9 May 2022 Weekly Analysis
GCMAsia Weekly Report: May 9 – 13
Market Review (Forex): May 2 – 6
US Dollar
The Dollar Index which traded against a basket of six major currencies received significant bullish momentum last week amid the backdrop of concerns for inflation risk from the market, which prompting investors to shift their capitals toward US Dollar. The Dollar Index has closed its market price at 103.68.
Last week, the US Dollar index extended its gains following the soaring inflation risk which caused by Russia invasion of Ukraine, which led to the disruption of global supply chain. According to Reuters, investor sentiment cratered in the face of concerns that the Federal Reserve’s interest rate hike on the previous day would not be enough to combat surging inflation, which hinted that the market participants are expecting another aggressive rate hike from Fed in the next FOMC meetings in order to hedge with inflation risk. The rate hike decision from Fed would likely to increase the risk-free return of investors, sparkling the appeal for the US Dollar. Besides, as investors concern about the negative impacts of inflation risk, it dialed up the market optimism toward the safe-haven assets such as US Dollar, prompting investors to shift their capitals toward US Dollar which having better prospects. On the other hand, according to Bureau of Labor Statistics, US Nonfarm Payrolls recorded at the reading of 428K, exceeding the market forecast of 391K. Nonfarm Payrolls measures the change in the number of people employed during the previous month, which excluding the farming industry. The higher than expected reading indicates that there are more people are employed in US, which brought positive prospects toward economic progression in US.
Nonetheless, the gains of US Dollar was limited following the dovish tone from Federal Reserve. According to Reuters, Federal Reserve Chairman Jerome Powell played down the prospect of a 75 basis point rate hike, even as he said the US central bank will act aggressively to stamp out inflation. The diminishing of rate hike from Fed would likely to reduce the risk-free return of investors, stoked a shift sentiment toward other currencies which having better prospects. Nonetheless, he reiterated that additional 50 basis point jumps should be on the table for the next couple of meetings.
USD/JPY
The pair of USD/JPY extended its gains last week while closing its market price at 130.57. The pairing received bullish momentum amid the backdrop of Bank of Japan (BoJ) remained its dovish tone, as it was committed to keeping monetary policy loose. BoJ had applied a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank. Rather than introducing flexibility to its monetary policy, the central bank in a statement reiterated its commitment to the 10-year yield target, saying it will conduct an unlimited fixed-rate operation to buy 10-year Japanese government bonds at 0.25% every day. Besides, the rate hike from Federal Reserve had dialed up the market optimism toward US Dollar, prompting investors to purchase US Dollar which having better prospects and selloff Japanese Yen.
EUR/USD
The pair of EUR/USD edged down last week while closing its market price at 1.0548. The Euro received bearish momentum following the European Central Bank (ECB) did not rush to make rate hike decision. According to Reuters, Fabio Panetta has remained doggedly reluctant to tighten policy in recent months, despite a surge in inflation that has hit its highest since the single currency was introduced, as an energy price shock has hit the Eurozone economy still awash with liquidity after a decade of generous monetary policy. The dovish tone from ECB had stoked a shift sentiment toward other currencies such as US Dollar. On the other hand, the spike of commodities price such as crude oil had dialed down the market optimism toward Euro. As Europe was one of the dependent on the commodities, the surge of commodities price would cause the Europe companies’ import cost to soar, which may lead to the disruption of economic progression in Europe region, spurring further bearish momentum on the pair.
GBP/USD
The pair of GBP/USD slumped last week while ending last week session at the price of 1.2346. The Pound received bearish momentum last week over the concerns for stagflation risk in UK region, despite of the Bank of England (BoE) decided to increase interest rate for 25 basic point. Last week, the BoE appeared a fact that the economy of UK was facing the recession. Annual UK inflation hit a 30-year high of 7% in March, exceeding the BoE target level as food and energy prices continue to surged significantly. UK Consumer confidence, meanwhile plunged to a near record low in April amid negative prospect for economic growth. For now, BoE expected that UK inflation would likely to rise to roughly 10% this year as a result of Russia-Ukraine war and lockdowns in China, which spurring further concerns on supply disruption.
Market Review (Commodities): May 2– 6
GOLD
Gold price depreciated last week while closing its market price at $1882.80 per troy ounces. Gold price received bearish momentum last week following the strengthening US Dollar. The rate hike decision from Federal Reserve would likely to diminish US Dollar circulation in the market, dialed up the market optimism toward US Dollar. Besides, the rate hike decision had led to the surge of US 10-year Treasury yield, prompting investors to selloff volatile assets such as gold and purchase risk-off assets such as US Treasury Bill.
CrudeOIL
Crude oil price surged while ending last week session at the price of $110.61 per barrel. Crude oil price received bullish momentum over the backdrop of European Union (EU) proposed a phase of sanction on Russia oil. According to CNBC, the European Commission, the executive arm of the EU had appeared a statement on 4 May, which claimed that they put forward new sanctions against the Kremlin, which will include a six-month phase out of Russian crude imports. The implementation of sanction from EU would diminish the oil circulation in the market, causing the crude oil price to surge. Besides, OPEC+ appeared a speech that there was no additional oil supply to Europe to replace sanctioned Russian barrels, spurring further bullish momentum on the oil price.
Weekly Outlook: May 9 – 13
For the week ahead, investors would continue to focus on crucial economic data such as the Initial Jobless Claims and Fed monetary policy decision this week in order to determine further direction. Besides that, the ongoing situation with Ukraine-Russia war will also be in the eyes of investors.
As for oil traders, they will be eyeing on US inventories level reported by API and EIA to gauge the strength of crude demand for world’s largest oil consumer.
Highlighted economy data and events for the week: May 9 – 13
| Time | Market | Event | Actual | Forecast | Previous |
| Monday – 9th May 2022 | |||||
| N/A | |||||
| Tuseday – 10th May 2022 | |||||
| 17:00 | EUR | German ZEW Economic Sentiment (May) | – | -42.5 | -41.0 |
| Wednesday – 11th May 2022 | |||||
| 00:00 | USD | EIA Short-Term Energy Outlook | – | – | – |
| 16:00 | EUR | ECB President Lagarde Speaks | – | – | – |
| 20:30 | USD | Core CPI (MoM) (Apr) | – | 0.4% | 0.3% |
| 22:00 | USD | CPI (MoM) (Apr) | – | 0.2% | 1.2% |
| 22:30 | USD | Crude Oil Inventories | – | -0.829M | 1.302M |
| Thursday – 12th May 2022 | |||||
| 14:00 | GBP | GDP (QoQ) (Q1) | – | 1.0% | 1.3% |
| 14:00 | GBP | Manufacturing Production (MoM) (Mar) | – | -0.5% | -0.4% |
| 20:30 | USD | Initial Jobless Claims | – | 194K | 200K |
| 20:30 | USD | PPI (MoM) (Apr) | – | 0.5% | 1.4% |
| Friday – 13th May 2022 | |||||
| 22:00 | USD | Michigan Consumer Sentiment (May) | – | 64.0 | 65.2 |
Risk Statement:
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