March 26, 2023
Inflation! The main Market driver!
Hot Forex Review

Inflation! The main Market driver!

Last week most markets closed lower, and US 10-year bond Yields rose towards 4%, while this week, eyes will be on EU inflation numbers.

Last Friday, the January US core PCE price index recorded 4.7% year-on-year, above the 4.3% market estimate and 4.6% in December. On the monthly scale, prices rose by 0.6%, exceeding market expectations and the previous value of 0.4%. In addition, PCE price growth in January at 5.4% was higher than 5% of market expectations and 5.3% in December. Besides that, the final value of the University of Michigan consumer confidence index in February increased for the third consecutive month to 67.

The above data reflect that the US economy is still strong, and inflation has remained stubborn. These data mean that Fed can keep raising interest rates. The market reacted by raising rates. The US 10-year bond yields are rising towards 4%, and the USD is rising above 105 to hold pressures on the Stock Markets.

After ending lower last week in Europe, following the negative lead on Wall Street data, the stock market started the week with a desire for growth. However, inflation will be the key issue in Europe this week. Preliminary CPI numbers for February from Germany, France, and Spain are due on Tuesday and Wednesday, and then the flash number for the whole Eurozone will be on Thursday. No matter what these data say, the 50-basis point rate hike is likely, but the question will be the ECB’s outlook for the next moves and rate hikes. Currently, market pricing in another 75 basis points rate hike in the Eurozone before the end of the summer.

While with mentioned data, we expect USD to grow further, but Euro also will get more in demand with the expected hawkish decision, especially knowing that ECB, for now, can be even more hawkish than other central banks. Therefore, range trading between 1.04 and 1.08 seems more likely, with strong resistance at 1.12 and key support at 1.02.

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