Weekly Market Overview | 1 April 2022
As discussed in last week’s newsletter, the price of Gold hit the target level of around $1 900 per ounce following sell pressure caused by the fundamentals as well as the technicals. A low of $1 889 was hit by Tuesday as the New York Session began trading, which prompted buyers to enter the market at this discounted price – the lowest in the month of March.
In terms of fundamentals this week, investors are eyeing geopolitical risks, as well as inflation data coming out of Europe, which will undoubtedly have an effect on Interest Rate hikes. In terms of U.S economic data that is expected this Thursday afternoon, a higher inflation printout is likely to seal in a 50-basis point May FED rate hike. The knock-on effect of these rate hikes is that it makes holding onto and lending out cash more profitable, often resulting in investors withdrawing from other assets.
In terms of Technical analysis, If the overall bearish momentum continues, the price could fall further towards the $1 900 mark again, below which a test of the March 29 lows of $1 890 will be inevitable, and if that level breaks, sellers could flex their muscles all the way to around the $1 877 level. Conversely, a break above the $1 938 level could trigger buyers to take control of the market and open the way to test the $1 957 level.
As predicted, the price of oil per barrel fell as sellers took control of the market following a pullback towards the $116 level. The price dropped all the way to the identified level around $98 on Tuesday where profit-taking was seen as the talks between Ukraine and Russia came back yielding positive results.
The bear market is set to continue as investors react to the news trickling out this Thursday that the United States is considering the release of up to 180 million barrels from its strategic petroleum reserve, the largest in nearly 50 years. This additional supply flowing into the market will help plug the hole left by Russian oil since it’s been banned, which in turn will drive the price of oil to cheaper levels and alleviate some of the pressure caused by rising energy costs as well as inflation. Such a release would help the oil market to rebalance in 2022 by increasing supply by 1 million barrels per day over the course of six months.
in terms of the technicals on the charts, we see how the price has impulsively moved from the $116 level and broken out of the ascending channel we identified last week and hit the target of $100 located at the bottom of this continuation pattern. Now we are in a bearish flag ranging sideways just outside the channel, which is usually followed by another impulsive move to the downside in line with the overall directional bias and order flow. A break below the $99 level will leave sellers in control all the way to the $92 level.
European stocks were varied in their performance but held near the highs they reached earlier in the week when investor sentiment became more positive about peace talks regarding the ceasefire in Ukraine. Europe’s STOXX 600 was down 0.1%, just below the one-month high it hit on Tuesday, while The FTSE 100 rose 0.2% despite European stocks edging lower. France’s CAC was 1.1% lower and the DAX lost 1.7% in Frankfurt by the end of trading on Wednesday.
Going into the trading session on Thursday, investors have their eyes set on key inflation data being released from countries in the EU, following Wednesday’s data showing surging inflation in Germany and Spain. Readings on Thursday morning showed that French inflation had hit 5.1% and Italian inflation data is due later in the afternoon. This data could be the catalyst in sealing in the potential for a 50 basis-point interest hike in May from monetary policymakers in the European Union.
The U.S. equities rally fizzled out on Wednesday as investors reviewed Inflation data and geopolitical risks. This pullback from these highs comes on the back of four straight days of gains that erased all the losses sustained since Russia invaded Ukraine over a month ago.
A 1.2% rise in the S&P 500 on Tuesday left the index less than 4% below its all-time high and just 2.8% down year-to-date, but by early trading on Thursday the index had fallen by 0.63%. Meanwhile, The Dow Jones Industrial Average came down by 0.19% and the tech-heavy Nasdaq shed 1.2%. Market analysts expect stocks as well as equities to trend higher by end of the year. The benchmark U.S. 10-year yield rose to 2.557% on Monday, its highest level since April 2019, as traders wait patiently for key inflation data to be released to motivate further rate hikes from the FED.
This week saw the biggest buying spree from a single Bitcoin account this year when Terraform Labs, received $139 million worth of Bitcoin on March 30, taking its total to about $1.5 billion in Bitcoin, making Terraform the second-largest holder of Bitcoin in the world. This immense volume fueled exuberance in the market and could be the catalyst for an upside surge towards the psychological $60 000 mark.
In terms of the technicals, the Bitcoin price action for the last week and a half has caused it to break above some crucial psychological levels as predicted in last week’s newsletter. We are likely to see a pullback towards the $44 000 area, followed by a small consolidation before any further upward momentum. This move is likely to allow Ethereum, Ripple and other altcoins to rally as well.
The Optimal Play
Following last week’s assessment of the strength of the Dollar, there was a sharp rally on Monday and Tuesday. But this was short-lived as fundamentals kicked in based on increasing optimism stemming from the ceasefire talks between Russia and Ukraine. These talks increase investors’ risk appetite, which subsequently means a withdrawal from safe-haven assets like the Dollar and Gold.
In terms of Technical Analysis, this week’s decline was absolutely inconsequential with regard to changing the general outlook for the strength of the dollar. It simply continues to consolidate after a breakout above the mid-2020 highs. A Breakout followed by a consolidation increases the chance of a continuation. Our clue for this lies in the sluggish way in which the price approached the 97.80 level.
We can see a falling wedge followed by an impulsive move away from this level. A big wave up in the USD Index is likely just around the corner, which could open the way for bulls to rally past the psychological 99.35 level and break out of this consolidation pattern.
Having dollar exposure to your portfolio is still a great hedge against the geopolitical uncertainties in the world right now as well as the record-high inflation numbers. For any information on how to access a product that can give your investment portfolio the kind of exposure you need to protect and grow your investment in these uncertain times, kindly contact Aluma and one of our FSCA accredited financial advisors will contact you.