Forex Fundamental Analysis February 26 ~ March 3, 2023

We don’t have many high-impact releases scheduled for the week, but we must not let our guard down, as the market could turn on a dime.

Tradable news events of the week:

CAD GDP m/m refers to the month-over-month change in Canada’s Gross Domestic Product (GDP). It measures the percentage increase or decrease in the value of goods and services produced by Canada’s economy over a specific month compared to the previous month.

AU CPI y/y is the year-over-year change in Australia’s Consumer Price Index (CPI). It measures the percentage increase or decrease in the average price of a basket of goods and services consumed by households in Australia over a specific year compared to the same period in the previous year. The CPI is an important indicator of inflation and can impact monetary policy decisions made by the Reserve Bank of Australia.

Weekly Forex Fundamental Summary

After a brief holiday break, US investors returned to the stock market with their attention again on global politics. President Biden’s unexpected visit to Kyiv set off a series of events and news headlines from both sides in the lead-up to the first anniversary of Russia’s invasion of Ukraine. Despite diplomatic efforts, tensions remained high, and ultimately, Western countries imposed new sanctions, tariffs, and aid rounds in response.

Meanwhile, Chinese officials visited Moscow at a senior level, raising questions about Beijing’s intentions in the conflict. Some speculated that China might act as a peace broker or an arms dealer in the ongoing situation. These developments have significant implications for international relations and could impact financial markets in various ways as we advance.

Despite efforts to rebound, stock markets faced challenges due to the ongoing rise in interest rates. Economic data and signals from central bankers have supported the notion that rates will remain elevated for an extended period, which has been a difficult adjustment for investors following stronger-than-anticipated January data.

On Friday, this trend reached a culmination point when the S&P index fell to its lowest level around a month after January’s PCE data came in higher than expected. The core PCE reading rose by 0.6% month-over-month, marking the largest increase since August. A significant contribution comes from non-housing service prices, which Chair Powell recently highlighted. This sub-index showed an increase of nearly 0.6%, its highest gain since November 2021, indicating that this significant component of core inflation has yet to show any signs of slowing down.

Following this news, the US 2-year yield surpassed 4.8%, while futures markets began pricing in a terminal fed funds rate exceeding 5.4% later this year. As a result, the dollar saw one of its best performances in roughly two months, while commodities and other risk assets weakened towards the end of last week.

Overall, it was not a good week for stocks as the S&P lost 2.7%, DJIA declined by 3%, and Nasdaq fell by 3.3%. These developments highlight how sensitive financial markets remain to shifts in economic indicators and central bank policy decisions, which can have significant implications for investors’ portfolios and financial planning strategies.

In other notable events this week, the tension between growth and inflation was evident in corporate news as several major companies reported their financial results. Discount retailer Dollar General, typically known for thriving during economic downturns, announced that it had cut its quarterly guidance due to bad winter weather.

Meanwhile, Walmart exceeded analyst expectations and reported that it was managing capital expenditure costs while attracting more affluent customers looking for deals. However, Home Depot’s numbers were less impressive as the company reported a 6% decline in customer transactions and guided a decline in earnings for the year ahead, which could signal further weakness in the housing market.

On the other hand, homebuilder Toll Brothers reported strong quarterly results and affirmed their guidance, indicating that demand has continued to increase even as recently as last weekend.

In the tech industry, cybersecurity firm Palo Alto Networks also announced robust quarterly results and solid guidance, which increased its shares. However, Intel continued to struggle and cut its dividend by two-thirds despite affirming its guidance.

In another development within the tech industry, Adobe’s shares fell to their lowest levels of 2023 after reports emerged that the Department of Justice (DOJ) is preparing to file a lawsuit blocking its $20B acquisition of Figma. This news highlights how regulatory scrutiny can impact companies’ performance and investors’ sentiment toward them.

These developments demonstrate how various factors, such as weather conditions and regulatory actions, can impact companies across different industries differently. Therefore, investors must keep track of these developments carefully to make informed investment decisions.

Sentiment Forecast

USD continued to strengthen last week, outperforming other major currencies, setting the stage for further gains if the Feds remain hawkish. I’d not recommend going long on USD for the time being, but I may trade the ranges on the dip, which is probably the best course of action for the time being.

As for other majors, I’d focus on both AUD and CAD for the news trading but stay away from them during other sessions.

EUR and GBP are likely to remain range-bound. I would sell on rallies and buy on dips for the week, as the NFP next week will probably be the main focus for the new month.

JPY is weakening and may continue as the new BOJ governor takes office at the central bank. However, with a strong dollar and weak JPY, USDJPY could remain upward for quite some time.