London 05/10/2022

This week continues the correction of the US dollar that we saw last week, after a multi-month bullish rally. There is a mild risk-on mood during the last 3 days, which has helped the major stock indices to recover as important commodities. More specifically, oil has other reasons to rise too because there are certain rumors of a production cut that will be announced after the end of the OPEC meeting in Vienna. Risky currencies such as the euro and the sterling perform a bullish reaction this week but today with the strengthening of the dollar, their uptrend has stopped. Interestingly enough, the bond yields started the week with a big drop but since yesterday there’s been a certain recovery. The US 10-year is at 3.70% and the German 10-year at 1.95%. A few hours earlier, the UK had a 10-year bond auction with 4.123%.
The war in Ukraine, the energy crisis, the high inflation, and a possible recession in the global economy are the main headaches for the financial markets these days. The central and more important announcement of the week is the NFPs (Non-Farm payrolls) in the USA and according to the state of the jobs market which is maybe the most important macroeconomic factor, the Fed will plan its next moves. Most of the PMIs in the USA, UK, and Europe were announced well low and lower than the markets’ expectations. Private sector employment was announced in the USA better than expected and it is one of the dollar’s strengthening reasons today.
EURUSD (current price at 0.9903) is bullish this week, following the previous week’s uptrend. It did not manage to surpass the parity (1:1) and it returned to its bearish trend at the first signs of the dollar’s strength. Most of the PMIs in the Eurozone & Germany were much below 50 and markets’ expectations which shows that the economic sentiment and the expectations are negative. Later today, the important Services PMI will be announced in the USA and we’ll get a better sense of this economy as well. With all eyes on the NFPs announcement on Friday, it seems that any bullish reactions of the EURUSD do not have the necessary strength to cause a trend reversal. Below 0.9850, the downtrend returns strong.

GBPUSD (current price at 1.1312) is bullish this week but it has lost a lot of its momentum today as the dollar seems to return to its strength. PMIs (Services and Composite) were close to 50 and above market expectations and the latest developments in the UK, including the government’s plan to cut tax to the highest rate of income, seem to have been digested by the markets. The dollar will be the most critical factor for the pair until the end of the week and the NFPs are the most important economic announcement. Above 1.15, there’s a good chance for a complete trend reversal, after the all-time lowest price of 1.0337, 8 days ago. On the contrary, any drop below 1.10 may sink the pair to a new downtrend.

USDJPY (current price at 144.53) has very low volatility this week so far, compared with the previous weeks. The pair has an obvious difficulty exceeding the resistance of 145 but on the other hand, the Japanese currency does not offer reasons to be preferred. The dollar started the week with losses but it is recovering today while the bond yields dropped sharply on Monday but two days of recovery followed. The important Japanese Tankan Manufacturing index for the 3rd quarter of 2022, had a disappointing result and the yen took some pressure. Also, the inflation in August fell to 2.8% from 2.9% in July and the markets assess that the Bank of Japan has no reason to change its ultra-loose monetary policy. Above 145, a strong uptrend may occur.

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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