27 February 2023 Weekly Analysis
GCMAsia Weekly Report: February 27 – March 3
Market Review (Forex): February 20 – 24
US Dollar
The Dollar Index which traded against a basket of six major currencies extended its gains throughout the past one week as the Federal Reserve signaled further rate hike in the future, which sparkling the appeal of US Dollar. The Dollar Index has closed its market price at 105.11.
Last week, the dollar index received significant bullish momentum after Fed released its meeting minutes. Earlier of the week, Fed has unleashed its meeting minutes from the Fed’s Jan 31 to Feb 1 meeting. Fed approved a-quarter-of-percentage rate hike during the last meeting, whereby bringing its interest rate to 4.5% – 4.75%, due to the Federal Reserve Chairman Jerome Powell acknowledged that the inflationary risk was easing. However, some of the members were sticking to their guns as well as suggesting the central bank to hike further rates, and the reason drive them to do this is the inflation rate still well above the Fed’s 2% target. With that, the threat of inflation still remained. Since that meeting, Presidents James Bullard of St. Louis and Loretta Mester of Cleveland have said they were among the group that wanted the more aggressive move. On the other hand, the another inflationary data, US Core PCE Price Index raised in January, which suggesting Fed to implement another monetary policy tightening in the upcoming meeting.
Though, the gains experienced by the Dollar Index was limited following the downbeat economic data. According to Bureau of Economic Analysis, the US Gross Domestic Product (GDP) QoQ for fourth quarter notched down from the previous reading of 3.2% to 2.7%, missing the market forecast of 2.9%. The slow down of economic growth was proving the side effect of aggressive tightening policy. Apart from that, investors would also scrutinize the latest updates with regards of Russia-Ukraine tensions in order to gauge the likelihood movement of US Dollar.
USD/JPY
The pair of USD/JPY was rose significantly last week while closing its market price at 136.40. The pairing received significant bullish momentum following the strengthening of US Dollar. With the backdrop of US inflation risk heightened, market participants were anticipating a higher rate increase would likely to be implemented by Fed, which dragged down the value of Japanese Yen indirectly. On the other hand, USD/JPY was expected to remain its upward movement as the ultra-low interest rate policy from BoJ was expected to be continued. On the economic data front, the losses of Yen was limited following the positive servicing data. The Japan Services Purchasing Managers’ Index (PMI) increased from prior 52.3 to 53.6.
EUR/USD
The pair of EUR/USD depreciated last week while closing its market price at 1.0553. The EURUSD received significant bearish momentum following the easing of inflation risk in the Eurozone. According to Eurostat, the Eurozone Consumer Price Index (CPI) YoY slide from the previous 9.2% to 8.6%, indicating the slip of goods and services price in the Europe countries. However, ECB still remained its hawkish stance by suggesting a hefty rate hike in the March meeting. According to Reuters, member of the Governing Council of the ECB, Joachim Nagel claimed on last week that the central bank has necessary to raise interest rate more aggressive in order to restore price stability. Currently, there was a high probability that ECB hike its rate by 50 basis point, while part of market participants were speculating a third-quarter-of-percentage.
GBP/USD
The pair of GBP/USD dived last week while ending last week session at the price of 1.1944. Earlier of the week, the Pound Sterling received significant bullish momentum following the bullish economic data. According to the data from Markit Economic, UK manufacturing PMI data grew by 2.2 points to the level of 49.2, while services PMI grew by 4.1 points to the level of 53.3. The overall Composite PMI stood at 53.0, which topped the market expectation at 49.0. The data results indicated that the UK economy has gotten rid from contraction as it reduced investors’ worries over the recession of the UK economy. Nonetheless, the GBPUSD has retreated from its previous gains following the appreciation of US Dollar, with the aggressive rate hike expectation. Furthermore, the Bank of England (BoE) had forecasted that the inflation in the UK would be cooled by this year, whereas decreasing the odds of continuous rate hike plan.
Market Review (Commodities): February 20 – 24
GOLD
Gold prices slumped while closing its market price at $1811.13 per troy ounces. With the background of rising inflation in the US, it might prompt Fed to implement another hefty rate hike again in the upcoming meeting, which led the gold price to drop further. In addition, the rising tensions between Russia-Ukraine had also brought further bearish momentum toward this yellow-metal. Last week, the US President Joe Biden was meeting with Ukraine President Volodymyr Zelenskyy to reaffirm unwavering and unflagging commitment to Ukraine’s democracy, sovereignty, and territorial integrity, according to CNBC. With that, Russia President Vladimir Putin claimed on the next day that the country was suspending a landmark nuclear arms control treaty, and the new strategic systems had been put on combat duty. With such background, it stoked a shift in sentiment toward safe-haven dollar.
CrudeOIL
Crude oil prices edged down while ending last week session at the price of $76.47 per barrel. The oil price received significant bearish momentum during last week over the rising concerns of aggressive rate hike from Fed. The US Core PCE Price Index MoM in January notched up from the previous reading of 0.4% to 0.6%, showing the inflation risk started rising again. In order to cool down the red-hot inflation, Fed might stick to its aggressive rate hike path. However, the tightening monetary policy would threaten the US economy, which beaten down the demand of oil. Moreover, the stockpiles showed in the US crude oil inventories had extended the losses of oi price. According to EIA, the US Crude Oil Inventories raised by 7.648M barrels, exceeding the market forecast of 2.083M barrels. Though, the oil price found its ground following the Russia planned to reduce its oil exports to western countries by up to 25% in order to cope with the sanctions from EU.
Weekly Outlook: February 27 – March 3
For the week ahead, investors would continue to focus on crucial economic data such as US ISM Manufacturing PMI data 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: February 27 – March 3
| Time | Marekt | Event | Actual | Forecast | Previous |
| Monday – 27th February 2023 | |||||
| 21:30 | USD | Core Durable Goods Orders (MoM) (Jan) | – | 0.1% | -0.2% |
| 23:00 | USD | Pending Home Sales (MoM) (Jan) | – | 1.0% | 2.5% |
| Tuesday – 28th February 2023 | |||||
| 08:30 | AUD | Retail Sales (MoM) (Jan) | – | 1.2% | -3.9% |
| 21:30 | CAD | GDP (MoM) (Dec) | – | 0.1% | 0.1% |
| 23:00 | USD | CB Consumer Confidence (Feb) | – | 108.5 | 107.1 |
| Wednesday – 1st March 2023 | |||||
| 05:30 | CrudeOIL | API Weekly Crude Oil Stock | – | – | 9.895M |
| 08:30 | AUD | GDP (QoQ) (Q4) | – | 0.9% | 0.6% |
| 09:30 | CNY | Manufacturing PMI (Feb) | – | 49.8 | 50.1 |
| 09:30 | CNY | Caixin Manufacturing PMI (Feb) | – | 51.3 | 49.2 |
| 16:55 | EUR | German Manufacturing PMI (Feb) | – | 46.5 | 46.5 |
| 16:55 | EUR | German Unemployment Change | – | 9K | -15K |
| 17:30 | GBP | Manufacturing PMI (Feb) | – | 49.2 | 49.2 |
| 18:00 | GBP | BoE Gov Bailey Speaks | – | – | – |
| 21:00 | EUR | German CPI (YoY) (Feb) | – | 8.7% | 8.7% |
| 23:00 | USD | ISM Manufacturing PMI (Feb) | – | 48.0 | 47.4 |
| 23:30 | CrudeOIL | Crude Oil Inventories | – | – | 7.648M |
| Thursday – 2nd March 2023 | |||||
| 18:00 | EUR | CPI (YoY) (Feb) | – | 8.2% | 8.6% |
| 20:30 | EUR | ECB Publishes Account of Monetary Policy Meeting | – | – | – |
| 21:30 | USD | Initial Jobless Claims | – | 197K | 192K |
| Friday – 3rd March 2023 | |||||
| 17:30 | GBP | Composite PMI (Feb) | – | 53.0 | 53.0 |
| 17:30 | GBP | Services PMI (Feb) | – | 53.3 | 53.3 |
| 23:00 | USD | ISM Non-Manufacturing PMI (Feb) | – | 54.5 | 55.2 |
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