London 23/2/2022
The fears and the concerns regarding a military conflict in Ukraine, caused by a Russian invasion, have calmed down as the markets react positively the last 2 days. President Biden has already introduced sanctions on Russia but markets consider the whole fact as a no big deal factor. The major stock indices are bullish yesterday and today. The crude oil performed a correction yesterday and a consolidation today. The US dollar index has slightly dropped, compared with the last week’s closing price with low volatility though. The US economic calendar was poor at the first three days of the week and the important announcements (GDP, initial jobless claims, durable goods orders, and Michigan consumer sentiment index) will take place during the last two days of the week.
The inflation in the eurozone (which is the most important announcement of the current week) was announced at 5.1% in January, a bit higher than December and exactly as the markets had estimated. According to the report of Eurostat “The euro area annual inflation rate was 5.1% in January 2022, up from 5.0% in December. A year earlier, the rate was 0.9%. European Union annual inflation was 5.6% in January 2022, up from 5.3% in December. A year earlier, the rate was 1.2%. The lowest annual rates were registered in France (3.3%), Portugal (3.4%), and Sweden (3.9%). The highest annual rates were recorded in Lithuania (12.3%), Estonia (11.0%), and Czechia (8.8%). Compared with December, annual inflation fell in eight Member States and rose in nineteen. In January, the highest contribution to the annual euro area inflation rate came from energy (+2.80 percentage points, pp), followed by services (+0.98 pp), food, alcohol & tobacco (+0.77 pp), and non-energy industrial goods (+0.56 pp). “
The bond yields started to become bullish again and the US 10-year bond yield has approached the rate of 2% again (current rate 1.97%). A markets’ reaction with a perception full of risk, most likely would lift the bond yields much higher.
EURUSD (current price 1.1337) is slightly bullish so far and the volatility is relatively low. The improved markets’ sentiment maybe should make the euro stronger but it seems that the difference in the interest rates policy between the Fed and the ECB, keeps the dollar resilient. The euro was not able to perform, even if the current week’s macros are positive: most of the PMI indicators in the eurozone and Germany were announced above expectations and the business climate in Germany is also positive. The inflation in the eurozone at 5.1% (as expected) does not change a lot regarding the monetary & the interest rates policy in the eurozone. The pair is moving between 1.1280 and 1.14 during the last 1.5 weeks and it takes a breakout either above or below this channel for trend development.
GBPUSD (current price 1.3576) has no trend in this week so far. Earlier today, the Bank of England released the monetary policy report, and later, Governor Andrew Bailey said that although there’s a strong probability for higher inflation rates, the investors should not bet on aggressive interest rate hikes. This phrase was interpreted by the markets as a dovish approaching, pressing the pair lower. The manufacturing & services PMIs were announced on Monday better than expected and this had given a bullish outlook to the pair. The GBPUSD is on an uptrend during the last 25 days but it takes a bullish breakout above 1.3645 and 1,3750 before we can speak of a strong trend.
USDJPY (current price 115.11) has developed a mild bullish course this week even if the US dollar is not strong. The rise of the bond yields has helped to pair to recover above 115 and the improved markets’ sentiment has thrown away some investors from the safe-haven characteristics JPY. Moreover, the continuous loose monetary policy from the Bank of Japan due to the low inflation in the country weakens the Japanese currency. The Japanese manufacturing & services PMIs were also below the expected rates so the USDJPY can rise more. Let’s not forget the very strong and important resistance at 116.35 which takes a lot of effort, news, and events to be broken out.
DISCLAIMER: The information produced by a-Quant 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.
