London 01/07/2022
After last week’s break, the US dollar returned to its bullish course this week, confirming the uptrend that has been developed during the last 1.5 years. During this period, the USD Index has performed more than 16% which is relatively high for the world of the major currencies. This trend has also been sharpened even more since the beginning of the year and more specifically since the beginning of the war in Ukraine. It is obvious that the investors are looking for safer solutions and this is combined with the aggressive set of action from the Fed, to fight the high inflationary pressures in the US. The annualized US GDP for the 1st quarter of 2022, was announced at -1.6%, almost as the markets expected and the personal consumption expenditures showed a mixed picture regarding the stability of the prices, ahead of the last important announcement of the week in the USA which the PMIs.
In Europe, earlier today, the inflation in June was announced at 8.6%, much higher than May’s rate of 8.1% and even higher than what the markets expected. The bigger increase, which makes perfect sense, was in energy with an annual increase rate of 41.9%. It is obvious that after this inflation rate, the next ECB session for the decision on interest rates becomes very critical. Markets expect a 0.25% hike, based on bankers’ statements but a higher rate hike cannot be excluded anymore.
EURUSD (current price at 1.0456) is bearish this week, following the strength of the dollar. The EURUSD had an attempt at a bullish reaction yesterday mostly because the markets developed a perception of a Fed calmed-down after the PCE announcement that showed that the inflation in the US may hit the top. It is problematic for the euro that the high inflation announcement in the Eurozone did not create an uptrend dynamic for the shared currency which would make sense because the ECB may be more aggressive with its monetary policy and interest rate hikes. There are certain fears of a recession in many European countries and the economic news that was released this week points in this direction: the retail sales in Germany were announced at -3.6% in May and the unemployment rate climbed to 5.3% in June from 5% in May. A better picture had the unemployment rate in the Eurozone which dropped slightly to 6.6% in May and the PMIs which show that a part of the markets is still optimistic. The pair can approach the price area of 1.0350 if these conditions remain the same.
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GBPUSD (current price at 1.2047) is in a sharp downtrend this week, having broken out the support at 1.2155 and approaching the price area of 1.20. Most of the UK fundamentals that were released this week were below markets’ expectations but two major factors have caused the pair’s drop. First of all, the come-back of the USD, as a dominant factor in the GBPUSD. Important was also the speech of Andrew Bailey, head of the Bank of England, who spoke about a “very large real income shock” but he was not able to persuade the markets that the actions from the central bank will be able to resolve the issues drastically. Below 1.1960 the developed bearish trend becomes stronger.
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USDJPY (current price at 135.23) started the week with heavy bullish trends but during the last two days has been in a phase of a pullback. A major factor that caused this is the heavy de-escalation of the bond yields and more specifically of the US 10-year bond yield which opened the week at 3.13% and it is currently at 2.94%. The macros in Japan had a mixed outlook: the unemployment rate in May rose to 2.6%, the Tankan manufacturing index announced much below markets’ estimations, and the inflation (Tokyo consumer price index) was announced at 2.3% above the 2.2% that the markets expected. The inflation announcement may have caused an impression that the ultra-loose monetary policy from the Bank of Japan, may come to an end. The important resistance of the pair exists at 137 and many analysts believe that the pair can reach the 140 area.
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