London 24/06/2022
The US dollar shows signs of exhaustion this week. Although the head of the Fed Jerome Powell in his testimony before the House Financial Services Committee repeated that the fight against inflation is above all and even other central bankers hinted that the next interest rate hike will be also 0.75% and may come more before the end of the year, the dollar seems unable to move higher. After the 20-year high price that we saw last week for the USD Index at 105.55, this week is bearish and the Index is currently at 104.14, having lost this week about 0.30%. All the PMI indicators in the US were announced before markets’ expectations, showing that the sentiment is negative and that the investors are waiting for an economic slowdown or even a recession. The bond yields keep on dropping as well, as the US 10-year bond yield opened the week at 3.23% and currently it is around 3.11%.
Although the European PMIs were not any better, the perception of a more active stance from the ECB and possible interest rate hikes have helped the shared currency to recover partially. Important is the recovery of most of the major stock indices worldwide. Gold and oil keep on dropping as the recession fears throw many investors away from the commodities.
EURUSD (current price at 1.0528) was able to remain above 1.05 this week, based on the dollar’s weakness and the relative strength of the euro. The business climate and the current assessment in Germany had a positive effect on the markets, ahead of the Michigan Consumer Sentiment Index which is the last important economic announcement this week. For the moment, the EURUSD has escaped the danger zone of 1.0350 which can potentially drive the pair even to the 1:1 parity but it’s worth emphasizing that the American economy is still in a better shape compared to the European one and that the Fed is significantly ahead concerning interest rates and monetary policy of the ECB. In case the US strengthens, the pair could return to its bearish course again.
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GBPUSD (current price at 1.2282) is bullish this week, based mostly on the weakness of the dollar rather than the strength of the sterling. U.K. Prime Minister Boris Johnson has suffered a double blow at the ballot box as his party lost two key parliamentary by-elections in Wakefield and Tiverton (source CNBC) but the sterling did not have losses. This week had many important announcements for the UK: the inflation in May was announced at 9.1%, triggering new scenarios for tighter monetary policy and new interest rate hikes, helping the sterling. Also, the PMIs and the retail sales had rather a negative effect on the UK currency, acting as obstacles to the pair’s further bullish course. The price area of 1.24 is important for the pair’s uptrend and in the case of a bearish breakout below 1.2160, the probability of 1.20 becomes higher.
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USDJPY (current price at 135.13) is still bullish this week but it has lost the biggest part of its profits since the beginning of the week, during the last two days. The week started with strong bullish trends after the release of the monetary policy meeting minutes in Japan which showed that the Bank of Japan intends to hang on to the ultra-loose monetary policy and the negative interest rates. During the last two days though, the weakness of the dollar and the de-escalation of the bond yields have reversed this picture and the USDJPY is just 20 pips above last week’s close price. The inflation in Japan was announced at 2.5% in May, the same as the previous month but significantly lower than the 2.9% that the markets predicted. This development did not change a lot in the pair’s trend, just a volatile behavior for 1-2 hours occurred. The trend is bullish and the next resistance is at 136.70 which is a new multi-decade high price.
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