Federal Reserve will sit this week for the first time since yields exploded higher with the Biden stimulus bill. Moreover, the Bank of Japan and the Bank of England will publish their decisions, too. What besides the Fed and Bank of England Meeting? Get more insights for the new trading week with AtoZ Markets’ Forex Weekly Fundamental Forecast.
March 07, 2021 | Markets – The most awaiting event for this week is the FOMC meeting, where the Fed will respond to the spiked volatility in the bond market and its impact on tech stocks and US dollars. Investors are not satisfied with Powell’s last remarks, and they are expecting new policies to hold their breath.
However, Powell is concerned about the persistent tightening financial conditions, and we should focus on whether a new decision comes this week or not. Fed and Bank of England meetings are the main focus for this week.
AtoZ Markets team has highlighted below the main drivers in our Forex Weekly Fundamental Forecast.
Fed and Bank of England Meeting- Forex Weekly Forecast
The core investors’ attraction is the FOMC meeting this week. Moreover, among other important releases, there are New Zealand GDP, UK official bank rate, Canadian CPI, and US Core retail sales.
So let’s start the Forex Weekly Fundamental Outlook with the EURUSD:
The ECB surprised the market by announcing its bond purchase program in its March meeting over the next quarter. However, this decision made a notable drop in Eurozone sovereign bond yields. As a result, EURUSD edged higher.
The expectation was that the bond purchase program would boost the country’s economic growth, but the currency moved in the opposite direction. The main reason behind the bullish movement in the EURUSD was the weaker US Dollar. Moreover, ECB had been making fewer purchases in the first quarter that might be another reason for the strong Euro.
This week, the major releases from Eurozone are the German ZEW economic sentiment on Tuesday with the Eurozone CPI. However, this news might not have a significant effect on the EURUSD pair.
The main concern for the EURUSD would be towards the Fed meeting. There is a possibility that Fed successfully dampens tearing fears, pushing the treasury yield low. As a result, Euro would become strong against the USD towards the $1.2 area.
UK 10 year gilt has shown the most significant move among other major economies that fueled the Pound higher. Bank of England followed the same path as Fed in interpreting yields and pointing a healthier economic outlook for the UK’s rapid vaccination campaign.
Moreover, the UK government soared further growth in 2021 and a full economic recovery where the BoE cannot control the increase in long-term borrowing costs. As a result, BoE may initiate a tightening policy in financial conditions. Hence, policymakers may keep the yields moving and keep an option of negative rates on the table.
If policymakers show any dovish tone with rising odds of a rate hike in 2022, there is a possibility that the Pound will suffer against the US Dollar. Now, it’s time to see whether policymakers remain optimistic about the pound buying and selling long-term gilts.
The dovish tone from both BoE and FED would create market volatility in the price, but a long-term direction might set after the week. Overall, USD has a strong option for being strong with its recent better-than-expected economic releases and yield movement.
Besides the Fed and Bank of England Meeting, the week will close with the Japanese central banks’ decision where no change in policy is expected. However, BoJ Governor Haruhiko Kuroda will unveil the country’s economic condition and its monetary policy statement.
Currently, there is no surprise expected from the BoJ’s policy framework. The 10-year JGB may move freely within the 20 points implicit band on either side of the 0% target. Moreover, the revised policy of quantitative and qualitative monetary easing program would be the fain focus of BoE, and it may show the continuation of the policy.
The yen may struggle with the US Dollar due to its year-to-date depreciation, and if BoJ confirms that there is no plan to widen the yield bond, the weakness may extend.
On the data front, January machinery orders will come on Monday, February trade on Wednesday, and Friday’s inflation report.
Although the BoJ will mute for the week, investors’ primary focus would be on the Fed’s decision. Any dovish tone would be a potential selling opportunity in the USDJPY, as long as the price is trading below the 109.00 psychological level.
Bitcoin miners’ selling pressure has been declined recently, and it is a strong positive result for BTC buyers.
According to Stack Funds report, the Bitcoin price may move higher due to catalysts for prices. Currently, Miners 7 days outflows are the lowest in 5 years, and it is at the 1.0 level right now.
Last time, the outflow indicator was down to this level in 2015. At that time, Bitcoin moved higher strongly, and that rise roasted more than two years. Now, the breakdown in the outflow indicator pointing more mining selling pressures that may remain low.
On the other hand, the stimulus program is indicating a potential fear of recession among investors. In this situation, Bitcoin would be the solid safe-haven currency that may lead to further bullish pressure on the price.
The $50,000 level would be the strong support level for BTC/US Dollar in the present market structure. Therefore, as long as the price is above this level, the overall context would be a buy for this week.
One of the Ethereum co-founders disclosed that ETH has the option to soar like Bitcoin in the coming days. The Bitcoin price was near the $20,000 level in 2017, and in recent days it moved to the $60,000 level.
On the other hand, Ethereums ether token has moved to the fresh territory, a 30% increase from its early 2018 peak. According to Ethereum co-founder Votalik Buterin, the new proposed upgrade would destroy ether tokens. It is an indication that Ethereum would be like Bitcoin later on.
The Ethereum upgrade, also known as EIP-1559, is a part of the Ethereum 2.0 upgrade, where the current transaction fee system will be overhauled. The fee will come from users, sending a fee to the network rather than miners who maintain it. Lastly, these fees will be burned and reduce the overall ether supply, a controversial topic among the cryptocurrency community.
For this week, any uncertainty or dovish monetary statement from Fed would create an immediate bullish price action in the ETH price. In that case, the price may move above the 2000 level this week.
Litecoin price moves up with a slow momentum where the current price is 40% above the last week’s low. Currently, Litecoin is the 9th largest cryptocurrency with a $14 billion market cap.
There is no major Litecoin news in recent days, but the movement was due to the fundamentals of Fiat. The stimulus program of $1.9 trillion was signed last week. Therefore, analysts are expecting that some part of the fund will go to the cryptocurrency market. With that news, LTC prices moved higher and started a bullish rally.
Bitcoin and ETH moved more than 20% of their value in the last seven days. Further fears of rising inflation would indicate that the Federal Reserve may keep the interest rate unchanged. The low-interest rate is suitable for cryptocurrency that may initiate a bullish pressure in the LTC.
Microsoft provided better than expected fiscal 2nd quarter results in January, pointing another chapter to its long-running success. According to Mongan Stanley, Microsoft is bullish, and the bullishness may extend towards 2021 due to its cloud computing adoption and enterprise IT spending.
Currently, Microsoft holds about $132 billion in cash, where the free cash flow is at about $50.4 billion over the last 12 months. On the other hand, the total debt of the company is $60.5 billion. Therefore, the positive liquidity ratio indicates a more muscular business activity that may result in a good buying opportunity for investors.
Despite the debt level, no other companies achieved the AAA credit rating, including Apple. Microsoft is a financially stable company since 1980, and it can pay off its debt with the existing cash.
Apple stock is lagged behind the overall market in recent days. The tech giant lost 16% in recent days and touched the closing peak of $114.92. In the meantime, Nasdaq Composite Index was down by 3%, and S&P 500 was up by 2%.
The company did not say anything material in recent days, but some analysts predict a slower iPhone demand. Moreover, the recent production cut of the first iPhone 12 mini may not significantly affect the stock price.
Therefore, as long as the price is above the $112.64 level, it may move higher this week.
Goldman Sachs [GS]
In the Q4 earnings report, Goldman Sachs showed $1.83 earnings per share with the adjusted earnings of $0.94
However, the company grew 19% in Q4 than a year ago. The investment service revenue was up by 35%, and net income has grown by 135.05% in Q4.
The positive earnings report might provide a bullish impact on the stock price this week.
Overall, investors should focus on the Fed and Bank of England Meeting and the economic projection in the FOMC. Moreover, the Bank of Japan and Bank of England would be another attraction of traders’.
What do you expect from the Fed and Bank of England Meeting? Let us know in the comments section below.