Weekly Overview – Last week was one of the most dramatic weeks in the past year for the global financial markets. Firstly, the earthquake in Japan not only took the lives of thousands and wrought devastation on the country, but it also added the spectre of a radiation disaster following the damages suffered by Japan’s nuclear reactors as a result of the tremors and ensuing tsunami.
If the crisis in Japan were not enough, the ongoing conflicts in Libya and Bahrain added to the already enflamed and uncertain markets and safe haven assets soared as a result with the yen reaching a record high of 76.25 against the greenback.
As the Japanese Yen soared to multi-decade highs last week, the G-7 agreed to jointly intervene in the currency markets in the first coordinated plan since 2000. After the decision was announced, the yen declined sharply against all major currencies.
Over the weekend, Western allies pressed ahead with a campaign against Col. Muammar Gaddafi’s government in Libya in a bid to protect Libyan civilians opposed to his regime. Gaddafi has promised retaliation and a vicious fight to death. The intervention is the biggest in an Arab country since the 2003 US-led invasion of Iraq.
Europe’s equity markets declined 4.5% across the board, the Japanese market declined 15% while the US S&P500 declined 4.2%.
Out of the US, the March Philadelphia Fed manufacturing index came out much higher than a month earlier at 43.4 and well above market forecasts. In fact, it was at its highest level since January 1984.
US consumer price inflation rose 0.5% in February. This number came out above the forecast as well.
This week, the financial markets are expected to stabilize as the situation in Japan appears to have been contained. Fighting in the Middle East and North Africa will most likely continue but a new ceasefire in Libya may allow for calm to prevail.
EUR/USD: The Euro was stronger against the US dollar for the entire week and gained momentum ahead of and after the G7 intervention. The Spanish bond auction that took place last week also went smoothly and supported the uptrend in the Euro and diverted the fears out of the European peripheral and back to the Middle East.
After breaking past 1.4100, the pair achieved its highest weekly close since January 2010, reinforcing the case for further gains as the common currency’s bullish momentum remains intact.
Resistance: 1.4277, 1.4350, 1.4450
Support: 1.4150, 1.4033, 1.8844