Last week, market sentiment remained volatile. The previous weekend's attacks by Iran on Israel sparked uncertainty, which eased over the week but was reignited by Israel's retaliation. The possibility of a broader regional escalation remains uncertain, with sources from Iran indicating no immediate plans for retaliation. This uncertainty severely impacted global financial markets, enhancing the appeal of precious metals as safe-haven assets. Hawkish stances from central bank officials last week also heightened market selling pressure. Meanwhile, a strong dollar has been storming through Asian currencies.

In U.S. equities, the Dow Jones Industrial Average rose by 0.56%, ending the week virtually flat with a cumulative gain of 0.01%; the Nasdaq fell 2.05%, marking its worst weekly performance since November 2022 with a cumulative drop of 5.52%; and the S&P 500 fell by 0.88%, declining for the sixth consecutive day with a cumulative drop of 3.05%.

Gold prices rose for the fifth consecutive week, marking the longest rally since January 2023. Spot gold closed at $2,392.00 per ounce, having peaked at $2,417.80 during the week, rising over 2%.

Silver surged to $28.94 per ounce, with fears pushing towards a new high of $30.13 in February 2021 as geopolitical tensions escalated.

Due to hawkish fears sparked by Powell, the U.S. Dollar Index broke through a five-month high of 106.50 on April 16. The safe-haven Japanese yen initially strengthened significantly against the U.S. dollar due to Israel's actions against Iran, dropping the USD/JPY exchange rate to 153.60, though it later rebounded. The yen remains near a 34-year low, and investors are wary of potential intervention by the Japanese government. The yuan fluctuates near its May low, with USD/CNH falling 0.24% over the week to 7.2470.

Oil prices rose due to escalating geopolitical risks, but this may be short-lived as geopolitical risk premiums usually do not sustain oil price trends. With tensions easing in Iran, oil prices have since retracted their gains. WTI crude ended the week down 3.39%; Brent crude futures for June were up slightly by 0.2%, but still posted a weekly loss exceeding 3.49%.

U.S. Treasury yields for 2-year, 5-year, and 10-year notes all fell, with rates remaining near multi-month highs. Bitcoin saw a slight decrease after news of its fourth 'halving' event, with prices fluctuating above $63,000.

Asian currencies faced a "perfect storm" last week. Whether major economies like the Japanese yen, Indian rupee, and South Korean won, or smaller currencies like the Philippine peso and Vietnamese dong, all faced renewed selling pressure. This valuation wave prompted central banks across Asia to take emergency actions. Last Wednesday, central bank officials from Japan and Korea intervened in the forex market; the central bank directly entered the market by selling high-yield securities and buying foreign currency to track their currencies' depreciation.

Despite the scarcity of macroeconomic data last week, the data released was generally strong. U.S. retail sales in March exceeded expectations. However, favorable seasonal adjustments and declines in some 'high-price' categories led investors to question whether the underlying trend was indeed strong. Although U.S. macroeconomic data showed little sign of cooling, markets still optimistically believe that deflation could persist into the second half of this year with the Federal Reserve expected to cut rates three times.

This Week's Outlook:

Yet another week dominated by bets on when the Fed is most likely to start a loosening cycle, the dollar reached new highs, while the belief in the ECB's June rate cut continues to rise. Despite the U.S. Dollar Index nearing new highs around 106.51, it remains a turbulent week for the dollar.

Tom Lee, Co-founder and Head of Research at Fundstrat, warns not to buy into stock market dips as he anticipates a wave of selling in the coming weeks before markets truly bottom out. If conflicts in the Middle East do not escalate further, U.S. stocks may bottom out next month or even earlier.

The market has two main focal points this week. First, the U.S. Q1 GDP: Economists expect the adjusted annualized growth rate for Q1 to be 2.1%, down from 3.4% in Q4. If the actual GDP growth data for Q1 exceeds expectations, it could be bullish for the dollar as markets may further reduce the likelihood of the Fed cutting rates in 2024 while potentially widening the gap in monetary policy statistics among major global central banks.

Second, the March PCE data is approaching: Economists expect the overall PCE to grow by 2.6% this year, up from 2.5% in the first two months; the core PCE is expected to grow by 2.8%, consistent with last month's data. If the month-over-month core PCE data meets expectations, the March increase could be 4.25% compared to February's 3.5% growth. This could significantly affect the yield on the front end of the curve, with U.S. two-year Treasuries possibly soaring and climbing beyond the recent consolidation level near 5%.

In Europe, according to several voting members of the European Central Bank, the ECB is poised to swiftly change its monetary policy stance and begin cutting rates, with the next ECB meeting in June likely to commence. Since ECB President Lagarde's endorsement at the March to June 6 meeting, the messages released by various central bank members have been very clear and nearly consistent: if inflation continues to decline, rates will drop.

In Japan, the Bank of Japan is expected to maintain its stance at the policy meeting ending early Friday morning this week, after making a decisive move in March to raise policy rates from negative territory. The Bank of Japan will announce a new economic budget up to 2026 after recent signs of stable wage growth, naturally focusing on the continued expectations for inflation. The market estimates that the Bank of Japan will raise rates once more this year, most likely at the July meeting.

China's main data focus this week will be the preliminary PMI for April, allowing the market to assess economic strength at the start of the second quarter. Although the winter brought welcome news of a global manufacturing cycle revival, the latest leading signals show preliminary signs that the manufacturing cycle will peak in the second half of the year. Additionally, the recent rise in oil and industrial metal prices will suppress future demand.

Furthermore, comments from policymakers at the Bank of England and developments in Middle Eastern geopolitics will be closely monitored.

This Week's Key Events and Economic Data Overview: (Beijing Time)

Key Events:

• Tuesday (April 22): U.S. Treasury Secretary Yellen holds a spring meeting press conference
• Thursday (April 18): Bank of Canada publishes minutes of the monetary policy meeting; Bank of England Governor Bailey speaks at an event at the Institute of International Finance; IMF and World Bank hold the 2024 Spring Meeting until April 20
• Friday (April 19): Bank of Japan Governor Kazuo Ueda holds a monetary policy press conference; Bank of Japan publishes the interest rate decision and outlook report; Swiss National Bank President Jordan speaks

Economic Data Overview:

• Monday (April 22): UK Q2 CBI Business Optimism Index; Eurozone April Consumer Confidence Index preliminary
• Tuesday (April 23): Australia ANZ Consumer Confidence Index for the week ending April 21; Eurozone April SPGI Manufacturing PMI preliminary; UK April SPGI Manufacturing PMI preliminary; U.S. March Building Permits Annualized Total revised (in thousands); U.S. April SPGI Manufacturing PMI preliminary; U.S. March Adjusted New Home Sales Annualized Total (in thousands)
• Wednesday (April 24): Australia Q1 CPI QoQ/YoY (%); Germany April IFO Business Climate Index; U.S. March Durable Goods Orders MoM preliminary (%); Canada February Retail Sales MoM (%); U.S. EIA Crude Oil Inventory Change for the week ending April 19 (in thousands); U.S. EIA Weekly Crude Oil Imports for the week ending April 19 (in thousands)
• Thursday (April 25): Germany May Gfk Consumer Confidence Index; UK April CBI Retail Sales Differential; U.S. Q1 Real GDP Annualized QoQ preliminary (%); U.S. Q1 Core PCE Price Index Annualized QoQ preliminary (%); U.S. March Wholesale Inventories MoM preliminary (%); U.S. Initial Jobless Claims for the week ending April 20 (in thousands)
• Friday (April 26): UK April Gfk Consumer Confidence Index; Japan April Tokyo CPI YoY (%); Japan April 26 Central Bank Policy Benchmark Interest Rate Ceiling (%); U.S. March PCE Price Index YoY (%); U.S. April University of Michigan Consumer Sentiment Index final

XAGUSD

Escalating Geopolitical Tensions; Silver's Outlook Remains Strong

Just before last weekend, reports from ABC News stated that Israeli missiles struck a target inside Iran. U.S. intelligence could not confirm reports of airstrikes in Syria and Iraq, while Saudi Arabia reported that political hostilities in the Middle East were about to escalate. Spot silver experienced volatile trading, briefly soaring to $28.94 per ounce as geopolitical tensions escalated, threatening to reach a new high of $30.13, last seen in February 2021. However, as Iran de-escalated the situation, risk-off sentiment receded, leading to a retracement in safe-haven assets. Silver prices then sharply corrected, reversing back to $28.30. Reports of Iranian military actions and Israel’s recent retaliatory strikes have solidified silver’s short-term status as a safe-haven asset, suggesting potential for continued price increases. Silver’s near-term prospects remain robust as escalating geopolitical tensions sustain demand for safe-haven assets. Meanwhile, global markets have displayed specific asset trends, as risk-sensitive currencies recovered losses from the Asian morning session, while global equities continue to face pressure.

Technical Analysis: Over the past week, silver prices mostly traded within a narrow range of $28 to $29 per ounce, indicating a sharp contraction in volatility that might break in either direction. The 14-day Relative Strength Index (RSI) oscillates within a range of 55.00 to 75.00, showing market participants' indecision. Silver faces robust resistance at the lower edge of the previously breached bullish channel. So far, silver prices struggle to re-enter this bullish channel, displaying a temporary bearish inclination. Silver needs positive momentum to help push the price back into an upward trend and surpass the $28.80 per ounce mark (April 12th high). If achieved, this could pave the way for silver to rebound towards key targets of $29.80 and $30.00 (psychological level). The bullish scenario remains valid for the near future. However, should silver break below $28.00 per ounce, this could lead to more intraday declines and a bearish adjustment, with the next bearish target below the previous week's low of $26.86. The support level is at $26.22 (38.2% Fibonacci retracement from $49.81 to $11.64).

This Week’s Conclusion: Due to rising U.S. Treasury yields and a stronger dollar, silver has climbed, maintaining above the $28.00 mark for six consecutive trading days. The gray metal continues to hold the $28.00 level, with silver still leaning upward as momentum favors the bulls.

This Week's Range: $26.86—$30.00

This Week’s Strategy: Consider buying silver on dips this week, as geopolitical tensions may continue to drive demand for safe-haven assets.

USDCHN

Renminbi Stabilizes Against a Basket of Currencies

Last week, official data released by China's National Bureau of Statistics exceeded market expectations, including a 5.3% annual growth rate for China's economy in the first quarter and a 1.6% increase in Q1 GDP. March's year-on-year retail sales increased by 3.1% and industrial production by 4.5%. In the same month, fixed asset investment grew at a 4.5% annual rate, surpassing the expected 4.3% and the previous 4.2%. Last Thursday, the Deputy Governor of the People's Bank of China stated that the Renminbi exchange rate would be maintained at a stable level. Recent improvements in the Chinese economy are expected to support the Renminbi's exchange rate. He also expressed confidence in maintaining stability in the foreign exchange market and preventing one-sided expectations about the Renminbi. Amidst significant fluctuations in the exchange rates of many Asian countries, the robust start to the economy in the first quarter, marginal improvements in various sectors, and an increase in positive factors are likely to offset external disturbances and support the Renminbi exchange rate; the outlook is even more supportive in the medium to long term. As China's economy enters a stage of high-quality development and achieves a balanced international payments position, the depth and breadth of the foreign exchange market will expand, and the risk neutrality awareness of market participants is expected to significantly strengthen. The market response has stabilized the USD/CNH around 7.25, moving away from the early week's high of 7.2830.

Fundamentally, the Federal Reserve remains in a strong position in the short term, but given the substantial prior depreciation of the Renminbi against the dollar and the steady improvement in the domestic economy, the Renminbi is expected to gradually appreciate against a basket of currencies. The daily chart shows that the USD/CNH rebounded after touching the 7.2379 (lower Bollinger Band). The stochastic divergence and the current weak rally suggest that the Renminbi's depreciation may be losing momentum. The recent rally in USD/CNH reached a triple top formed on March 22, 23, and April 16 (7.2830 - 7.2840), and 7.2856 (76.4% Fibonacci retracement of 7.3469 to 7.0874). If it fails to return above these levels, it would further confirm the end of the USD/CNH rally. The market will then watch for a break below 7.2379 (lower Bollinger Band), and 7.2356 (last three weeks' low), after which the pair is expected to test lower levels at 7.2171 (50.0% Fibonacci retracement) and potentially move towards 7.2000 (psychological level) and 7.1981 (260-day moving average).

This Week's Conclusion: Comprehensive market analysis suggests that this round of Renminbi depreciation may have reached its end. The Renminbi is expected to gradually appreciate in the second half of the year as Fed rate hikes may have ceased, and the Chinese economy is expected to recover next year. These factors will support the Renminbi exchange rate.

This Week's Range: 7.2000—7.2856 This Week's Strategy: Recommend shorting USD on highs this week.

Disclaimer: The information contained herein (1) is proprietary to BCR and/or its content providers; (2) may not be copied or distributed; (3) is not warranted to be accurate, complete or timely; and, (4) does not constitute advice or a recommendation by BCR or its content providers in respect of the investment in financial instruments. Neither BCR or its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.