London 06/04/2022
Russia is very close to a credit default after the US announcement that payments in dollars will not be accepted. It means that the sanctions on Russia from the West are getting bigger and stronger no matter if the consequences affect the Western countries as well. The war developments and the risk mood that they affect is the most dominant factor in the financial markets nowadays.
Besides the war and its effect on the global economies, we need to underline the significant strength of the US dollar. The USD index has climbed above 99 which is the highest price over the last 23 months. The Fed seems hawkish and the perception of the markets is that in May’s session, there may be an interest rate hike of 0.50%. Also, following the previous week’s positive data over the US Labor Market,  the PMIs that were announced on Tuesday were in a positive area as well. Finally, the bond yields keep on rising this week too and the US 10-year bond yield has climbed to 2.63% while the weekly opening price was at 2.40%. Later today there is the Federal Open Market Committee minutes release (FOMC) and even if no decisions are expected to be made we may learn extra information regarding the intentions of the Fed.
In Europe more sanctions are announced as well, leading the conflict between Russia and Europe to the edge. European officers mentioned that they will move the policy to a more neutral position later this year via a combination of balance sheet reduction and rate hikes.
EURUSD (current price at 1.0910) is bearish this week following the strength of the US dollar but today there are attempts of bullish recovery. The Imports/Exports/Trade Balance in Germany announced in satisfactory level and the PMIs in Eurozone also announced above market expectations. It is obvious though, that the European economies are likely to suffer through an energy crisis caused by the Russian war and the sanctions. The obvious target for the pair’s sellers is the price area of 1.08  which is the lowest price in the last two years.
GBPUSD (current price at 1.3070) is mildly bearish this week mostly due to the strong US currency. There are some statements during the current week from officers of the Bank of England with considerations about the inflation risks and possible weakness of the economy. These statements were interpreted by the markets as a dovish view. The UK economic calendar is poor this week and only the PMI was announced (above expectations) so it seems that the developments of the war in Ukraine and the intentions of the central banks dominate the pair’s trend and volatility. If the strength of the US dollar carries on, we may see the pair approaching the very critical price zone of 1.30. It takes a bullish breakout above 1.33 to have an established reaction.
USDJPY (current price at 123.83) is bullish for one more week. The strength of the dollar and the big rise of the bond yields are factors that help the pair’s uptrend. There are some rumors about a tighter monetary policy by the Bank of Japan but most analysts agree that the US has a more aggressive monetary policy and it will apply several interest rate hikes throughout the current year. The Japanese economic calendar is relatively poor this week but the pair has enough momentum to reach the price area of 125. Above this level, there is an important resistance at 125.85 and if there is a bullish break out of it then we will see the highest price of the last 20 years.

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.

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