London 10/08/2022

Most of the analysts & the financial markets were expecting a de-escalation of the inflation in the U.S. in July but not to that extent. The inflation was announced at 8.5% much lower than the expectations of the markets and significantly lower compared with the 9.1% in June. The general anticipation is that the Fed’s actions (interest rate hikes and tighter monetary policy) managed to deal with the high inflation and the peak belongs to the past. The immediate reaction of the markers was the weakening of the U.S. dollar because the Fed now can calm down from the super aggressive interest rates hiking of the previous months. Also, the U.S. stock indices perform significant profits as there will be more liquidity to the markers since the inflation is somehow under control.
Earlier today, China announced the inflation as well at 2.7% which is higher than the 2.5% of the previous month but still lower than the 2.9% that markets estimated. In Germany, the inflation in July remained unchanged at 8.5%, just as the markets expected.
That inflation news along with the newest developments from China dominates the financial markets. China warned one more time that it may use forces in Taiwan.
Commodities like gold and oil perform profits this week and the bond yields decline this week as the US 10-year bond yield dropped to 2.70%.
EURUSD (current price at 1.0338) was already bullish but after the U.S. inflation release, jumped above 1.03 for the first time during the last month. Markets consider seriously that the Fed will slow down the interest rate hikes and the tight monetary policy since inflation seems to have peaked. The echo of the U.S. inflation will most likely cover the rest of the week because no other important news is expected to be announced for both the USA and Europe until the end of the week. The only exception is the industrial production in the Eurozone and the Michigan consumer sentiment index, both announced on Friday. If the exchange rate expands its today movement, above 1.0350, it may accelerate its uptrend even more.

GBPUSD (current price at 1.2223) is heavily bullish this week, mostly due to the dollar’s weakness after the inflation announcement in the USA. Since the UK did not have any important announcements or developments so far, there was a sideways movement for the GBPUSD as the investors were waiting for the U.S. inflation news. On Friday the UK has a series of releases that may affect the sterling: GDP 2020 Q2, Manufacturing & Industrial Production, and Trade Balance. After those announcements, we may have a better estimation regarding the course of the UK economy as the financial predictive reports are a scary movie, predicting recession and inflation above 13%. It takes a solid breakout above 1.23 before this mini uptrend becomes well-established otherwise we may see the pair approaching 1.20 again.

USDJPY (current price at 133.24) turned very bearish today, after the lower inflation in the USA, following two days with sideways movements and low volatility. This fact in combination with the drop in the bond yields pushed the pair’s price lower, from the weekly high of 135.60. Japan carries on with a loose monetary policy and negative interest rates but since it is a well-digested fact by the markets, the dollar and the bond yields contribute to the pair’s movements. There are two major supports before the USDJPY meets the price of 130: 132.50 and 130.40.

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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