13.02.23 - 17.02.22
Results of the previous week
US indices traded mixed last week. Paradoxically, pressure on the indices came from positive fundamentals out of the US. Reports indicated that the US economy was quite stable, but inflation isn't slowing down as expected. It strengthens fears that the US Federal Reserve will continue raising its key rate to combat price pressure.
The US dollar was buoyed by positive fundamentals. Rising retail sales, fairly high price pressure and falling jobless claims reinforced expectations that the US Federal Reserve will continue to raise its the fed funds rate to a peak value of over 5% in July. As a result, the US dollar was able to strengthen against most of its key competitors.
Brent still failed to pass the resistance level at $87.00. As a result, energy prices declined slightly during the week. Expectations of a supply-demand balance remain a hot topic. And last week, there was an alarming signal in the form of a sharp rise in US crude reserves. Against a forecast increase of 2 million barrels, the reserves actually rose by 16.28 million barrels.
Key events of the current week
Germany. ZEW Indicator of Economic Sentiment
The German economy is slowing down while inflation keeps growing at a way slower pace than expected. The European Central Bank continues raising interest rates. But apparently, the fact that high price pressures and sufficiently tight monetary policy by the regulator have not sent the German economy into a deep recession supports a somewhat optimistic mood. According to the latest data, the ZEW Indicator of Economic Sentiment reflected a rise in optimism against expectations. And it's forecasted to maintain the positive trend. This change in sentiment is probably due to the warm winter and the energy shortages that European countries managed to avoid. If the report meets the expectations,EUR/USD could return to the 1.0820 mark.
The US. US Federal Reserve meeting minutes
The US Federal Reserve raised its interest rate by just 0.25% at its last meeting. This might be a sign of less aggressive sentiment compared to steps already taken. It's worth noting that the head of the US regulator has made it clear that they'll continue to raise the rate if necessary. The latest US inflation data showed a slight ease in price pressure, but it wasn't as significant as expected. Therefore, in the meeting minutes, markets will be looking for hints as to what the regulator's next move will be. So if the Fed isn't hawkish enough, this could support stock indices in the short term.The S&P 500 could aim to return to around 4200.00.
The US. University of Michigan Consumer Sentiment Index
US inflation is gradually slowing down. The US labour market is quite stable. The country's unemployment rate is at its 50-year low, and new jobs continue to be created in the economy. In addition, there are forecasts that the US economy will avoid a hard landing. Altogether, these factors form rather positive consumer sentiment. Americans' confidence in the future is gradually growing. If the report is in line with or better than the forecast, the dollar will receive support. In such a scenario, we could see GBP/USD continue moving downward to 1.1800.