Last week was mainly influenced by the rise in geopolitical tensions in regards to the war with Iran. The rising oil price can be seen as a result. Although prices had stabilized at the start of last week, the markets ended up surging upwards again in a fit of volatility. Especially the US CPI data remains sticky at higher levels. This week might be crucial in regards to various the Central Bank actions. Will the Fed eventually start cutting rates in order to support the economy? Such move might be long overdue but would also potentially cause prices to soar again. Currently, it is only expected that the Royal Bank of Australia will increase interest rates in order to offset the rise in prices. The AUD has been under pressure in recent days, as stock markets fade amid negative risk sentiment in equities. Whether a rate hike might help supporting the AUD remains in doubt.

The strength of the Dollar also causes precious metals to weaken. Gold and silver both keep pushing lower, potentially also due to early profit- taking moves. Such action often happens during early times of falling stock markets as traders like to make use of free liquidity.

Important events this week:

– US- interest rate decision- It is expected that the Fed leaves the interest rate at 3.75% during the current meeting. The ongoing war with Iran might cause prices to rise further, as not only oil prices keep rising but also the rise in subsequent byproducts might harm economic activity. At the same time recent NFP employment data suggests, that the economy keeps shrinking. This might be taken into consideration to cut interest rates to support the labor market. The Fed needs to keep balance between both. 

AUDUSD, weekly chart

The AUDUSD currency pair remains interesting. First of all, an increase in rates should boost the AUD. Yet, the risk sentiment currently remains negative and hence the expected rate- hike might not add much positive momentum to the Aussi. Secondly, the strength of the Dollar might continue and with that weakness in equities and a correction in the currency pair might occur. The weekly chart above and the bearish- looking pinbar candlestick pattern might offer more clarity as well. Traders should pay attention at the level of 0.6950. A break below might indicate more selling pressure, while the upside might only resume pace above 0.7130. The rate decision will take place on Wednesday, 18^th March at 19:00 CET.

– JP and EU rate decisions – It is not expected that Christine Lagarde from the ECB will cut rates this week. The interest rate is expected to remain at 2.15% but her wording during the press conference might move markets. The EURJPY currency pair should be in focus. Before the ECBs decision also the BoJ is expected to give their rate outlook. Any surprise hike might give the JPY a boost, as potential small rate adjustments can be expected by the BoJ. The Bank of Japan has tilted towards potential rate increases “if the economic activity will allow”, according to previous statements. 

EURJPY, weekly chart

The EUR has been under pressure against other currencies, in particular against the USD. While the JPY has been losing steam, not only due to the very low interest rate (“carry trade”), this trend might soon start to reverse. During risk- off periods the Yen has oftentimes been a sort of safe- haven currency and potential rate hikes might support this view. A break of the important psychological support zone of 181.00 might signal that the trend will come to a halt causing further weakness in this FX pair. The rate decisions will be held on Thursday, 19^th of March during early morning hours in Japan as well as at 14:15 CET in Europe with the ECB.