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24 January 2022                                 Weekly Analysis

GCMAsia Weekly Report: January 24 – 28

Market Review (Forex): January 17 – 21

US Dollar

The Dollar Index which traded against a basket of six major currency pairs extend its gains last week as investors gears up for upcoming Federal Reserve meeting due this week. Market participants remained optimism that the Federal Reserve will start to tighten monetary policy to combat the high inflation risk, prompting the US Treasury yield to rise into 2 years high around 1.88% last week while spurring bullish momentum for the US Dollar. The Dollar Index has ended last week session at the price of 95.65.

 

Earlier, several Monetary Policy Committee (MPC) from Fed such as John Williams and Mary Daiy grumbles over high inflationary pressure and calls for more action to be done in order to stabilize the inflation risk. Recent spiking numbers of Omicron variant as well as raising oil price due to global supply constrains had lifted up the inflation risk in future. They also reiterated that the current monetary policy approach is still insufficient and urged for a change in order to control the price of goods. Though, investors are still waiting for crucial Federal Reserve meeting in this week for more clarity on the outlook for rate hikes in short-term basis. The hawkish expectation for the Fed to tighten the monetary policy at faster pace than previously anticipated will diminish the money circulation in the US financial market, spurring bullish momentum for the US Dollar. Market participants are currently pricing in as many as four times rate hikes in the year of 2022 while expecting the Fed to start trimming its $8 trillion-plus balance sheet within months.

 

On the economic data front, the overall crucial data from United States came in at mixed reading. On positive note, US Building Permits and US Philadelphia Fed Manufacturing Index came in at 1.873M and 23.2, which both fared better than expectation at 1.701M and 20.0 respectively. Though, the gains experienced by the US Dollar was limited by bearish job data. According to Department of Labor, US Initial Jobless Claims came in at 286K, worse than the market forecast at 220K. Nonetheless, investors would continue to scrutinize the latest updates with regards of further economic data as well as monetary policy decision from Fed to gauge the likelihood movement for the US Dollar.

 

USD/JPY

The pair of USD/JPY received bearish on last week amid appreciation of Japanese Yen while ending last Friday session at the price of 113.65. The overall bearish momentum for the USD/JPY was mainly due to the appreciation of the safe-haven Japanese Yen. The recent escalating fears of a Russian invasion of Ukraine had stoked a shift in sentiment toward the safe-haven currency, spurring bullish momentum for the Japanese Yen. Besides, the Japanese Yen extend its gains over the backdrop of bullish economic data. The Japan’s Jibun Bank Manufacturing PMI increased from the previous reading of 54.3 to 54.6, hitting a four-year high.

 

EUR/USD

The pair of EUR/USD slumped throughout the week while ending last week session at the price of 1.1325. The overall momentum for the Euro remained bearish following the European Central Bank unleashed their dovish tone upon the recent rising inflation rate. According to the meeting minutes from ECB, several Monetary Policy Committee (MPC) has voiced out their views that current spiking number of inflation rate is only temporary and will likely to decline throughout the year of 2022. Following the release of meeting minutes, ECB President Christine Lagarde claimed that it is still too early to initiate a rate hike as it may jeopardize economic recovery momentum. The high inflation risk in future together with the expansionary monetary policy would likely to diminish the purchasing power in EU countries, spurring negative prospect toward the economic progression in the European Union while dragging down the appeal for Euro.

 

GBP/USD

The pair of GBP/USD depreciated last week while closing its market price at 1.3555. The Pound Sterling slumped over the backdrop of bearish economic data on last Friday, dialed down the market optimism toward the economic progression in the United Kingdom. According to Office for National Statistics, UK Retail Sales for last month notched down significantly from the previous reading of 1.0% to -3.7%, missing the market forecast at -0.6%. Nonetheless, economist still predicted that the Bank of England was still likely to increase the interest rates for a second time in two months in February in order to combat the high inflation rate. According to the latest inflation data, British consumer price inflation had hit a nearly 30-year high of 5.4% for the year of 2021. Rising energy prices and labor cost due to supply constraint had continue to increase the inflation risk in future. Nonetheless, investors would continue to scrutinize the latest updates with regards of the monetary policy decision to gauge the likelihood movement for the Pound Sterling.

 

Market Review (Commodities): January 17 – 21

GOLD

Gold price was traded flat last week with the price of $1835.55 per troy ounce ahead of Federal Reserve meeting for further confirmation on its interest rate hike path. As for now, market participants speculated the Fed will start to tighten monetary policy at a much faster pace than thought a month ago to combat persistently high inflation rate. Investors would continue to scrutinize the US Central Bank’s Federal Open Market Committee (FOMC) meeting due Tuesday and Wednesday to receive further trading signal. Though, the concerns over high inflation rate and rising geopolitical tensions between Russia and Ukraine had diminished the risk appetite in the global financial market, increasing the appeal for the safe-haven gold.

 

CrudeOIL

The price of crude oil surged last week while closing last Friday session with the price of $83.68 per barrel. The crude oil price extends its gain amid rising geopolitical tensions in Eastern Europe and the Middle East had heightened concerns for the supply disruption in future, while OPEC and its allies continued to struggle to raise their output due to lack of capacity. Nonetheless, the gains experienced by the crude oil was limited by the bearish inventory data. According to Energy Information Administration (EIA), US Crude Oil Inventories came in at 0.515M, missing the market forecast at -0.938M.

 

Weekly Outlook: January 24 – 28

For the week ahead, investors would continue to focus on crucial economic data such as the Initial Jobless Claims and inflation data this week in order to determine further direction. Besides that, the ongoing situation with coronavirus 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: January 24 – 28

Time Market Event Actual Forecast Previous
Monday – 24th January 2022
16:30   EUR German Manufacturing PMI (Jan) 57 57.4
17:30   GBP Composite PMI 53.6
17:30   GBP Manufacturing PMI 57.7 57.9
17:30   GBP Services PMI 53.9 53.6
Tuesday – 25th January 2022
8:30   AUD CPI (QoQ) (Q4) 1.00% 0.80%
17:00   EUR German Ifo Business Climate Index (Jan) 94.7 94.7
23:00   USD CB Consumer Confidence (Jan) 111.8 115.8
Wednesday– 26th January 2022
23:00   USD New Home Sales (Dec) 760K 744K
23:00   CAD BoC Monetary Policy Report
23:00   CAD BoC Interest Rate Decision 0.25% 0.25%
23:30   CrudeOIL Crude Oil Inventories 0.515M
23:30   CAD BOC Press Conference
Thusday – 27th January 2022
3:00   USD FOMC Statement
3:00   USD Fed Interest Rate Decision 0.25% 0.25%
3:30   USD FOMC Press Conference
5:45   NZD CPI (QoQ) (Q4) 1.20% 2.20%
21:30   USD Core Durable Goods Orders (MoM) (Dec) 0.40% 0.80%
21:30   USD GDP (QoQ) (Q4) 5.40% 2.30%
21:30   USD Initial Jobless Claims 255K 286K
23:00   USD Pending Home Sales (MoM) (Dec) 0.30% -2.20%
Friday – 28th January 2022
17:00 EUR German GDP (QoQ) (Q4) -0.20% 1.70%