London 14/10/2022

Yesterday was one of the craziest trading days that we’ve ever seen. All eyes were turned to the announcement of the US inflation in September. The previous month’s rate was 8.3% and the markets’ expectancy for September was 8.1%. Finally, the result was 8.2% for the YoY inflation rate while the core inflation was announced at 6.6% which is a new multi-year high price. The immediate markets’ reaction was the strengthening of the dollar and the drop of stock markets as the traders assessed that the Fed will be more aggressive with new big interest rate hikes since the monster of high inflation has not been tamed yet. After an hour though, the climate and the sentiment turned upside-down. The stock indices took a sharp uptrend and the dollar started to weaken significantly. This picture was maintained until today with the same results: strong stock markets, weak dollar, and the US 10-year bond yield close to 4%. Earlier today, retail sales were announced in the US, lower than expected and the reaction of the markets is the dollar’s drop.
As per the rest of the world, the back and forths in the UK announcements have caused huge volatility in the sterling and the FTSE100 index and the markets wonder if the government has a plan. In Europe, nothing practically changed regarding the Ukrainian war, the energy crisis, and the expectancy of recession in many European countries. Finally, in China, the inflation was announced at 2.8%, as the markets expected and so this fact didn’t cause market fluctuations.
EURUSD (current price at 0.9794) is mildly bullish this week after a lot of ups and downs of the dollar as we saw above. Most of the Eurozone results keep on disappointing the markets. The Eurozone had a negative trade balance, close to 50 bn euros in August while the German inflation climbed to 10.9% (harmonized index of consumer prices). The most critical factor though remains the US dollar and its fluctuations change the trend of the EURUSD and increases the volatility. As the pair approaches parity, the probability of a trend reversal increases. Below 0.9630, the downtrend may return stronger.
GBPUSD (current price at 1.1256) is bullish this week, based mostly on the dollar’s weakness. The strange attitude of the UK government with the mini-budget, the bond-buying program, and the changes in these plans, seems to finally favor the sterling as it has returned from all-time lows and it is robustly above 1.10. The macroeconomic results in the UK this week were well negative regarding the GDP, industrial & manufacturing production, and the trade balance. Only the unemployment rate had a small improvement. If the pair manages to surpass 1.15, it has a better chance for a further bullish trend.
USDJPY (current price at 147.82) is very bullish this week, breaking the previous all-time high price. The dollar may have issues but the increasing bond yields push the pair higher and higher. Another helper for the pair’s bullish trend is the continued weakness of the Japanese currency. The macros and the inflationary rates in Japan, solidify the perception that the Bank of Japan will carry on with the ultra-loose monetary policy and the negative interest rates. The trend is strongly bullish but no technical levels exist since this price zone is unknown to the pair.

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.

Leave a comment