BOJ Sounds Hawkish, Crude Oil Tanks, U.S. Dollar Remains Bid

The trading week was dominated by central banks’ interest rate decisions and statements, and the true price action started only on Wednesday. Until then, the Retail Sales in the United States showed a decline for the month of February, although the loss was offset by January sales being revised higher. 

On Wednesday, the Fed did the impossible and suggested more easing on a growing economy with higher inflation expectations. The market reacted as the Fed intended, the yields on the long-term debt dropped, the dollar declined, and stocks made a new all-time high. However, one day later, the party ended, as U.S. yields shot higher right at the start of the London session. As a consequence, everything reversed.

The best example of the confusion in the markets comes from the EURUSD exchange rate. Last week on Thursday, the pair rose from 1.19 close to 1.20 at the ECB meeting and press conference. By the time the Fed was due this week, the pair had erased the entire move.

Wednesday, during and after the Fed press conference, the EURUSD pulled the same trick – it rose from 1.19 close to 1.20, only to fully retract the next day. Hence, we may say that, from the EURUSD point of view, the last week or so meant the only consolidation around the 1.19 level. Other currency pairs moved similarly, with the AUD pairs a bit more volatile due to the RBA’s recent actions and the volatility in the U.S. stock market.

Speaking of equities, the current period is crucial to see if the bullish trend ends or not. A big part of the recent fiscal stimulus will end up in the stock market, and if we still see a decline, it means that outflows exceed inflows.

The Bank of England and the Bank of Japan turned out to be non-events for the markets. However, the price action on the commodity markets turned out to be interesting.

Crude oil had a tough day yesterday. Toward the end of the North American session, it dropped a whopping 7.9%, triggering a move higher in the CAD pairs and a general risk-off sentiment. Somehow, gold and silver held their levels.

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Disclaimer: None of the content in this article should be viewed as investment advice or a recommendation to buy or sell. Past performance/statistics may not necessarily reflect future ...

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