London 21/10/2022

The week is closing to its end with the US dollar being in strength again. It is the 3rd week in a row with a strong dollar after the correction that we saw at the end of September. As the US economy did not have important announcements, the whole speculation depends on the market mood and the anticipation of the markets regarding the Fed’s next movements on interest rates & monetary policy. The probability of a 0.75% rate hike in the next decision on Nov. 2nd exceeds 95% but everybody is trying to estimate the next sessions’ decisions.
Beyond the USA, many lights fall in the UK and the new government crisis. Prime Minister Liz Truss resigned from the leadership of the governing Conservative Party and said a new leader and a new Prime Minister would be selected next week. In Europe, nothing has changed regarding the Ukrainian war and the big energy crisis.
Most of the major stock indices opened the week with a strong bullish trend which turned to a downtrend from mid-week and onwards but they’re still in profit. Commodities such as gold and oil are bearish and the most impressive is the huge rise in the bond yields with the US 10-year reaching 4.32%.
EURUSD (current price at 0.9765) is mildly bearish this week but this is a result of two major movements: bullish in the first two days and bearish from Wednesday and on. Although there is no news for the US economy, it seems that the dollar finds new demand mostly based on the risk-off markets mood and the rising bond yields. The small decline in inflation in the Eurozone area (9.9% vs 10% expected) cut some hopes of possible aggressive interest rate hikes by the ECB. The sentiment in Europe is negative and the energy crisis seems inevitable. The EURUSD has more room to extend its downtrend, at least until the important support at 0.9535 which is the lowest price of the last 20 years.
GBPUSD (current price at 1.1133) is bearish this week. The recent resignation of Prime Minister Liz Truss caused a new political crisis in the UK and sterling is directly affected. Also, the general risk-off mood does not favor high-risk currencies such as the British currency as investors prefer safer solutions (mostly the greenback). On Wednesday, September’s inflation was announced in the UK at 10.1% which was higher than the 10% that the markets expected. Normally this event should create momentum for the sterling as a very reasonable thought is that the BoE would be more aggressive. In any case, it seems that the markets did not consider this as an estimation and the sterling kept on dropping. The other economic announcements in the UK (consumer confidence and retail sales) were disappointing. Below 1.10 the downtrend becomes stronger.
USDJPY (current price at 151.56) is very bullish this week extending the sharp uptrend of the previous 9 weeks. The strengthening of the dollar and most importantly, the rising of the bond yields have resulted in a big bullish movement above the milestone price of 150 which is also a multi-decade highest price. Earlier today, the Japanese inflation was released for September at the price of 3% which is lower than the 3.1% that the markets expected, and the perception that the Bank of Japan will continue the ultra-loose monetary policy and the negative interest rates became more robust. It’s very difficult to fight such a strong trend and only a de-escalation of the bond yields or a new intervention of the Japanese government in the currency markets may change things.

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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