Forex Fundamental Analysis March 26~ 31, 2023

This week, we are preparing for only three releases that could significantly impact the market. But with current forex fundamental analysis and with the end of this quarter in sight, traders may make abrupt moves to close positions and take profits ahead of Friday’s closing bell. So, prepare for market fluctuations that may defy technical or fundamental assessments.

Tradable news events of the week:

The AU CPI q/q (quarter-on-quarter) is an economic indicator released by the Australian Bureau of Statistics. The measure tracks the weighted average price changes in consumer goods and services households purchase over a designated period. This indicator is handy as it provides insight into the inflationary pressures on household consumption and can be used to inform economic policy decisions, such as setting interest rates for monetary policies.

The US Final GDP q/q (quarter-on-quarter) is an economic indicator released by the US Bureau of Economic Analysis. It measures the total value of all goods and services produced in a given quarter in constant dollar terms. This indicator helps gauge economic growth over time and provides insight into the overall health of the US economy.

The CA GDP m/m (month-on-month) is an economic indicator released by Statistics Canada. It measures the total value of all goods and services produced in a given month in constant dollar terms. This indicator helps gauge economic growth over time and provides insight into the health of the Canadian economy.

Weekly Forex Fundamental Analysis Summary

As the week started, fear swept through the global banking sector. Credit Suisse’s hastily arranged union with UBS was met with questionable reviews, especially from those who held AT1 bonds altogether canceled as part of the sudden deal finalized over the weekend.

Anxiety surrounding the nation’s regional banks persisted as stakeholders disagreed over whether an explicit government guarantee should be made for all banking deposits. The First Republic was at the heart of this intense debate on Capitol Hill and in financial centers across Wall Street.

Shares plummeted further when it became clear that no US financial powerhouses were willing, either independently or together, to acquire the bank’s entire business operations despite last week’s $30B injection from a few select central banks. Furthermore, none of those banks could take on FRC’s damaged assets without government help.

Wavering worries in the banking sector largely calmed before crucial central bank meetings, leading to a 25 basis points rate hike from the Federal Reserve and Bank of England. However, because of continuing financial instability, officials adjusted their statements towards a more moderate stance.

During Fed Chairman Jerome Powell’s press conference on Wednesday afternoon, stock prices fluctuated drastically while Treasury yields dropped along with the US dollar; gold prices also rose conversely.

Powell exposed that the FOMC contemplated a hiatus; however, as time passed in the press conference, his initially subdued stance began to diminish. He reconfirmed that despite not having observed any advancement concerning core service inflation, excluding housing expenses, he dismissed ideas of the Fed’s abrupt transition into cutting rates.

Despite the pressure, US stocks remained afloat until Wednesday’s late session. Banks and REITS were most affected by this strain. Chair Powell and Treasury Secretary Yellen both had to take questions on Capitol Hill regarding assuring bank deposits above $250K.

Although Congress is the only one to have authority regarding this matter, both parties indicated that it was not being discussed at the time; nonetheless, they remain confident in their capacity and willingness to use all necessary tools for protecting depositors’ savings.

By the end of the week, it had become clear that global markets were struggling to surmount this adverse cycle regarding financial institutions. As Deutsche Bank shares faced renewed adversity due to rumors about escalating CDS costs, a range of EU officials made sweeping remarks regarding the strength and stability of European banking systems.

On Thursday, Federal data unveiled greater loan-taking from US banks about BTFP (Borrowing Facility for Term Funding).

The Federal Reserve’s Bullard declared that the economic figures for Q1 were better than anticipated, and inflation remains too elevated. He also mentioned how the reaction to bank stress has been prompt and satisfactory. Consequently, futures markets continued pricing in a more decreased yield curve than before due to this news.

As the Federal Reserve pivoted to cutting rates by summertime, traders appeared convinced that this could not outweigh tight financial conditions and rate hikes, which would risk pushing the economy into recession. Bonds trading reflected these worries as bets on a downturn became more determined than ever before.

The gap between 3-month T-bill yields and 10-year notes plunged to its most extreme level of the cycle, reaching -130 bps below. Meanwhile, the spread between 2 and 10-year papers reversed direction rapidly. The US dollar rose while gold prices traded above $2,000/oz.

As Friday’s session approached, market volatility in the Treasury market far exceeded that of US stocks. However, many regional banks experienced a “dead cat bounce,” which helped recover some earlier losses.

Big tech corporations managed to lessen the blow from decreasing stock prices due in large part to the significant drops in Treasury yields. Concluding with a victorious week, S&P achieved 1.4%, DJIA increased by 1.2%, and Nasdaq rose at an impressive rate of 1.7%.

Forex Sentiment Forecast

As stated earlier, we could see short-covering and profit-taking this week, as Friday is the last trading day of the quarter, so expect to see the market being driven by order flows rather than Technical or Fundamentals.

The USD should remain resilient and range-bound. I do not expect to see a break out this week, so I plan to sell on the rise and buy on the dip, but the focus would be to sell due to the short-term USD bear sentiment.

EUR and GBP are all likely to maintain their momentum, so I’d not trade against them but buy on the dip.

NZD and AUD are best to stay out of, but if you are familiar with how these currencies move, you should follow the CPI release on Tuesday and plan your trade accordingly.

CAD remains weak against the USD despite better economic data. However, I would look to go long in CAD (Sell USDCAD on the rise) as the fundamental catch-up.

JPY remains well supported, it is too early to short the currency, but my long-term view remains unchanged, which is to sell on the rise in the short to medium term.