London 20/05/2022
The current week is ending and the US dollar has lost all of its profits from the two previous weeks. There is a remarkable correction in the bond yields for the 2nd week in a row, as the US 10-year bond yield dropped yesterday at the price of 2.78%, which is the lowest price since April 27th. Since the US economic calendar did not contain any important news or announcements, the USD falling should be addressed to the certain fears & concerns of the markets for a recession in the US economy, possibly caused by the tight monetary policy and the continuous interest rates hikes from Fed.
Europe had a more full economic calendar: the inflation in the Eurozone was announced at 7.4% in April, a bit lower than the 7.5% in March, and the GDP increased by 5.1% in the Q1 2022 but the euro was boosted mostly from the statement of Klaas Knot who is the current President of the Dutch central bank De Nederlandsche Bank (DNB) and a member of the Governing Council of the European Central Bank who said that a 0.50% rate hike is possible enough if the inflation insists on the following months.
All the major US indices are bearish this week, in contrast with the European ones which perform mild profits. There is a significant bullish recovery in gold but the US oil persists at $110 as the fears of the lack of support override the fears of the lowest demand that a recession may cause.
EURUSD (current price at 1.0568) has its first solid bullish, since the end of March. Following the weakness of the US dollar from the beginning of the week, the pair returned positively from last week’s lowest price at 1.0350 which was also the lowest price in the last 5.5 years. There is a more hawkish feeling amongst the markets regarding the ECB’s attitude since the high inflation in the Eurozone seems to be consolidating, having in mind that there has been no interest rate hike since 2016. A bullish break out above 1.1650 may be considered as a signal for a further uptrend because it will be the highest EURUSD price in May. Below 1.0470, technically, the downtrend returns.
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GBPUSD (current price at 1.2490) is running through one of its most bullish weeks during the last months. Beyond the weakness of the dollar, the sterling appears stronger due to a series of reasons. First of all, the super-high inflation that was announced in the UK at 9% in April, caused anticipation in the markets that the Bank of England will tighten the monetary policy even more and will apply several interest rate hikes till the end of the year. Also, there were some positive economic announcements this week: the unemployment rate dropped to 3.7% in April (from 3.8% in March) and the retail sales rose in the same month by 1.4%, while the markets were expecting a negative number. Given all the above and keeping in mind that the dollar is the most critical factor that affects the pair, the recovery will become stronger above 1.2640 but any possible retracement below 1.2330 will bring the pair back to its destination to 1.20.
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USDJPY (current price 127.87) continues for the 2nd week in a row in its bearish course, affected by the lower bond yields (as we saw above) and by the weakness of the dollar. A series of economic announcements have helped the Japanese currency to recover as well. The Japanese GDP in the 1st quarter of 2022, fell only by -0.2% which is a better result than the markets expected. Positive was also the result of the Japanese industrial production in March, at +0.3% compared to the previous month. The most critical factor though was the announcement of the Japanese inflation at 2.5% in April which is a result that may make the counterparties of the Bank of Japan reconsider the ultra-loose monetary policy and the negative interest rates. Important is the support at 127 because below it, the downtrend may accelerate. USDJPY needs to approach 130 again to earn more credits on the upwards side.
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