Mid week currency markets review

DISCLAIMER: The information produced by aQuant is of a general nature only. It is not personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
The Chinese real-estate giant Evergrande is the big issue of the current week since the gathering concerns regarding the company’s sustainability have caused turbulence to all markets, including the currency markets. The dollar is very close to its weekly open price but the volatility is not equally low. Today, Evergrande has been put in second place as a series of announcements in Fed dominate the markets: Interest Rates decision, Monetary Policy Statement, Economic Projections, and the Press Conference. Any possible hints for early tapering (reduction of the bond-buying program by the Fed) could increase volatility and may strengthen the USD.
EURUSD (current price 1.1726) has consolidated since the beginning of the week between 1.17 and 1.1750 as the investors save liquidity for the Fed session. The European economic calendar is very poor so far and only on Thursday, the PMIs announcements in Eurozone & Germany make sense for the EUR. There’s a mini downtrend for the pair from early September that reflects the strength of the USD but yesterday on the daily chart, there was a reversal candlestick pattern that needs confirmation above 1.1750.
GBPUSD (current price 1.3633) is very bearish this week, having lost more than 100 pips already. The big correction in US stock markets created extra demand for the USD. Both the US and UK have Interest Rates and Monetary Policy decisions this week and although the Bank of England has increased probability compared to Fed, to tighten the Monetary Policy, the pair has a clear bearish direction. We expect high volatility during the next hours but the pair has approached the very strong support zone of 1.3570 and we may see bullish reactions.
USDJPY (current price 109.53) had two bearish days (Monday & Tuesday) but today it performs a mini recovery, along with a mild rise of the bond yields. The Bank of Japan kept the Interest Rates unchanged but revised down the economic predictions due to the COVID-19 delayed recovery but this fact is ignored by the markets. The JPY is favored as a safe-haven asset in between concerns for Evergrande but the USD and the Fed’s decisions today will be the most critical factors. Below 109.10 the bearish direction is obvious but if the pair managed to catch 110 again, the bears are over for the moment.

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