Some fundamentals that will continue to play a big part this week; ECB officials' complaints about the high Euro, geopolitical risks post-Crimean referendum, and alarming news from China.

The charts this week are predicted to be dominated by high volatility movements ahead of March 18-19 FOMC Meetings. Apart from that, there are several fundamentals that has been interrupting financial market last week and will continue to do so this week. They are ECB officials complaint of the high Euro, geopolitical risks post-Crimean referendum, and some alarming news from Chinese economy.

 

1. The Fed Will Shifts Its Forward Guidance

David Song from DailyFx suggested USD vulnerability ahead of FOMC meeting. The reason is, although the market fully expect FOMC to continue QE tapering, but there are indications that the Fed will shifts its quantitative guidance into a qualitative one in deciding when to increase interest rates. It means they will discard unemployment stats for more wholesome indicators from the job market. This dovish outlook, as well as FOMC members' opposing opinions could result in sharp movements, on the chart.

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2. Ukraine Gopolitical Mess Is Still Exist, But Fades

Apart from FOMC, another critical issue is the fate of Crimea. Referendum conducted with Russian escorts showed more than 90% Crimeans want to separate from Ukraine and join the Russians. Soon after, US and Europe sanctioned Russia. The situation briefly flicked the market. Gold surged, establishing the bullish trend it has been in since Ukraine bloody riot. However, its high impact received only by the commodity market, as its influence in forx and stocks gradually diminished. S&P 500 index rose 1% post-referendum. And this morning, Yen and Swissy stopped its rally. Why is this?

Uncertainty haunted the market before referendum and managed to drag it down, but afterward, the market are assured by peaceful referendum. In addition, US and Europe sanctions on Russia are thought to be limited in the region, and will not extend internationally. Russia is most assuredly will have to endure the most, but what people worried of is actually its side effect to German economy. Around a third of German's energy is supplied by Russia, plus, export-import relationship between the two is quite close.


3. Draghi Said, Euro's Too Strong

Governor of ECB, Mario Draghi, and his peers thought that Euro is too strong. The circumstances made it a problem for periphery countries, as well as increase concerns on exports. It brings out the question if ECB will soon loosen its policy, such as cutting interest rates or channelling stimulus. Nevertheless, the path most probably will not be taken as long as Euro has not yet touched 1.4000.

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4. Two Failed Companies In Mainland China

This morning, Bloomberg reported that Chinese real estate company Zhejiang Xingrun Real Estate Co. can not pay its 3.5 billion Yuan debt (approx. 566.6 million USD) toward 15 banks, including China Construction Bank Corp. who hold 1 billion of the total debt. Related parties is in discussion to find solution to this proble, but there are no breakthrough yet. A week ago, Shanghai Chaori Solar Energy Science & Technology Co recorded the first default in mainland China bonds market. The default was valued only around 1 billion Yuan, but successfully dragged Asian stocks down for some time afterward.

The two incidents is being thought as signals that threats of defaults in China market has sharpened and there are more waiting to follow behind. However, for the time being, its effect is still limited to the stock market. Forex market apparently much more comfortable with rising risk, as shown by market interest toward Euro and Aussie yesterday in the midst of geopolitical tensions and China economic concerns.

Nevertheless, all eyes are on FOMC meeting, particularly to ascertain the direction of the market next. Take care on the market this week; the volatility could make or break your balance.