London 09/09/2022

Markets took a different direction during the last days of the current week. Stock indices (the US and European) turned bullish and the US dollar dropped sharply, as the USD Index is below 109 (weekly highest price was 110.77). A series of events and market news contributed to this development. First of all, the ECB raised the interest rates in the Eurozone by 0.75%, confirming the markets’ expectations. At the press conference that followed, Christine Lagarde underlined that they will take necessary tightening steps to get to the 2% medium-term inflation target. She also said that any possible future interest rate hikes will be market news oriented.
On the other hand, Jerome Powell (head of the Fed) repeated the intention to fight inflation and revealed plans for another 0.75% interest rate hike at the September meeting. The market sentiment has improved significantly, giving more credit to high-risk assets & currencies, such as the euro and sterling. Commodities such as gold and oil also took advantage while the crypto ecosystem also applied a mini rally as it has developed a strong correlation with the other risk-on-mood assets. Finally, the bond yields are also in a slight correction as the US 10-year bond yield dropped to 3.25% from 3.36% which was the weekly highest price.
EURUSD (current price at 1.0042) is bullish this week but yesterday’s ECB aggressive action to raise the Eurozone interest rates by 0.75%, is not enough. This can be easily distinguished as the pair has already declined from its weekly high price at 1.0113 and it seems that the euro needs more ‘fuel’ to carry on with new & fresh profits. The main European problems that have to do with the energy crisis and the difficult winter to come, remain and it is a matter of question what ECB will do. Technically speaking, EURUSD needs a solid breakout above 1.0120 and then above 1.0370 to favor an uptrend movement. It is obvious though, that any return below parity (1:1) will bring back the bearish scenario accelerated.
GBPUSD (current price at 1.1573) is bullish this week although the UK faces important events such as the death of the Queen and a new UK Prime Minister Liz Truss who intends to cap energy bills for the next two years according to her recent sayings. Earlier today, the Bank of England postponed the interest rates decision by a week so the new decision day is the 22nd of September instead of the 15th of September which was the scheduled day. This announcement has caused reasonable questions and concerns in the investing & financial community. The next week is, one way or another, very important for the UK economy with a series of major announcements. The price zone of just above 1.14 which is major support as it is the lowest price since the March of 2020 proved to be a serious obstacle for the continuation of the pair’s downtrend but we expect that the GBPUSD may test it again.
USDJPY (current price at 142.27) is bullish this week but it has lost more than 270 from its weekly highest price. The recent weakness of the US dollar and partial de-escalation of the bond yields have helped to this price correction. Also, today a strengthening factor for the Japanese currency occurred as the Japanese Finance Minister Shunichi Suzuki mentioned earlier today that the FX markets are in the spot of the Bank of Japan & the Government and that no options or possibilities are ruled out. This statement was interpreted by the markets that the Bank of Japan may change its ultra-loose monetary policy that is currently on. Above 140, the bullish trend remains but let’s not forget that the USDJPY is close enough to the all-time high price at 147.68.

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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