London 15/06/2022

Yesterday the US dollar climbed to its highest level, since December 2002. The USD index exceeded the last high price of 105.04 (May, 13th) and rose to 105.44. All investors & traders have put their eyes on Federal Open Market Committee (FOMC) tonight where, most likely, will be announced a new interest rate hike by the Fed. A hike by 0.50% is the most possible scenario while there’s a small probability for a 0.75% hike. Most analysts estimate that there will be more hikes by the Fed and 2022 will end with interest rates at 3.75% – 4%. It makes sense after all these, the exceptional strengthening of the dollar.
The European Central Bank (ECB) called for an ad hoc Governing Council meeting with a subject regarding the latest market updates and mostly the recent rally in the bond yields to almost every single country in the Eurozone. Markets await to see what kind of interventions or new tools will be suggested to fight the high inflation, a possible recession, and the high borrowing costs.  It is noteworthy that the US 10-year bond yield reached 3.50% yesterday and the German 10-year bond yield reached the rate of 1.77%.
As per the economic announcements, ahead of the FOMC and the ECB’s Lagarde speech, the inflation in Germany (harmonized index of consumer prices) was announced at 8.7% and the industrial production in the Eurozone dropped by 2% in April, compared with the previous year.
There is a very negative picture in the stock markets with heavy losses in US and Europe while heavy losses suffer both oil & gold prices this week as well.
EURUSD (current price at 1.0480) is bearish this week but managed to cover the biggest portion of its losses since yesterday it had dropped below 1.04. The emergency governing council meeting in Europe later day has triggered a bullish reaction of the euro but things seem very liquid as the meeting and the FOMC that follows may cause very high volatility. A 0.50% interest rate hike is expected today as the decision of the Fed and anything else will be a big surprise that may trigger heavy and volatile movements of the dollar. The major support in the case of a bearish trend is at 1.0350 and the bullish reaction will be better established above 1.0640.

GBPUSD (current price at 1.2079) is very bearish this week and yesterday dropped below 1.20 for the first time since March of 2020. Today we see a recovery though, mostly due to the temporary weakness of the US dollar. Besides the FOMC later today, tomorrow will take place the interest rates decision by the Bank of England and the latest estimations predict a 0.25% hike. There are other major reasons against the sterling this week. First of all, there are some complications regarding Brexit as BBC reported on Tuesday that the “EU set to take legal action against UK over post-Brexit deal changes.” Also, the economic announcements in the UK were disappointing: GDP, industrial & manufacturing production, and total trade balance in April were all below market expectations while the unemployment rate was announced at 3.8%, higher than the 3.7% in March. If the US dollar keeps on strengthening, the bearish breakout of 1.20 this time, will be for good.

USDJPY (current price at 134.35) has currently no major change compared to last week’s closing price. The pair managed to surpass the price area of 135.50 yesterday, helped by the dollar’s strength and the rising rally of the bond yields but today there’s a mild correction. Disappointing was the result of industrial production in Japan was announced at -4.9% in April but all eyes will fall on the Bank of Japan interest rates decision on Friday. Although the markets expect no surprise and the interest rates most likely will remain unchanged at -0.1% any possible hint at the upcoming press conference may affect the pair’s trend and volatility. Below 133, the correction seems more established while any return above 135 makes the uptrend even stronger.

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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