London 10/06/2022
8.6% was the inflation in May that was announced today in the US, well above the 8.3% that the markets estimated which was also the inflation rate in April. A bullish jump was the immediate reaction of the US dollar just after the announcement but as time passes by, the dollar is losing strength. In any case, the US dollar will end this week with remarkable profits and the USD Index is approaching the price area of 105 again which is the highest price in the last 20 years. The Fed seems determined to tighten the monetary policy even more and the probability of raising the interest rates by 0.50% each time for the next two sessions, is extremely high. Yesterday took place the other big event of the week which was the interest rates decision in the Eurozone. No change in rates was the decision but the press conference and the statements that followed revealed useful information. More specifically, according to the ECB, the Asset Purchase Program (APP) will end early in the third quarter of the current year and it will be followed by a 0.25% interest rate raise. The ECB though avoided committing to another raise in September which is why the euro weakened very much. Those two major events overshadowed the rest of the macroeconomic activity which was not so insignificant. China announced the inflation in May at 2.1% while all the major stock markets are in a sharp downtrend this week. Finally, the bond yields rose for the 2nd week in a row and the US 10-year has returned above 3% for good.

EURUSD (current price at 1.0525) is in a heavy bearish trend this week, following the downtrend of the previous week. The US dollar is getting stronger and stronger as the high inflation that was announced in the US almost forces the Fed to take hard actions with tight monetary policy and many interest rate hikes. On the contrary, the ECB is taking action in slow steps as the only official commitment for raising the interest rates is 0.25% in July. The divergence in the monetary policy and the interest rates creates a strong downtrend for the pair. Technically speaking, there is no obvious support for the EURUSD until the price area of 1.0350 which was the pair’s price at 13/5 and it was the lowest price of the last 5.5 years.
GBPUSD (current price at 1.2402) is in a downtrend this week, mostly due to the strength of the US dollar. The high inflation in the US and the good macroeconomic outlook of the economy, allows the Fed to apply its policy and to act accordingly with a series of interest rate hikes. In the UK, there is a lack of macro announcements during the last two weeks but a mini-political crisis that led to a no-confidence vote and some complications regarding the Northern Ireland Protocol. If the strength of the dollar carries on, the pair reaches the price area of 1.2155 again.
USDJPY (current price at 134.06) is in a second consecutive week in a heavy uptrend. Many factors have allowed the pair to develop such a strong bullish trend and the most important is the strength of the US dollar and the rising bond yields. Also in Japan, all the statements converge that the loose monetary policy and the negative interest rates will continue as the low inflation rate allows it. The pair is very close to 135.15 which is the highest price since the beginning of 2002.

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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