It is going to be full of doubt, fear, and hope after all!
January, and the first week of February, was a very heavy period for FX, Commodities, cryptos, and Stocks markets, especially with Central Banks meetings in Japan, China, US, UK, EU, and finally, US employment data. Still, inflation and the next steps of central banks is the main question in the markets. After all mentioned events and ahead of this week's US inflation, US Dollar Index still seems strong. Euro, the last week’s star performer after the ECB policy meeting and Lagarde press conference still in demand. And Gold, despite the strong US dollar, increasing, Stock markets are mixed and ignoring amazing reports, WTI is soft, but Gas losing all gains of last two weeks, and cryptocurrency market inspiring!
US Dollar.
US dollar ended the 2021with a 6.7% gain. And then in 2022, in the first half of January, the US dollar fell to fresh 2018 lows and then touched the 20 monthly high at the end of the month. And now in February, we can see the same scenario. At the end of January FED had a hawkish tone in its policy. The latest published economic and employment data also shows that the US economy growing fine and the employment level increasing. With increasing inflation, expecting more hawkish policies from FED is widely expected, which is supposed to lift the Dollar for the rest of the month. This support from United States Dollar can continue as long as higher inflation fears are there. At the same time, increasing geopolitical risk around Ukraine adds to market instability and US dollar demand. After great employment data, positive trade balance, and more than 78.4% win rate in the published earnings reports, Retail Sales and Inflation (10th), Consumer Confidence (22th), and 2021 Q4 GDP (24) will be the most important event and data to watch.
Euro
The common currency, unlike the US dollar, started a year on the right foot and was strong. And in the second half of January lost the ground the touch the two years low as the ECB Chair, Mrs. Lagarde pushed back market speculation of a rate hike this year. At the same time, with pricing on a faster rate hike in other economies, Euro was losing its charm due to carry trade. At the same time in risk-off mode, Euro lost the ground against safe-haven peers like the yen, franc, and US dollar. At the beginning of February, after ECB monetary policy meeting, after Mrs. Lagarde's speech and press conference, Euro suddenly started to increase, since Lagarde no longer ruled out an interest-rate hike this year. But later and after a few days, Mrs. Lagarde in the European parliament emphasized that in case of hawkish policies and decisions will be slowly, step by step with caution and thorough examination, which put more pressure on Euro. In the continuation of this month, other than economic data and events, geopolitical tensions in Eastern Europe and uncertainties ahead of the upcoming general election in France can decrease the interest in the Euro. About the events, Eurozone Q4 GDP and German ZEW Index (15th), Eurozone Industrial Production (16th), Flash PMI indices and German Manufacturing PMI (21st), and Eurozone Inflation (23rd), are the most important data and events to be watched.
Sterling
The pound started a year with a great movement, to test the fresh 23-month highs versus the euro and three-month highs against the US dollar. Since the BoE was the first G7 member to increase the rates, it was normal to see the Sterling in a stronger position against its crosses, especially against the Euro. Increasing geopolitical tensions and risks in the second half of January, caused a sell in the risky assets and safe-havens demand of Yen and US dollar attracted the buyers, while PM Boris Johnson's parties also brought the political turmoil to add the pressure on the Pound. While the BoE meeting and its 25bp rate hike, lifted the Pound at the beginning of February, still international geopolitical tensions and increasing uncertainty in the political atmosphere of the country, caped the bulls, and with increasing USD demand, Cable even could be more under pressure. Against the Euro also we have the same situation, especially with increasing the chance of rate hike by ECB. For the rest of the month, the Economic data will be the main driver for the Sterling. Q4 GDP and Manufacturing Production (11th), Labor Market Data (15th), Inflation (16th), Retail Sales (18th), and finally the PMI data (21st) will be the most important events and reports to watch in February, to find the asset's movements.
Yen
Unlike the Pound, as we just talked about, Yen was down in the first half of January, at the beginning of 2022. In the second half of January and the beginning of February, increasing risks, helped the currency to find the demand and get stronger against other currencies. Inflation concerns continue across the globe in the main global economies, and it will cause more tightening policies, the Japanese economy has not such trouble, therefore the spread between the Bond Yields will put the Japanese Yen in the weaker positions, especially if international geopolitical risks and sell-off in the stock markets, do not increase its demand. From the data front, Q4 GDP (15th), Trade Balance (17th), Inflation (18th & 25th), and Manufacturing PMI (21th) will be the most important numbers and events to watch.
Cryptocurrencies.
After almost three months downtrend, finally, BTC found the psychological $40k level as its main and strong support level to regain some of its losses during the past weeks. Under 40,000 we had some historical and important levels that BTC fans used to enter the market and stop the bears. However, the main question is still that, will that be the trend reverse or in a bigger timeframe, it was just a bonus of dead cat? Looking at the charts and historical numbers and levels can confirm that the $30k to $40k price range was always important and brought more support and demand for BTC. In the past three months always the price line was under the active wallet numbers line. And now, we can see with increasing the price, the active wallets also increasing, and bringing more volume to the market. From the news front, while we are still waiting to see the White House Executive Orders about the Cryptocurrencies, comments from Indian and Russian officials and central banks, increased the level of public trust, which can support the bulls for a bit longer time and read as a positive signal for whole crypto markets. Almost the same situation and reactions are expected for Ethereum, just at the different numbers and levels.
From the technical point of view, BTC has strong resistance at 44,600 USD, and breathing above this level can help the bulls in the rest of the month. However, it is not confirming the Bull Run for the long term. ETH also has the same strong resistance at 3,400 US dollars, and any continuing uptrend will start above this level. As long as it is trading under $3,400, the shadow of fear of further fall can be felt.
Wall Street
January was a very volatile month. Benchmark index, the S&P 500 started 2022 at an all-time high, and at the beginning of February, it was down by 5.3%. This correction in the market has been seen after that market started to pricing on faster ending QE and starting rate hike right after that. The market was so uncertain after the FED meeting since now. FOMC members have different ideas and their comments in the speeches always change the market sentiment. At the same time, we have great employment data in line with worrying inflation numbers. These data cause conflicting expectations. For February, this uncertainty can continue and we are not expecting to have a big change in the market unless we have a clear idea of what FED going to do. Therefore, what is the best to do in February is to "Wait and See".
With all economical concerns around, geopolitical tensions are also there, to increase the risk-on level. On the other hand, with great earning reports and more than a 76% win rate in the earnings (SP500 list), the overall market outlook is positive. However, as I mentioned above, for February, we have to wait and see the market reactions to the important economic data and ongoing global tensions.
