Forex News from InstaForex

[IFX Gertrude]

Wall Street trades draw US SEC attention

On Monday, the Wall Street Journal reported that the US Securities and Exchange Commission (SEC) is conducting an investigation into Morgan Stanley and Goldman Sachs launched by the US Department of Justice. The main issue is whether financial executives might have warned hedge funds about large stock sales ("block trades"), which violates the regulations.

The participants of the investigation give no comments.

Broker-dealers tend to act on behalf of clients or using a hedging strategy (a method of insuring assets against negative market trends). They buy and sell large blocks of shares, and this can affect the company's stock prices. This process is especially active during periods of volatility, when portfolios are being rebalanced.

If such valuable information is obtained in advance, it may have a great impact on the market. Companies should adjust processes preventing the misuse of nonpublic information. Otherwise, it could violate U.S. laws.

As the WSJ reports, the SEC has sent subpoenas to some hedge funds and banks requesting information about investors' interaction with bankers. It is also mentioned that investigations into block trades irregularities began in 2019.

It is being investigated if bankers revealed non-public information to some privileged clients. If such incidents become known, they will find out how this information may have affected some funds that are " liquidity providers" for Wall Street companies.

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[IFX Gertrude]

Three main factors for USD growth: geopolitics, risk appetite, and macro statistics



The US dollar's steady growth, observed from time to time, is due to the interaction of three main factors – a decrease in risk appetite, inspiring US macro statistics, and the easing of geopolitical conflict. At the moment, the key "pillar" supporting the US dollar is American statistics.

Today, the US currency found it difficult to choose a direction, as markets assessed several factors affecting it. Its growth was facilitated by positive macroeconomic statistics from the US, which turned out to be better than forecasts. In particular, US retail sales soared 3.8% m/m in January 2022 against an expected rise of 2.1%. At the same time, the volume of industrial production in the country increased by 1.4%, while a growth rate of 0.4% was forecasted. Both indicators indicate favorable conditions for further tightening of the Fed's monetary policy.

The decline in risk appetite is also another factor stimulating the growth of the US dollar. In such a situation, investors go to protective assets, primarily gold and the US dollar. However, risk appetite has returned amid certainty over the Fed's new minutes, which is less hawkish than expected. This situation provoked the USD's temporary decline. At the same time, retail sales and the strengthening of the US labor market can improve global risk appetite.

Moreover, some weakening of the US dollar was facilitated by geopolitical tensions, namely, the alleged ceased of the military conflict around Ukraine. This provoked significant price dynamics for key trading instruments. As a result, the US currency turned to the downside. It was followed by gold and oil.

On Thursday morning, the EUR/USD pair was near the level of 1.1354. It is worth noting that the euro rose to the level of 1.1363 against the US dollar yesterday and managed to consolidate at this level a little later.



The growing inflation continues to put pressure on the US dollar. The current situation requires the Fed to take decisive action – to raise rates as soon as possible. The regulator cannot afford dovish rhetoric, otherwise, it will provoke serious economic shifts. ECB also made "hawkish" statements, which allows the key rate to be raised by the end of the year.

The US dollar is supported by the growth of retail sales in the country. The strong indicator neutralizes concerns about a possible recession in the American economy. Earlier, investors were worried that the upcoming Fed rate hike would negatively affect the US economy. It should be noted that the high probability of a recession poses a threat to further USD growth. However, experts believe that there are now no reasons to implement an unfavorable scenario.

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[IFX Gertrude]

Is the pound's growth temporary?



Many analysts are asking questions: how long will the pound's growth last? Or will it decline soon? Specialists are worried about sharp changes in the dynamics of the British currency, which can undermine its position.

The pound was growing steadily this week, impressing the markets. It is rising due to impressive UK macro statistics and expectations of positive changes in the interest rate. Experts assume that the Bank of England will raise the key rate following its leading counterparts, such as the Fed and the ECB.

A strong impulse for the pound's growth was the sudden acceleration of annual inflation in the UK. According to the reports of the Bureau for National Statistics, British inflation reached 5.5% last month, from the previous 5.4%. In the first month of 2022, consumer prices in the country fell by 0.1% after rising by 0.5% in December. Economists said that UK's inflation reached a 30-year high, slightly behind another world record – US inflation, which spiraled to a 40-year increase.

A significant increase in UK consumer prices contributed to the strengthening of the national currency. Against this background, expectations of an early rate hike by the Bank of England have increased. The overall positive mood contributed to the rise of the pound, although experts fear that the upward trend will end soon.

The current situation helped the GBP/USD pair to rise. The pound took the opportunity and tried to consolidate its gained positions. According to UOB currency strategists, the pair needs to break through the resistance of 1.3645 for further growth. The probability of the pound rising above the level of 1.3645 is still insignificant, but the chances will increase if the pound does not go beyond the level of 1.3520 in the coming days. The UOB notes that the next resistance level for the GBP/USD pair is set around 1.3680.

Analysts' comments are right – the pound is far from the indicated level of 1.3645. On Friday morning, the GBP/USD pair was trading at 1.3610, trying to rise higher, but with mixed success. A day earlier, the pound increased by 0.25%, reporting to the level of 1.3616. Analysts say the pair will remain in the wide range of 1.3550-1.3650 in the near term, in which it is located after a significant deviation from the "bearish" trend in December 2021.



The future economic prospects of the UK are as vague as the weather in the country, especially given the possible fiscal increase. The pound will remain in a fighting mood in the coming weeks, as market participants are confident in the upcoming tightening of the monetary policy by the Bank of England. It can be recalled that the regulator has raised interest rates twice since December 2021 (to 0.5% from the previous 0.1%). Now, the markets expect a further rise in the key rate in March up to 0.75% or immediately up to 1%.

Many analysts consider the pound undervalued by 10% relative to the US dollar. According to experts, this situation developed after the Brexit referendum in 2016 and continues to this day. Experts believe that this undervaluation hinders economic growth in the country. At the same time, the short-term prospects for the pound are quite optimistic and set investors in a positive mood.

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[IFX Gertrude]

Dollar: a new rival and a "feedback loop"



Experts positively assess the potential of the US currency. At the same time, the relative lull in the dynamics of USD worries the markets. Growing concerns are reinforced by geopolitical instability and the expectation of an early rise in the Fed's interest rate.

The escalation of the geopolitical situation at the end of last week put significant pressure on the greenback and the EUR/USD pair, which collapsed from a high near 1.1375 to 1.1320, but then recovered. Currently, the pair runs in a wide range of 1.1300-1.1400, which will remain in the near future.

The new week began for the dollar with a slight decline against the euro. The reason is a small respite in the difficult geopolitical situation around Ukraine. On the morning of Monday, February 21, the EUR/USD pair was trading at 1.1363. The European currency strengthened its position against the US one, taking advantage of the pause in the geopolitical confrontation.



Many analysts are set to increase the price of the greenback, despite the tense external background. After a month-long reduction in positions for USD growth, investors and traders set a course to increase them. Over the past week, large investment funds have raised long positions on the greenback by 5%. The continuation of this trend contributes to the further growth of the US currency.

However, in the medium and long term prospects for the USD, not everything is as rosy as it seems at first glance. The dollar has a serious rival, experts warn. This is not the euro, but the British currency, which can compete with the US one.

Optimism about the pound is promoted by its slow but steady growth compared to the volatility of the greenback and the euro. Against the background of the upcoming tightening of the PREP by the leading central banks, the Federal Reserve and the European Central Bank, the Bank of England found itself in a more advantageous situation. The British central bank took care of the normalization of monetary policy in advance, increasing the interest rate twice: the first time - from 0.125% to 0.25%, and two weeks ago - from 0.25% to 0.5%. According to analysts, this has not happened since 2004.

Experts believe that against the background of galloping inflation in the United Kingdom, the central bank will increase the rate again. To this decision, the Bank of England is pushing another round of inflation (up to 5.5%), which has not been recorded since 1992. As a result, the pound, with the monetary support of the central bank, can compete with the dollar.

Experts consider the upcoming increase in the Fed's interest rate to be another factor of pressure on the greenback. Many analysts are arguing about the tightening of the PREP by the Federal Reserve, weighing the pros and cons for the dollar. At the same time, analysts find it difficult to give an unambiguous assessment of what is happening. They are afraid of the so-called "feedback loop" that keeps inflation at a high level. According to JPMorgan experts, a similar "loop" in the economy is formed between strong growth, price pressure and household actions. The effect of the "feedback loop" generates a colossal financial burden, characteristic of off-scale inflation. Currently, a similar situation is observed.

Against this background, the Fed is able to raise the interest rate nine times, according to JPMorgan. Currency strategists consider this a necessary measure to curb inflation in the US: "This year, the Fed will raise the rate by 25 basis points at each of the nine meetings." It is expected that such steps will support the greenback, which will retain its status as a global protective asset. The power of the US currency allows it to stay afloat and strengthen its position in times of crisis.

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[IFX Gertrude]

Asia-Pacific stock exchanges fall by 1-3%



The day before, Russian President Vladimir Putin signed decrees recognizing the independence of the Donetsk and Lugansk People's Republics (DNR and LNR). In addition, the president instructed the armed forces of the Russian Federation to carry out peacekeeping functions in the self-proclaimed republics. As eyewitnesses told Interfax, two columns of armored vehicles are on the territory of the DPR and follow to the north and west of the republic.

Western countries called Moscow's actions a violation of international law and announced their intention to impose sanctions, which could be announced as early as Tuesday.

The Japanese Nikkei fell by 1.8% by 8:12 GMT+2.

Shares of consumer electronics manufacturer Sharp Corp. are among the drop leaders among the components of the index. (-7.71%), which continue to fall in price after falling the day before. The company said it plans to buy loss-making display maker Sakai Display Products Corp.

Also, securities of the transport company Kawasaki Kisen Kaisha Ltd. are falling sharply. (-6.7%) and video game developer NEXON Co. Ltd. (-6.2%).

Securities of the investment company SoftBank Group Corp. cheaper by 0.6%, automaker Toyota Motor Corp. - by 2.3%.

The Hong Kong Hang Seng by 8:18 GMT + 2 fell by 3.3%, the Shanghai Shanghai Composite - by 1.4%.

Among the decliners in Hong Kong are shares of gas pipeline operator ENN Energy Holdings Ltd. (-10.9%), Hang Seng Bank Ltd. (-6.6%) and internet giant Meituan (HK:3690) (-6.3%).

Securities of IT companies Alibaba Group Holding Ltd. drop by 3.7%, Tencent Holdings Ltd. - by 2.1%.

South Korean Kospi fell by 1.7% by 8:14 GMT+2.

The consumer confidence index in South Korea fell 1.3 points to 103.1 points in February, the lowest level since last August. A month earlier, the value of the indicator was 104.4 points.

Capitalization of chipmaker Samsung Electronics Co. Ltd. declined by 1.8%, the value of shares of automakers Hyundai Motor Co. Ltd. (KS:005380) and Kia Corp. decreases by 2.2% and 1.9%.

The Australian S&P/ASX 200 fell 1%.

The world's largest mining companies BHP and Rio Tinto lost 0.9% and 1.4%, respectively.

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[IFX Gertrude]

Crypto market update for February 23, 2022



Bitcoin has declined by $7,000 over the past six days. Thus, we have every reason to assume that the formation of the upward wave d is completed. If this assumption is correct, then now the instrument has moved on to building a new downward wave, which is wave e.

No one will deny that the news background sometimes has a strong impact on bitcoin and cryptocurrencies. Usually, this even applies only to negative news background. When all is quiet and calm and central banks are pumping money into their economies while keeping rates low, bitcoin tends to rise. But now it's a completely different matter. Rates are about to begin to rise, and in some places, they have already begun. Central banks no longer intend to print money, and the Fed is going to start reducing its balance sheet, which has ballooned to $9 trillion. Thus, now is an unfavorable time for bitcoin.

I believe that it is on this news and expectations of tightening monetary policy by the market that bitcoin has been declining for several months now. And over the next month, it may drop to $27,000, where wave e can be considered completed. However, geopolitics also intervened, and since bitcoin is a risky asset, it began a new decline along with the stock markets.

And again, geopolitics

So much has been said about geopolitics in recent weeks that I would not like to elaborate on this point. At the same time, this may continue to further reduce the demand for risky assets, which include all cryptocurrencies. Thus, any further escalation of the conflict in Donbass or Ukraine could lead to a wave of new bitcoin sales. In the coming weeks, the danger will be that the troops of the DNR and LNR may go on the offensive in order to capture all the territories of the Luhansk and Donetsk regions. And Russian troops can help them in this, which immediately entered the Donbass as soon as Putin signed a decree recognizing the independence of the LPR and DPR.

The market is negative

Despite the fact that there are still quite a few investors and analysts in the market who continue to believe in bitcoin and its growth in 2022, the mood has changed dramatically to bearish in recent months. More and more experts say that this year there is no reason to expect a renewal of last year's peak. Moreover, some predict a "crypto winter" that will last until 2025.

American economist and writer Nassim Taleb criticized bitcoin, calling it "entertainment for losers." According to Taleb, bitcoin is not really a hedging tool for either inflation or geopolitical risks. Otherwise, why at this time, when inflation is off scale, and the geopolitical situation is at its highest degree, Bitcoin is declining, Taleb wonders. "Actually bitcoin is the exact opposite," said the bestselling author of The Black Swan. Previously, Taleb has repeatedly criticized bitcoin, while noting the positive aspects of blockchain technology.



The construction of the downward trend section continues. At this time, the current wave counting takes on a five-wave form and can continue its construction with targets located near $29,117 and $26,991, which equates to 0.0% and 61.8% Fibonacci within wave e. A successful attempt to break through the $41,470 mark, which corresponds to 38.2% Fibonacci, indicates the market is ready for further sales. Thus, I expect another downward wave to be built. Considering what a difficult news background is now, this wave can be very long.

In many ways, everything will depend on how long the escalation of the conflict in Ukraine will last and how far everything will go. In the coming weeks, everything will really depend on geopolitics, and on March 15-16, the Fed will raise the rate. It's hard to come up with a worse news background for bitcoin.

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[IFX Gertrude]

Things getting worse in Ukraine, so European market trading in red

European stock futures dropped this morning after reports that Russian troops fired missiles at a number of Ukrainian cities and landed troops on its coast. This caused a big wave of risk-off in the global market. Worries about increased inflation and the derailing of the economic recovery after the outbreak of the pandemic affected investors and resulted in German DAX index contracts down more than 5 %, EuroSTOXX futures dropped 5 % and FTSE futures down 2.8 %. While the European market is quite reliant on Russian energy products, the current political situation raised worries in other markets as well. Some Asian stocks, in particular, also fell, and U.S. index futures showed losses of around 2% later on Wall Street. Oil prices are up more than 5% and gold soared 2%.

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[IFX Gertrude]

EUR/USD: euro explores a new reality without going to extremes, and the dollar, the mainstay of investors, gets a head start



The sparks of the geopolitical conflict simmering around Ukraine have scattered across the global market and burned the euro. At the same time, the US currency got a chance to gain a foothold in the role of a reliable asset of a "safe haven", into which investors once again "dived" into.

Many European currencies, in particular the Swedish krona, the euro, the Hungarian forint and the Polish zloty, could not withstand the geopolitical tension and sank sharply. Investors rushed to safe currencies, primarily the US, as well as the Swiss franc and the yen. In the course of large-scale risk avoidance and the search for protective assets, the greenback gained 0.9%. According to analysts, risk aversion will dominate the market in the near future. This contributes to the further strengthening of the USD, as well as other safe havens – the yen and the Swiss franc.

The massive "escape" of investors in the dollar was provoked by the intensity of the geopolitical conflict associated with the Ukrainian military operation. Market participants fear negative economic consequences and a significant tightening of sanctions rhetoric against Russian assets. Against this background, currency strategists predict a "well-coordinated movement in USD", which will continue.

The current situation has tripped up the euro, which has fallen under large-scale sales amid risk aversion. On Thursday, the EUR/USD pair was near 1.1250, but then it sank significantly. In the near future, the pair may feel bearish pressure if geopolitical tensions persist.

The euro tried to recover at the end of this week, but acted with varying success. The single currency hardly holds on to the positions it has won. A sharp geopolitical shift provoked the collapse of the EUR/USD pair from the level of 1.1300 to a new low of 1.1106, recorded in May 2020. Later, the pair slightly balanced its dynamics, rising to 1.1200. On the morning of Friday, February 25, the EUR/USD pair was trading near 1.1221, trying to get out of the downward spiral.



An additional pressure factor for the euro may be an increase in energy prices. The implementation of such a scenario will send the EUR/USD pair to the critical level of 1.1100, Danske Bank believes. An increase in the cost of energy carriers is possible in the event of a decrease in the geopolitical intensity, and this is unlikely, the bank notes.

Risk aversion, which prevails in financial markets, gives the dollar a head start. As for the European currency, it seeks to adapt to the new reality and avoid prolonged subsidence. These attempts pass with varying success. According to experts, the fair exchange rate of the euro is 1.2000. Reaching this mark in the EUR/USD pair is possible after the current US government bond placement cycle. Analysts do not rule out EUR growth after the ECB meeting scheduled for March 10.

Geopolitical turmoil has dealt a significant blow to risk appetites, but key currencies have proved resilient. In the short-term planning horizon, experts expect the recovery trend to consolidate.

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[IFX Gertrude]

EUR/USD: the euro is looking for a lifeline, and the dollar is confidently holding the steering wheel



The US currency started the new week on the positive side, continuing the upward trend. Against the background of the steady growth of the greenback, the euro's positions are significantly shaken. The markets are afraid that the EUR will not only dive to the bottom, but will remain there indefinitely.

Earlier, experts considered an early interest rate hike by the European Central Bank to be a lifeline for the euro. The ECB was strongly advised to follow the path of the US one and raise the rate at almost every meeting. However, the escalation of the military conflict around Ukraine has made its own adjustments. At the moment, European leaders are engaged in the implementation of the next sanctions against Russia. Note that the international assets of the Bank of Russia came under attack.

The current situation has become a powerful driver of greenback growth and weakened the euro's position. On the morning of Monday, February 28, the US currency soared against the European one amid the global flight of investors from risk. The reasons are the complication of the geopolitical situation around Ukraine and the introduction of economic restrictions against Russia. The EUR/USD pair was near 1.1162, having significantly sank from the level of 1.1267 recorded at the close of the last session.



According to analysts, the greenback's rally in relation to the euro is due not only to the widespread withdrawal of investors from risk, but also to the collapse of US stock futures. On the last day of February, futures on American securities fell along with the euro, while the safe haven currencies, the dollar and the yen, became market favorites in terms of demand.

The "black swan" of geopolitics has made significant adjustments to the expectations of the Federal Reserve and ECB rate hikes by the markets. At the moment, these measures have receded into the background, although the US central bank does not intend to reconsider the tightening of monetary policy due to the Ukrainian conflict. The changes in the monetary policy should help the growth of the greenback, but the simultaneous fall of the US stock market and the stock market will turn the situation 180 degrees. With the tightening of the monetary policy, investors will massively withdraw from long US debt securities, while the US stock market will stay afloat. Such an ambiguous situation can shake the USD positions.

Currently, the US currency is supported by fears of possible negative consequences of anti-Russian sanctions. Many analysts are alarmed by the potential difficulties for the global economy due to the introduction of restrictions. Bullish sentiment on the US currency prevails among the major market players, and large investment funds are increasing their positions on USD growth for the second consecutive week. Over the past week, funds have increased greenback purchases by 3%. The strengthening of this trend contributes to the further growth of the US currency, analysts believe.

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[IFX Gertrude]

Second round of talks between Russia and Ukraine to be held in coming days. Dollar to stay in demand globally



Demand for safe-haven assets is set to remain strong in the near future. Gold prices are on the rise. Nevertheless, the US dollar briefly retraced down on Monday, while market players were awaiting the outcome of the Russia-Ukraine talks. The talks are unlikely to resolve the conflict, but the willingness of the parties to negotiate has somewhat eased fears in the market. In the coming days, Russia and Ukraine are expected to hold the second round of talks. Officials from both sides returned to their capitals for further consultations.

"We have identified certain points from which we can predict general positions," Vladimir Medinsky, the delegate from Russia, said. A similar announcement was made by Mykhailo Podolyak, Ukraine's presidential advisor.

Meanwhile, the dollar rally is expected to extend. Global demand for the greenback, as well as other safe-have assets, remains strong due to both geopolitical risks and stressed dollar liquidity conditions.

"As such we will keep a close eye on the cross-currency basis swap market for any kinds of stress as well as seeing whether there is any increased demand for dollar liquidity at e.g. the ECB 7-day USD auction," economists at ING said.

DXY is heading back to the high at 97.70 and could break higher still.



"Euro losses have been relatively well contained so far," according to ING. Russia, the United States, and the European Union are now waging an information war. They impose sanctions, threaten, and accuse each other.

Although Europe relies heavily on energy, there have already been some reports of it looking at quotas and limits on Russian energy. Clearly, Europe would have to pay a lot higher price for its energy under such a scenario, and growth forecasts would have to be downgraded.

On Monday, the euro/dollar pair retested the low of 1.1120. Barring any surprise breakthrough in Ukraine-Russia talks, EUR/USD might hit 1.1000 this week.



This week promises to be full of not only political but also macroeconomic events. The eurozone CPI for February is scheduled for Wednesday. In France, the CPI came in higher unexpectedly. But given the events in the east, the ECB is likely to become more hawkish if the eurozone CPI comes in stronger. Bearish bias for EUR/USD continues.

Some analysts anticipate monetary policy tightening in the eurozone. The euro could strengthen on expectations of a rate hike by the ECB, Societe Generale said. The European regulator would raise rates by 25 basis points, experts forecast. The next ECB meeting is scheduled for March 10.

Data on US unemployment could somewhat affect EUR/USD by the close of the week. The figure is estimated to drop to 3.9% versus 4%, while Nonfarm Payrolls are seen to increase by 438K.

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