London 04/11/2022

All the major events and announcements of the current week were released with mixed effects and impacts on the financial markets. Two days ago, the Fed’s decision on the interest rates was another 0.75% hike and the monetary policy statement release created a positive sentiment in the markets as there were hints that the next interest rate decisions won’t have such high rises. When the press release started though, the sentiment turned negative sharply due to some phrases from Jerome Powell regarding the target interest rates which could be higher than initially estimated. Stock indices had heavy corrective trends while the US dollar had remarkable profits.
A few hours later, the new job positions (Non-Farm Payrolls – NFPs) were released in the US. The US added 261K new jobs in October, better than the anticipation rate of 200K. Also, the wage cost declined slightly, helping the opinion that inflation also declines, and along with the strong outlook of the US jobs market, we see a positive reaction of the markets. US stock indices perform remarkable profits,  while gold, oil, and copper hold one of their best days in the last few months. In alignment with the rest of the markets, the US dollar drops significantly although it’s still bullish on a weekly basis. Most of the higher-risk currencies like the euro, sterling, and commodity-linked currencies like the Australian dollar perform important profits. Finally, important is the rise of the bond yields with the US 10-year bond yield climbing to 4.17% currently.
EURUSD (current price at 0.9852) is bearish this week, despite the bullish attempt that we see today due to the NFPs results. The most important developments from Europe in the last few days come from Christine Lagarde’s speeches. Christine Lagarde said that the problem of inflation remains the number one issue that the ECB has to deal with and that the bank will do every required action to bring back inflation to the level of 2%. This bearish stance of Christine Lagarde did not help the euro significantly and any bullish reaction comes from the possible weakness of the dollar. The next big thing for the currency is the US inflation announcement next Thursday and if we see a decline in the inflationary rates, the bullish reaction of the pair may expand further, up to parity. In case of a bearish turn, the next support is at 0.9630.
GBPUSD (current price at 1.1268) is bearish this week although today’s bullish reaction has brought it more than 100 pips higher than yesterday’s low price, around 1.1150. Yesterday, the Bank of England hiked the interest rates by 0.75%, disproving some expectations for a 0.50% hike. Markets did not react accordingly by boosting the sterling because, in the following press conference, the head of BoE Andrew Bailey pointed out that further increases in bank rate may be required but the peak rate would be lower than the markets’ anticipation. He also said that “we may have the largest upside risk in inflation forecasts in Monetary Policy Committee history” and the sentiment was deeply negative. It takes a rebound above 1.15 for the pair to take more bullish breaths but in case of dropping below 1.1150, the downtrend becomes very strong.
USDJPY (current price at 147.04) is mildly bearish this week, mostly after today’s decline of the US dollar. As the Bank of Japan continues the ultra-loose monetary policy and the negative interest rates, according to the monetary policy meeting minutes that were released on Wednesday, it is given that the Japanese currency is very weak. It means that the movements of the USDJPY come from the other two critical influential factors: the US dollar and bond yields. The US dollar is bullish this week although there are bearish attempts after NFPs and the bond yields decline. This combination gives a consolidative character to the pair during the last two weeks and the USDJPY awaits new fuel, announcements, and developments to have a new strong trend. Below 145 the downtrend has a better chance while above 148,85, the bullish trend returns stronger.

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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