Forex News March 15, 2022

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Recession

ZEW notes on the survey report

Expects stagflation in the coming months Collapsing economic expectations are accompanied by an extreme rise in inflation

Impact is felt across all sectors of the German economy

Particularly in energy-intensive sectors and the financial sector

The euro fell from 1.14 to 1.08 against the dollar as a result of the Russia-Ukraine crisis. The only solace is that there are no real European sanctions against Russian energy. Consumption activity is already being hit hard at this point. So, imagine the ramifications.

Germany

Germany March ZEW survey current conditions -21.4 vs -22.5 expected

Latest ZEW data – 15 March 2022

Prior -8.1

Expectations -39.3 vs 10.0 expected

That’s a poor reading, but it’s to be expected, even though the outlook reading shows a significant deterioration in sentiment. The Russia-Ukraine situation is largely to blame, with inflation fears skyrocketing, likely crippling consumer activity.

Bond yields

• Bond yields fall on the day, with the Fed in focus tomorrow.
• 10-year Treasury yields fall 5 basis points to 2.09 percent.
• Bond yields are falling on the day after reaching multi-year highs to begin the new week.
• Treasury yields are reversing some of yesterday’s gains, with 10-year yields now down 5 basis points to 2.09 percent. 2-year yields are down 4 basis points, remaining just above 1.80 percent.
• In the context of this week, 10-year yields are still attempting to break above the 2% mark.
• In Europe, 10-year German bund yields have fallen nearly 5 basis points to near 0.32 percent.
• There hasn’t been much movement in key trading drivers recently, with the Russia-Ukraine situation remaining unchanged. If nothing else, this suggests that bond volatility will be elevated ahead of the Fed’s meeting tomorrow.
• Powell and company will have a lot of communicating to do right away, deciding whether to hike by 25 bps or 50 bps. The former appears to be the consensus view and what markets have priced in, given that the Fed has also essentially boxed itself into it. But that doesn’t rule out more aggressive pricing in the coming months, when the Fed could hike rates by 50 basis points in May or June.
• Depending on the communication, that could cause the bond market to tremble.

Dollar

• The dollar loses some ground to begin the session
• The EUR/USD briefly rises above 1.1000
• The dollar is trading slightly lower to begin European morning trade, as market flows are currently mixed.
• Treasury yields and equities are lower, but currencies such as the euro are higher, while gold and oil are still consolidating losses for the day. To be honest, it’s difficult to make sense of the flows.
• 10-year Treasury yields have fallen 3 basis points to 2.11 percent. Futures on the S&P 500 are down 0.5 percent. However, the EUR/USD is gradually rising to just above 1.1000
• It is worth noting that price action is beginning to move above its key hourly moving averages @ 1.0967-85. For the past few sessions, that has been a key area on which sellers have relied.
• This comes as the dollar falls against the yen, with the USD/JPY falling 0.2 percent to 117.85. Meanwhile, GBP/USD is up more than 0.3 percent to 1.3050 after flirting with 1.3000 earlier. Aside from some general pushing and pulling, it’s difficult to draw many conclusions from the market at this point. Let’s see if we can get a more coherent picture of the situation in the coming hours. For the time being, the Fed meeting tomorrow will not make it any easier to interpret the moves.