Partner Center Find a Broker

Mixed price action across the forex markets this week as traders battled shifts in risk sentiment against currency specific headlines and economic updates.

The U.S. dollar was the biggest loser among the bunch as inflation and Fed quantitative tightening fears eased, while the Japanese yen took the top spot, likely on optimistic economic views and rising speculation that the Bank of Japan may take action to combat inflation.

Notable News & Economic Updates:

Romania’s central bank raised interest rates by 25 bps to 2%, less than expected

Uruguay central bank hints it may push the key interest rate to 8% by April.

China CPI rose by 1.5% in December from a year earlier, down from 2.3% growth in November; China PPI rose 10.3% y/y; 1.5% m/m

Fed Chair Powell eased market fears about fast balance sheet unwind on Tuesday

World Bank slashes global growth forecast to 4.1% in 2022; warns about growing inequality

Global inflation data showed signs of stabilization this week as many updates came in-line or below expectations.

U.S. crude stockpiles fell by 2.5M barrels last week, gasoline inventories surge by 8M barrels vs. 2.4M forecast – EIA

Heavy Fed commentary this week leaning towards 3 – 4 U.S. rate hikes this year

Tether froze $160M of USDT at request from law enforcement.

Bank of Korea raises interest rate 25 bps to 1.25%; hints at more increases ahead

China’s trade surplus hit a record $676B in 2021

Intermarket Weekly Recap

Dollar, Gold, S&P 500, Oil, Bond Yield, Bitcoin Overlay 1-Hour
Dollar, Gold, S&P 500, Oil, Bond Yield, Bitcoin Overlay 1-Hour

Traders were clearly mainly focused on inflation & monetary policy this week as the best short-term moves seemed to correlate with central bank commentary and inflation, especially from the U.S.

We saw risk sentiment shift positive on Tuesday following the latest comments from Fed Chair Powell during his renomination testimony before the Senate Bank Committee. Specifically, he eased fears sparked aggressive rhetoric in last week’s FOMC meeting minutes by saying a balance sheet decision would likely take 2 – 4 meetings to work through. Immediately, we saw weakness in the U.S. dollar and bond yields on the event, pushing higher risk assets in the process.

We also got a hefty round of inflation updates this week, most of which came in below expectations signaling a potential stabilization of the high prices environment. The only better-than-expected number came from the U.S. CPI number on Wednesday, but only being a tick higher than forecasts, it’s no surprise that rate hike/high inflation fears have cooled. The U.S. dollar and bond yields continued their pullback from the early 2022 rally.

Risk sentiment soured on Thursday despite a fall in the Greenback and bond yields, possibly a signal by the bond market that it’s time to price in a slowing economy. This is a scenario growing in odds as the world tackles a spike in COVID-19 cases, with the global daily average of new cases hitting a staggering 2.8M record this week.

This speculation is likely why we saw a heavy round of of risk aversion behavior during the Friday Asia & London sessions, before we saw what looks like to be a pure risk-on bounce (or possibly end-of-week profit taking?) despite weaker-than-expected U.S. economic updates.

USD Pairs

Overlay of USD Pairs: 1-Hour Forex Chart
Overlay of USD Pairs: 1-Hour Forex Chart

U.S. Wholesale inventories up 1.4% in November

Fed Chair Powell says rate hikes, tighter policy will be needed to control inflation

U.S. inflation rose 7% over the past year, the highest since 1982

Fed Beige Book says there are signs of optimism cooling in places

U.S. PPI increase of 0.2% m/m in December followed upwardly revised 1% jump in November

President Biden Nominates Sarah Bloom Raskin, Lisa Cook and Philip Jefferson to Federal Reserve

U.S. Retail sales dropped 1.9% m/m in December on Inflation, Omicron

University of Michigan Consumer sentiment survey dropped to 68.8 in Jan

Lots of Fed commentary:

  • Fed’s Brainard says inflation is too high & curbing it is a top task
  • Cleveland Fed Chief says shrink Fed balance sheet fast, but don’t roil markets
  • Fed official Harker open to more than three hikes this year if required

GBP Pairs

Overlay of GBP Pairs: 1-Hour Forex Chart
Overlay of GBP Pairs: 1-Hour Forex Chart

U.K. BRC retail sales monitor up by 0.6% vs. 0.3% forecast, 1.8% previous

Fall in London covid cases raises hopes Omicron is in retreat

UK could be among the first countries to emerge from Covid pandemic, top scientist says

Bank of England credit conditions survey: UK lenders expect mortgage demand to fall, consumer credit to rise

BOE’s Mann sees spillover risk with global inflation response

UK GDP: +0.9% m/m for November vs. +0.1% in October

EUR Pairs

Overlay of EUR Pairs: 1-Hour Forex Chart
Overlay of EUR Pairs: 1-Hour Forex Chart

ECB Schnabel says energy transition is an upside risk to ECB’s inflation forecasts

Sentix Investor confidence rose to 14.9 in January vs. 13.5 in December, 12.0 forecast

Italy Index of Retail Trade fell by -0.4% m/m

In Nov. 2021, Euro area unemployment at 7.2%; EU at 6.5%

Germany’s BGA trade association warns of huge supply chain disruption over Omicron

ECB Economic Bulletin: Exact impact of Omicron covid variant remains highly uncertain

Italian industry output rose 1.9% m/m in Nov, easily beating expectations

The prices of frequently purchased French goods rose by 0.5% y/y

CHF Pairs

Overlay of CHF Pairs: 1-Hour Forex Chart
Overlay of CHF Pairs: 1-Hour Forex Chart

Swiss central bank tests wholesale CBDC with commercial partners

CAD Pairs

Overlay of CAD Pairs: 1-Hour Forex Chart
Overlay of CAD Pairs: 1-Hour Forex Chart

U.S. crude stockpiles fall to 2018 lows, gasoline inventories surge – EIA

China agrees with U.S. to release oil reserves near Lunar New Year

Oil Producers Aren’t Keeping Up With Demand, Causing Prices to Stay High

NZD Pairs

Overlay of NZD Pairs: 1-Hour Forex Chart
Overlay of NZD Pairs: 1-Hour Forex Chart

New Zealand Commodity prices: -0.2% in Dec. vs. +2.8% in November

New Zealand building consents recovered by 0.6% after previous 2.1% drop

AUD Pairs

Overlay of AUD Pairs: 1-Hour Forex Chart
Overlay of AUD Pairs: 1-Hour Forex Chart

Australia Building Approvals Jump 3.6% In November

Australia Inflation Gauge: +0.2% vs. +0.3% previous

Australian retail sales jumped 7.3% in December 2021 vs. 3.5% consensus

Australia’s trade surplus narrowed from 10.78B AUD to 9.42B AUD

ANZ-Roy Morgan Australian Weekly Consumer Confidence: 108.4 vs. 108.0 previous

JPY Pairs

Overlay of Inverted JPY Pairs: 1-Hour Forex Chart
Overlay of Inverted JPY Pairs: 1-Hour Forex Chart

BOJ Quarterly Survey revealed households expect higher prices

Japan’s current account surplus shrunk 48% year on year in November

Japan business mood sours on higher costs

BOJ raises economic view for all Japan regions as pandemic pain eases

BOJ debates messaging on eventual rate hike as inflation perks up – Reuters