London 13/04/2022

The strength of the US dollar continues as we’re in the middle of the week and the two dominant factors (the war in Ukraine and the inflation), both point in the bullish direction. The dollar has performed more than 2% in April and the USD Index has reached its highest price in the last 2 years. The war in Ukraine shows no signs of a diplomatic solution and the risk-off currencies, such as the USD are favored. On the contrary, riskier currencies such as the EUR, GBP, AUD, etc are under bearish pressure. The inflation in the US was announced in March at 8.5% which is significantly higher than the 7.9% of the previous month and obviously, there’s a high necessity for Fed to act. The probability of a 0.50% interest rate hike in May is 87%.
The major stock indices are bearish, gold and oil perform important profits and the bond yields keep on rising (the US 10-year bond yield is at 2.73%).
EURUSD (current price at 1.0825) is bearish this week, following the downtrend of April as it has dropped by 250 pips. The US currency became stronger after the anticipation of the markets that a series of interest rate hikes are on their way, after the very high rates of inflation. A few hours ago, another US inflation metric was released: the Producer Price Index which was announced at 11.2% YoY in March, much higher than the expectations. The inflation in Germany was at 7.6% but we should not wait for any actions by the ECB before the end of 2022. The EURUSD is very close to the important support of 1.05 and the next one is at 1.0635. In any case of positive news in Ukraine, we expect the pair to recover with a sharp uptrend.

GBPUSD (current price at 1.3002) is bearish so far but today there’s a certain attempt for recovery. The pair has managed to reach the price area of 1.30 again as it had dropped earlier to 1.2973. On Monday, the economic results that were announced in the UK regarding the GDP, the industrial production, and the manufacturing production were all negative and along with the dollar’s strength, the GBPUSD took a bearish direction. The unemployment rate in March at 3.8%, was a relatively positive surprise but the inflation that was announced today at 7% which is much higher than the 6.2% in February, made many investors believe that the Bank of England will become more hawkish and so the GBP is getting stronger. This bullish recovery does not seem to have much strength though, so we expect that the pair may continue its downtrend, maybe to the support of 1.2675.

USDJPY (current price at 125.92) keeps on rising after a pause that we saw yesterday. It is the 6th bullish week in a row. The US dollar is strong, the bond yields which are correlated with the pair are rising and the Bank of Japan insists on a loose monetary policy and the negative interest rates. A few hours ago, Governor Haruhiko Kuroda (Bank of Japan) highlighted the need to maintain the current monetary easing to support the economy that is yet to recover to pre-pandemic levels. These three bullish factors override the fact that the Japanese currency is a safe-haven asset that should be preferred during the war. The USDJPY is touching the very important resistance at 125.85 and in a case of a breakout, we may see it at 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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