London 29/07/2022
Coming to the end of this week, the Fed’s policy of raising interest rates by 75 bps was as expected. At the press conference, Jerome Powell emphasized that interest rates will reach the level of 3%-3.5%, lower than the estimated 3.5%-4%. According to the Fed watch tool, the probability for a 50-bps hike in September is at 78% instead of a 75-bps hike that was anticipated by the markets a few days ago.
On Thursday, the US Bureau of Economic Analysis published the GDP growth for the Q2, which was set very low at -0.9% below the consensus of 0.5%. The rule of thumb is that 2 consecutive quarters of GDP decline constitute a recession, so a “technical” recession is upon us, but it would first have to be officially accepted by the Fed. On the other side, we had some positive macros in the US, with the US Census Bureau releasing that the Durable Good Orders showed a +1.9% super passing the consensus of -0.4%, however, this growth was mainly due to the defense aircraft rise of more than 80% in June.
The Fed’s monetary policy did not scare the markets yesterday, as we saw a green outlook in the US indices with Dow Jones at +1.03%, S&P 500 at +1.21%, and Nasdaq at +1.08%. Additionally, gold was up +0.23% and crude oil was up +2.42% and 10-year bond yields keep on falling after the recent high of 3.5% that reached in June.
EURUSD (current price at 1.0224) is slightly bullish this week. After the Fed announcement, the US dollar performed weakly. Macroeconomic results of many countries showed weak signals, starting from the consumer confidence that was below expectations for both German and Italian economies to the economic sentiment reaching the level of 99 versus the expected 102. In Q2, EU GDP exceeded the expected +3.4% reaching the level of +4% (YoY), but with very high inflation of +8.9%. In the EU’s largest economy, inflation reached a high level of +8.5%, and the unemployment rate formed at the level of 5.4% and remained unchanged, but with a 48K unemployment change. In Q2, Germany grew by 1.4% (YoY) following the 3.8% expansion in the first quarter, but although positive, it fell short of expectations of 1.7%. Both the euro and the US dollar were weak this week so the price area of 1.02 seems like a point of balance.
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GBPUSD (current price at 1.2169) is bullish this week. There were no important macros in the UK this week, but with a weak US dollar, the GBPUSD currency pair formed a mini uptrend. The markets anticipate that BoE may raise interest rates more to fight the high inflation. The current price remains well above 1.20 which is a good sign for the pair’s further bullish trend. The long-term trend remains bearish though as it takes a breakout above 1.24 for a partial reverse. Below 1.20 it is crystal clear that the downtrend returns.
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USDJPY (current price at 133.46) is bearish this week and it will be the second bearish week in a row. The US dollar designates a weakness and the bond yields keep falling so these are the main two factors that affect the pair. In Japan, the loose monetary policy continues and the interest rates remain negative. Also, in June, Japan’s industrial production rose by +8.9%, quite an impressive result for the Asian country. A weak US dollar may force the currency pair lower, especially below 131.50. It takes a solid movement above 136 for the pair to return to its uptrend.
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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.
