End of the week currencies review

The two major events of the week that we expected to affect the currency markets took place yesterday. As anticipated, the ECB left the Interest Rates unchanged at 0% and left the loose Monetary Policy unchanged as well. Christine Lagarde confirmed for one more time that the ECB will continue to support the Eurozone economy until the macroeconomic targets are achieved and also said that it is too early for tapering as the Inflation is at a controllable rate.
The second major event of the week was the announcement of the May Inflation in the USA which was finally 5%, much higher than the anticipated rate at 4.7%. The reasonable reaction of the markets would be the strengthening of the dollar because everybody would expect an early tapering from the Fed, with such a high Inflation rate. However, the USD dropped because the dominating anticipation of the markets is that the Fed will not act immediately, most likely because they consider that the Inflation is transitory and not a fundamental problem of the US economy. The USD today (Friday) is getting traction and the USD Index returned above 90, mostly due to some concerns regarding the G7 meeting today & tomorrow.
EURUSD (current price 1.2155) had a bullish trend at the beginning of the week but after the ECB and the US Inflation announcement, it turned bearish because the markets considered that the growth in Eurozone will not meet the expectations and because of the strong USD of the last hours. The range of the EURUSD during the last few weeks is between 1.21 and 1.2255 and as long as the pair is moving into this channel, there’s no obvious trend.
GBPUSD (current price 1.4150) had an extremely bullish day on Thursday, up to 1.4185 but today it appears retracement tendencies mostly because of the Brexit side effects and COVID-19 related fears. There are certain conflicts between UK and EU regarding the Brexit implementation rules and there are also certain concerns that the higher number of new COVID-19 cases may put the UK reopening date to the test. Today’s announcements of the UK Industrial Production and GDP that were both below expectations, created some extra pressure on GBP as well. The overall trend of the pair though is still bullish and a possible breakout above 1.4190 will enable this scenario even more.
USDJPY (current price 109.50) is recovering today after yesterday’s drop and it is still very close to the critical milestone price of 110. It is somehow weird because the bond yields that are always highly correlated with USDJPY have dropped during the last two days from 1.53% to 1.43%. Things became more blur as the results of the Japanese economy, released earlier today, were encouraging: Producer Price Index and Foreign Investments in Japan were better than expected. Below 109.20, USDJPY may start a bearish trend that will make sense with the above analysis.

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