Although this week and next are short ones in many parts of the world due to the Easter holidays, traders are not really having the opportunity to put their feet up and take it easy.
There is still plenty of volatility and unknowns when it comes to markets. The last few days have seen stock markets sell off quite heavily once more and the US dollar make further gains, almost getting to fresh two year highs.
It is perhaps difficult to feel sorry for central bankers, as a breed, but 2022 has certainly shaped up to be a much harder year than many of them can remember since the financial crisis.
Thursday’s European Central Bank rate decision is going to attract a lot of attention. Like in other economies, the ECB has to try and combat inflation, without throttling the economy.
But an extra dimension here is a report this week forecasting that if the EU bans Russian oil and gas, then it will push the economic zone into recession. When you are struggling to balance raising rates to cap inflation, that sort of outlook hardly helps.
The euro is the market to watch here. It has slid by 11% against the US dollar since May of last year. Traders are hardly flocking to snap up the euro at these levels—but it is not in freefall either.
Perhaps it is reflecting the dilemma the central bank is facing at the moment and the market is waiting for a clearer direction on policy for the rest of this year. But barring any significant surprises, the euro may well be near a level where sentiment finally starts to change and we see at least the first signs of recovery.
The pandemic low for EUR/USD was ahead of 1.06, and this is the level that many are likely to be focused on as a potential floor in the weeks ahead.
Next week, China releases GDP data on Monday, when some traders may still be tucking into their chocolate eggs. This could be seen as something of a barometer for the state of the world economy, so it seems unlikely that markets are going to have a break from volatility anytime soon.
The real test for stock markets now is whether the major indices, such as the S&P 500 and NASDAQ can hold above the March lows. If these get broken, it would not be surprising to see another wave of selling as more investors head for the exits.
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