This article was submitted by Michael Stark, market analyst at Exness.
Many stock markets started the week somewhat nervously as commodities generally made gains and the war in Ukraine intensified over the weekend. The key release this week for forex markets is British inflation on Wednesday. This preview of weekly data looks at GBPUSD and EURZAR.
Both the Fed and the Bank of England raised rates last week as widely expected, with both also committing to tackle inflation this year. The Fed indicated as many as six rate hikes in total during 2022, while the Bank of England was somewhat more cautious. The uncertainty resulting from the war has made the positions of central banks more difficult because, although inflation is very high and likely to rise further in many countries, the outlook for economic growth around the world seems less optimistic.
Focus is also on the South African Reserve Bank this week, which is expected to hike its repurchase rate to 4.25%. The central banks of Hungary, Switzerland, Norway and Mexico are also expected to meet this week, with tightening or at least tapering looking likely for most.
The most important regular release this week is British annual inflation, core and non-core, on Wednesday morning GMT. Traders are also looking ahead to South African inflation and various German and British releases later in the week. The European Council’s meeting on Wednesday night is unlikely to have a clear, direct influence on the proposed ban on imports of Russian oil to the bloc; however, it could inform sentiment on crude in the short term.
Cable (GBPUSD), daily
The Bank of England’s hawkish tone was less clear last week as one member of the Monetary Policy Committee dissented against the rate hike and there were no votes for a two-step hike. The MPC now sees inflation rising to more than 7% in April, up from expectations of about 5.5%, given the impact of the war in Ukraine. Although Russia is not a major trade partner of the UK, the knock-on effect on the price of crude oil is important for the UK given how much of the commodity it imports. Positive news for the dollar recently includes Jerome Powell’s comments late last week that the Fed would use two-step hikes as necessary as he reiterated the American central bank’s commitment to fighting inflation.
On the chart, a further leg down doesn’t seem immediately likely given the strength of the 100% weekly Fibonacci retracement around $1.307. This area represents full retracement of all the pound’s losses late in Q1 2020. However, the 50 SMA from Bands has recently death crossed the 100, so a phase of clear gains above the moving averages doesn’t look favourable either for now.
The key event to drive the price of cable this week is British inflation tomorrow morning at 7.00 GMT. While the figures are for February so the impact of the war on them would be low, a higher than expected figure would suggest a more aggressive response by the BoE in Q2. Traders will also look closely at British flash PMIs on Thursday then consumer confidence and retail sales on Friday morning. This is a very active week of data for sterling so significant intraday movements can probably be expected.
Key data this week
Bold indicates the most important releases for this symbol.
Rising prices of precious metals, notably gold, have been very positive for the rand since the start of this phase of the Russo-Ukrainian war given the significance of such commodities among South Africa’s exports. The South African Reserve Bank is also widely expected to hike its base rate by 0.25% this week, which would take it to 4.25%. Recurring negative factors like very high unemployment and problems with domestic infrastructure, especially power, remain.
For the euro, participants seem to be pricing in at least two single-step rate hikes this year and possibly another smaller hike on 14 April. The euro seems clearly to have more room to fall compared to the rand on war-related developments in the near future given the eurozone’s heavy dependence on Russian energy exports.
The thick red line at the bottom of the chart represents the low in early June last year. If this is broken to the downside, one would expect continuation lower, possibly toward R16. However, with ATR having dropped to around R0.20 and oversold or near-oversold conditions persisting throughout March so far, consolidation seems to be favourable in the immediate future unless markets receive a significant surprise on Thursday.
Key data this week
Bold indicates the most important releases for this symbol.
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.
