London 25/05/2022

During the last two days, the US dollar had certain pressures, mostly caused by the lower bond yields. The US 10-year bond yield dropped to 2.73%, which is a big fall if we think that almost three weeks ago it was above 3.20%. In a few hours, the FOMC will release the minutes, referring to May’s meeting of the counterparties and the markets have open ears to get more hints regarding the monetary policy and the interest rate hikes that may occur in the next Fed meetings. There’s widely widespread anticipation amongst the markets that Fed will raise the interest rates by 50 bps, in the next two following meetings.
Today the US dollar is making some profits while in Europe, Christine Lagarde said that the interest rates may return to positive, before the end of the 3rd quarter of 2020. As per the macroeconomic announcements, the durable goods orders in the US were much below expectations but this fact was almost ignored by the FX markets as the US dollar remained unchanged. Except for Germany, all the PMIs that were announced yesterday in Europe, US and UK were also below market expectation and this result has helped the risk-off mood and the negative sentiment to return.
EURUSD (current price at 1.0655) is still bullish this week, although today there’s a strong bearish trend. The ceiling of the EURUSD this week is the price area of 1.0750 and after hitting this price, many sellers appeared. Although the PMIs in Eurozone and France were worse than expected, Germany had a better performance, not only at the PMIs but at the business climate and consumer confidence as well. Also, the German GDP increased by 3.8% in the 1st quarter of 2022, on yearly basis. The downtrend has not changed so far and it may be accelerated below 1.06 while it takes a solid breakout above 1.0750 for bulls to take over.

GBPUSD (current price at 1.2498) is very close to its weekly open price, although it performed serious profits until yesterday, reaching the price area of 1.26. The Services PMI in the UK which was announced at 51.8 in May was well below the 58.9 of the previous month and many investors think that the recession scenario is more possible to happen. The anticipation is that the Bank of England will be more cautious regarding a tighter monetary policy and future interest rate hikes, as the risk of growth harm may be too high. A hawkish stance of the Fed in the FOMC minutes release may help the US dollar and may cause a further drop in GBPUSD, especially if the support of 1.2470 is broken out.

USDJPY (current price at 127.19) keeps on dropping for the 3rd consecutive week. Relatively weak USD and a big correction in bond yields are important reasons for this bearish trend. There were no important economic announcements in Japan this week so far but the higher inflation that was announced in the previous days has caused a perception that finally the Bank of Japan will quit the ultra-loose monetary policy and the negative interest rates. This perception makes the Japanese currency stronger and we should not forget that 3 weeks ago it reached its highest price in the last 20 years which is indeed an overbought state. Below 126.30 the pair will be at its lowest price of the last 40 days and a downtrend is possible. The more it approaches the price of 130, the more the bulls have a better chance.

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.

Leave a comment