected 150 thousand. The data for December 2021 was also revised upwards. As a result, the increase in the number of employees amounted to 510 thousand against the previously forecasted 211 thousand.

The publication of impressive data contributed to the growth of market expectations regarding the Fed rate hike by 50 bps at once in March. In such a situation, the US dollar will sharply increase, although experts fear a negative impact on it from the debt market. It can be recalled that the EUR/USD pair collapsed to 1.1411 after the release of reports on the US labor market, and then returned to 1.1450. According to preliminary estimates, the pair will stabilize "sideways" from the range of 1.1400 - 1.1600 in the upcoming weeks.

The market's paradoxical reaction to the impressive US data confused experts. Experts explain this by the difficult situation that has developed in the American debt market. The increased expectation of tightening the monetary policy brought down the price of state bonds.
The untwisted spring of these expectations hit the yield of 10-year bonds. As a result, their cost soared to 1.93%, updating the high since December 2019. At the same time, analysts are sure that the US Treasury will not allow the collapse of the USD and the debt market. The agency needs to place an additional $350 billion to maintain the balance in the system and stabilize the US dollar.

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EUR/USD pair's new target is the level of 1.1500



The American and European currencies are trying to reverse the previous trend in the EUR/USD pair, which mainly showed a downward trend. The new target of this classic pair was the level of 1.1500, which can be achieved with massive strength.

For several days, the EUR/USD pair has been trying to break through the upper border, but the level of 1.1500 was mesmerizing. When the situation develops favorably and there is the confidence that the desired level is about to be reached, luck slips away. The pair returns to the starting point, disappointing the markets.

The situation is repeating itself. The EUR/USD pair is marking time, although there are plenty of chances to increase. Among them, experts include the "hawkish" actions of the ECB and the Fed. The pair's growth is hampered by the euro's confusion, which cannot decide on the direction.

The multi-directional dynamics of the euro are confusing the market. It showed a steady rise on Monday, which was replaced by a gradual decline. The upward trend of the single currency slowed down amid expectations of US inflation data. According to analysts, positive macro-statistical reports will provoke an increase in the US dollar's price. Currently, the bulls are defending the level of 1.1400, not letting the bears to the level of 1.1500. On this wave, the pair retains temporary growth potential. On Tuesday morning, the EUR/USD pair was trading at the level of 1.1423, which is a noticeable decline from the previous day.



There are not too many new reasons for the EUR/USD pair to grow soon. It may remain in the current range, waiting for a favorable moment. On a positive background, the pair can surge to the level of 1.1580, and then adjust again to 1.1400. If such a scenario is implemented, the EUR/USD pair will stabilize in the range of 1.1400 - 1.1600 by the end of February.

Positive reports on annual US inflation will be one of the catalysts for the growth of the US currency and, as a result, the classic pair. According to preliminary estimates, inflation accelerated to 7.3% in January compared to 7% in December. This is the highest level recorded since February 1982.

Information on US inflation is mainly important for the dynamics of the US currency since the Fed's further strategy depends on them. Summing up the results of the January meeting, the regulator drew attention to suitable conditions for an early increase in rates. This is due to the rapid growth of inflation and the strengthening of the labor market in the United States. The majority said that the decision to increase the rate will be made next month.

Currently, the euro looks restless, having difficulty choosing a further direction. The specialists believe that its short-term increase was not only due to changes in the ECB's policy but also due to the US dollar being overbought. The overvaluation of the USD played into the hands of the EUR. According to analysts' calculations, the fair exchange rate of the euro is 1.2200 based on the difference between two-year rates in the US and Germany. The revaluation in favor of the US dollar occurred amid a sharp increase in 2-year US government bonds.

Assessing the prospects of the European currency, experts believe that it will not stop when it reaches the level of 1.2200. Experts pay attention to the "overlap" effect recorded in its dynamics, due to which it can surge over 10 figures. The implementation of such a scenario in 2022 will lead the EUR/USD pair to the level of 1.3000.

Markets are focusing on US inflation and the results of the Fed's January meeting. According to Credit Agricole's analysts, another round of inflation or "hawkish" signals from the Fed is needed to resume the dollar rally in the near future and sharp rise in the EUR/USD pair. The current attempts of the dollar to beat the euro are quite successful, but they lead to distortions in the pair or slow down the dynamics of the EUR/USD pair.

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Clash of the Titans: The dollar king goes backstage, shining gold on the main stage. Bull trap or sustainable trend?



The markets are finding it difficult to decide due to the lack of a strong catalyst, the major currency pairs continue to trade within recent levels. The dollar never managed to regain its status as the king of growth, despite strong data on the labor market, the expected record inflation, the hawkish position of the Federal Reserve and the growth in the yield of treasuries. It would seem, well, what else is needed to return to the upward dynamics?

At the end of last week, the dollar index lost 1.8% of its value, now it continues to trade around the 95.60 mark.



Nevertheless, economists and traders do not lose hope for the growth of the dollar, believing that it will still manifest itself. The current decline is just a correction that will be short-lived, market players comment on the situation.

At least the US currency has fundamental reasons for growth. Judging by the rhetoric, the Fed plans to overtake other major world central banks in tightening monetary policy. Moreover, the divergence of the curves reflecting the dynamics of monetary policies will begin to increase over time. This is one of the biggest factors in favor of further strengthening of the dollar, but with a caveat. As a result of these actions, the Fed needs to quickly cope with rising inflation.

There is another scenario. First, the Fed may eventually lag behind in the process of curbing accelerating inflation. Secondly, the central bank may set itself the task of not harming the recovery process of the US economy. The balance between economic growth and the cycle of monetary policy tightening will be disrupted, and the dollar will be under pressure again.

The USD/JPY pair feels quite comfortable now, climbing and staying above the 115.00 mark. The prospects for further short-term increases are supported by the fundamental background. Investors are considering the possibility of a 50bp rate hike in March. The pair's growth was also supported by the fact that there was demand for the dollar and a rally in the yield of treasuries.

Meanwhile, traders are reluctant to make trading decisions ahead of the publication of US inflation data on Thursday, and this affects the dynamics of the USD/JPY pair as well. So far, this is the only factor that can really limit the growth potential of the quote.

Analysts of Societe Generale demonstrate a confident bullish attitude towards USD/JPY, expecting a sharp increase in the quote in the coming weeks. The yield of 10-year Treasury bonds is about to exceed 2%, which means that the pair will quickly approach the 116.00 mark. Then the path to 120.00 will be opened. However, such volatility is likely to be temporary.



If not the dollar, then what? In which direction is it most profitable for the investor to direct their gaze? Experts advise to take a closer look at gold. Although the precious metal does not bring investment income, it is a popular protective asset, especially in conditions of record inflation.

Yes, gold is sensitive to the tightening of monetary policy, this puts pressure on prices. Much will depend on whether the inflation situation worsens and whether interest rates will rise faster. Here we also need to take into account the technical component. Judging by the charts, gold is not going to fall. At the moment, long positions on the XAU/USD pair look preferable. At the same time, the approach of the Fed's March meeting, at which a rate hike is expected, will increase fluctuations in gold and the dollar.



The crucial area is $1,810 per ounce. Its penetration will send the price to $1825, and then to the area of $1830-$1832. A decisive breakdown of this barrier will be seen as a new trigger for bulls. The XAU/USD pair may accelerate growth towards the January peak of $1853.

A convincing breakdown below the $1810 mark will make gold vulnerable to further sales below $1800 dollars, testing support at $ 1790.

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EUR/USD: USD bears will take the lead if the US dollar fails to rise



Many analysts believe that the expected US macro statistics will only slightly change the dynamics of the US dollar. There is growing confidence in the markets that the price of US currency will decline. In such a situation, USD "bears" will benefit.

This week, the US dollar resisted pressure from risk appetite and expectations of the upcoming Fed rate hike. On Wednesday evening, it entered a downward spiral. Its decline against the euro took place amid a reduction in the yield of US government bonds. At present, the 10-year US Treasury yield has fallen to 1.94% (from the previous 1.95%), while remaining at a high level for the last two years.

Currency markets are waiting for new reports on US annual inflation. According to preliminary forecasts, the inflationary spiral in January 2022 unwound to its maximum values (7.3%). It is worth noting that this has not been recorded since February 1982. Experts believe that the confirmation of these data will force the Fed to reconsider the current monetary policy. It is possible that the regulator will speed up the process of raising the key rate.

The current situation turned out to be in the hands of the dollar bears. According to experts, they may take the lead as the markets are not sure about the strengthening of the US dollar. Moreover, strengthening risk sentiment and instability in the Treasury bond market amid falling energy prices hinder the growth of the US dollar. Such a decline is facilitated by "marking time" on the Fed's part, as the market won back the upcoming rate hike. Further action by the Fed will determine US consumer price reports.

The current situation contributes to the slowdown in the dynamics of the EUR/USD pair. The pair is trading in the same range, stagnating while expecting the US macro statistics. On Thursday morning, the EUR/USD pair was near the level of 1.1425.



Analysts said that the EUR/USD pair has hardly moved since the beginning of this week, remaining in a narrow range. At the same time, it corrected below the level of 1.1400, reaching 1.1397, and then returned to 1.1420-1.1425. This was facilitated by the US dollar's weakening, which experts believe will last for some time.

In addition to the Fed's intervention, the dynamics of the EUR/USD pair are influenced by the comments of the European regulator. ECB's "hawkish" statements may send the pair to the range of 1.1460-1.1480.

Many analysts expect the US dollar to further plunge against the euro and other world currencies this year. Specialists believe that the USD is overbought, so its price turned out to be "inflated" at the end of 2021. However, some market participants do not agree with this position and are waiting for the US dollar to grow amid the tightening of the Fed's monetary policy, but a fourfold rate hike is unlikely to strengthen the US currency. The regulator will not increase the number of rate hikes (up to seven times, as previously reported) in 2022, as this will lead to a collapse in the US stock market.

The majority of analysts are betting on the euro's appreciation this year. However, there are pitfalls here. Economists predict the euro to decline by the end of 2022, although it is currently strengthening against the US dollar. An interest rate increase by the ECB does not cancel out the negative scenario for the euro, the further growth of which remains in question. The difference in approaches to the monetary policy of the ECB and the Fed also adds pressure. Experts concluded that the current situation is in favor of the US dollar.

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USD soars following inflation data



Many analysts note the strange behavior of the US dollar. After a sharp rise, it has slid into a short-term decline. Yet, the greenback will have to pick up a trajectory soon. '

There are two possible scenarios. It may resume a steady rise and enter a narrow range. At the same time, flat trading is unlikely to undermine the Us dollar's bullish bias. A short-term downward movement will also hardly last long. Currently, the greenback is trading without a clear-cut trend. Before that, it incurred significant losses. Economists assumed that the US currency would climb higher after the publication of US macro statistics.

The US dollar performed a dizzying rise after the release of the Consumer Price Index (CPI) and NFP reports. Annual inflation accelerated to 7.5% from the previous figure of 7%, notching the highest reading in four decades. As for the weekly number of initial jobless claims, the reading decreased by 16,000, amounting to 223,000. Analysts had expected the indicator to drop to 230,000.

So, it is not surprising that the US dollar has soared. However, it ran out of steam quite fast. As a result, it retreated. Some forex strategists believe that the greenback may resume a downward movement. Following the publication of the report, the euro was supposed to assert strength against the US currency, rising to 1.1100. However, it did not happen. Before the release of inflation data, the EUR/USD pair sank by 0.2% to 1.1406. Shortly after, it managed to stabilize. On Friday morning, February 11, the EUR/USD pair was trading in the range of 1.1386-1.1387. It rolled back from the target levels after the publication of inflation data.



Analysts reckon that the euro failed to rally due to the aggressive behavior of large market players who increased their long positions on USD futures. Last week, the volume of long positions de3clined slightly. The price was hovering near two-year highs. The greenback is unable to advance now although it has made attempts to rise.

The US inflation report boosted the growth of the US dollar. At the same time, it triggered a drop in futures on the main stock indices. The Fed is sure to take notice of a new increase in inflation figures when making a monetary policy decision. US Treasury yields increased significantly. The Germany 2 Years / United States 2 Years Government Bond spread grew to 1.87%. This indicator tracks the short-term trend of the EUR/USD pair.

Apparently, it is getting really difficult for the central bank to curb soaring inflation. It was expected to slow down. However, those predictions turned out to be incorrect. So, the Fed is likely to resort to additional tools to cap inflation. The regulator plans to hike the key rate in March. According to Bank of America (BofA) analysts, the Federal Reserve may raise the interest rate 7 times this year thanks to steady wage growth. BofA also expects 4 rate hikes by 0.25% in 2023.

The revised inflation report could also facilitate the US's dollar rally. It is likely to gain momentum provided that inflation figures are high. It may also enable the Fed to raise the key rate immediately by 50 percentage points (pp). The current situation requires the regulator to take decisive action on monetary policy.

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If there is war tomorrow? Fear of an attack on Ukraine drove up the price of gold



Every day the Russian-Ukrainian conflict flares up with greater force.

On Friday, the White House statement added fuel to the fire that Moscow could attack Ukraine any day On the evening of February 11, American officials recommended that US citizens urgently leave the territory of Ukraine. According to the West, there is now a high probability of Russia's invasion of the Black Sea Republic at any moment.

The alarming comment immediately raised the quotes of protective assets, including gold. Late on Friday evening, precious metal prices soared sharply, ramming through the key resistance at $1,850.

Bullion also met the new working week with steady growth. At the time of preparation of the material, gold futures were trading at $1,859. They rose 0.9% compared to Friday's close, when they rose 0.26%.



In general, over the past week, the value of the precious metal has risen by 1.9%. Expectations of January inflation data in the United States contributed to the positive dynamics.

As for the beginning of the current seven-day period, the main price-forming factor in the gold market remains geopolitical risks.

On Sunday, the United States said that Russia could create an unexpected pretext for invading Ukraine. In turn, the Kremlin denied this possibility and accused the American side of hysteria.

Nevertheless, another escalation of the conflict led to strong volatility on the Asian stock market on Monday morning. The drop in demand for risky assets caused an increase in appetite for gold.

At the beginning of the day, the yellow asset approached the highest value for three months. Analyst Philip Nova believes that its further dynamics depends on two upcoming meetings.

Today, German Chancellor Olaf Scholz will discuss the situation with Ukrainian President Vladimir Zelensky, and his talks with Russian President Vladimir Putin are scheduled for tomorrow.

If, following the results of the meetings, the German politician does not signal a reduction in tension, this will serve as another impetus for the growth of prices for precious metals. According to the expert, in the near future, the quotes may jump to $1,900.

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Protected Gold protects. Investors are greedily buying gold in search of protection from geopolitical risks



Gold rose sharply in price on Monday. This was facilitated by increased geopolitical tensions. The whole world is watching how the protracted conflict between Russia and Ukraine will be resolved.

Last week, some Western media reported insider information that Moscow could launch an attack on February 16.

In response, yesterday the President of Ukraine Volodymyr Zelensky declared this date a day of unity. He called on Ukrainians to hang the country's flags on buildings on Wednesday and sing the national anthem together.

Many interpreted his statement as a bold hint. It seems that the head of Ukraine has been officially informed that February 16 will be the day of the invasion.

Also on Monday, a comment by British Prime Minister Boris Johnson added fuel to the fire. He called the situation in Ukraine "very, very dangerous."

All these factors led to panic and a major sell-off on the world stock markets. Yesterday, the shares of many companies fell sharply.

Now investors are moving away from risky instruments to protective assets. One of the best shelters is considered to be gold.

At the beginning of the new working week, bullion showed impressive dynamics. During the day, they rose by 1.5% (for comparison: over the past seven days, the quotes rose by 1.9%).

In monetary terms, the difference from the previous close was more than $27. Gold finished trading on Monday at the highest mark in three months at $1,869.40, and $1,872.80 became the daily high.



Analyst David Russell believes that a close above $1,870 will stimulate gold bulls to reach a new goal faster. The next psychologically important mark for a yellow asset is $1,900.

The expert warns that in the near future, the movement of quotes will strongly depend on the news background. Even a slight heating up of the conflict and the growing uncertainty around the situation in Ukraine will contribute to an increase in prices for the precious metal.

At the same time, any sign of a thaw in relations between Russia and the West could trigger a fall in the yellow asset.

Yesterday, by the way, UN Secretary-General Antonio Guterres called on world leaders to step up diplomacy in order to calm the situation as soon as possible. He said he was deeply concerned about the "growing speculation" regarding the military conflict.

Another negative factor for gold now is the hawkish rate of the US Federal Reserve. On Monday, the central bank held an unscheduled meeting at which officials continued to argue about how aggressively to approach an interest rate hike in March.

The president of the Federal Reserve Bank of St. Louis, James Bullard, who is entitled to vote at FOMC meetings this year, advocates speeding up the process. He intends to convince his colleagues to raise rates by 100 bps by the beginning of July.

Meanwhile, Commerzbank analysts consider this unrealistic. In their opinion, further escalation of the Russian-Ukrainian conflict will keep the Fed from raising interest rates by 50 bps in March, as this may cause excessive turmoil in financial markets.

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Wall Street trades draw US SEC attention

On Monday, the Wall Street Journal reported that the US Securities and Exchange Commission (SEC) is conducting an investigation into Morgan Stanley and Goldman Sachs launched by the US Department of Justice. The main issue is whether financial executives might have warned hedge funds about large stock sales ("block trades"), which violates the regulations.

The participants of the investigation give no comments.

Broker-dealers tend to act on behalf of clients or using a hedging strategy (a method of insuring assets against negative market trends). They buy and sell large blocks of shares, and this can affect the company's stock prices. This process is especially active during periods of volatility, when portfolios are being rebalanced.

If such valuable information is obtained in advance, it may have a great impact on the market. Companies should adjust processes preventing the misuse of nonpublic information. Otherwise, it could violate U.S. laws.

As the WSJ reports, the SEC has sent subpoenas to some hedge funds and banks requesting information about investors' interaction with bankers. It is also mentioned that investigations into block trades irregularities began in 2019.

It is being investigated if bankers revealed non-public information to some privileged clients. If such incidents become known, they will find out how this information may have affected some funds that are " liquidity providers" for Wall Street companies.

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Three main factors for USD growth: geopolitics, risk appetite, and macro statistics



The US dollar's steady growth, observed from time to time, is due to the interaction of three main factors – a decrease in risk appetite, inspiring US macro statistics, and the easing of geopolitical conflict. At the moment, the key "pillar" supporting the US dollar is American statistics.

Today, the US currency found it difficult to choose a direction, as markets assessed several factors affecting it. Its growth was facilitated by positive macroeconomic statistics from the US, which turned out to be better than forecasts. In particular, US retail sales soared 3.8% m/m in January 2022 against an expected rise of 2.1%. At the same time, the volume of industrial production in the country increased by 1.4%, while a growth rate of 0.4% was forecasted. Both indicators indicate favorable conditions for further tightening of the Fed's monetary policy.

The decline in risk appetite is also another factor stimulating the growth of the US dollar. In such a situation, investors go to protective assets, primarily gold and the US dollar. However, risk appetite has returned amid certainty over the Fed's new minutes, which is less hawkish than expected. This situation provoked the USD's temporary decline. At the same time, retail sales and the strengthening of the US labor market can improve global risk appetite.

Moreover, some weakening of the US dollar was facilitated by geopolitical tensions, namely, the alleged ceased of the military conflict around Ukraine. This provoked significant price dynamics for key trading instruments. As a result, the US currency turned to the downside. It was followed by gold and oil.

On Thursday morning, the EUR/USD pair was near the level of 1.1354. It is worth noting that the euro rose to the level of 1.1363 against the US dollar yesterday and managed to consolidate at this level a little later.



The growing inflation continues to put pressure on the US dollar. The current situation requires the Fed to take decisive action – to raise rates as soon as possible. The regulator cannot afford dovish rhetoric, otherwise, it will provoke serious economic shifts. ECB also made "hawkish" statements, which allows the key rate to be raised by the end of the year.

The US dollar is supported by the growth of retail sales in the country. The strong indicator neutralizes concerns about a possible recession in the American economy. Earlier, investors were worried that the upcoming Fed rate hike would negatively affect the US economy. It should be noted that the high probability of a recession poses a threat to further USD growth. However, experts believe that there are now no reasons to implement an unfavorable scenario.

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Is the pound's growth temporary?



Many analysts are asking questions: how long will the pound's growth last? Or will it decline soon? Specialists are worried about sharp changes in the dynamics of the British currency, which can undermine its position.

The pound was growing steadily this week, impressing the markets. It is rising due to impressive UK macro statistics and expectations of positive changes in the interest rate. Experts assume that the Bank of England will raise the key rate following its leading counterparts, such as the Fed and the ECB.

A strong impulse for the pound's growth was the sudden acceleration of annual inflation in the UK. According to the reports of the Bureau for National Statistics, British inflation reached 5.5% last month, from the previous 5.4%. In the first month of 2022, consumer prices in the country fell by 0.1% after rising by 0.5% in December. Economists said that UK's inflation reached a 30-year high, slightly behind another world record – US inflation, which spiraled to a 40-year increase.

A significant increase in UK consumer prices contributed to the strengthening of the national currency. Against this background, expectations of an early rate hike by the Bank of England have increased. The overall positive mood contributed to the rise of the pound, although experts fear that the upward trend will end soon.

The current situation helped the GBP/USD pair to rise. The pound took the opportunity and tried to consolidate its gained positions. According to UOB currency strategists, the pair needs to break through the resistance of 1.3645 for further growth. The probability of the pound rising above the level of 1.3645 is still insignificant, but the chances will increase if the pound does not go beyond the level of 1.3520 in the coming days. The UOB notes that the next resistance level for the GBP/USD pair is set around 1.3680.

Analysts' comments are right – the pound is far from the indicated level of 1.3645. On Friday morning, the GBP/USD pair was trading at 1.3610, trying to rise higher, but with mixed success. A day earlier, the pound increased by 0.25%, reporting to the level of 1.3616. Analysts say the pair will remain in the wide range of 1.3550-1.3650 in the near term, in which it is located after a significant deviation from the "bearish" trend in December 2021.



The future economic prospects of the UK are as vague as the weather in the country, especially given the possible fiscal increase. The pound will remain in a fighting mood in the coming weeks, as market participants are confident in the upcoming tightening of the monetary policy by the Bank of England. It can be recalled that the regulator has raised interest rates twice since December 2021 (to 0.5% from the previous 0.1%). Now, the markets expect a further rise in the key rate in March up to 0.75% or immediately up to 1%.

Many analysts consider the pound undervalued by 10% relative to the US dollar. According to experts, this situation developed after the Brexit referendum in 2016 and continues to this day. Experts believe that this undervaluation hinders economic growth in the country. At the same time, the short-term prospects for the pound are quite optimistic and set investors in a positive mood.

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Asia-Pacific stock exchanges fall by 1-3%



The day before, Russian President Vladimir Putin signed decrees recognizing the independence of the Donetsk and Lugansk People's Republics (DNR and LNR). In addition, the president instructed the armed forces of the Russian Federation to carry out peacekeeping functions in the self-proclaimed republics. As eyewitnesses told Interfax, two columns of armored vehicles are on the territory of the DPR and follow to the north and west of the republic.

Western countries called Moscow's actions a violation of international law and announced their intention to impose sanctions, which could be announced as early as Tuesday.

The Japanese Nikkei fell by 1.8% by 8:12 GMT+2.

Shares of consumer electronics manufacturer Sharp Corp. are among the drop leaders among the components of the index. (-7.71%), which continue to fall in price after falling the day before. The company said it plans to buy loss-making display maker Sakai Display Products Corp.

Also, securities of the transport company Kawasaki Kisen Kaisha Ltd. are falling sharply. (-6.7%) and video game developer NEXON Co. Ltd. (-6.2%).

Securities of the investment company SoftBank Group Corp. cheaper by 0.6%, automaker Toyota Motor Corp. - by 2.3%.

The Hong Kong Hang Seng by 8:18 GMT + 2 fell by 3.3%, the Shanghai Shanghai Composite - by 1.4%.

Among the decliners in Hong Kong are shares of gas pipeline operator ENN Energy Holdings Ltd. (-10.9%), Hang Seng Bank Ltd. (-6.6%) and internet giant Meituan (HK:3690) (-6.3%).

Securities of IT companies Alibaba Group Holding Ltd. drop by 3.7%, Tencent Holdings Ltd. - by 2.1%.

South Korean Kospi fell by 1.7% by 8:14 GMT+2.

The consumer confidence index in South Korea fell 1.3 points to 103.1 points in February, the lowest level since last August. A month earlier, the value of the indicator was 104.4 points.

Capitalization of chipmaker Samsung Electronics Co. Ltd. declined by 1.8%, the value of shares of automakers Hyundai Motor Co. Ltd. (KS:005380) and Kia Corp. decreases by 2.2% and 1.9%.

The Australian S&P/ASX 200 fell 1%.

The world's largest mining companies BHP and Rio Tinto lost 0.9% and 1.4%, respectively.

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Crypto market update for February 23, 2022



Bitcoin has declined by $7,000 over the past six days. Thus, we have every reason to assume that the formation of the upward wave d is completed. If this assumption is correct, then now the instrument has moved on to building a new downward wave, which is wave e.

No one will deny that the news background sometimes has a strong impact on bitcoin and cryptocurrencies. Usually, this even applies only to negative news background. When all is quiet and calm and central banks are pumping money into their economies while keeping rates low, bitcoin tends to rise. But now it's a completely different matter. Rates are about to begin to rise, and in some places, they have already begun. Central banks no longer intend to print money, and the Fed is going to start reducing its balance sheet, which has ballooned to $9 trillion. Thus, now is an unfavorable time for bitcoin.

I believe that it is on this news and expectations of tightening monetary policy by the market that bitcoin has been declining for several months now. And over the next month, it may drop to $27,000, where wave e can be considered completed. However, geopolitics also intervened, and since bitcoin is a risky asset, it began a new decline along with the stock markets.

And again, geopolitics

So much has been said about geopolitics in recent weeks that I would not like to elaborate on this point. At the same time, this may continue to further reduce the demand for risky assets, which include all cryptocurrencies. Thus, any further escalation of the conflict in Donbass or Ukraine could lead to a wave of new bitcoin sales. In the coming weeks, the danger will be that the troops of the DNR and LNR may go on the offensive in order to capture all the territories of the Luhansk and Donetsk regions. And Russian troops can help them in this, which immediately entered the Donbass as soon as Putin signed a decree recognizing the independence of the LPR and DPR.

The market is negative

Despite the fact that there are still quite a few investors and analysts in the market who continue to believe in bitcoin and its growth in 2022, the mood has changed dramatically to bearish in recent months. More and more experts say that this year there is no reason to expect a renewal of last year's peak. Moreover, some predict a "crypto winter" that will last until 2025.

American economist and writer Nassim Taleb criticized bitcoin, calling it "entertainment for losers." According to Taleb, bitcoin is not really a hedging tool for either inflation or geopolitical risks. Otherwise, why at this time, when inflation is off scale, and the geopolitical situation is at its highest degree, Bitcoin is declining, Taleb wonders. "Actually bitcoin is the exact opposite," said the bestselling author of The Black Swan. Previously, Taleb has repeatedly criticized bitcoin, while noting the positive aspects of blockchain technology.



The construction of the downward trend section continues. At this time, the current wave counting takes on a five-wave form and can continue its construction with targets located near $29,117 and $26,991, which equates to 0.0% and 61.8% Fibonacci within wave e. A successful attempt to break through the $41,470 mark, which corresponds to 38.2% Fibonacci, indicates the market is ready for further sales. Thus, I expect another downward wave to be built. Considering what a difficult news background is now, this wave can be very long.

In many ways, everything will depend on how long the escalation of the conflict in Ukraine will last and how far everything will go. In the coming weeks, everything will really depend on geopolitics, and on March 15-16, the Fed will raise the rate. It's hard to come up with a worse news background for bitcoin.

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Things getting worse in Ukraine, so European market trading in red

European stock futures dropped this morning after reports that Russian troops fired missiles at a number of Ukrainian cities and landed troops on its coast. This caused a big wave of risk-off in the global market. Worries about increased inflation and the derailing of the economic recovery after the outbreak of the pandemic affected investors and resulted in German DAX index contracts down more than 5 %, EuroSTOXX futures dropped 5 % and FTSE futures down 2.8 %. While the European market is quite reliant on Russian energy products, the current political situation raised worries in other markets as well. Some Asian stocks, in particular, also fell, and U.S. index futures showed losses of around 2% later on Wall Street. Oil prices are up more than 5% and gold soared 2%.

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EUR/USD: euro explores a new reality without going to extremes, and the dollar, the mainstay of investors, gets a head start



The sparks of the geopolitical conflict simmering around Ukraine have scattered across the global market and burned the euro. At the same time, the US currency got a chance to gain a foothold in the role of a reliable asset of a "safe haven", into which investors once again "dived" into.

Many European currencies, in particular the Swedish krona, the euro, the Hungarian forint and the Polish zloty, could not withstand the geopolitical tension and sank sharply. Investors rushed to safe currencies, primarily the US, as well as the Swiss franc and the yen. In the course of large-scale risk avoidance and the search for protective assets, the greenback gained 0.9%. According to analysts, risk aversion will dominate the market in the near future. This contributes to the further strengthening of the USD, as well as other safe havens – the yen and the Swiss franc.

The massive "escape" of investors in the dollar was provoked by the intensity of the geopolitical conflict associated with the Ukrainian military operation. Market participants fear negative economic consequences and a significant tightening of sanctions rhetoric against Russian assets. Against this background, currency strategists predict a "well-coordinated movement in USD", which will continue.

The current situation has tripped up the euro, which has fallen under large-scale sales amid risk aversion. On Thursday, the EUR/USD pair was near 1.1250, but then it sank significantly. In the near future, the pair may feel bearish pressure if geopolitical tensions persist.

The euro tried to recover at the end of this week, but acted with varying success. The single currency hardly holds on to the positions it has won. A sharp geopolitical shift provoked the collapse of the EUR/USD pair from the level of 1.1300 to a new low of 1.1106, recorded in May 2020. Later, the pair slightly balanced its dynamics, rising to 1.1200. On the morning of Friday, February 25, the EUR/USD pair was trading near 1.1221, trying to get out of the downward spiral.



An additional pressure factor for the euro may be an increase in energy prices. The implementation of such a scenario will send the EUR/USD pair to the critical level of 1.1100, Danske Bank believes. An increase in the cost of energy carriers is possible in the event of a decrease in the geopolitical intensity, and this is unlikely, the bank notes.

Risk aversion, which prevails in financial markets, gives the dollar a head start. As for the European currency, it seeks to adapt to the new reality and avoid prolonged subsidence. These attempts pass with varying success. According to experts, the fair exchange rate of the euro is 1.2000. Reaching this mark in the EUR/USD pair is possible after the current US government bond placement cycle. Analysts do not rule out EUR growth after the ECB meeting scheduled for March 10.

Geopolitical turmoil has dealt a significant blow to risk appetites, but key currencies have proved resilient. In the short-term planning horizon, experts expect the recovery trend to consolidate.

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EUR/USD: the euro is looking for a lifeline, and the dollar is confidently holding the steering wheel



The US currency started the new week on the positive side, continuing the upward trend. Against the background of the steady growth of the greenback, the euro's positions are significantly shaken. The markets are afraid that the EUR will not only dive to the bottom, but will remain there indefinitely.

Earlier, experts considered an early interest rate hike by the European Central Bank to be a lifeline for the euro. The ECB was strongly advised to follow the path of the US one and raise the rate at almost every meeting. However, the escalation of the military conflict around Ukraine has made its own adjustments. At the moment, European leaders are engaged in the implementation of the next sanctions against Russia. Note that the international assets of the Bank of Russia came under attack.

The current situation has become a powerful driver of greenback growth and weakened the euro's position. On the morning of Monday, February 28, the US currency soared against the European one amid the global flight of investors from risk. The reasons are the complication of the geopolitical situation around Ukraine and the introduction of economic restrictions against Russia. The EUR/USD pair was near 1.1162, having significantly sank from the level of 1.1267 recorded at the close of the last session.



According to analysts, the greenback's rally in relation to the euro is due not only to the widespread withdrawal of investors from risk, but also to the collapse of US stock futures. On the last day of February, futures on American securities fell along with the euro, while the safe haven currencies, the dollar and the yen, became market favorites in terms of demand.

The "black swan" of geopolitics has made significant adjustments to the expectations of the Federal Reserve and ECB rate hikes by the markets. At the moment, these measures have receded into the background, although the US central bank does not intend to reconsider the tightening of monetary policy due to the Ukrainian conflict. The changes in the monetary policy should help the growth of the greenback, but the simultaneous fall of the US stock market and the stock market will turn the situation 180 degrees. With the tightening of the monetary policy, investors will massively withdraw from long US debt securities, while the US stock market will stay afloat. Such an ambiguous situation can shake the USD positions.

Currently, the US currency is supported by fears of possible negative consequences of anti-Russian sanctions. Many analysts are alarmed by the potential difficulties for the global economy due to the introduction of restrictions. Bullish sentiment on the US currency prevails among the major market players, and large investment funds are increasing their positions on USD growth for the second consecutive week. Over the past week, funds have increased greenback purchases by 3%. The strengthening of this trend contributes to the further growth of the US currency, analysts believe.

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Second round of talks between Russia and Ukraine to be held in coming days. Dollar to stay in demand globally



Demand for safe-haven assets is set to remain strong in the near future. Gold prices are on the rise. Nevertheless, the US dollar briefly retraced down on Monday, while market players were awaiting the outcome of the Russia-Ukraine talks. The talks are unlikely to resolve the conflict, but the willingness of the parties to negotiate has somewhat eased fears in the market. In the coming days, Russia and Ukraine are expected to hold the second round of talks. Officials from both sides returned to their capitals for further consultations.

"We have identified certain points from which we can predict general positions," Vladimir Medinsky, the delegate from Russia, said. A similar announcement was made by Mykhailo Podolyak, Ukraine's presidential advisor.

Meanwhile, the dollar rally is expected to extend. Global demand for the greenback, as well as other safe-have assets, remains strong due to both geopolitical risks and stressed dollar liquidity conditions.

"As such we will keep a close eye on the cross-currency basis swap market for any kinds of stress as well as seeing whether there is any increased demand for dollar liquidity at e.g. the ECB 7-day USD auction," economists at ING said.

DXY is heading back to the high at 97.70 and could break higher still.



"Euro losses have been relatively well contained so far," according to ING. Russia, the United States, and the European Union are now waging an information war. They impose sanctions, threaten, and accuse each other.

Although Europe relies heavily on energy, there have already been some reports of it looking at quotas and limits on Russian energy. Clearly, Europe would have to pay a lot higher price for its energy under such a scenario, and growth forecasts would have to be downgraded.

On Monday, the euro/dollar pair retested the low of 1.1120. Barring any surprise breakthrough in Ukraine-Russia talks, EUR/USD might hit 1.1000 this week.



This week promises to be full of not only political but also macroeconomic events. The eurozone CPI for February is scheduled for Wednesday. In France, the CPI came in higher unexpectedly. But given the events in the east, the ECB is likely to become more hawkish if the eurozone CPI comes in stronger. Bearish bias for EUR/USD continues.

Some analysts anticipate monetary policy tightening in the eurozone. The euro could strengthen on expectations of a rate hike by the ECB, Societe Generale said. The European regulator would raise rates by 25 basis points, experts forecast. The next ECB meeting is scheduled for March 10.

Data on US unemployment could somewhat affect EUR/USD by the close of the week. The figure is estimated to drop to 3.9% versus 4%, while Nonfarm Payrolls are seen to increase by 438K.

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EUR/USD: the dollar saves from risks, and the euro needs an energy "crutch"



The current uncertainty of the geopolitical conflict around Ukraine has significantly shaken the EUR/USD pair. The weather vane of its dynamics deviated from the sharp drop caused by the collapse of the euro, but it is far from equilibrium.

On Wednesday, the European currency experienced serious pressure amid the escalation of the Ukrainian conflict. The rise in oil prices added fuel to the fire, increasing investors' worries about an economic blow to the eurozone. The single currency slipped below the support level, reaching a 21-month low of 1.1090, but then recovered. The euro was in the 1.1130-1.1131 range at the beginning of trade. The EUR/USD pair was cruising near 1.1114 on Wednesday morning, March 2, trying to get out of the price hole.



According to analysts, the prospects of the European currency are related to the energy security of Europe. A positive solution to the gas issue and the settlement of LNG supplies will help the euro to rise. If the euro fails, a thorny path is provided, analysts believe. According to analysts at Commonwealth Bank of Australia, the risk for EUR "lies in a steady movement below 1.1106 if market participants lower the economic prospects of the eurozone."

Geopolitical passions are boiling in the markets, but many are confident that they do not threaten the dynamics of the euro. Market participants fear disruptions in energy supplies, which worsen the economic situation of the eurozone. The current stability of the euro is ensured by the balanced approach of European leaders to the introduction of anti-Russian sanctions. According to experts, Europe will not impose restrictions that will block its access to Russian energy carriers. In addition, the "green" strategy of European leaders has seen a 180-degree turn. Many EU countries refuse to use "green" technologies in favor of LNG, and are also not ready to reduce coal consumption. Against this background, the impact of the Ukrainian conflict on the economic growth of the eurozone is minimal, experts believe.

Economists are seriously concerned about the intensification of the global humanitarian crisis. In conditions of economic uncertainty, the dollar comes on the scene. Experts attach key importance to the US currency when protecting investment portfolios. UBS currency strategists believe that the greenback as a safe haven currency has a number of advantages and high stability in times of crisis. At the same time, the greenback shows a tendency to rally at times of increased geopolitical uncertainty or risk-free sentiment in financial markets. UBS is confident that market expectations about a sevenfold rise in US interest rates will support USD in the coming months. The greenback is currently the most attractive tool for currency transactions.

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