Forex and Cryptocurrency Forecast for February 14 - 18, 2022
EUR/USD: Tsunami Due to US Inflation
Ancient Greeks began to declare a truce during the Olympic Games more than 2,800 years ago. It seems that the EUR/USD bulls and bears have decided to adopt this tradition during the current Winter Olympics in Beijing. We observed a complete lull for at least the first half of the week, and the pair moved eastward under slight pressure in a narrow channel not exceeding 60 points, 1.1400-1.1460.
This calm was interrupted by a small tsunami that swept on Thursday, February 10 after the latest US inflation data was published. Consumer prices grew by 7.5%, while core inflation reached 6.0% (against 5.5% a month earlier). Both values are the highest for the last 40 years, and this has not been observed since 1982. And it scared the markets.
To be completely accurate, it was not the numbers themselves that frightened them, but the possible reaction of the US Federal Reserve to them. Investors were concerned that the US Central bank would act even more aggressively than expected in order to curb inflation. The probability that the FOMC (Federal Open Market Committee) will raise interest rates by 50 basis points (bp) in March has jumped to 80%. There have also been rumors that the rate could be raised as many as seven times in 2022. Analysts at Goldman Sachs predict that federal borrowing costs could rise to 2.0% by early 2023.
As a result of the panic, the dollar began to rise, while stock indices (S&P500, Dow Jones, Nasdaq) and the EUR/USD pair rolled down. However, the situation changed very quickly: the markets were afraid of the general economic risks caused by such a strong increase in consumer prices. And, having bounced off the level of 1.1374, the pair soared up by almost 120 points, to a height of 1.1494. After that, it changed the course again by 180 degrees.
There were two reasons for this reversal, the third in a row. The first was those overall economic risks, on the contrary, could push the US Federal Reserve to raise interest rates more vigorously. The second reason was Christine Lagarde. The head of the ECB said last week that a sharp tightening of monetary policy will have a negative effect on the Eurozone economy. This suggests the conclusion that this regulator is still not ready to raise rates, even despite high inflation rates. And according to forecasts, the first rate increase by 25 bp. can only be expected in December 2022.
Divergence in the pace of monetary tightening by the Fed and the ECB has always been good for the dollar. The same happened this time: the EUR/USD pair flew down again without reaching the height of 1.1500, reaching the local bottom at the level of 1.1329. As for the final chord of the week, it sounded at the height of 1.1340.
Taking into account the dynamics of the last two weeks, the readings of indicators on D1 are as follows at the time of writing the forecast on the evening of Friday, February 11: 65% of oscillators are colored green, the remaining 35% are neutral. As for trend indicators, only 25% are colored green, the remaining 75% are red. As for the experts, of course, all of them will pick up signals from the US Federal Reserve, primarily regarding how much the rate will be raised at the FOMC meeting in March. But it is already now that 55% of them are voting for the strengthening of the US currency and the movement of the EUR/USD pair to the south. 30% vote for an uptrend, and 15% of analysts predict a sideways movement of the pair.
The nearest resistance is 1.1370, followed by 1.1415, 1.1480-1.1525, 1.1560 and 1.1625. Supports in zones and at levels 1.1275-1.1315, 1.1220, 1.1185 and January 28 low 1.1120.
As for the upcoming week, Eurozone GDP data will be published on Tuesday, February 15. High volatility can be expected due to the release of the next portion of data on the US consumer market the next day, on Wednesday, February 16. The publication of the February FOMC meeting minutes will also cause unconditional interest on this day.
GBP/USD: The Trend Is Rising. Still Rising.
While the ECB is lagging behind the Fed, the Bank of England is so far ahead, raising interest rates faster than its peers across the Atlantic. Therefore, unlike the euro, the British pound managed to hold its ground so far last week, finishing the five-day period at 1.3551. The key word here is "so far": "so far ahead" and "managed so far." The superiority of the pound over the dollar is very shaky and it can quickly start retreating.
The main factors that could force the Bank of England to stop raising the rate, leaving it at a low level, are weak GDP and labor market growth, as well as low levels of consumer spending. According to the data published on Friday, February 11, the UK's GDP, instead of the expected 1.1%, grew by only 1.0% in the Q4 2021. And the situation in the labor market and the consumer marke will become known next week: statistics on the unemployment rate will be released on February 15, and that on the level of prices in the United Kingdom - on February 16.
When predicting the upcoming steps of the British regulator, it is appropriate to recall that only 4 out of 9 members of the Bank of England committee voted for a rate increase by 50 bps at the last meeting. The majority, including the head of the bank, Andrew Bailey, citing a slowdown in economic growth, decided to raise the rate by only 25 basis points.
The fact that this regulator will continue to act very carefully, which was confirmed by the Bank of England chief economist Hugh Pill. He said in an interview with Reuters that the bank expects "further moderate tightening in the coming months if everything goes as planned" and that "one needs to be careful in setting the rate level."
At the moment, most experts (60%) are betting on the strengthening of the dollar, believing that the GBP/USD pair will go down in the near future. The opposite position is taken by 30% of analysts, the remaining 10% remain neutral. Indicators on D1 look as follows: 90% of oscillators point to the north (10% of them are in the overbought zone), 10% look to the south. Among trend indicators, the ratio of forces is almost the same, 85/15%. Supports are located at 1.3500, 1.3425, 1.3365, the next strong support is 100 points lower. The resistance levels are 1.3585, 1.3600-1.3625, 1.3700, 1.3750, 1.3835 and 1.3900.
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