London 07/09/2022

It is the 4th week in a row that the US dollar is getting stronger and the USD Index has exceeded the important price of 110, being at its highest price since June of 2002. There are long-term reasons for that (interest rate hikes by the Fed and tight monetary policy) and short-term reasons: announcements on the US macros that show the robustness of the US economy. Following the good results of the job markets, coming from the previous week, the US Services PMI was announced yesterday at 56.9, which was evaluated by the markets as a very good number.
Things are not good at all in Europe, as the conflict between European countries and Russia is getting deeper and the case of a huge energy crisis that will hit households and enterprises is very possible. This situation may hold back the ECB from aggressive interest rate hikes and so the interest rates decision tomorrow becomes an event of high importance.
The European stock indices perform mild profits while the US ones are in correction for the 4th consecutive week. Commodities such as gold and oil are bearish too and finally, the bond yields keep on rising with the US 10-year bond yield being above 3.30% for the first time in the last 2.5 months.
EURUSD (current price at 0.9887) is already below the important support of 0.99 and it is moving to its lowest price in the last 20 years. It is not only the strong US dollar that affects the pair. The weekly economic news in the Eurozone countries so far is disappointing. Eurozone & Germany PMIs were all below markets’ expectations, the Eurozone had a negative figure in retail sales in July, and Germany had a 13.6% reduction in July’s factory orders, yearly. The result of the European GDP was positive enough (+0.8% quarterly) but since it refers to the 2nd quarter of 2022, it does not reflect yet the size of the problem. All eyes are turned now on the ECB interest rates decision tomorrow and most analysts expect a 0.75% hike. The bearish trend is established without obvious support levels.

GBPUSD (current price at 1.1429) is bearish this week, having reached the price zone of 1.1410 which is the lowest price since March 2020. Earlier today, the head of the Bank of England Andrew Bailey, testified before the UK Monetary Policy Committee, regarding the monetary policy and the economy. Bailey accused Russia and Putin of being the major reasons that put the UK into recession. He also estimated even higher inflation rates. After this development, the probability of a big interest rate hike in the next BoE’s decision has dropped significantly because, in the case of very high-interest rates, the recession may be even bigger. All factors converge to a sharp downtrend of the GBPUSD but the support at 1.1410 may stand as an obstacle, at least for a while.

USDJPY (current price at 144.71) continues its uptrend crazy rally, after the bullish breakout of the important resistance of 140. It’s very close to its all-time high price at 147.63 which took place in August of 1998. The US dollar keeps on strengthening, the bond yields keep on rising and the Japanese currency shows no signs of recovery. Most likely, the Bank of Japan will carry on the ultra-loose monetary policy and the negative interest rates as the relatively low inflation allows it and according to the bank’s officials, the targets of the macros in the post-covid era have not been met so far. For the moment, only some profit-taking actions or an unexpected event can change the pair’s uptrend.

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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